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Authors Guild v. Google: Understanding Transformative Use (10/31/2015)
Authors Guild et al v. Google, Inc.
United States Court of Appeals for the Second Circuit
Docket No. 13-4829-cv


On October 16, the Second Circuit Court of Appeals ruled in favor of Google, Inc.’s book scanning project (the “Library Project”) in Authors Guild v. Google, Inc. (hereinafter “Author’s Guild”), upholding the District Court’s decision which found that Google’s activities were “highly transformative” and therefore “fair use.”

Depending upon your perspective, “fair use” is either a defense to a claim of copyright infringement or an affirmative right of the public to use a copyrighted work in certain ways. In either case, a “fair use” is one that may be freely engaged in without having to obtain permission from the copyright owner.

Section § 107 of the Copyright Act does not define “fair use,” but provides examples of uses that might be considered fair, and a set of criteria (the “four factors”) that were first suggested in a decision by Justice Joseph Story in Folsom v. Marsh, a case from 1841.[1] The statute mentions copying “for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research,” but this list is only suggestive, not exhaustive, and in some circumstances even these uses may not fall under “fair use.” The four factors, which may be given varying weight, are:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.

One might ask what the word “transformative” has to do with “fair use,” when the word isn’t mentioned in the statute. The answer, in part, goes back to an article written by Judge Pierre Leval (the same judge who wrote the Author’s Guild decision) entitled “Toward a Fair Use Standard,” published in the Harvard Law Journal in 1990.[2] In that article, Judge Leval seizes upon the words of Justice Story that a fair appropriation would be one that “superseded the objects” of the original. In other words, Leval argued, the question “turns primarily on whether, and to what extent, the challenged use is “transformative. The use must be productive and must employ the quoted matter in a different manner or for a different purpose from the original.”[3] Judge Leval then goes on to criticize the Supreme Court in Harper & Row, Publishers, Inc. v. Nation Enterprises (471 U.S. 539, 547 (1985)) for choosing the fourth factor as the “single most important” factor under the “fair use” test. “Quoting,” Judge Leval wrote,

is not necessarily stealing. Quotation can be vital to the fulfillment of the public-enriching goals of copyright law. The first fair use factor calls for a careful evaluation whether the particular quotation is of the transformative type that advances knowledge and the progress of the arts or whether it merely repackages, free riding on another’s creations. If a quotation of copyrighted matter reveals no transformative purpose, fair use should perhaps be rejected without further inquiry into the other factors. Factor One is the soul of fair use. A finding of justification under this factor seems indispensable to a fair use defense. The strength of that justification must be weighed against the remaining factors, which focus on the incentives and entitlements of the copyright owner. [Citations omitted.]

Four years later, when the Supreme Court had an opportunity to revisit the “fair use” doctrine in Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994), the Supreme Court adopted Judge Leval’s reasoning:

[The first factor] asks, in other words, whether and to what extent the new work is “transformative.” Although such transformative use is not absolutely necessary for a finding of fair use, the goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works. Such works thus lie at the heart of the fair use doctrine’s guarantee of breathing space within the confines of copyright, and the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use. [Citations omitted.]

Fast forward to 2015, and Judge Leval was faced with the question of whether the Library Project’s scanning and permitting consumers to view “snippets” of books against the copyright owner’s wishes constituted fair use. Now sitting on the Second Circuit Court of Appeals, Judge Leval faced three questions: (1) was Google’s copying (digitizing) the books an infringement of copyright; (2) are snippet views showing 3-line excerpts from the books an infringement of copyright; and (3) does Google’s commercial interest override any finding of the transformative nature of the Library Project.

The first question was quickly dispatched with a reference to the Second Circuit’s decision in Authors Guild, Inc. v. HathiTrust, 755 F. 3d 87 (2d Cir. 2014), and the observation that the digital copies made by Google are not publicly accessible and therefore could not serve as a market substitute for the originals (or potentially licensed derivatives). The sole purpose of digitalization, the Second Circuit found, was to allow “searchers to identify and locate the books in which words or phrases of interest to them appeared:”

As with HathiTrust (and iParadigms), the purpose of Google’s copying of the original copyrighted books is to make available significant information about those books, permitting a searcher to identify those that contain a word or term of interest, as well as those that do not include reference to it. In addition, through the ngrams tool, Google allows readers to learn the frequency of usage of selected words in the aggregate corpus of published books in different historical periods.

The Second Circuit had “no doubts” that the copying was transformative, and “fair use,” at least when practiced by the not-for-profit HathiTrust. It was less clear about “snippet view,” but ultimately concluded that it, too, was transformative. On the one hand, Google’s snippets are “designed to show the searcher just enough context surrounding the searched term to help her evaluate whether the book falls within her scope of interest (without revealing so much as to threaten the author’s copyright interests).” On the other hand, although “snippet view” “does not give searchers access to effectively competing substitutes,” the court did recognize

that the snippet function can cause some loss of sales. There are surely instances in which a searcher’s need for access to a text will be satisfied by the snippet view, resulting in either the loss of a sale to that searcher, or reduction of demand on libraries for that title, which might have resulted in libraries purchasing additional copies. But the possibility, or even the probability or certainty, of some loss of sales does not suffice to make the copy an effectively competing substitute that would tilt the weighty fourth factor in favor of the rights holder in the original. There must be a meaningful or significant effect “upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107(4).

Furthermore, the type of loss of sale envisioned above will generally occur in relation to interests that are not protected by the copyright. A snippet’s capacity to satisfy a searcher’s need for access to a copyrighted book will at times be because the snippet conveys a historical fact that the searcher needs to ascertain. For example, a student writing a paper on Franklin D. Roosevelt might need to learn the year Roosevelt was stricken with polio. By entering “Roosevelt polio” in a Google Books search, the student would be taken to (among numerous sites) a snippet from page 31 of Richard Thayer Goldberg’s The Making of Franklin D. Roosevelt (1981), telling that the polio attack occurred in 1921. This would satisfy the searcher’s need for the book, eliminating any need to purchase it or acquire it from a library. But what the searcher derived from the snippet was a historical fact. Author Goldberg’s copyright does not extend to the facts communicated by his book. It protects only the author’s manner of expression. [Citation omitted.] Google would be entitled, without infringement of Goldberg’s copyright, to answer the student’s query about the year Roosevelt was afflicted, taking the information from Goldberg’s book. The fact that, in the case of the student’s snippet search, the information came embedded in three lines of Goldberg’s writing, which were superfluous to the searcher’s needs, would not change the taking of an unprotected fact into a copyright infringement.

Even if the snippet reveals some authorial expression, because of the brevity of a single snippet and the cumbersome, disjointed, and incomplete nature of the aggregation of snippets made available through snippet view, we think it would be a rare case in which the searcher’s interest in the protected aspect of the author’s work would be satisfied by what is available from snippet view, and rarer still—because of the cumbersome, disjointed, and incomplete nature of the aggregation of snippets made available through snippet view—that snippet view could provide a significant substitute for the purchase of the author’s book.

The key to understanding the Court’s conclusion that “snippet view” would not have a significant impact on the copyright owner’s interest lies in understanding what “derivative rights” are granted to a copyright owner. § 106 of the Copyright Act grants to the copyright owner the exclusive right:

• making copies of the work (or if a sound recording, making “phonorecords,” a term that encompasses digital files)
• preparing derivative works.
• distributing copies or phonorecords to the public by sale or rental, lease or lending;
• for literary, musical, dramatic and choreographic works, pantomimes, motion picture and other audiovisual works, to perform the work publicly;
• for literary, musical, dramatic and choreographic works, pantomimes, and pictorial, graphic or sculptural works, including individual images of a motion picture or other audiovisual work, to display the work publicly; and
• for sound recordings, to perform the work publicly via digital audio transmission.

The phase “derivative works” is not defined in the law, but its scope is suggested by examples that include “a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, [or] condensation” and “any other form in which a work may be recast, transformed or adapted.” 17 U.S.C. § 101. As the Second Circuit points out, “derivative works generally involve transformations in the nature of changes of form,” rather than changes of purpose that defines “transformative” use. Using a book’s expressive content for purposes of criticism or commentary, or to provide information about the text, are examples of transformative purposes and are not considered derivative works. Weighing this definition against the manner and method of Google’s “snippet view,” the Court concluded that “the Plaintiffs’ authorship of their works does not include an exclusive right to furnish the kind of information about the works that Google’s programs provide to the public.”

In answer to the last question – whether Google’s commercial motives disqualify its claim of “fair use,” the Court relied primarily on Campbell v. Acuff-Rose Music, as well as the Second Circuit’s own precedents. In Campbell, the Supreme Court emphasized that because most “fair use” activities were carried on for profit, the commercial or nonprofit character of a work was “not conclusive” but merely “a fact to be weighed along with others in fair use decisions.” Moreover, the Supreme Court taught, “the more transformative the [new] work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.” Based on this reading, the Second Circuit concluded:

[W]e see no reason in this case why Google’s overall profit motivation should prevail as a reason for denying fair use over its highly convincing transformative purpose [as well as] the absence of significant substitutive competition, as reasons for granting fair use.

