DMCA-based appeal fails, Yahoo's Launchcast prevails in royalties row

In a summary judgment this morning, a three-judge panel of the US Second Circuit Court of Appeals affirmed a lower court ruling that Yahoo's Launchcast music service does not have to pay performance royalties in addition to licensing fees, on account of the fact that like terrestrial radio, the service is not interactive.

Today's finding may set precedent for both online and broadcast radio, for having affirmed the legal notion that in order for a presentation of music to count as a performance, it must be directly requested by the listener. While Congress remains split over whether conventional broadcast stations should be responsible for performance royalties to the same degree as Internet providers such as Last.fm and Pandora, US law presently states that the distinction between the two classes deals specifically with interactivity -- the degree to which the listener has explicit control over what she's hearing. If no such control exists, the judges affirmed today, then there's no "performance," thus no royalties for performance apply.

In opening his panel's official ruling, Judge Richard Wesley was under no illusion that this finding was ordinary or somehow unimportant: "We are the first federal appellate court called upon to determine whether a webcasting service that provides users with individualized internet radio stations -- the content of which can be affected by users' ratings of songs, artists, and albums -- is an interactive service...If it is...[then] the webcasting service would be required to pay individual licensing fees to those copyright holders of the sound recordings of songs the webcasting service plays for its users. If it is not an interactive service, the webcasting service must only pay a statutory licensing fee set by the Copyright Royalty Board."

Judge Wesley went on to cite US Code, defining an interactive service in this context as something "that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording...which is selected by or on behalf of the recipient."

The original plaintiff in this case was Bertelsmann Music Group, later known as Sony BMG, and now Sony Music. The appeal on BMG's behalf argued that since Launchcast presented music that was tailored to its listeners' desires, that degree of communication constituted interactivity.

But then BMG went one very big step further, arguing that Launchcast's failure to abide by its performance royalties responsibility constituted a circumvention of the Digital Millennium Copyright Act. The DMCA asserts that copyright is infringed whenever an unauthorized party produces a program made up of non-licensed material. But the judge thought big too, invoking the memory of no less than Justice Oliver Wendell Holmes, from a classic decision dated 1918: "A word is not a crystal, transparent and unchanging, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used."

When copyright law was amended in the 1970s, Judge Wesley recalled, it continued to protect radio stations, explicitly referring to the symbiotic relationship between them and record producers. Radio gives the producers the advertising and promotion needed to incite people to go buy music. He admitted the Internet has muddied that relationship somewhat, and that by making it feasible for an individual to reproduce a digital recording with as good a quality as the original (or good enough), the notion that you can't really make a record off of the radio anyway, no longer applied.

But that change of affairs is precisely the reason why the law chose to distinguish between an interactive service and a non-interactive one -- an individual may only willfully infringe copyright if he requests an illegitimate, non-licensed transmission of a performance, gets it, and records it in pristine quality. Whether the party transmitting the recording is violating copyright depends on whether it's sending out recordings for the purpose of being copied (e.g., The Pirate Bay). Wesley cited a House of Representatives report stating how Congress arrived at its language for what constituted a "request" on the part of the listener, making certain, for instance, that the law still enabled one party to make a request on behalf of a big group of listeners. (Thus the "KOMA Café" request show on my favorite oldies station doesn't make KOMA interactive.)

In recalling how Launchcast works -- or, rather, once worked -- Judge Wesley explicitly noted that the service took information from its users, but then built its own program of songs: "Whenever the user logs into Launchcast and selects a station, Launchcast generates a playlist of fifty songs based on several variables. Launchcast does not provide a list of the pool of songs or of the songs in the generated playlist, and therefore, the user does not know what songs might be played." Other users' ratings for songs -- users the listener doesn't even know -- played a factor in the service's program determination.

There's a lot of strange variables involved in the automatic selection of programs for listeners, the judge conceded. He even spent several pages in the decision listing all of them individually. But that didn't mean he bought the argument that Launchcast was interactive: "It is hard to think of a more complicated way to 'select songs,'" he wrote, "but this is the nature of webcast music broadcasting in the digital age."

And in a closing explicitly designed not only to survive appeal to the Supreme Court, but to serve as a signal to the recording industry, Wesley closed with this: "When Congress created the sound recording copyright, it explicitly characterized it as 'narrow.' There is no general right of performance in the sound recording copyright. There is only a limited right to performance of digital audio transmission with several exceptions to the copyright, including the one at issue in this case."

In other words, just because a song is played, in all the clarity that digital performance can give it, doesn't mean the song is performed. There are exceptions to that rule, but this isn't one of them.

It wasn't a complete win today for Launchcast; the three-judge panel later issued a summary judgment denying Launchcast's motion to recover court costs, claiming BMG's suit was frivolous and malicious. But besides that, it is a huge victory for online music providers. Although Launchcast today is merely another Yahoo-based portal for CBS Radio (as is AOL Radio), and no longer operates in the manner Judge Wesley described, services like Last.fm (also owned by CBS) and Pandora now have reason to celebrate and hope.