For more than a year now the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet has been conducting a series of hearings as part of their comprehensive review of the Copyright Act. The hearings, which have covered everything from fair use to DMCA notice and takedown provisions, and preservation of copyrighted works, have allowed copyright experts and stakeholders in copyright driven industries to share with Congress both their evaluation of current law, and their thoughts about what effect changes to the law could have on their industries. The ultimate goal of this process is to inform a full revision of the Copyright Act, which has not happened since the 1970s.
In their three most recent hearings, the subcommittee has turned its attention to issues that are of great importance. These issues, first sale and music licensing practices, are likely to be among the first addressed when this process reaches its legislation stage.
The first sale doctrine is a rather interesting element of copyright law. Essentially what it does is affirm the property rights of the owner of a particular copy of a copyrighted work. This means that when you buy a physical copy of a book, album, drawing, or any other copyrighted work you have the right to use, alter, destroy, and, most importantly, resell that copy. There are, however, limitations to the rights imparted by sale. For works of particular cultural value, that value often supersedes the rights of the owner of the physical copy to alter or destroy the work. For example, if I were to purchase Andy Warhol’s Campbell’s Soup Cans I would not be allowed to modify it to display 50 cans of Progresso soup. Additionally, first sale currently does not apply to digital copies of a work.
In the first sale hearing, which was held on June 2, there was little objection from the witnesses to the value of physical first sale. Greg Cram, the Associate Director of Copyright and Information Policy for the New York Public Library discussed the importance of first sale for libraries, many of which receive a large amount of their material through donations made possible under first sale. Others praised its integral role in the dissemination of works to underserved areas where new copies of a work can be prohibitively expensive. Stephen Smith of publishing company John Wiley & Sons did, however, raise an objection to the Supreme Court’s ruling in Kirtsaeng v. John Wiley & Sons, Inc., in which the court upheld Cornell student Supap Kirtsaeng’s right under first sale to purchase inexpensive textbooks in his native Thailand and resell them to students in the United States at a price that was still well below their American list price. Wiley’s objection received little support in the hearing, as the primary effect of the ruling has been to force book publishers to create slightly more equitable prices across regions of the globe.
The majority of the hearing was spent discussing the controversial concept of digital first sale. ReDigi founder John Ossenmacher was the primary voice in support of digital first sale, claiming it would have many benefits, including those that physical first sale creates for underserved areas. ReDigi is one of the top platforms for digital resale, allowing users to resell audio files, software, and eBooks. In response to some of the main objections to digital first sale, Ossenmacher asserted that ReDigi’s software both ensures that the seller obtained the file legally, and that they are not retaining a copy of the work after the sale. Many, however, were skeptical of the efficacy of ReDigi’s software, including Rep. Hakeem Jeffries (D-NY). Others were concerned that a digital secondary market would harm the market for originals because unlike secondhand physical copies, which are often blemished in some way, secondhand digital copies are perfect copies and therefore indistinguishable from those obtained though the primary market. Ossenmacher and others will continue to make the case for digital first sale; however, without more data on its effects it is unlikely to be recognized by law.
When current Register of Copyrights Maria Pallante called for a comprehensive review of the Copyright Act music licensing was one of her top priorities. In her testimony before Congress last March, she stated that “Music licensing is so complicated and broken that if we get that right, we can get the whole [copyright] statute right.”1 Since then, the Copyright Office has been conducting a music licensing study that has included a notice of inquiry on music licensing (to which music industry stakeholders have responded) and a series of roundtable discussions on music licensing held in Los Angeles, Nashville, and New York. Congress has placed similar emphasis on music licensing in its review, allocating to it two separate hearings, one on June 10 and the other on June 25. The hearings featured witnesses representing PROs, terrestrial radio, the recording industry, the publishing industry, digital music services, and independent musicians.