What the Court meant by “significant substitutive competition” are opportunities for exploitation that would have been open the copyright holder’s right but for Google’s use. In fact, the Court found no such opportunities. Just as copyright owners have no right to control critical reviews of their works, and cannot own the facts that are contained in their works, so they cannot restrict others from furnishing information about their works, so long as in doing so there is no substantial taking of expressive content. Ultimately, the Second Circuit’s decision rested on the limited nature of Google’s “snippet view” which, it found,

does not provide searchers with any meaningful experience of the expressive content of the book. Its purpose is not to communicate copyrighted expression, but rather, by revealing to the searcher a tiny segment surrounding the searched term, to give some minimal contextual information to help the searcher learn whether the book’s use of that term will be of interest to her.

Any broader use of the copyright owners’ texts by Google would almost surely have required licensing. (For this reason, the key findings of the Second Circuit with respect to “snippet view” are reproduced below.)[4]


[1] Folsom v. Marsh, 9 F. Cas. 342, 348 (C.C.D. Mass. 1841)
[2] Pierre N. Leval, “Toward a Fair Use Standard,” 103 Harv. L. Rev. 1105 (1990).
[3] Id., see Leval’s analysis under Factor 1.
[4] “Google has constructed the snippet feature in a manner that substantially protects against its serving as an effectively competing substitute for Plaintiffs’ books. In the Background section of this opinion, we describe a variety of limitations Google imposes on the snippet function. These include the small size of the snippets (normally one eighth of a page), the blacklisting of one snippet per page and of one page in every ten, the fact that no more than three snippets are shown—and no more than one per page—for each term searched, and the fact that the same snippets are shown for a searched term no matter how many times, or from how many different computers, the term is searched. In addition, Google does not provide snippet view for types of books, such as dictionaries and cookbooks, for which viewing a small segment is likely to satisfy the searcher’s need. The result of these restrictions is, so far as the record demonstrates, that a searcher cannot succeed, even after long extended effort to multiply what can be revealed, in revealing through a snippet search what could usefully serve as a competing substitute for the original.

“The blacklisting, which permanently blocks about 22% of a book’s text from snippet view, is by no means the most important of the obstacles Google has designed. While it is true that the blacklisting of 22% leaves 78% of a book theoretically accessible to a searcher, it does not follow that any large part of that 78% is in fact accessible. The other restrictions built into the program work together to ensure that, even after protracted effort over a substantial period of time, only small and randomly scattered portions of a book will be accessible. In an effort to show what large portions of text searchers can read through persistently augmented snippet searches, Plaintiffs’ counsel employed researchers over a period of weeks to do multiple word searches on Plaintiffs’ books. In no case were they able to access as much as 16% of the text, and the snippets collected were usually not sequential but scattered randomly throughout the book.

“Because Google’s snippets are arbitrarily and uniformly divided by lines of text, and not by complete sentences, paragraphs, or any measure dictated by content, a searcher would have great difficulty constructing a search so as to provide any extensive information about the book’s use of that term. As snippet view never reveals more than one snippet per page in response to repeated searches for the same term, it is at least difficult, and often impossible, for a searcher to gain access to more than a single snippet’s worth of an extended, continuous discussion of the term.

“The fact that Plaintiffs’ searchers managed to reveal nearly 16% of the text of Plaintiffs’ books overstates the degree to which snippet view can provide a meaningful substitute. At least as important as the percentage of words of a book that are revealed is the manner and order in which they are revealed. Even if the search function revealed 100% of the words of the copyrighted book, this would be of little substitutive value if the words were revealed in alphabetical order, or any order other than the order they follow in the original book. It cannot be said that a revelation is “substantial” in the sense intended by the statute’s third factor if the revelation is in a form that communicates little of the sense of the original. The fragmentary and scattered nature of the snippets revealed, even after a determined, assiduous, time-consuming search, results in a revelation that is not “substantial,” even if it includes an aggregate 16% of the text of the book. If snippet view could be used to reveal a coherent block amounting to 16% of a book, that would raise a very different question beyond the scope of our inquiry.

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Exercise Methods Are Not Protected by Copyright (10/9/2015)

Whether it’s yoga, karate, Pilates or any other form of movement or exercise, the copyright laws do not protect the modalities themselves. Copyright protection can only be secured for the manner in which they are described, and even then, protection is limited.

In 1979, Bikram Yoga’s founder, Bikram Choudhury, published Bikram’s Beginning Yoga Class, which included descriptions, photographs, and drawings of his “Sequence” of twenty-six poses and two breathing exercises. The copyright was registered in the U.S. Copyright Office in 1979. In 2002, using a supplementary registration form, he registered the “compilation of exercises” contained in the book.

In 2002 and 2005, respectively, Mark Drost and Zefea Samson took Bikram’s 3-month teacher training course. In 2009, they formed Evolation Yoga, LLC, which offers “hot yoga,” among others. As the defendants admitted, Hot Yoga, like Bikram, “includes 26 postures and two breathing exercises and is done for 90 minutes, accompanied by a series of oral instructions, in a room heated to approximately 105 degrees Fahrenheit.”

Choudhury sued in 2011, claiming infringement on his copyrighted works. In 2012, the District Court granted defendants’ motion for partial summary judgment on the copyright claim, ruling that “Sequence is a collection of facts and ideas” that is not entitled to copyright protection. The Ninth Circuit affirmed that decision.[1]

Processes, systems, methods and ideas are not protected by copyright

The Copyright Act expressly excludes protection for “any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.”[2]

Choudhury describes his “Sequence” is a “system” or a “method” designed to “systematically work every part of the body, to give all internal organs, all the veins, all the ligaments, and all the muscles everything they need to maintain optimum health and maximum function.” In Bikram’s Beginning Yoga Class, Choudhury explains that he “arrived at the sequence of postures” after “[researching] the diseases and the postures and after many years of research and verification . . . using modern medical measurement techniques.” The book tells readers that “Bikram’s twenty-six exercises systematically move fresh, oxygenated blood to one hundred percent of your body, to each organ and fiber, restoring all systems to healthy working order, just as Nature intended.” An essential element of Choudhury’s system is the order in which the poses and breathing exercises are to be performed.

Because the Sequence “is an idea, process, or system designed to improve health,” the Court found it ineligible for copyright protection. The Court repeated this basic principle throughout its decision like a mantra.

Beauty and Grace do not make exercise sequences copyrightable

Choudhury argued to the court that his arrangement of postures is “particularly beautiful and graceful” and therefore should be protected by copyright.

“The performance of many ideas, systems, or processes may be beautiful: a surgeon’s intricate movements, a book-keeper’s careful notations, or a baker’s kneading might each possess a certain grace for at least some viewers. Indeed, from Vermeer’s milkmaid to Lewis Hine’s power house mechanic, the individual engrossed in a process has long attracted artistic attention. But the beauty of the process does not permit one who describes it to gain, through copyright, the monopolistic power to exclude all others from practicing it. This is true even where, as here, the process was conceived with at least some aesthetic considerations in mind… [J]ust like [a] recipe, the Sequence remains unprotectable as a process, the design of which primarily reflects function, not expression.”

The order and sequence of exercises are not copyrightable.

The court applied the same reasoning to Choudhury’s claim that the actual selection and order of the exercises and positions were protectable as a “compilation:”

“As we have explained, the Sequence is an idea, process, or system; therefore, it is not eligible for copyright protection. That the Sequence may possess many constituent parts does not transform it into a proper subject of copyright protection. Virtually any process or system could be dissected in a similar fashion.”

Finally, the court noted that according to Choudhury’s own descriptions of his method, “the very selection and arrangement of poses and breathing exercises for which he claims copyright protection” were compelled by medical and functional considerations… The Sequence’s composition renders it more effective as a process or system, but not any more suitable for copyright protection as an original work of authorship.”

Thus, it “makes no difference that similar results could be achieved through a different organization of yoga poses and breathing exercises.” Although Choudhury could have chosen from “hundreds of postures” and “countless arrangements of these postures” in developing the Sequence, “the possibility of attaining a particular end through multiple different methods does not render the uncopyrightable a proper subject of copyright.”

Whether it’s Bikram Yoga, meditation exercises, or Pilates, methods of exercise and movement are not protected by copyright

The Bikram decision is not the first decision to teach that methods of exercise or movement cannot be protected by copyright, and it may not be the last, given the number of exercise and movement modalities in the marketplace looking to protect their businesses through intellectual property laws.

What is protected by copyright, then? The particular words and photographs contained in a manual or book are clearly copyrightable, but the ideas they express are not. Thus, particular descriptions of exercises or movements enjoy only a limited scope of protection, given that there are only certain ways that they can be described. Photographs, on the other hand, because they involve composition, angle and lighting, are likely to enjoy a broader scope of protection. In short, the copyright for an exercise, movement, or teacher training publication does not extend to the choice, sequence or method of exercise, the method or sequence of teaching, or the particular ways in which the exercise or movements are performed or taught. The copyright does, however, protect against piracy and unauthorized distribution of publication, including (most typically) via the Internet.

