Alert January 31, 2007

Register of Copyrights Clarifies “Pre-Existing Subscription Services”

The register of copyrights has issued an opinion clarifying which entities can qualify as pre-existing subscription services. The register had been asked to determine whether:

the universe of pre-existing subscription services – defined in 17 USC § 114(j)(11) as services which perform sound recordings by means of non-interactive audio-only subscription digital audio transmissions and which were in existence and making such transmissions to the public for a fee on or before July 31 1998 – [is] limited by law to only Muzak (provided over the DiSH Network), Music Choice and DMX.

The Digital Millennium Copyright Act (DMCA) establishes a market-based system for setting royalty rates paid to copyright owners of sound recordings by entities performing those recordings. Under 17 USC §114(f)(2)(B), rates and terms are established “that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” Congress, however, exempted pre-existing subscription services and pre-existing digital audio radio services from the market-based royalty system. A designation as a pre-existing subscription service or digital audio radio service means that the service will pay royalty rates based upon statutory factors set forth at 17 USC §801(b)(1), potentially resulting in below-market rates. Thus, it is important to determine whether an entity digitally transmitting sound recordings qualifies as a pre-existing subscription service.

SoundExchange, Inc., a company representing copyright owners of digital audio sound recordings, claimed that certain services, including Sirius Satellite Radio, did not qualify as pre-existing subscription services because they were not the same three entities that were in existence and making digital audio transmissions on or before July 31, 1998. Sirius, on the other hand, argued that it was eligible for a statutory license as a pre-existing subscription service because it was performing sound recordings for the DiSH Network, a subscription service that was in existence on July 31, 1998.

The register of copyrights, in its opinion, noted that the dispute between SoundExchange and the companies claiming rights to a statutory license as pre-existing subscription services hinged on whether the term ‘pre-existing subscription service’ refers to the actual business entity (e.g., Muzak and Music Choice) or to the service (e.g., DiSH Network) which was offering music on a subscription basis on or before July 31, 1998. After analyzing statutory language, legislative history and basic principles of statutory construction, the register concluded that the term ‘preexisting subscription service’ “refers to the business entities in existence and making subscription transmissions on or before July 31 1998.” Accordingly, the register denied Sirius’ request to perform sound recordings for the DiSH Network under the statutory license granted to Muzak, the business entity which had made subscription transmissions over the DiSH Network in 1998.

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This article first appeared in World Copyright Law Report on January 25, 2007. If you are interested in subscribing please visit http://www.WorldCopyrightLawReport.com.