Factual Background Edit
Record companies and recording artists won the right to receive royalties from digital performances of their recordings when Congress passed the Digital Performance Right in Sound Recordings Act of 1995. That Act was amended somewhat in 1998 by the Digital Millennium Copyright Act. But the 1998 amendment left intact the “digital performance right” that entitles record companies and artists to royalties for most — but not all — types of digital performances.
The reason that all types of digital performances do not require the payment of royalties is that the Copyright Act contains a number of exemptions. One of the exemptions allows radio stations to broadcast recordings without paying royalties to record companies and artists, even if those broadcasts are digital.
This is the exemption that AM and FM radio stations relied on when they argued that they were exempt from the obligation to pay royalties, when they webcast recordings on the Internet, as well as when they broadcast them over-the-air. The RIAA thought otherwise, and petitioned the Copyright Office for a ruling that would make this clear. The Copyright Office agreed with the RIAA; and a federal District Court did too.
The radio stations appealed, unsuccessfully. In an opinion by Judge Richard Cudahy, the Court of Appeals held that its “own independent interpretation of the statute accords with that of the Copyright Office.”
Because the 1995 Act and its 1998 amendment both were enacted before radio stations began transmitting their broadcasts over the Internet, the language of the radio station exemption is not perfectly clear about whether webcasting is exempt too. As a result, Judge Cudahy’s analysis was Talmudic in nature.
The exemption covers “broadcast transmission[s],” which are defined as those done by “broadcast station[s] licensed as such by the [FCC].” Since radio stations are licensed by the FCC, they took the position that all of their transmissions — whether over-the-air or over the Internet — were exempt “broadcast transmission[s].”
Appellate Court Proceedings Edit
Judge Cudahy agreed that this would be true, if the words “broadcast station” refer to the “entity” that operates the station. On the other hand, it wouldn’t be true if the words “broadcast station” refer to the “physical transmitting facility.” This is because “physical transmitting facilities” used to transmit AM and FM signals over-the-air are licensed by the FCC. But equipment used to transmit recordings over the Internet are not licensed by the FCC or anyone.
Judge Cudahy’s Talmudic analysis of the meaning of the exemption led him to conclude that when Congress used the words “broadcast station” it was referring to “physical transmitting facility,” not the “entity” that was licensed by the FCC. That meant that Internet transmissions — even by licensed radio stations — are not exempt. And that means radio stations must pay royalties to record companies and artists when radio stations transmit music recordings over the Internet.