The Bikram decision can be accessed at:


[1] Bikram’s Yoga College of India, L.P. and Bikram Choudhury v. Evolation Yoga, LLC, Mark Drost and Zefea Samson, No. 13-55763, Ninth Circuit Court of Appeals, October 8, 2015. On appeal from the U.S. District Court, Central District of California (No. 2:11-cv-05506-ODW-SS).

[2] 17 U.S.C. 102(b).


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European Union Trademarks Goods and Services Examined (11/9/2014)

International Registrations designating the European Union (CTM/OHIM) previously relied upon the International Bureau (WIPO) for compliance with proper goods and services classification. There are differences between what is acceptable by WIPO, and would be acceptable by OHIM for directly filed applications. For all International Registrations designating the European Union after October 1, 2014, OHIM will now examine all goods and services listed in the international registration for compliance with OHIM requirements. In particular, this addresses the issue of vague and uncertain terms and requiring designations of goods and services that are clear and precise. Should OHIM determine that the goods and services lack clarity or precision, it will issue a notification of provisional refusal with respect to said registration.

We refer our readers to information about goods and services as well as the pitfalls of using class headings in the United States.

There is a clear trend amongst trademark offices to require clear and precise descriptions of goods and services. The USPTO has been more particular in this respect than many other trademark offices. As the world keeps getting “smaller” with more and more opportunities to engage in business throughout the world, it is important to establish a trademark protection program that properly focuses the registrations on precisely what products and services the brand owner is using its mark on.

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Copyright gone amok: Privacy policies, tweets & selfies (8/9/2014)

Copyright is a limited monopoly on the right to copy, disseminate, create new works from and exploit works protected under copyright law, e.g., photographs, paintings, drawings, sculpture, mixed media works, video, film, musical compositions, sound recordings (but currently only sound recordings made after Feb. 15, 1972), and literary works and other writings that have at least a modicum of creative expression. With the rise of the Internet, the number of people creating and disseminating matter that is potentially protectible under copyright law — let’s call them “disseminators” — has increased exponentially. At the same time, an uncountable number of disseminators, both individual and corporate, have sought to extend the bounds of copyright protection, often to the point of absurdity.

Take for instance the typical website Terms of Use and Privacy Policy. There is a belief out there that these are protected by copyright. Indeed, even law firms whose practice focuses on intellectual property have a bad habit of placing copyright notices on their Terms of Use and Privacy Policy pages, despite the fact that these documents consist of legal notices, statements of law and instructions to the user. They don’t contain protectible matter because there is no original authorship. The content is driven by law, potential and imagined liabilities, and convention. Moreover, they are written with the intent to fulfill a function, not to create literary expression. There might be ways to create literary expression out of such documents, but the result would probably qualify as parody.

Even more to the point, who would ever issue a cease and desist letter or threaten to sue over someone copying their Terms of Use or Privacy Policy? And knowing you would never go after someone for re-using a terms of use or privacy policy, why would you put a copyright notice on it? Lawyers and others who perpetuate the notion that there is a copyright interest in these documents contribute to the overall misunderstanding among the public of the very spirit and purpose of copyright law. Copyright law appropriately sets the bar very low for the amount of expression that it takes to qualify as protectible, but many legal documents don’t — and shouldn’t — qualify.


techdirt made some news this past week by attempting to register the copyright for the following Tweet:

Monkey bar fallacy: a bad person using something makes it bad. E.g., users of monkey bars include: children, TERRORISTS #tor

The Copyright Office declined registration, probably because the Tweet falls under the what-is-not-protected-by-copyright categories, “works consisting entirely of information that is common property” and “short phrases.” Definitions, which the Tweet appeared to be, are not protected by copyright because words or short phrases belong to no one, at least when they aren’t used as trademarks. Note, however, that text that may accompany a definition, such as sentences using the word being defined, may be protected. In addition, “monkey bar fallacy” is a short phrase. This isn’t to say that no Tweets are copyright-protectible. It simply means that techdirt‘s “a-bit-of-data department” (which sought the registration) picked a bad example.

One thing about that article really bothered me. It kept referring to “copyrighting” something. You can’t “copyright” anything. You can register a copyright (at least in the United States), but something either is or isn’t protected by copyright. (Copyright isn’t copywrite, which is writing copy for advertising and marketing.) This goes along with using “trademark” as a verb. You brand a product or service; you register a trademark.


And that brings us to the selfie taken by a nameless crested black macaque using a camera that he appropriated from a British wildlife photographer named David Slater. Slater went to Indonesia in 2011 at great expense, but the way he tells it, he was not a co-author of the macaque’s selfie. Rather, the macaque grabbed Slater’s camera and began taking thousands of selfies, a few of which turned out to be brilliant. (Surely this validates, at least in principle, the infinite monkey theorem.)

Actually, the photographs have been around since 2011, but Slater, the owner of the camera, recently got into a dispute with the Wikimedia Foundation when one of the photos was added to the Wikimedia Commons collection of public domain images. The Foundation refused to remove the photo and for good reason. It was made entirely by the macaque, without any contribution whatsoever from Slater other than being there. Slater wasn’t responsible for the framing, the angle, the lighting, the focus or the snap of the shutter. Here was Slater’s dubious factual rationale (and specious legal rationale) for why he should be considered the “author” of the photographs:

It was my artistry and idea to leave them to play with the camera and it was all in my eyesight. I knew the monkeys were very likely to do this and I predicted it. I knew there was a chance of a photo being taken.[1]

This contradicts another, more recent, account that he apparently gave the Washington Post:

One day, he said, he set up a tripod and walked away for a few moments. When he returned, the monkeys had grabbed his camera and started snapping pictures.[2]

The latter sounds more like the truth. One can imagine Slater standing around, nervously hoping he would get his camera back in one piece. But even if Slater “predicted” that one of the macaque would take cute selfies — in fact, all but a handful of the thousands of images snapped were out of focus and otherwise unusable — neither the ownership of tools nor predictions will confer copyright ownership. Think of it this way: if someone stole your paintbrush that you cleverly left outside an art school and used it to paint a masterpiece, do you really think you could claim that you were the copyright owner?

The lack of a legitimate copyright claim hasn’t stopped Slater or his news agency, the Caters News Agency, from claiming that Slater owns the copyright. The shame of it is that the Huffington Post paid for use of the image, as if paying for an image in the public domain were a noble act.[3] When Slater tried to go after techdirt in 2011, techdirt correctly stood on its legal rights,[4] just as the Wikimedia Foundation has now done.

For better or worse, copyright law does not recognize works created by animals. Only people and corporations qualify. Of course this is bad news for elephants who make and sell their paintings, if only for peanuts.


End notes.

[1] See, https://www.techdirt.com/articles/20110714/16440915097/photographer-david-slater-claims-that-because-he-thought-monkeys-might-take-pictures-copyright-is-his.shtml

[2] See, http://www.washingtonpost.com/news/the-intersect/wp/2014/08/06/if-a-monkey-takes-a-selfie-in-the-forest-who-owns-the-copyright-no-one-says-wikimedia/

[3] http://www.huffingtonpost.com/2014/08/06/monkey-selfie_n_5654752.html

[4] See also, https://www.techdirt.com/articles/20110712/01182015052/monkeys-dont-do-fair-use-news-agency-tells-techdirt-to-remove-photos.shtml and https://www.techdirt.com/articles/20110706/00200314983/monkey-business-can-monkey-license-its-copyrights-to-news-agency.shtml

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Improper Descriptions of Use in TM Registrations (7/25/2014)

The United States Patent and Trademark Office (“USPTO”) is currently considering ways to ensure that trademark registrants claim only those goods and services for which they are actually using their marks. All the proposals involve time and expense to the trademark owner. For that reason alone, it’s important to get registration – and subsequent Declarations of Use – right the first time. But there’s more you need to know…

Trademark registration in the United States, unlike most of the rest of the world, is based on use: that is, the USPTO requires that the registrant actually use (or have a bona fide intent to use) its mark in U.S. commerce on all the goods and/or services listed in the application. In order to enforce that requirement, the registrant is required to attest to such actual use through post-registration “Declarations of Use” under Section 8 of the Trademark Act. Declarations of Use must be filed between the 5th and 6th anniversaries of registration, between the 9th and 10th anniversaries of registration, and in each successive ten-year period thereafter. For a fee, the registrant may file within a six-month grace period, but failure to file a Declaration will result in cancellation of the registration.

