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By Barry Neil Shrum & Nathan Drake

Since before the day that Napster was a twinkle in Sean Parker’s eye – well over a decade ago now – the legal and music industries have each struggled with ways to cope with and transform their dusty old business models from the physical status quo to the digital revolution. After the industry watchdog, the RIAA, initially targeted the Diamond Multimedia’s Rio MP3 player and then Parker, and then finally individuals were illegally downloading, the major record labels began to realize something: that perhaps the fact that consumers were downloading music illegally was merely a symptom of the problem rather than the source of the problem. So, the RIAA also began suing P2P file-sharing websites that sprang up instantly in the place of Napster, websites like Kazaa and LimeWire. While this method proved to be a bit more effective, the process still accomplished little in preventing future P2P file sharing services from materializing, each taking the place of its predecessor and each growing as rapidly as the one before. In yet another continuing effort to solve the music industry’s nightmare, new legislation has been introduced to Senate which is entitled “Combating Online Infringement and Counterfeits Act.” (S. 3804)

The purpose of the “Combating Online Infringement and Counterfeits Act” (COICA) is to provide owners of intellectual property additional weapons in the battle against illegal downloading. As indicated, the inherent difficulty of deterring and prosecuting these myriad individuals who aimagere profiting off copyrighted materials is that they easily hide behind the anonymous wall of the Internet. Many of the sites providing access to this illegal property are situated well off the shores of the United States, overseas and beyond the long reach of the court’s jurisdiction.

Another problem is the sheer mass of the problem. One study indicates that as much as 1 in 4 Internet users download illegal music – an astonishing statistic! Let me state that another way: 25% of the traffic on the Internet is to sites that allow illegal downloading of copyrighted material, be it digital books, movies or music.

As Senator Leahy, one of the sponsors of COICA says, it is essential that the government enforce a

“means for preventing the importation of infringing goods by rogue websites, particularly for sites that are registered overseas.”

Through focusing on the domain names, COICA gives the Department of Justice the authority to pursue and prosecute offending website, both domestically and abroad. Incentivizing and rewarding creative endeavors remains the core ideology of American copyright protection, and instilling this value in our society is crucial if our society will continue to create. According to the Chamber of Commerce, “…American intellectual property accounts for more than $5 trillion and IP-intensive industries employ more than 18 million workers.” Therefore, protecting this integral aspect of American ingenuity and economy should be a priority.

Additionally, COICA provides universal jurisdiction to the Department of Justice in pursuing and prosecuting domain names that solicit American intellectual property in the United States. If the law succeeds, individuals committing copyright infringement will no longer be able to hide behind the protection of their native country, without fearing that their action can and will be pursued by the United States.

In addition, COICA allows third party participants to be prosecuted for “enabling” the website to sustain itself and lend legitimacy to the practices and products of the website. As Senator Leahy states, “These [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][third] parties monetize the Internet site by enabling U.S. consumers to access the infringing website, to purchase content and products off the website, and to view advertisements on the website. Without partnering with these entities, the financial incentive to run an infringing Internet site is greatly diminished.” Those directly and indirectly supporting copyright infringement will be prosecuted.

For the purposes of COICA, the government defines a website as, “dedicated to infringing activities.” Due to the outstanding number of infringing websites, the government intends to pursue only the most “egregious rogue websites that are trafficking in infringing goods.” To be considered an infringing website, one of two criteria must be identified. First, the website exhibits the “existing threshold for forfeiture” under U.S.C. 2323, or the website reveals no commercial value and intends to only sell copyrightable items protected under Title 17 of the United States Code.

One of the primary opponents to the passage of COICA is the Consumer Electronics Association (CEA). Although CEA supports and agrees with the general direction of COICA, they feel its vague and wide reaching language could potentially harm legitimate businesses that are not committing copyright infringement. CEA says, “Our primary concern is that the scope of S. 3804 was significantly broader than its intended purpose of shutting down ‘rogue’ or foreign websites solely engaging in the exchange of pirated content or goods.” The ambiguous language of COICA could potentially diminish previous milestone cases according to CEA, including the “Betamax Case” determined by the Supreme Court in 1984.

While the technological environment is constantly changing and creating new hurdles for the consumer and business, the importance of copyright protection still remains. A constantly transforming environment requires innovative and relevant legislation to meet the creative needs of our culture. In an attempt to counter this decade long battle, legislation like COICA would allow the government to target the source of global piracy, and enforce the relevance and weight of American copyright protection. But our legislators must be certain to craft language that does not impede the rights of its citizens. Balance is need lest we resort to the overreaching, irrational, and over reactive activity the RIAA engaged itself in over the past decade.

