Sound recordings, composer rights, and performance use

Music streaming platforms and the legal issues that come with them were the focus of two CLE panels during SXSW 2015. Leading attorneys from across the nation took the stage to address both fellow lawyers and industry professionals about the current situations.

During “Unhappy Together,” panelists Bob Donnelly, Steve Gordon, and Henry Gradstein delved into the intricate history of copyright laws—from protection against unauthorized public performance in 1897 and the formation of the American Society of Composers, Authors, and Publishers in 1914 to payola laws in the 1960s and the Digital Millennium Copyright Act of 1998.

They also focused on the copyright act in which Congress made sound recordings created post-1972 eligible for federal statutory copyright protection. That decision has been at the center of recent courtroom battles between artists and record companies and streaming services, such as Sirius and Pandora. As Gordon, an attorney with Steve Gordon Law in New York City, explained, an estimated 5 percent of the plays on Pandora and 15 percent of Sirius content fall into the pre-1972 recording category. The streaming companies have taken the position that they don’t have to pay for those sound recordings because they are not subject to federal law performance rights. And many artists are not happy about it.

According to panelists, there are currently six cases challenging Pandora and Sirius XM about royalties for pre-1972 sound recordings, four of which are brought by founding members of rock group the Turtles. Two cases have been won at the state level.

While Gordon said that the wins were unexpected because you have to look hard to find law supporting the artist rights, Gradstein, a partner in Gradstein & Marzano in Los Angeles, California, and the lead attorney in the class actions on behalf of the Turtles against Sirius XM and Pandora, disagreed, pointing to similar cases and noting that selling a record does not mean copyright laws are lost. “It’s just not right. It’s not fair. And it’s also not legal,” Gradstein said.

All panelists agreed that the ramifications of the trials could have a big impact on the industry.

“The essence of the […] cases is actually quite simple. The way the decisions were reached is actually quite complex,” said Donnelly, an attorney with Lommen Abdo in New York City who moderated the panel. “This is an incredibly important moment in time.”

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Conversation continued in “Still Screaming about Streaming,” with John Simson, Kenneth Steinthal, Jay Rosenthal, and Brad Predergast focusing on the value of songwriters and recordings, as well as the debate surrounding the ongoing review of Consent Decrees by the Antitrust Division of the U.S. Department of Justice.

Specifically, the panelists talked about the potential to alter or dismantle current Consent Decrees, which began in 1941 to address competitive concerns from the market power of ASCAP and Broadcast Music Inc. acquired through the aggregation of public performance rights held by member songwriters and publishers. Although they have been modified since their entry, ASCAP, BMI, and some other firms in the music industry believe the decrees need to be adjusted again to account for changes in how music is delivered to listeners.

Rosenthal, a partner in Mitchell Silberberg in Washington, D.C., who has served as senior vice president and general counsel to the National Music Publishers’ Association, has hope that the review will lead to a reform of what he sees as an unfair rate structure. “We are now in a position where the value of music compositions are so low that songwriters are leaving and not being professional songwriters,” he said. “But there certainly is a consensus that we’ve got to change some things.” Ultimately, Rosenthal believes a free market system would be the fairest option. “I don’t see anything wrong with it. I think its good for everybody. And if it gets to the point of rectifying this 10 to one difference in the values of the music compositions to the sound recording rights, then do it. Let’s get back to the private market as quickly as we possibly can.”

But Steinthal, a partner in King & Spalding in San Francisco, California, who led the recent trial and related court proceedings on behalf of Pandora against ASCAP and BMI, said the disparity point Rosenthal cited is ironic and self-inflicted. “Publishers just rake in cash, they don’t invest,” Steinthal said. “Sound recording companies invest millions and millions of dollars in artists and everybody else. Therefore, you have to look at the sound recording performance in the broader context of our industry, which is fundamentally different than the publishing industry.”

Public comments regarding the Consent Decree review are available at justice.gov.

SXSW CLE Wrap-up

Part I: Cool Things v. Consumer Privacy, Filming Unsuspecting Subjects, and Streaming Pay Scales

By the end of South by Southwest 2014—held in Austin from March 7 to March 16—attorneys were referring to the festival’s official legal program as “Camp CLE.” Like the much larger SXSW spectacle, the CLE room was full of lawyers from around the country, as well as a mix of artists, publishers, and other entertainment industry professionals. Put on by the Midwest-based Lommen Abdo Law Firm, a total of 12 sessions were held, led by 30 law experts. The Texas Bar Journal reports on several of these events below. Stay tuned to the State Bar Blog for additional SXSW CLE articles.

