2nd Circuit Rules Webcasting Service is Not an Interactive Service Under Section 114

August 21, 2009. The U.S. Court of Appeals (2ndCir) issued its opinion [42 pages in PDF] in Arista Records v. Launch Media, affirming the judgment of the District Court, and holding that a webcasting service is not an interactive service within the meaning of 17 U.S.C. § 114(j)(7).

This is the first Court of Appeals opinion on this issue. (The Library of Congress's Copyright Office declined to rule on the meaning of interactive service back in 2000.)

This ruling is a victory for internet radio providers and a defeat for record companies.

Jonathan Potter, head of the Digital Media Association (DiMA), which represents webcasters, stated in a release that "After ten years of record industry threats and litigation, DiMA is thrilled that the Second Circuit confirmed what Internet radio services and listeners already know -- that consumer-influenced radio promotes the discovery of new music, promotes artists and delivers to fans an experience that benefits all participants in the music industry. Hopefully this verdict will clear a path for a new wave of internet radio investment and innovation."

The Court of Appeals' decision turned on the meaning of obscure language in Section 114(j)(7) of the Copyright Act.

Background. The plaintiffs in the District Court and appellants before the 2nd Circuit are Arista Records, Bad Boy Records, BMG Music, and Zomba Recording. In addition, several other record companies were plaintiffs below, but did not join in the present appeal: Capitol Records, Virgin Records America, Sony Music Entertainment, UMG Recordings, Interscope Records and Motown Records.

Launch Media operates an internet radio website, or webcasting service, named Launchcast. The Court of Appeals wrote that Launchcast "enables a user to create ``stations´´ that play songs that are within a particular genre or similar to a particular artist or song the user selects", including sound recordings in which the plaintiffs hold the copyrights.

The Court of Appeals described the users' control of content with Launchcast. Among other things, "the user is prompted to select artists whose music the user prefers. The user is then asked which music genres the user enjoys and asked to rate the genres on a scale. The user is also asked the percentage of new music -- songs the user has not previously rated -- the user would like to incorporate into the user’s station (the ``unrated quota´´) and whether the user permits playing songs with profane lyrics." (Parentheses in original. Footnote omitted.)

Then, music is played "based on the user's preferred artists and genres" and "the user rates the songs, artists, or albums LAUNCHcast plays". Users can subscribe to the "stations" of other users. Users can pause or skip songs. There are numerous other features. But, the user cannot select the actual songs, or even a single song, on the playlist when it uses the Launchcast service. Song selections are randomly generated by the Launchcast service.

The plaintiffs filed a complaint in the U.S. District Court (SDNY) against Launch Media alleging willful infringement of their copyrights in sound recordings in violation of Section 114.

The plaintiffs alleged that between November 1999 and May 2001 Launchcast provided an interactive service and therefore was required to obtain individual licenses from from the plaintiffs to play their sound recordings.

Yahoo acquired Launch Media.

The case proceeded to trial by jury in the District Court. The jury returned a verdict that Launch Media does not provide an interactive service and is therefore not liable for paying the copyright holders a licensing fee for each individual song. This appeal followed.

Statute. 17 U.S.C. § 106(6) provides that subject to the limitations contained in Section 114 and elsewhere, "the owner of copyright ... has the exclusive rights to do and to authorize any of the following ... (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission".

Section 114 pertains to "Scope of exclusive rights in sound recordings".

Subsection 114(d)(3)(C) provides that "(d) Limitations on exclusive right. ... (3) Licenses for transmissions by interactive services. ... (C) Notwithstanding the grant of an exclusive or nonexclusive license of the right of public performance under section 106 (6), an interactive service may not publicly perform a sound recording unless a license has been granted for the public performance of any copyrighted musical work contained in the sound recording: Provided, That such license to publicly perform the copyrighted musical work may be granted either by a performing rights society representing the copyright owner or by the copyright owner."

Subsection 114(j) contains definitions. Subsection 114(j)(7) provides that "An ``interactive service´´ is one that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording, whether or not as part of a program, which is selected by or on behalf of the recipient. The ability of individuals to request that particular sound recordings be performed for reception by the public at large, or in the case of a subscription service, by all subscribers of the service, does not make a service interactive, if the programming on each channel of the service does not substantially consist of sound recordings that are performed within 1 hour of the request or at a time designated by either the transmitting entity or the individual making such request. If an entity offers both interactive and noninteractive services (either concurrently or at different times), the noninteractive component shall not be treated as part of an interactive service." (Parentheses in original.)

Court of Appeals. The Court of Appeals affirmed.

It wrote that the issue is "whether a webcasting service that provides users with individualized internet radio stations -- the content of which can be affected by users' ratings of songs, artists, and albums -- is an interactive service within the meaning of 17 U.S.C. § 114(j)(7). If it is an interactive service, the webcasting service would be required to pay individual licensing fees to those copyright holders of the sound recordings of songs the webcasting service plays for its users. If it is not an interactive service, the webcasting service must only pay a statutory licensing fee set by the Copyright Royalty Board."

After a lengthy discussion of the legislative history, and analysis of the statutory language, the Court of Appeals concluded that such a webcasting service is not an interactive service.

This case is Arista Records, LLC, et al. v. Launch Media, Inc., U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 07-2576-cv, an appeal from the U.S. District Court for the Southern District of New York, Judge Owen presiding. Judge Wesley wrote the opinion of the Court of Appeals, in which Judges Calabresi and Christopher Droni (USDC/DConn) joined.

Judge Richard Wesley also wrote in this opinion that "The Commerce Department ... oversees the Copyright Office ..." (At page 13.)

He also wrote the 2004 opinion of the 2nd Circuit in Swedenburg v. Kelly, 358 F.3d 223, which the Supreme Court reversed in its 2005 opinion in Granholm v. Heald, 544 U.S. 460. See, story titled "Supreme Court Rules in Internet Wine Sales Case" in TLJ Daily E-Mail Alert No. 1,137, May 17, 2005. Wesley also wrote the July 1, 2009, opinion of the 2nd Circuit in Arnold's Wine v. Boyle. See, story titled "2nd Circuit Again Addresses Wine Sales and Commerce Clause" in TLJ Daily E-Mail Alert No. 1,965, July 2, 2009.