Normally, a registrant submits a specimen showing use of the mark on one of the goods and/or services listed in each class of goods/services listed on the registration, and attests that “[t]he mark is in use in commerce on or in connection with all of the goods or services listed in the existing registration for this specific class…”

The Declaration also gives the registrant the opportunity to delete goods and services that are not in use or to explain an excusable failure to use the mark in connection with particular goods or services. The registrant is warned that “willful false statements and the like are punishable by fine or imprisonment or both” and “may jeopardize the validity of this document.”

In fact, the penalty can be severe if the registrant’s mark is ever challenged by a third party in a cancellation proceeding before the Trademark Trial and Appeal Board. If the mark is not being used in connection with all the listed goods and services, the entire registration may be cancelled on the basis of non-use and falsely representing that the mark was in use when it wasn’t.

Even given that risk, the USPTO is aware that many registrants are not using their trademarks on all the goods and services listed on their registrations. This is particularly the case with registrants under Section 44(e) (registrations based on a foreign registration) and Section 66(a) (registrations based on Madrid Protocol). In many countries outside the U.S., the registrant, aiming to obtain a greater scope of protection, will register its mark using descriptions of goods and services that are much broader than the USPTO permits, with the only risk being the deletion of some goods or services from the registration after the first 3 or 5 years. We have assisted numerous non-U.S. clients in avoiding this potential pitfall in their United States registrations by querying them closely as to actual use and narrowing the description of goods and services where appropriate.

Recently the USPTO completed a pilot program, which was really a spot check of 500 randomly selected registrations for which Declarations of Use were being filed. The results confirmed our observation in practice that non-U.S. registrants who obtain their registrations based on a foreign registration or the Madrid Protocol often have difficulty understanding the requirements of the USPTO.

Among the 500 registrants was a statistically significant sample of registrations under Trademark Act Sections 1(a) {use-based}, 44(e) {foreign registration based}, 66(a) {International Registration/Madrid Protocol based}, and 1(a) and 44(e) combined (dual basis). Each of the selected registrants was required by the USPTO to submit proof of their marks for two additional goods and/or services per class, in addition to the specimen(s) submitted with their Declarations of Use. If the registrant failed to submit the required proof or requested that goods and/or services be deleted, the USPTO asked for additional proof.

The results were striking. The majority of foreign-based registrations – 56% of Section 44(e) registrants, 61% of Section 66(a) registrants and 63% of dual basis registrants – ended up requesting deletion of goods and/or services that they weren’t using. In contrast, 27% of Section 1(a) registrants requested deletions of goods and services. The latter figure is still unacceptably high, however, and highlights the necessity among trademark registration service providers to take the time to limit their clients’ descriptions of goods and services to those that the client is actually using or has an excusable reason for not using. Had any of these registrants’ marks been challenged by third parties, their U.S. registrations could have been cancelled.

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Aereo and Disruptive Innovation (7/9/2014)

Under copyright law, among the exclusive rights that are held by copyright holders is the right of public performance. In some cases, the copyright holder is free to negotiate any fee or royalty that it desires for public performance, or even refuse such performance outright, while in other cases, the copyright holder must accept statutorily mandated royalties.[1] Until the innovation of cable, public performance simply entailed providing a copyrighted work directly to the public (as in a movie theater or nightclub) or broadcasting it over the airwaves.

In an effort to bring cable systems within the scope of the Copyright Act, Congress amended the Copyright Act in 1976 by clarifying that to “perform” an audiovisual work meant “to show its images in any sequence or to make the sounds accompanying it audible.” The “Transmit Clause” was also added, specifying that an entity performs a work publicly when it “transmits” a performance to the public, i.e., communicates the performance “by any device or process whereby images or sounds are received beyond the place from which they are sent.” These changes were necessary in the age of technology in order for copyright holders to maintain their statutory monopoly on public performance rights of their works: there are many ways to transmit a performance other than by traditional broadcast. In 1976, of course, Congress was thinking of cable delivery. The Internet was barely even conceived.

In 2012, along came a service called Aereo, launched by Barry Diller’s IAC/Interactive Corp., a $3 billion company. The idea behind Aereo’s service was simple: “an automated system consisting of routers, servers, transcoders, and dime-sized antennae” that allowed consumers to watch television programming whose signals are relayed by Aereo to its customers via the Internet. The reality is a little bit more convoluted:

Respondent Aereo, Inc., sells a service that allows its subscribers to watch television programs over the Internet at about the same time as the programs are broadcast over the air. When a subscriber wants to watch a show that is currently airing, he selects the show from a menu on Aereo’s website. Aereo’s system, which consists of thousands of small antennas and other equipment housed in a centralized warehouse, responds roughly as follows: A server tunes an antenna, which is dedicated to the use of one subscriber alone, to the broadcast carrying the selected show. A transcoder translates the signals received by the antenna into data that can be transmitted over the Internet. A server saves the data in a subscriber-specific folder on Aereo’s hard drive and begins streaming the show to the subscriber’s screen once several seconds of programming have been saved. The streaming continues, a few seconds behind the over-the-air broadcast, until the subscriber has received the entire show.

Convoluted though Aereo may be, the Supreme Court’s decision on June 25, 2014, that Aereo’s service infringed on copyrighted programming was a no-brainer. That’s because Aereo did not simply act as equipment provider, but transmitted each particular program that a subscriber selected to watch. The dissent (written by Scalia, and joined by Thomas and Alito), believed that because transmission was triggered by the subscriber, Aereo’s transmission could not be deemed a transmission at all and viewed Aereo as akin to having a library card. (It’s a bit difficult to square that view with the actual wording and intent of the law.) The majority opinion, written by Breyer and joined by Roberts, Kennedy, Sotomayor, Ginsburg and Kagan, found Aereo’s service to have an “overwhelming likeness to the cable companies targeted by the 1976 amendments,” with the only difference being that cable systems transmit programming continuously, while the Aereo system transmits them only when “a subscriber indicates that she wants to watch a program. Only at that moment, in automatic response to the subscriber’s request, does Aereo’s system activate an antenna and begin to transmit the requested program.” The majority found the distinction to be unimportant, in part because in both systems the method is invisible both to broadcasters and subscribers alike. (As a cable subscriber, you can only watch those channels to which you turn your dial. As an Aereo subscriber, you can only watch those channels you click on.)

There has been some recent fury in the press characterizing the decision as an attack on “disruptive innovation,” a currently vaunted theory that purports to understand how technological innovation really happens. See, e.g., Michael Wolff’s article in USA Today, Concept of disruption under attack, July 7, 2014. Wolff claimed that Aereo was akin to Google and suggested that  opposition to it is an attack on the future. (“Clever ideas are the future. Established ones are the past. Choose your side,” Wolff says.)

However, Aereo was not doing “disruptive innovation” — and neither was Google. Google developed search engine technology that depended on aggregating information from existing websites and publications and provided the means for people to find that information. The argument that Google was infringing copyright by copying information to facilitate searches has nothing to do with the theory of disruptive innovation, which is “the selling of a cheaper, poorer-quality product that initially reaches less profitable customers but eventually takes over and devours an entire industry.”[2] Google wasn’t disrupting or cannibalizing an already existing marketplace.

It might be that Aereo offered a poorer-quality product and reached less profitable customers, but it did nothing more than re-route the information for which cable operators – which do on land what Aereo was doing online – pay license fees. Actually, the fact that the Supreme Court viewed Aereo as substantially similar to cable companies has recently given Aero’s lawyers new hope:

The high court concluded that the streaming service was so similar to cable companies, which are required to negotiate a deal if they want to carry broadcasters’ programming, that it could not simply pluck signals from the airwaves without paying. That’s significant, Aereo says, because the classification also means that it’s “now entitled’ to work out a deal — which broadcasters, in turn, must negotiate in good faith. Indeed, Aereo says, its eligibility for what’s known as a compulsory license ‘must be decided on an immediate basis or [its] survival as a company will be in jeopardy.”[3]

As for the supposedly new “attack” on “disruptive innovation,” this is mere palaver. Aereo was not innovative, but clever — actually too clever by half. For quite a few years now, services that take copyrighted content and re-distribute it without paying royalties or fees to the copyright holders have regularly been found by courts to run afoul of copyright law, regardless of how popular the service is.

It can also be said that Barry Diller’s IAC/InterActiveCorp hardly fits the model for a company engaged in disruptive innovation. IAC/InterActive’s revenues exceed $3 billion per year. Founded in 1995, and traded on NASDAQ, it is very far from being a feisty startup (the standard bearer for disruptive innovation).[4] Diller’s strategy was likely a calculated risk that if he didn’t slip through a loophole, he could get big enough to bring the content providers to the table. With Aereo’s latest argument, as the case goes back to the lower court on remand, he just might succeed.


[1] The reasons for statutorily mandated royalties are beyond the scope of this article, but see our post, Copyright 2014: Understanding the Issues. It should also be noted that while copyright owners of audiovisual works and musical compositions do have the exclusive right to control public performance of their works, sound recording copyright holders currently have that right only for public performance via the Internet (and not via land-based radio stations). That exception may well be eliminated in the near future.

