Copyright Act

Utah Republican Congressman Jason Chaffetz has reportedly begun crafting a bill aimed at bringing Internet radio royalty rates more in line with those of other radio platforms. The bill's key feature is a change from the controversial "willing buyer/willing seller" standard in webcast royalty determinations to the more prevalent "801(b)" standard.

Chaffetz says his Internet Radio Fairness Act of 2012 is still in draft form and isn't yet ready to be introduced. But he plans to determine his next steps by the end of this month.

When Copyright Royalty Board (CRB) judges determine the royalty rate at which webcasters pay copyright owners and performers for the use of sound recordings, they do so based on the standard -- mandated by the DMCA -- of what a "willing buyer" and a "willing seller" would agree to in a hypothetical marketplace. The judges do not (and in fact, are instructed to not) consider the "real world" ramifications of their determination, only the perceived economic value of the right. The Internet radio royalty process is unique in this way, as royalties for satellite and cable radio are based on the Copyright Act's more well-known 801(b) standard. Royalty determinations for what labels pay music publishers and songwriters are also based on 801(b).

"In setting royalties, (801(b)) assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music," explains attorney David Oxenford (here). Among other objectives, judges using 801(b) are instructed to set rates that "minimize any disruptive impact on the... industries involved." (Read 801(b)(1) of the Copyright Act here.)

How much of a difference does this standard make? Consider that satellite radio operator SiriusXM pays around 8% of its revenues for the right to use copyright sound recordings in its broadcasts, based on a determination using the 801(b) standard. Pandora, on the other hand, says nearly 70% of its total revenue (based on its Q1 FY 2013) will go to royalty payments (and that's based on on a deal Pandora struck that actually decreased its obligation from the CRB decision -- a decision based on "willing buyer/willing seller").

"It seems screwy that royalty rates change so dramatically based on the platform," Chaffetz explained. "When you’re listening to music in your house or in your car, you may be listening to it on your iPhone, you may be listening on the satellite radio or the FM radio. Does that mean the royalties should be so vastly different? It doesn’t seem to make sense to me. We need to play catch-up here."

A summary of the bill (according to news source The Hill) says the legislation also aims to "improve the proceedings process for rate-making cases and ensure judges on the Copyright Royalty Board have the same legal background and expertise as federal court judges who consider copyright cases."

Chaffetz says he expects push-back from the recording industry, and remains open to labels' input. "We’ll flesh all that out. I have no doubt we’ll have a good, lively discussion on that. There’s plenty of money to be made by all the various interests, it’s just I think moving toward parity is an important principle," he said.

The "801(b) vs. 'willing buyer/willing seller'" issue has come up multiple times in the history of Internet radio. The Performance Rights Act, which would have imposed a sound recording performance royalty on broadcast radio, would have moved webcast rate determinations to 801(b) (see our coverage here). Attorney David Oxenford wrote about the inherent unfairness of using different standards by platform in early 2008 (see RAIN coverage here). That same year Senators Ron Wyden (D-OR) and Sam Brownback (R-KS) introduced their Internet Radio Equality Act, which would have, like the PRA and Chaffetz's new bill, given Internet radio the 801(b) standard. That effort stalled by July (see RAIN coverage here). We have tons more coverage and analysis about 801(b), here.

Read more from The Hill online here.