Pandora (and Internet Radio) Survive Round One

Pandora recently sued the American Society of Composers, Authors & Publishers (ASCAP) over an attempt by ASCAP to limit the scope of the library made available to Pandora.  Pandora and ASCAP previously had a fee agreement that expired in 2010, and were unable to come to terms on a new fee agreement.  During the negotiations, a few record labels (such as EMI) attempted to withdraw “new media” rights from the ASCAP in order to negotiate with Pandora separately.  ASCAP, in turn, threatened to withdraw a number of songs from Pandora.  Pandora argued that an antitrust consent decree requiring ASCAP to provide its entire library in its licensing deals (and prevent the labels from withdrawing), and moved for summary judgment.  The New York federal court agreed with Pandora, and granted summary judgment in their favor. 

From a copyright perspective, radio (especially internet radio) is a strange beast.  Terrestrial radio (the kind you hear over a radio set in the car for example) operates under different licensing rules than most other licensees, with an explicit exemption from the US Copyright Office (at section 110(5)(A)) from normal licensing requirements for performances.  In other words, radio stations don’t need to ask the artists for the right to replay copies of the artists’ songs each time they choose to replay a song.  The US Copyright Office (through the Copyright Royalty Board) did not extend this protection to internet or satellite radio, which must pay royalties in order to play songs.

In addition, ASCAP’s role causes this case to stray even more from traditional copyright law.  Normally, artists can negotiate whatever deal they see fit with other groups over aspects like performance rights.  After all, copyright law gives the copyright holder control over reproduction or performance (including public performance) of a work.  ASCAP, however, has some special restrictions on it dating back to the early 1940s.  The most relevant in this case is that the New York federal district court has to approve any fee agreement ASCAP negotiates (due to monopoly worries).  As a result, the court’s ruling here means a lot for the final fee agreement.

The court’s logic rested on how they defined what constituted a work in ASCAP’s repository.  ASCAP argued that this term only applied to works they currently possessed a specific license to, whereas Pandora argued it applied to their entire library.  The court held that Pandora was correct, since at the time of the license ASCAP did not categorize their song and artist licenses by type or format.  As a result, ASCAP could not withhold certain songs simply because certain labels decided to withdraw the “new media” rights to them in order to negotiate with Pandora separately.

This case potentially means a lot for the nature of the final agreement.  Pandora is pushing for lower licensing fees, which would be easier to acquire under ASCAP’s consent decree than through separate licensing agreements with individual labels.  This is especially important given the upcoming court case in December considering what constitutes “reasonable” rates for ASCAP to charge.  Preserving access to ASCAP’s entire library while arguing that the current licensing fees are unreasonable is in Pandora’s interest.  There are also a number of internet radio services, but Pandora is the most prominent.  The rates they receive from ASCAP likely set the bar for the rates other internet radio services, like Slacker and Tunein, receive.

This entire case begs a broader question: why does internet radio have to pay licensing fees when terrestrial radio does not?  Does the difference in medium really change whether radio receives an exemption from infringement actions while internet radio does not (beyond the fact that the US Copyright Office says so, of course)?  There doesn’t appear to be a clear policy reason why regular radio receives such a broad exemption when internet radio does not, beyond the fact that terrestrial radio has existed longer (making it more entrenched politically).  The exemption exists because radio broadcasters convinced policymakers that radio provides marketing for new songs, but this logic applies equally well to satellite and internet radio (as well as pretty much any means of streaming music).  While there have been a number of attempts to argue against the radio exemption (notably during a hearing over a bill to reduce royalties for internet radio), there does not appear to be much movement in this regard.  I doubt this larger question will arise during Pandora v. ASCAP.  However, I would not be surprised if lawmakers continue asking why this question any time the issue of internet radio royalties arises.




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