[2] This is a quote from Jill Lepore’s article, The Disruption Machine (The New Yorker, June 23, 2014), criticizing the theory of “disruptive innovation,” but her description is accurate. See http://www.newyorker.com/reporting/2014/06/23/140623fa_fact_lepore?currentPage=all

[3] http://www.deadline.com/2014/07/aereo-says-court-decision-entitles-it-to-license-network-programming/

[4] For a thumnail sketch of IAC/InterActive, see http://en.wikipedia.org/wiki/IAC/InterActiveCorp

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REDSKINS Marks Cancelled, Found to Disparage Native Americans (6/20/2014)

On June 18th, the United States Trademark Trial and Appeal Board (TTAB) granted a petition to cancel six registrations for word and design marks containing the word, REDSKINS for entertainment services. The action, Amanda Blackhorse, Marcus Briggs-Cloud, Philip Gover, Jillian Pappan, and Courtney Tsotigh v. Pro-Football, Inc., Cancellation No. 92046185 (June 18, 2014) (“Blackhorse”), was brought by six Native Americans (later narrowed to five), who argued that the word “Redskin” was disparaging to Native Americans. Two of the three judges on the TTAB panel agreed and one dissented.

This was the second cancellation action brought by Native Americans against trademarks owned by the Washington Redskins. In the first, Harjo v. Pro Football, Inc., brought in 1992, the TTAB granted the petition for cancellation, but the federal courts ruled that the petitioners were barred by the doctrine of laches — i.e., they had waited too long after reaching the age of majority to file their action.

The registrations sought to be cancelled in Blackhorse were registered between 1974 and 1990. When the petition was filed in 2006 (shortly after the federal courts dismissed the Harjo petition), each of the petitioners had only recently reached the age of majority. Laches was no longer at issue.

Under 15 USC § 1052 of the Lanham Act, marks that “may disparage” persons or institutions “or bring them into into contempt or disrepute” are forbidden from being registered. Moreover, while the Lanham Act requires many cancellation petitions to be brought within five years of registration of the disputed mark, it provides no statute of limitation for cancellation petitions based on disparagement. Under 15 U.S.C. § 1064(3), such petitions may be brought “[a]t any time.” In the final Harjo appeal, Pro-Football, Inc. v. Harjo, 415 F.3d 44 (2005),the Court speculated that Congress “may well have denied companies the benefit of a statute of limitations for potentially disparaging trademarks for the very purpose of discouraging the use of such marks,” citing In re Riverbank Canning Co., 25 C.C.P.A. 1028, 95 F.2d 327, 329 (1938), which noted that the “field is almost limitless from which to select words for use as trademarks, and one who uses debatable marks does so at the peril that his mark may not be entitled to registration.”

Nevertheless, there was no fixed test for determining whether a mark is disparaging until Harjo. As re-stated in Blackhorse, the test is two-fold:

  1. What is the meaning of the matter in question, as it appears in the marks and as those marks are used in connection with the goods and services identified in the registrations?
  2. Is the meaning of the marks one that may disparage Native Americans?

In answer to the first question, the TTAB found that REDSKINS, even when used in connection with the presentation of football games, clearly refers to Native Americans. This is demonstrated by the design marks (visible on Washington Redskins helmets and elsewhere) and by the use of Native American garb and headdresses by the Washington Redskins’ band and cheerleaders (called “Redskinettes”).

In answering the second question, the TTAB noted that in addition to other evidence, it must take into account the views of a “substantial composite,” but not necessarily a majority, of the group which the mark is claimed to disparage. In addition, it had to find that REDSKINS was disparaging in connection with entertainment services (i.e., the presentation of football games) at the time the marks were registered.

Petitioners submitted two types of evidence to prove their case. General evidence as to the meaning of the word REDSKINS consisted of dictionary definitions, reference books and testimony from experts in linquistics. Specific evidence as to the views of Native Americans consisted of personal testimony and letters, newspaper articles and official records, including a 1993 Resolution of the National Congress of American Indians declaring that the REDSKINS trademarks were “offensive and disparaging.” The evidence left no doubt in the minds of the majority that REDSKINS was disparaging at the time the marks were filed. The respondent’s argument, that REDSKINS had acquired a separate meaning as the name of a football team, thereby neutralizing any disparaging effect, was rejected.

The dissent, on the other hand, believed that the petitioners failed to prove that the term was disparaging at the time of registration when used in connection with football. Furthermore, he said, dictionary definitions that labelled REDSKIN as “usually offensive” left open the possibility that it might not be in certain contexts, one of which could be football.

The TTAB ruling does not affect the ability of the Washington Redskins owner to continue using its REDSKINS trademarks. The only issue at stake in the case was whether federal law permitted registration of the mark in the US Patent and Trademark Office, thereby invoking the additional protections that registration provides. There is no question but that the USPTO made the right decision. Indeed, no federal agency should put a stamp of approval on conduct (or a trademark) that plainly disparages a segment of the population on the basis of race, religion, ethnicity, gender or sexual orientation.

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Amazon Enters the Music Streaming Market (6/12/2014)

As Paul Bonanos predicted in Billboard magazine on April 10, 2014, Amazon has now officially entered the music streaming market through Amazon Prime, which now boasts over one million songs (tens of thousands of albums), unlimited listening, no ads and, of course, no extra charge for Amazon Prime members. As Amazon states in its press release:

Prime members can choose exactly which songs and albums to listen to, or they can sit back and listen to hundreds of expert-programmed Prime Playlists…. Prime members can also download songs from the Prime Music catalog to their mobile devices for offline playback on planes, trains and anywhere they’re without an internet connection

Prime Music is a bit different from that of other streaming services in that Amazon won’t be providing listeners with new releases, but only music that has already been released for some months, and then only a selection of participating record companies’ catalogs. For this, Amazon was able to negotiate lump sum payments, rather than royalties based on the number of plays. For now, Universal’s releases, which account for 36.7% of the market in sound recordings, will not be included in Amazon Prime. (According to Bloomberg, Universal considered Amazon’s lump sum offer too low.)

It remains to be seen how much money paid by Amazon to Warner Music Group and Sony Music Entertainment will filter down to their artists and whether their artists are even being advised that their music was offered as part of the deal.


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Do we need the Songwriter Equity Act? (6/10/2014)

The House will hold hearings today, June 10th, and again on June 25th on royalties payable to copyright holders of musical compositions by terrestrial and digital media services. The Songwriter Equity Act is expected to be the focus of the June 10th hearings. The bill, introduced by Rep. Doug Collins (R-GA, the “Most Conservative Georgian in Congress”), is the House version of a bill introduced in the Senate by Orrin Hatch (R-Utah) and Republican Senators from Tennessee, Lamar Alexander and Bob Corker.

Collins says he is hoping for “swift and thorough consideration” of the bill, which would determine how Copyright Royalty Judges set compulsory royalties for the following reproductions of music compositions:

  • Mechanical royalty rates for the reproduction of musical compositions by way of CDs, vinyl records and similar devices,
  • permanent downloads,
  • ringtones,
  • limited downloads
  • interactive streaming

If passed, the law would require that the Copyright Royalty judges

establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller. In establishing such rates and terms, the Copyright Royalty Judges shall base their decision on marketplace, economic, and use information presented by the participants. In establishing such rates and terms, the Copyright Royalty Judges may consider the rates and terms for comparable uses and comparable circumstances under voluntary license agreements.

What does this mean in practice?

First, Copyright Royalty Judges are currently prohibited from considering the royalties paid for the use of sound recordings by interactive digital services. (For an explanation of the licensing differences for interactive vs. non-interactive digital transmissions, see our previous post.) This is not necessarily a bad thing, but setting musical composition royalties against sound recording royalties is a zero-sum game, albeit one in which sound recordings owners are currently the clear victors. Some leveling of the playing field may be called for — keeping in mind, however, that songwriters invest very little money, if any, in writing a song, while sound recording owners spend (and risk losing) substantial sums of money before they have a finished sound recording.

Second, the Songwriter Equity Act would strike from the law the section that currently sets the mechanical royalty rate at 9.1 cents (for reproductions of musical compositions and digital downloads). This is probably a bad thing. The current rate of 9.1 cents is comparable or higher than the compulsory mechanical licensing rates of other countries, including the United Kingdom, where music is at least as cherished and important an industry as in the United States.

Moreover, gutting the current method for determining mechanical royalties will, if the rate is raised substantially, cause financial harm to any recording artist who records a cover version of a song. The reason why mechanical royalties were established to begin with is that lawmakers realized that there were no “willing sellers” — i.e., songwriters who were willing to let anyone record their song. But because copyright law is a limited monopoly that must also serve the public interest by advancing the arts, etc., lawmakers decreed that once a musical composition was recorded, anyone can re-record it, provided they remain faithful to the original. The compulsory mechanical royalty sets the terms by which cover versions can exist.