 

The Sentient Economy: Law and Policy for the IoT. Session leader Gerard Stegmaier—of counsel to the technology-focused firm of Wilson Sonsini Goodrich & Rosati in Washington, D.C.—explained that the Internet of Things “is like looking into the crystal ball,” which consists of objects that people use in their everyday lives that have the ability to connect to the online network. Smart phones, personal activity trackers, even refrigerators with interactive computers make up the IoT. These devices often ask for the user to provide a varying amount of personal information so that the user’s experience can be individually customized—oftentimes to motivate the user to achieve a specific goal.

Stegmaier quipped that this “machine-to-machine” connection is dangerous because it is a billion-dollar industry that involves controversial consumer privacy matters. “And when there’s that much money at stake,” he said, “lawyers come running.” Privacy law issues, Stegmaier believes, will either inhibit or prohibit the growth of the IoT. Because most consumers value being notified—or being asked for permission—any time their personal data is captured, Stegmaier recommended that tech companies consider taking such “privacy by design” approaches.

Businesses that supply objects within the IoT can get into trouble for violating deceptive-trade laws, either by being outright deceptive (when the writing used is determined to be misleading) or by being unfair (when substantial consumer injury outweighs any potential benefits). While the IoT “makes cool things possible,” he said, lawyers need to make sure consumers and companies aren’t at risk.

 

All About Hidden Camera and Investigative Reporting. A handful of attorneys mixed with dozens of filmmakers and media professionals at this CLE session, led by entertainment attorney Michael Donaldson of Donaldson & Callif in Beverly Hills. The discussion focused on the recommended practices for documentary films and news programs that film non-actors—or “unsuspecting subjects”—and wish to publicly distribute the recordings.

Donaldson noted that it is always a good idea to start by researching the relevant states’ laws on recording conversation and to try and obtain releases from any unsuspecting subjects who are filmed. The movie Borat, for example, employed a release (although not for all filmed subjects) that courts found to be “rock solid” because it was absolutely clear, in plain language, and short.

When no releases are obtained—as is commonly the case for undercover and investigative reporting pieces—the most important factor that courts have considered is the filmed individual’s expectation of privacy. A TV news show that secretly filmed a physician inappropriately prescribing painkillers lost in court based on the doctor’s reasonable expectation of privacy in his own office. On the other hand, a suit brought on by a performer who was filmed backstage beating apes that were used in his circus show was unsuccessful because the court found that he had little reasonable expectation of privacy backstage, where stage hands and other performers were frequently present.

 

Screaming About Streaming. Said to be the hot topic of this year’s SXSW CLE, this three-person panel focused on online streaming and the copyright and royalty issues related to the increasingly popular way of consuming music. Panelists included Ken Steinthal of King & Spalding in San Francisco; Colin Rushing, senior vice president and general counsel to SoundExchange; and John Simson, of counsel to Lommen Abdo Law Firm. They explained that music streaming involves two separate copyright issues: one for the composition’s publishing and another for the master recording. And, streaming itself is divided into two categories: interactive streaming (i.g., Spotify) and non-interactive (i.g., Sirius XM and—controversially—Pandora).

To illustrate this complex legal situation, panelist Steinthal focused on the recent court case involving Pandora and the American Society of Composers, Authors and Publishers, in which Pandora sought to pay the same rate that traditional radio pays (1.7 percent of revenue) for ASCAP-registered material. (Pandora insists that it is guaranteed protection to have such low rates, while publishers and ASCAP argue that it is unfair and results in an industry where millions of hits on a single song generate less than $600 in compensation.)

Panelist Rushing of SoundExchange gave the audience some historical background, noting that traditionally, radio stations had to buy the rights only to a song. But after 1995, all sound recordings broadcast via digital public performance also required publishing rights. While technically the publishing copyrights are compulsory and masters copyrights are voluntary when dealing with interactive streaming services (and vice-versa for non-interactive streaming), Steinthal and Rushing explained that it is probably best to acknowledge both copyrights.