RESOURCES & FURTHER READING

http://supreme.justia.com/us/464/417/

http://openjurist.org/title-18/us-code/section-2323/forfeiture-destruction-and-restitution

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_reports&docid=f:sr373.111.pdf


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The Senate Judiciary Committee is holding a high-profile hearing  today on the subject of imposing additional performance royalties on so-called “over-the-air” or “terrestrial” radio stations (I’ll just call them OTA’s in this article).  Investigative hearings such as these are usually precursors to legislation being introduced on the subject.  898993_antenna_4Grammy winner, Lyle Lovett and Chicago-based singer-songwriter Alice Peacock testified before the Committee this morning at 9:30 ET.  Their testimony was broadcast live at C-SPAN.

So, what is the issue.  OTA’s and the music industry are currently engaged in one of the biggest industry and lobbying battles to hit Washington in quite some time.  The OTA’s fired a recent shot when a concurrent resolution was passed by Congress.  Now, the music industry is firing back. 

One of my recent blog entitled New concurrent resolution, H.Con.Res 244, introduced to combat performance royalties for record labels gives some background on the issue, which is basically this:  Currently, OTA’s pay performance royalties to ASCAP, BMI and SESAC in the U.S. for airplay performances of the musical composition copyright.  They do not, however, pay a performance royalty to the owners of the sound recording copyright for over the air performances of the copyright.  The sound recording copyright is distinct from the musical composition copyright.

This is because when Congress introduced new legislation in the mid-90’s to grant sound recording copyright owners a right to performance royalties, it specifically excluded OTA’s from the legislation on the basis that the artists and record labels who owned the sound recording copyrights benefited from the publicity of over the air performances, which offset the need for payment of a performance royalty.    Keep in mind, again, that this does not apply to the performance royalties paid to songwriters and music publishers.

The effect of the Digital Performance Royalty in Sound Recordings Act of 1995 is that only digital performances of the sound recording copyrights are entitled to compensation.  This applies only to Internet webcasters, Cable Radio and Satellite radio stations.  These types of services — Pandora, Sirius, XM Radio, Last.fm, for example — pay performance royalties to both the owners of the musical composition copyright and the sound recording copyright.  Many industry groups are rallying to rectify what is viewed as an unfair advantage for OTA’s.

One such group is musicFIRST, which stands for “fairness in radio starting today.”  This organization is made up of a large and impressive group of recording industry groups and well-known artists.  Unfortunately, the RIAA’s involvement in this organization has diminished its reputation on many blogs, such as this article entitled Lovett goes to bat for radio royalties, the credibility of which is call into doubt by the fact that the writer is ostensibly unaware of Lyle Lovett’s reputation and notoriety.  But don’t make the mistake of slanting your opinion against musicFIRST based on that organization’s involvement.  Check out the website and seriously consider the issues and you’ll probably understand their perspective.

There is tremendous validity to the argument that radio broadcasts no longer hold the same sway over consumers that they did in 1995.  One research study conducted by Dr. Stan Leibowitz, an economics professor at the University of Texas, compared record sales and music radio listening habits in nearly 100 cities across the United States and found that exposure for a song on the radio was a substitute for purchasing the music and, therefore, actually had a negative impact on sales of music.  Critics point out that the study was funded, at least in part, by the musicFIRST coalition and say that there are studies which indicate the opposite, that is that radio airplay stimulates interests in new music and therefore encourages sales.  Think about your own habits – when was the last time you heard a song on the car radio and rushed to buy it?

Another argument propounded by the OTA’s in opposition to payment of royalties to the owners of sound recording copyrights is that it would put them out of business.  They simply can’t afford to pay more royalties for the music they use.  Of course, Internet webcasters and Satellite and Cable radio providers are saying “talk to the hand . . . call waiting!”   But the truth is that OTA’s get the bulk of their revenue from advertisers and their revenue increases if they attract larger audience by playing the latest music.  Furthermore, stock analysts are predicting that advertising revenues, in general, are on the increase for the foreseeable future.  One researcher, George Williams, reportedly found that the annual growth of radio advertising rates from 1996 to March 2007 was 10% a year, outpacing the Consumer Price Index by more than three times its 3% a year rate.  It is very doubtful that OTA’s revenues would be seriously altered by this legislation, in fact, the OTA’s would more than likely simply pass the additional costs on to advertisers.

The bottom line, in my view, is that the legislation, when it is finally proposed, will create a level playing field for the broadcasting industry, providing that both digital and OTA’s pay the same royalties.  This seems fair, doesn’t it?  Now, whether the powerful OTA lobby will prevent the passage of such legislation is a blog for another day. 