Typically record companies limit the amount of mechanical royalties they are willing to pay their recording artists. (Were recording artists to demand higher mechanical royalty rates, record companies would simply reduce their artist royalties. Again, it’s a zero sum game.) That means that if a recording artist were to release 10 songs, 8 of which were written by the recording artist and 2 of which were cover versions written by others, the artist wouldn’t simply give up a proportional share (i.e., 20% ) of the available mechanical income. Rather, the percentage would depend upon how high the rate was set vs. how much was left over for the songs penned by the recording artist. So much for songwriter equity. Add to this the fact that an uncountable number of recording artists are subject to a statutory rate fixed at the time they made their deals, while the statutory rate for licensed works (for cover versions and samples) are rarely fixed. Those recording artists will see their publishing income slip even further if the Songwriter Equity Act is passed. (Of course, Congress could, for instance, preserve the mechanical royalty for records and downloads, but still raise rates for streaming services.)

Although the goal of higher royalties for songwriters is laudable, at least in the abstract, attempting to set royalties according to what “a willing buyer and a willing seller” would do is a complete fiction, given the monopoly power of the performing rights organizations (which control 100% of performing rights income) and three major record companies (which collectively control 75% of the market for sound recordings). Streaming services pay 60-70% of their income to recording companies not because they are “willing buyers” to the record companies’ “willing sellers,” but because they can’t succeed without offering their subscribers the majors’ sound recordings.

The Songwriter Equity Act is, not surprisingly, opposed by the Digital Media Association (DiMA), which includes Pandora, Google, Apple and Amazon. According to the DiMA’s Executive Director Lee Knife, the Songwriter Equity Act and other currently proposed legislation in this area “create additional anomalies” and “cater to the unique interests of only a limited group of stakeholders.” What he means by the latter — and he is correct — is that any increase in royalties is likely to be felt only by the richest publishers and the most popular artists.

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Copyright Reform 2014: Understanding the Issues (6/8/2014)

Over the past year, Congress has been reviewing various provisions of the Copyright Act, including those affecting how copyright royalty rates for radio and streaming services are determined, in order to assess whether reforms are necessary or desirable. The U.S. Department of Justice recently announced that it would review the anti-trust consent decrees that determine what ASCAP and BMI are able to collect on behalf of publishers and songwriters. (More on that below.) The Copyright Office has also gotten involved, soliciting comments from rights holders and the public. (The comment period closed on May 23rd.) For the most part, however, the public is left scratching its collective head: are there serious issues at stake or is this just another rights grab by copyright holders? This post is intended to provide the reader with some perspective in the current discussions and, in particular, the issues surrounding music streaming services like Pandora and Spotify.

Some Basics: Musical Compositions vs. Sound Recordings

Every song involves two sets of copyrights: the copyright in the musical composition and the copyright in the sound recording, which is a particular performance of the musical composition. The musical composition copyright is owned by a music publisher or songwriter, while the sound recording copyright is owned by the record company that records it or the artist whose performances are embodied on it.

The scope of rights that goes along with each of these copyrights is slightly different. Owners of musical compositions have the right to receive compensation from public performances of the musical composition. Owners of sound recordings, however, have that right only with respect to digital (cable, satellite and web-based) transmissions and cannot claim any public performance royalties when their recordings are played on “terrestrial” radio and television stations. To complicate matters a little further, sound recordings made prior to 1972 are not protected under copyright law, but under state unfair competition and anti-piracy laws. When Congress passed the 1976 Copyright Act, it decided that “pre-1972 sound recordings” should be entitled to federal copyright protection only in 2047. That date was subsequently amended to 2067, at which time state law protections for sound recordings will also be pre-empted. Nobody really knows why Congress did it that way.[1]

How is Income from Musical Compositions and Sound Recordings Generated?

The main income streams for musical compositions are:

  • mechanical royalties (i.e., royalties paid by record companies to publishers for the right to make each physical or digital copy of a sound recording bearing the publisher’s musical composition);
  • synchronization fees (i.e., the reproduction and use of a musical composition in “synchronization” with visual images, as in the case of videoclips, films, television programs or commercials);
  • public performance royalties, i.e. the broadcasting or transmission of musical compositions via broadcast and cable radio and television; Internet simulcasts of “terrestrial” broadcasts; satellite; both non-interactive and interactive Internet streaming; and in restaurants, clubs, retail stores or other establishments that have live or pre-recorded music;
  • fees and royalties from third party licenses (e.g., uses in video games and software, theatrical productions and audio-only commercials); and
  • sheet music royalties.

The main income streams for sound recordings are:

  • record sales (including downloads);
  • synchronization fees (i.e., the reproduction and use of a sound recording in “synchronization” with visual images);
  • fees and royalties from third party licenses (e.g., uses in video games and software, theatrical productions and audio-only commercials);
  • public performance royalties for sound recordings broadcast or transmitted by (1) eligible nonsubscription services (i.e., noninteractive webcasters and simulcasters of “terrestrial” broadcasters that charge no fees); (2) preexisting subscription services (i.e., residential subscription services which began providing music over digital cable or satellite television before July 1998); (3) new subscription services (i.e., noninteractive webcasters and simulcasters that charge a fee, as well as residential subscription services providing music over digital cable or satellite television since July 1998; and (4) preexisting satellite digital audio radio services (i.e., SiriusXM Radio).; and
  •   interactive Internet streaming royalties and fees.

How Are Royalty Rates Determined?

Synchronization fees and royalties and fees for third party licenses are unregulated and determined separately by the rights holders, i.e., the owners of the musical compositions and sound recording, in negotiation with the licensee. (Owners of musical compositions and sound recordings negotiate their own deals, but generally they do so in parity with each other.)

Mechanical royalty rates for the reproduction of musical compositions by way of CDs, vinyl records and similar devices, permanent downloads, ringtones, limited downloads, and the rates for interactive streaming are set by Copyright Royalty Judges. For physical records and permanent downloads, the rate is currently 9.1 cents per musical composition or 1.75 cents per minute of playing time or fraction thereof, whichever is greater. These rates have remained unchanged since 2006. For ringtones, the rate is 24 cents. The formulas for calculating rates for musical compositions embodied in limited downloads or transmitted via interactive streaming are highly complex, as a quick glance at 37 C.F.R. §§ 385.10 – 385.17 will confirm.

Public performance royalties for musical compositions, which include royalties on non-interactive streaming, are governed by consent decrees with ASCAP and BMI that are overseen by the U.S. Department of Justice’s Antitrust Division. The consent decrees, which date back to 1941, were the result of actions brought against ASCAP and BMI to address their substantial monopoly power over the market for public performances. (Together they control about 95% of the market, with a third performing rights organization, SESAC, taking up the slack.) The actual rates under the consent decree, however, are regularly addressed in court. In January 2012, for instance, the U.S. District Court in Manhattan, which is the court with jurisdiction over the consent decrees, approved a settlement that set the fees radio stations must pay to ASCAP through 2016.[2]

Royalty rates for sound recordings are subject to far less regulation. The use of sound recordings in interactive streaming isn’t subject to any kind of control. Interactive service providers (such as Spotify) therefore must obtain licenses directly from the sound recording copyright holders at whatever rate can be negotiated. All other public performance royalties for sound recordings are statutorily mandated to be set either through voluntary negotiations between sound recording owners and service providers or by trial-type hearings before the panel of three Copyright Royalty Judges who use a number of criteria that attempt to take into account the concerns of rights holders, service providers and consumers.[3]

The current battle over copyright royalties focuses on rates regulated by statute and/or determined under the consent decrees and by Copyright Royalty Judges. For those who have a knee-jerk reaction to any royalty rate that might be set by a government body or a court, there are good reasons either to maintain the status quo or to use statutory and jurisprudential mandates to level the playing field even further between sound recording copyright owners, musical composition copyright owners, recording artists, songwriters and different types of service providers. Even Senator Orrin Hatch (R-Utah), one of the sponsors of the Songwriter Equity Act, saw no reason to eliminate the ASCAP and BMI consent decrees, which ensure that songwriters receive 50% of public performance income earned by their musical compositions.

Who are the Rights Holders?

The market in sound recordings is largely dominated by the three “Majors,” Universal Music Group (UMG), Sony Music Entertainment and Warner Music Group. Collectively they own the sound recordings that account for 75% of the market, with Universal currently controlling nearly half that — 36.7%. This figure does not include sound recordings owned by independent labels that are distributed through the Majors, and thus underestimates the actual power the three majors wield in the marketplace.[4]

With two exceptions, the Majors generally earn the lion’s share of income earned from sound recordings, ceding a small percentage to their recording artists. The first exception is synchronization income, where the royalty split is usually 50-50. (The Majors also have a variety of ways to reduce the recording artist’s share of this income, but those wrinkles and tricks are beyond the scope of this article.) The second exception is in public performance of sound recordings via cable, satellite and the Internet, where the micropayments that accrue are distributed by an organization called Sound Exchange on a rather more equitable basis: 50% to the copyright owner, 45% to the featured artist or artists, and 5% to non-featured performers. Copyright owners and featured artists are paid directly by Sound Exchange, but non-featured artists are paid only through one of two unions, the American Federation of Musicians (AFM) or the American Federation of Television and Radio Artists (AFTRA). Note that Sound Exchange public performance royalties are different from the royalties that non-interactive streaming services like Spotify have to pay to sound recording copyright owners. In the latter case, the owners, not the artist, are likely to earn the greater share.