In both hearings quite a bit of time was spent discussing issues surrounding performance rights. There was quite a bit of support amongst the witnesses for the RESPECT Act, which would compel Internet and satellite radio services to pay for the performance of pre-1972 sound recordings. Lee Knife of the Digital Media Association was among the few to oppose the act, claiming that it would only further complicate music licensing, which has frequently been described as a patchwork of fixes, and that pre-1972 recordings should instead receive full federal protection. In the second hearing, RIAA CEO Cary Sherman agreed that the recordings should be fully federalized, but maintained that the bill would give legacy artists access to an important revenue stream during the complicated and long process of federalization. Similar support was shown for the Protecting the Rights of Musicians Act, which would create a performance right for sound recordings on terrestrial radio. The U.S. is currently one of a very few countries without such a right, the absence of which denies sound recording owners a significant amount of income from domestic, and international radio play. Unsurprisingly, terrestrial radio representatives, including Charles Warfield of the National Association of Broadcasters, opposed the passage of this bill. They relied on their old argument that radio provides incredible exposure for artists, and that that exposure should be adequate compensation. While it is true that radio play provides exposure for artists, it is also the case that music purchasing, whether physical or digital, has fallen sharply, and income derived form public performances represents a significant portion of an artist’s income.
On the publishing side the discussion was centered on rate setting procedures. Representatives from every publishing related entity supported the Songwriter Equity Act, which would require federal rate courts to attempt to set rates at fair market value. One of the key elements in achieving a fair value is allowing the rate courts to take sound recording rates into consideration during the rate setting process. Digital music services have been highly critical of this approach for a couple of reasons. First, this rate setting process would undoubtedly result in even higher royalty for them. Second, it was the publishers themselves who asked for the sound recording rate not to be a consideration. Publishers did this because they assumed that the initial rates set by the Copyright Royalty Board for sound recordings were going to be extremely low, far lower than those for the composition. The publishers feared that using such a low rate as a benchmark when setting the composition rate would result in a significantly lower royalty for them. Unfortunately for them, the CRB set the rate well above that of the composition, and now that they see an opportunity for increased royalties, they want the restriction on the rate courts’ considerations to be lifted.
The consent decrees governing both ASCAP and BMI were a major area of discussion as well. Representatives from the two PROs as well as the publishing industry were highly critical of them, and called for varying degrees of changes. Both ASCAP’s Paul Williams, and BMI’s Michael O’Neill argued that their members should be able to selectively license their works. This suggestion, however, is rather problematic, as the statutory blanket licenses made possible under the decrees give streaming services easy access to a massive amount of content. Individually negotiated licenses almost always create inefficiencies in the marketplace, and songwriters removing themselves from blanket licenses would force digital music services to either pull a lot of content or open themselves to massive liability. NMPA head David Israelite argued that the decrees prevent free market negotiations. While this may be true, it is worth noting that free market and fair market are not always synonymous. Given the massive consolidation present in the music industry, it is likely that a free market would only be fair for those represented by major labels and publishers. Songwriter Lee Thomas Miller took the most extreme position, calling for the complete elimination of the consent decrees, arguing that they are completely outdated. The decrees are certainly quite outdated. However, Mr. Miller my be ignoring a provision requiring that the songwriter’s portion of royalties be paid directly to the songwriter. Without such a requirement, the full royalty would pass through publisher and likely be subject to recoupment, thereby reducing songwriter income. The consent decrees will take center stage in the next few months as the Department of Justice has initiated a full review of them.
The Future of Copyright
Unfortunately it is unlikely that we will see a completely new Copyright Act anytime soon. The process to create the Copyright Act of 1976 began in the mid-1950s, and since then Congress has become increasingly partisan and ineffective: in the past year it has only passed 1% of all the bills introduced.2 That being said, the review, along with the inclusion and hearing of artists, is a positive step forward. The Copyright Office, with Maria Pallante at the helm, is expected to continue reaching out to Congress promoting reform.
By Griffin Davis
Our Correspondent in Washington, DC