[FMC] License to Cover: Section 115

Room 307: License to Cover: Section 115
Ken Kaufman Partner, Skadden Arps
David Jones Counsel, Subcommittee on Intellectual Property, Senate Judiciary Committee
Jonathan Potter Executive Director, DiMA
Josh Wattles Entertainment and Technology Attorney

Compulsory has acted as a benchmark for negotiations.
What licenses are required for caching of streams?
It hsa become mroe and more difficult for mechanical rights societies to get rights to all works.
-abolition of all compulsories
-expansion of compulsories to public performance for reproduction,distribution rights for digital services.

DiMA represents AOL, Yahoo, MSN, Apple– legit services
There is a consensus among all constiuents that the system is broken– legit services are having truble getting going because the music licensing system doesn’t work.
The major victim? Songwriters. The price per song and price per performance composition royalties are getting hurt. Others? consumers– all the music isn’t available legitimately; services– can’t offer all the music they need to compete with Grokster & eDonkey.
3 or 4 ways to fix it– discussed since 1999. Problem is that Congress is in the business of defining rights, publishers are asking Congress to set a rate.
The law was written to accomadte old-line industries and the laws just don’t fit.
What’s the price of modernization? Songwriters and publishers are seeking 2x-3x royalties.
NARAS: If the recording and publishing industries can’t get together, then the industry (as a whole) can’t compete with illegal P2P. The winners are Grokster and Kazaa, the losers are everybody else.

It’s really only about money.
Impetus for change is coming from the tech side (unlicensed, uncompensated P2P draining the marketplace.)
The Yahoos and AOLs are simply buyers, publishers and labels are simply sellers.
Publishers only know how to think in terms for 200%-300% rate increases. On the other hand, streamers are selling music for nothing (marginally) and want to have to pay the publishers as little as possible.
The government really should get out of the way as much as possible.
The music industry has grown up around the mechanical compulsory since 1909 and pulling it out will bring dysfunction to the market. The public performance right is working while the mechanical isn’t.
Publishers are the only group that has sold its product to multiple differentiated markets simultaneously– to movies, record labels, ad agencies, etc. They know how to adjust to different markets. They also know how to ask for 4x too much money.

Until there’s a functioning market, there’s no way to know what the market price is. Government is not well suited to setting prices.
This is a really screwed up area of law.
Some of the proposals:
-Outright repeal of §115. Some good principled arguments for it, but may be too much of a disruption to the market.
-Merging the rights
-Unilicense/super-agent– not fully fleshed out– anti-trust? who adjudicates?
-Collective licensing
-Making §115 a blanket license. This gets rid of some of the transaction costs. Who administers it? What’s the scope of the license?
Potter: If any of us are giving music away for free, we’re still paying the royalties to do so. One thing our companies are doing are competing on price, marketing and programming. Can’t yet compete with Grokster on repertoire.
Potter: Performance or distribution/reproduction? An on-demand stream may substitute for a CD sold, but it is non-sensical to consider that a reproduction. because an activity might substitute for distribution doesn’t mean that it should pay a mechanical. It’s just a higher-value performance. A tethered download is not a performance, even though it may substitute for it.
In 1988, Canada eliminated the compulsory and has a copyright board…
Fred Von Lohmann (EFF): If everytime a new tech develops, there may be more chaos everytime there’s something new. Move towards more collective licensing. Like Peters’ proposal to eliminate §115 and replacing it with MRO’s. Other than disruption and chaos, is there any principled reason for eliminating §115?
Potter: It is absurd to have to go back to Congress every time there is a new technology. Laws were written in ways that were microscopically written to apply only to existing uses. There is no admin agency that serves as a general regulatory body to serve as a rulemaking body for copyright law. THe party that doesn’t want to modify the law can hold up reform in the morass that is Congress.
Wattles: Collective licensing is the solution for this particular, isolated, potentially major or minor use of music buy these online services. The price for legislative collective licensing is government stepping in and creating a regulated market. Let’s try to make it about money, because that’s something we all know how to make deals for. Is this the time to create architecture or an environment which creates a place to haggle with functional, interim solutions?
Potter: DiMA members pay ~5.25% of revenue total to ASCAP/BMI/SESAC for on-demand streaming. Publishers are getting ~8.5% from downloads.