The market with respect to musical compositions is also dominated by the Majors through their publishing affiliates, which collectively account for 65.2% of that market.[5] Income distribution from music publishing tends to be more evenly distributed between companies and songwriters than on the sound recording side. Although there are many exceptions (as well as plenty of royalty-reducing wrinkles and tricks), 50% of royalties earned in respect of musical compositions go to publishers and 50% go to songwriters. (Some songwriters do much better than this if they can negotiate an administration deal, some do worse.) The 50-50 basis is also how ASCAP, BMI and SESAC distribute public performance royalties they collect from radio, television, restaurants, clubs, retail stores and other establishments that have live or pre-recorded music.

The Lawsuits over Pre-1972 Recordings

As mentioned above, owners of pre-1972 sound recordings do not enjoy a federally protected right to license public performances over terrestrial radio and television. The issue for these owners (who will not be copyright holders until 2067) is how to get paid now. The Turtles, who recorded the pop hit “Happy Together” in 1967, filed class action suits in August 2013 in New York, California and Florida on behalf of all owners of pre-1972 sound recordings whose works are played by SiriusXM. The suits allege that their public performance rights are covered by state statute or common law. A month after they filed suit, Capitol Records, Warner Music Group, Sony Music Entertainment, UMG Recordings, and ABKCO Music & Records, also filed a similar suit in California state court alleging infringement of California statutory and common law copyright. Given that there is no express exclusive right of public performance for sound recordings under any state law, the suits are likely to turn on whether making copies of those sound recordings for sole purpose of facilitating transmission amounts to bootlegging. There is a substantial likelihood that these suits will be dismissed. (A motion for summary judgment is pending before Judge McMahon in New York.)[6]

Are Current Royalty Rates Fair?

In order to answer the question of whether the rates are fair, one needs to take into account a number of facts about the current music business and how the various rights holders envision their future. ASCAP and BMI are not collecting the public performance royalties they were a decade ago because the advertising revenues of terrestrial radio and television stations have steadily declined, and it is on the basis of revenues that the performing rights organizations earn their royalties. Currently, terrestrial music stations pay ASCAP 1.7% of “revenues subject to fee from radio broadcasting,” which basically means all revenue received by the station from advertising and promotion, less a 12% deduction to cover costs attributable to administration and commissions.[7]

Unlike terrestrial radio stations, Pandora has to pay ASCAP 1.85% of its annual revenue.[8] ASCAP, not to mention all its publishers and songwriters, was unhappy with the decision: it asked for 3% for 2014 and 2015. Based on Pandora’s net profits, it is difficult to see why the publishing industry believes that non-interactive streaming services should pay more than terrestrial radio. But according to ASCAP’s CEO, John LoFrumento, the fact that Apple agreed to pay songwriters and publishers 10% of its revenues for iTunes Radio in a direct deal (i.e., without resort to the rate court) proves that the “market rate” for online streaming is much higher than what Pandora was ordered to pay. As it is, Pandora will pay a total of about 4% of its revenue to the music publishing industry and another 50-60% to record companies (and most of that to the Majors).[9]

With the help of this rather lengthy introduction, the reader will hopefully be well-disposed to consider these additional facts and circumstances:

The Record Industry is in Crisis. For the Majors and other sound recording owners whose economic survival is based on the sale and exploitation of sound recordings, streaming appears to be their best, and for the foreseeable future maybe their last, hope. Although downloads have made up some of the loss in physical record sales, the iTunes and Amazon model of selling individual tracks destroyed the prospect of record companies being able to sell albums to consumers. Why buy an album when you can buy the few great songs on it for a third or a quarter of the price? But ever since the advent of the LP, it was in album sales that record companies have earned their money.

Now, of course, consumers don’t even want to buy downloads, but are preferring in ever greater numbers to being able to access a wide range of music on their computers, tablets and mobile photos. The preference is a response to a number of factors, among them, the Majors’ policy (only partially abandoned) to force digital rights management on purchased downloads; the fact that the purchaser doesn’t own the download (it’s “licensed,” not owned) and can’t legally share it with others; and efforts by the Majors (through the RIAA) to teach the public through well-publicized litigation that consumers who receive purchased music from others may be liable for copyright infringement. It’s no wonder that consumers have come to prefer streaming services. The market has spoken: “Just give me the music and let me listen to it when and where I want.” That leaves record companies trying to wrest from streaming services the income they’re losing from album sales. Publishers are in a similar position, because when albums were sold they could earn mechanical royalties on music compositions that would never receive radio play or any other licensing opportunities.

Streaming Services Aren’t Profitable. It’s no secret that Pandora and Spotify aren’t profitable. Nor will they be for the foreseeable future if they have to rely on subscriptions from listeners. In March, Recon Analytics said that Beats Music could become profitable if it had 5-10 million subscribers.[10] That assessment, however, was based on Beats Music’s subscription fee at the time, which was $119.88 per year. Now that Beats Music is owned by Apple (and can take advantage of Apple’s unlimited deep pockets), the subscription price has slipped to $99.00, and if competition heats up between streaming services, it may go even lower. That means Beats Music will need many more subscribers — not merely 20% more, because more subscribers also means that Beats Music has to pay higher royalties to rights holders. Moreover, even the $99.00 per year price is unrealistic, given that the average music fan spends between $48 and $64 per year on music.[11] It’s a tall order to expect consumers to pay for streaming two times what they would pay for purchased music.

Although Pandora hopes to turn a profit in 2014, if it does, it will not do so from subscription sales. People tend to be impressed by Pandora’s revenue figures, which were $194.3 million for the first quarter of 2014, but $140.6 million of that was from advertising revenues and Pandora posted a net loss for the quarter of $28.9 million. Pandora paid “only” 55.7% of its revenues for content acquisition (which includes payments to ASCAP and BMI) in the first quarter of 2014, far lower than the 74.5% it spent in the first quarter of 2013, but whether Pandora will sustain that lower rate seems doubtful in the face of strong opposition to lower rates from the record and music publishing industries, as well as recording artists and songwriters.[12]

This problem of unsustainable royalty obligations is not limited to Pandora. Online music services that offer interactive streaming, like Spotify, are generally paying 60-70% of their revenue for content licensing.[13] Despite such large payouts, Spotify and other streaming services has been excoriated by artists including David Byrne, Thom Yorke, Bette Midler and Coldplay, among many others. Independent artists and songwriters are also disgusted. In addition to earning literally almost nothing from the streaming services, they have accused Spotify of ” giving independent and unsigned musicians a lower royalty rate than major label musicians for the same number of streams.” (Note that on the musical compositions side, the ASCAP and BMI consent decrees prohibit this kind of discrimination.)[14]

In the face of all this opposition, no one really expects that streaming services are going to be paying less to rights holders at any time in the future. The solution, then, appears to be in selling advertising revenue, linking streaming services with mobile deals and bundling — i.e., offering music streaming services together with other services, like paid-for downloads. Stand-alone streaming services might also sell users’ behavioral data (i.e., what they listen to) to advertisers and others who “could use that information to better target their advertising.”[15]

The most viable business model, however, will be to offer streaming services as part of much bigger packages, as Amazon may do with Amazon Prime, which for $99 a year, gives its customers free two-day shipping.

By bundling product shipping, video and music together, Amazon can deftly hide the price of each of the services from consumers, encouraging them to buy all instead of none — and overcoming signup barriers music services have always faced…[16]

Just as cable companies offer its subscribers bundles of channels they’ll never watch (just so they can receive those that they want), so Amazon could offer its customers an overall package price covering 2-day shipping, music and video streaming and e-book lending.[17] Few customers will use all those services to maximum benefit, but their money will fund content acquisition across the board. Of course, Amazon could also subsidize its streaming service by bundling it with paid-for downloads, thereby fostering greater customer loyalty. This is what Amazon did with Amazon Prime, “where the company makes up for its losses on shipping costs by turning casual Amazon customers into frequent buyers.”[18]

Then there is Apple, which is in the position to subsidize its streaming services through selling far more profitable platforms and devices (iPhones, iPads, Apple computers and Beats headphones) on which to use those services. It is only because Apple doesn’t need to earn a profit on music streaming that it could offer publishers and songwriters a much higher royalty rate than its competition, and then turn around and make deals with recording artists like Coldplay, The Black Keys and Beyoncé, who have given iTunes varying degrees of exclusivity to their music.[19] Standalone streaming services like Spotify and Pandora are no match for this kind of integrated market power.