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Because of its settlements with the four major music publishers involved in the Napster case -estimated at over $400 million- the German media conglomerate Bertelsmann AG (FRA: BTG4) reported a first-half net loss of shareholder profit of €51 million ($69.4 million), compared to earnings to shareholder of €258 million euros ($351.2 million) in the previous fiscal year.  The last of the pending Napster cases was settled the in August.  The BMG division posted a net operating EBIT loss of €3 which was said to reflect the sell off of its BMG Music Publishing division, the market declining by 12 percent and exchange rate effects.  Bertelsmann’s announcement also stated that although it saw a strong growth in the sell of digital formats, this effect proved unable to compensate for the decline in physical sales, which equaled a drop of roughly 20 percent. Sony BMG expects to counter this trend by expanding its digital business,

What songwriters can do to improve their negotiating strength in an entertainment deal

A very common theme among my songwriter and artist clients is the subject of how they were “ripped off” by their record label and/or music publisher (for purposes of this general publication, I’ll refrain from using the actual, more vivid terms often used to describe the process!). They often feel as if they have not received the benefit of the bargain.

As an attorney who negotiates deals for these types of clients on a routine basis, however, I am frequently placed in the precarious position of walking a tightrope between trying to obtain as many concessions as possible from the opposing party while not pushing so hard as to, in my clients’ words, “blow the deal.” My clients want the best deal possible, but are very rarely willing to walk away from a deal if the terms and concessions are not good. As any good negotiator can tell you, your deal is only as good as your best alternative to the negotiated deal.

In some ways, this willingness to settle for less in order to salvage the deal feeds the very beasts songwriters and artists need to tame, i.e., the record companies and music publishers. Artist think that record companies have the ability to give them instant stardom – in fact, that is the dream of almost every struggling songwriter and entertainer. On the opposite end of the spectrum, however, record companies most certainly know that many artists are willing to “sell their soul” in order to obtain a deal.

The infamous controlled composition clause is the perfect example of how far an artist is willing to go for “the deal.” The United States government requires that a copyright owner be paid a minimum statutory rate for the mechanical reproduction of their creative work. The record label, however, turns to the artist and says, “Despite the government minimum, will you consent to accept only seventy-five percent of that to which we’re required to pay in order to get a deal?” “Furthermore,” the record label says, “we’ll only pay you seventy-five percent of statutory rate on ten compositions, no more, o.k.?” As incredulous as those questions might sound, the majority of artists throughout the history of the controlled composition clause have answered “yes” to those questions. From the record companies’ perspective, this negotiation process is just good business.

This disregard for the government’s requirements does not often occur in other industries outside of the music industry. If a company interviewing a potential employee suggested that the employee agree to an hourly rate that is less that the minimum wage, the employee would balk, and most likely the company would be reported and fined. The difference, of course, is that the employee in this scenario has a multitude of alternatives, as there are numerous companies to which he or she can apply that will pay minimum wage. That is not the case, of course, with entertainers. It has been said one’s odds of getting struck by lightning are greater than the odds of getting a record deal! Most entertainers are desperate for “the deal.”

So, the question then becomes “What is the deal worth to the songwriter or the artist?” Is it worth giving up possession of your songs without the possibility of reversion in order to receive a monthly draw in order to get that publishing deal? Is it worth giving up twenty-five cents on every mechanical dollar earned in order to receive a cash advance and the remote possibility of future royalties from a major label in order to get that record deal? If the songwriter or artist has no alternatives, then the answer to those questions may very well be yes. Or, it may be that no deal is worth giving up such concessions. The answers to these questions are as diverse and individual as the artists and their particular situations.

In order to better understand their own position, then, songwriters and artists should carefully consider their “sacred cows”– i.e., the points on which there is no negotiation – prior to entering negotiations. The difference I have witnessed between fresh young songwriters and experienced writers who have been around the Row for a while is the wisdom to know what is important to them and what is not. If a songwriter has a young child, she is likely to be more willing to walk away from a deal without a reversion clause than is a single songwriter with no family obligations. The recording artist who has a track record of selling more records the first time out than any other artist is in a better position to walk away from a deal that includes a controlled composition clause. The potential recording artist who has offers from three major labels is in a better position to obtain a higher royalty rate than the artist who has been offered a development deal.

The point is, the songwriter and the artist should think about what is important to them in terms of a deal and carefully consider their “bottom line,” the point at which they are willing to say “”no deal.” These issues should be discussed with an experienced entertainment attorney. Develop two lists with your attorney: (1) a wish list of provisions for improving the deal and (2) a “drop dead” list of items which must be included in the agreement or the deal is off, which hopefully includes a good alternative to the negotiated deal. Remember, the more alternatives a person has to the deal in hand, the better his or her negotiating strength.

This article originally appeared in the print edition of Law on the Row, Volume 2, Issue 1, on March 21, 2001.