Congress Revisits the Age-Old Copyright Performance Royalties Loophole

Access practice tools, as well as industry leading news, customizable alerts, dockets, and primary content, including a comprehensive collection of case law, dockets, and regulations. Leverage...

By Mahira Khan  

After over two years without a congressional hearing, a subcommittee in the House Energy and Commerce Committee heard testimony on the “Future of Audio” June 6, awakening the dormant copyright performance royalties issue.

As witnesses expressed the need to support innovation and a legal system that adapts to rapidly changing technology, it soon became clear that the long-standing debate on performance rights legislation as applied to broadcasting companies needed to be resolved first.

Performance Royalties Loophole.

The House and Senate Judiciary Committees, which have jurisdiction over the issue, last acted on the matter in the form of two 2009 bills, H.R. 848 and S. 379, which sought to create a statutory public performance right for recording artists whose recordings are transmitted by broadcast stations (23 PTD, 2/6/09). Such a performance right would allow copyright owners to obtain royalties currently denied to them.

The twin bills were the subject of both House and Senate Judiciary Committee hearings(23 PTD, 2/6/09; 149 PTD, 8/6/09; and 62 PTD, 4/3/09). The House Judiciary Committee approved H.R. 848 in May 2009, and in October, the Senate Judiciary Committee approved an amended version of S. 379 (91 PTD, 5/14/09; 198 PTD, 10/16/09).

However, there were no further developments until August 2010, when the interested parties circulated a proposed compromise that included a mandate for wireless carriers to equip mobile phones to received and play FM radio signals (163 PTD, 8/25/10). Broadcasters later voiced support for “limited” performance rights, conditioned in part on the FM chip mandate (206 PTD, 10/27/10).

In March 2011, the Office of the Intellectual Property Enforcement Coordinator released a white paper asking Congress to enact public performance legislation (52 PTD, 3/17/11). The white paper expressed the Obama administration's view that providing public performance rights would improve international intellectual property enforcement efforts.

In Favor of Statutory Performance Royalties.

It was expected that the IPEC's white paper might prompt reintroduction of the performance rights legislation, but the lawmakers did not take up the issue again until the June 6 hearing. And rather than the Judiciary Committees, it was the House Communications and Technology Subcommittee that heard testimony from technology, recording, and broadcasting companies.

The subcommittee chairman, Rep. Greg Walden (R-Ore.), a former radio owner and producer, opened the hearing by giving his former employer's “station identification,” then remarking that the performance royalties issues have “vexed [the] industries for years.”

Tim Westergreen, founder of Pandora, noted the current disparity between over-the-air terrestrial radio broadcasters--which are not yet required to pay royalties to performers and record companies whose music they play on the radio--and online broadcasters like Pandora, which do have such an obligation.

“The inequity arises from the fact that Congress has made decisions about radio and copyright law in a piecemeal and isolated manner,” Westergreen told the subcommittee. “As each new form of radio transmission was invented, new legislation was passed but only to address the new form. The effect has been to penalize new media and advantage old media when setting the rules for music royalties.”

According to Westergreen, the performance fees that Pandora paid to performance artists last year amounted to 50 percent of the company's revenue.

Artists and musicians have been fighting for their right to performance royalties from broadcasters for years in this country. Ben Allison, a bassist and composer as well as governor of the New York chapter of the National Academy of Recording Arts and Sciences, argued that every developed country in the world except for the United States secures its artists the right to royalties from over-the-air broadcasters.

“To add insult to injury, terrestrial broadcasters are now asking for another legislative perk--a mandate to include FM receivers in smart phones,” Allison said. “They already exploit one anomaly in the law--they do not pay performers while new audio technologies do. Now they want a second legislative anomaly--to have a free ride--quite literally--on the backs of new devices,” he testified.

FM Chip Mandates Face Strong Opposition.

Jeff Smulyan, CEO of Emmis Communications, advocated for free access to radio on mobile phones, despite his clear rejection of congressional mandate of FM chips.

Smulyan pointed out that although 59 out of the hundreds of mobile phones currently on the market have FM chips, most of them are not activated, and “the market has been closed in this country.” Radio chips would provide life-saving information during times of emergency, at no cost, he said.

According to a recent Harris Poll, Smulyan claimed, “81 percent of those polled who own a mobile phone would consider paying a small, one-time fee to access their local radio stations.”

Yet, Rep. Anna G. Eshoo (D-Calif.) introduced a consumer survey in which virtually none of the consumers across the board, ages 18 to over 65, selected the FM chip as a cellular phone feature that is most important to them.

Gary Shapiro, president and CEO of the Consumer Electronics Association stated, “Why not mandate them in cars, in lights, in pillows? Why all of a sudden smart phones?”

Radio and Record Label Deal as Torch-Bearer.

The day before the hearing, the nation's largest owner of radio stations, Clear Channel, made public its agreement with Big Machine, a Nashville record label. Many see this new royalties deal as a breakthrough.

The agreement would allow for Big Machine and its artists, including Taylor Swift and Tim McGraw, to share in Clear Channel's terrestrial broadcast as well as digital radio revenue.

Cary Sherman, head of the Recording Industry Association of America, largely supported the new deal. “It's a breakthrough. We've been advocating for this for about 80 years so obviously it's very important, but we need an industry-wide solution, not a label-by-label, piecemeal solution.”

Congress may have to decide whether to require performance royalties from broadcasters before it takes up the issue of mandating FM chips in mobile phones.

As Allison said, “Artists believe Congress should address the first anomaly [performance royalties] before there can be any discussion about the second [FM chips]. With the largest radio broadcaster agreeing that a terrestrial performance right should exist, there is no longer any legitimate argument for the NAB to oppose the right.”

Although the Energy and Commerce Committee does not have jurisdiction over copyrights, this oversight hearing may revive the discussion on change to the copyright broadcast loophole.

By Mahira Khan  

Testimony at

Request Intellectual Property on Bloomberg Law