There’s no such thing as a benevolent monopoly. When companies have monopoly power, they use it. First, it’s no secret that the Majors (and not publishers) earn most of the money paid by streaming services to rights holders. This is solely due to the fact that public performance rights for musical compositions and public performance rights for non-interactive streaming of sound recordings are regulated, while the use of sound recordings in interactive streaming is not. Consequently, services offering interactive streaming have to cut deals with each of the Majors, who use their monopoly power to extract high fees and other terms (such as high advances and royalty guarantees) from the service providers.

Second, it is manifestly clear that if music publishers could use their monopoly power in the same way as the Majors, they would. Under prodding from publishers, in 2011, ASCAP tried to get around the consent decree royalty structure by allowing its members to withdraw new media services (i.e., digital rights) from ASCAP’s performing rights licenses, but it was rebuffed by the court. Had ASCAP succeeded, the Majors’ publishing affiliates could have negotiated “steep license fees, which ASCAP could then use to establish higher royalties in the rate court” for independent publishers. Independent publishers were understandably less enthusiastic, as they knew that the big three publishers would take a disproportionate piece of the royalty pie, leaving crumbs for the independents.[20]

Third, using their monopoly power, the Majors have and will continue to set an extremely high bar for new entrants in the music streaming business. Similarly, Amazon and iTunes will continue to use and extend their monopoly power market to shut out their competition wherever they can.

Some Conclusions.

Congress needs to decide whether the current state of affairs needs to be addressed through legislation. Do publishers and songwriters receive too little a share of the overall royalty pie? The answer appears to be “yes.” Are the Majors extracting too much money from streaming services? To the extent that they leave independent companies and artists with a disproportionately lesser share of royalties, the answer also appears to be “yes.” Congress should consider leveling the playing field for sound recording copyright owners in general, much as the consent decrees leveled the playing field for publishers and songwriters by ensuring that performing rights royalties for publishers and songwriters are paid at the same rate, rather than a rate determined by the relative negotiating power publishers.

However, Congress also needs to decide whether greater competition among streaming services is itself a worthy goal and whether that goal can co-exist with the royalty rates that record companies, music publishers, recording artists and songwriters say they need. To put this into proper perspective, any talk of “fair market value” is empty rhetoric given the high degree of concentration in the music recording and publishing industries and, increasingly, music streaming services. “Fair” is simply whatever the market will bear at any given moment, and one can hardly begrudge rights holders from negotiating the highest possible royalty rates and then engaging in tactics intended to push those rates even higher. What is clear is that rights holders do not view the stand-alone streaming service, whether interactive or non-interactive, to be a viable business model because such a service could never generate the revenues that rights holders want. Rights holders are also aware that consumers will only pay so much for music streaming and that their only viable recourse is to require the streaming services to seek alternative sources of income.

Congress must also address whether terrestrial radio and television should continue to be exempt from paying performing rights royalties for sound recordings. That exemption was won by broadcasters back in 1970 and maintained ever since then under the theory that radio play gives record companies free promotion, which stimulates record sales. However, the rationale fails to be persuasive when digital broadcasters are required to pay such royalties. If Congress decides that terrestrial radio must pay, then it will also need to decide how rates will be set — whether by statute, rate courts or private negotiation, where the Majors can freely exercise their monopoly power. (The latter seems unlikely.)

Finally, Congress should bring pre-1972 recordings under federal copyright law now, so that the owners of these recordings can participate in sound recording performance royalties. Ending state and common law protections for pre-1972 recordings would also reap a positive benefit to the public, since at the moment, there are no pre-1972 recordings in the public domain and won’t be until 2067. Admittedly, it would open up a can of worms: Congress would have to decide exactly when pre-1972 recordings would enter the public domain and under what criteria. Due to the piecemeal way in which Congress has historically dealt with copyright laws, copyrightable works (other than sound recordings) published without a copyright notice prior to January 1, 1978, are currently in the public domain, as are works that were published with a copyright notice between 1923 and January 1, 1964, but never renewed via registration at the Copyright Office. (Works published after 1977 are not required to be registered and enjoy copyright terms ranging from 70 years from the death of the author, 95 years from the date of publication, or 120 years from the date of creation, depending on a number of factors.)[21] Obviously, copyright protection for pre-1972 recordings cannot depend upon whether they were released with copyright notices – none were – but Congress will have to determine, somewhat arbitrarily, when their copyright terms will expire. Congress will have to address other problems as well, such as what to do about orphan works and the extent to which statutory damages should apply to infringements.[22]

[1] Federal Copyright Protection for Pre-1972 Sound Recordings, A Report of the Register of Copyrights, December 2011, pp. vii and 13-16,  http://www.copyright.gov/docs/sound/pre-72-report.pdf

[2] “Federal Court Approves Radio Industry Settlement with ASCAP,” http://www.radiomlc.org/pages/4795848.php

[3] The explanation here is necessarily simplified. For a more complete explanation, see http://www.soundexchange.com/service-provider/licensing-101/#sthash.n4MSXwCV.dpuf. For a look at procedural regulations governing the Copyright Royalty Board, see http://www.loc.gov/crb/fedreg/2005/70fr30901.html.

[4] Comments of Public Knowledge and the Consumer Federation of America, “In the Matter of Music Licensing Study: Notice and Request for Public Comment,” Docket No. RM 2014-3, before the United States Copyright Office (hereinafter, “Public Knowledge”), p. 11, http://www.publicknowledge.org/assets/uploads/documents/PKCFAComments.pdf

[5] Id., p. 16

[6] In April of 2013, a New York appellate court decided that the Digital Millennium Copyright Act’s “safe harbor” provisions did not protect a website with user-generated content from claims of infringement on pre-1972 recordings on the grounds that pre-1972 recordings do not enjoy protection under federal copyright law. The New York high court, called the New York Court of Appeals, declined an appeal from the appellate court decision. Eric Goldman, “More Evidence That Congress Misaligned the DMCA Online Copyright Safe Harbors (UMG v. Grooveshark),” April 24, 2013, http://www.forbes.com/sites/ericgoldman/2013/04/24/more-evidence-that-congress-misaligned-its-online-copyright-safe-harbors-umg-v-grooveshark/. The United States District Court, Southern District of New York, reached a similar conclusion in a case involving the video-sharing service, Vimeo. An appeal of that decision is pending before the 2d Circuit Court of Appeals. See, Richard L. Crisona, S.D.N.Y. Intellectual Property Law, http://ipblog.abv.com/2013/12/court-certifies-interlocutory-questions.html. Nevertheless, the New York courts have not yet decided whether broadcasting pre-1972 recordings online violates New York misappropriation laws or “common law” copyright.

[7] “Federal Court Approves Radio Industry Settlement with ASCAP,” http://www.radiomlc.org/pages/4795848.php

[8] Ed Christman, Rate Court Judge Rules Pandora Will Pay ASCAP 1.85% Annual Revenue, http://www.billboard.com/biz/articles/news/publishing/5937528/rate-court-judge-rules-pandora-will-pay-ascap-185-annual

[9] Id.

[10] Bruce Houghton, Beats Music Added 1000 Subscribers Daily In First Month [Report], 3/20/2014, http://www.hypebot.com/hypebot/2014/03/beats-music-added-1000-subscribers-daily-in-first-month-report.html

[11] David Pakman, The Price of Music, March 18, 2014, http://recode.net/2014/03/18/the-price-of-music/

[12] Stuart Dredge, “Mobile now 76% of Pandora’s business, but profits remain elusive,” April 25, 2014, http://musically.com/2014/04/25/pandora-financial-results-mobile/. Regarding anger by songwriters, see, e.g., http://www.hollywoodreporter.com/earshot/bette-midler-critiques-pandora-spotify-693961 and

[13] Lucas Mearian, “Music industry sucks life from subscription services,” Feb. 14, 2014, http://www.computerworld.com/s/article/9246365/Music_industry_sucks_life_from_subscription_services, quoting a market report from Generator Research.

[14] Public Knowledge, p. 15, 17.

[15] Mearian, footnote 13.

[16] Paul Bonanos, Business Matters: How Amazon Could Have ‘Tens of Millions’ of Paid Streaming Music Subscribers Instantly,” April 10, 2014, http://www.billboard.com/biz/articles/news/digital-and-mobile/6049214/business-matters-how-amazon-could-have-tens-of-millions

[17] Id.

[18] Id.

[19] Andre Mouton, “Can Apple Win Over a Music Industry Burned by Pandora?” http://www.minyanville.com/sectors/technology/articles/Can-Apple-Win-Over-A-Music/5/27/2014/id/55096?refresh=1

[20] Public Knowledge, p. 16.

[21] “Copyright Term and the Public Domain in the United States, 1 January 2010, http://www.copyright.cornell.edu/resources/publicdomain.cfm.

[22] The issues have been greatly simplified in this article for brevity. For a broader discussion of the problem, see, Laura Moy, “Protecting Sound Recording Artists and Getting It Right This Time,” December 4, 2013, https://www.publicknowledge.org/news-blog/blogs/protecting-sound-recording-artists-and-gettin.

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