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Ernest Miller Ernest Miller pursues research and writing on cyberlaw, intellectual property, and First Amendment issues. Mr. Miller attended the U.S. Naval Academy before attending Yale Law School, where he was president and co-founder of the Law and Technology Society, and founded the technology law and policy news site LawMeme. He is a fellow of the Information Society Project at Yale Law School. Ernest Miller's blog postings can also be found @

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June 22, 2005

Forget Grokster? A Recording Industry Bombshell from the Copyright Office

Posted by Ernest Miller

Forget waiting around to read SCOTUS on Grokster. This is a grenade thrown right into the bunker that is the music publishing establishment while announcing to the record companies that they will finally have to really negotiate rates in a sort-of open market and simultaneously giving the Internet music services a huge boost.

So says an anonymous commentator who is very familiar with the legal and business aspects of the music publishing industry.

What is he talking about? Joe Gratz was one of the first with the news (Register of Copyrights to House: Repeal The Mechanical Compulsory, Restructure Music Rights Collectives).

The Register of Copyrights testified this morning before the House Subcommittee on Courts, the Internet, and Intellectual Property, urging them to repeal the section 115 compulsory license for the making and distribution of phonorecords of musical works and to restructure the collective licensing of performance and reproduction rights in musical works.
Wow. My jaw dropped when I read the announcement. Essentially eliminate 17 USC 115. Did I already say, "Wow"? This would be a radical and, in my view, welcome change in copyright law. I have long been a critic of the mechanical reproduction compulsory.

Read the full testimony here: Statement of Marybeth Peters, The Register of Copyrights, before the Subcommittee on Subcommittee on Courts, the Internet, and Intellectual Property, Committee on the Judiciary.

I had noticed that the Register of Copyrights, Marybeth Peters, was to testify earlier this week (Marybeth Peters to Testify on Music Licensing Reform). However, my brain had conveniently forgotten it and allowed me to miss the streaming version. [Wouldn't podcasts for this sort of testimony be great? (Podcasts for Congress: Good Idea or Premature?)] As regular readers know, I'm not fan of the Register (Senate Judiciary IP Subcommitee Hearing On Int'l Copyright Infringement). But really, this may be quite a progressive change.

I say "may be" because what the Register is advocating is a huge and technical change in copyright law. I'm still trying to get my mind around all its possibilites (and potential pitfalls). There are like to be many unintended consequences, but the gist of the proposed reforms seem right. EFF's Fred von Lohmann has many questions, but seems cautiously optimistic. He asks:

whether the MROs envisioned by the Copyright Office's proposed legislation would be able to grant blanket licenses to P2P end-users for file sharing? I haven't had time to parse it carefully, but this might well create the architecture to make voluntary collective licensing for P2P a very real possibility. (And, on the sound recording side, SoundExchange may become the relevant collective licensing solution for more than just noninteractive webcasting.)

I'm sure Marybeth had intermediaries in mind as licensees, but so long as direct blanket licensing of end-users isn't foreclosed, this could be a step in the right direction, no?

This could be a step in the right direction, yes.

Derek Slater summarizes some of this potential well (Register of Copyright Proposes Revision to Section 115 Compulsory).

Peters wants to dispose of the compulsory license for numerous reasons, but particularly because free market negotations would be preferable. But she doesn't view the free market in a wholly simplistic way, in which efficient outcomes would be reached if only we granted broad entitlements and got out of rights holders' way. Rather, in her proposal, she recognizes that carefully structuring and allocating rights can be crucial to achieving efficiency.

The proposal is aimed at engineering the market to reach a particular outcome. Its explicit purpose is "to foster a consolidated licensing structure," in which music rights organizations (MROs) would act as a "one-stop shop" for performance, reproduction, and distribution licenses.

However, Silicon Valley Media Law is quite right that caution is necessary and the public interest must be clearly taken into account (Register of Copyrights Advocates Repeal of Compulsory Licensing Under Section 115).
This proposal needs careful review. Peters indicates in her testimony that: "As always, my focus is primarily on the author. The author should be fairly compensated for all non-privileged uses of his work." However we hope that the public interest side of the copyright equation is being considered by the Copyright Office in this proposal.
Gratz does note one way in which it will be taken into account, citing Peters testimony on copyright infringement:
The increased transactional costs (e.g., arguably duplicative demands for royalties and the delays necessitated by negotiating with multiple licensors) also inhibit the music industry’s ability to combat piracy. Legal music services can combat piracy only if they can offer what the “pirates” offer. I believe that the majority of consumers would choose to use a legal service if it could offer a comparable product. Right now, illegitimate services clearly offer something that consumers want, lots of music at little or no cost. They can do this because they offer people a means to obtain any music they please without obtaining the appropriate licenses. However, under the complex licensing scheme engendered by the present Section 115, legal music services must engage in numerous negotiations which result in time delays and increased transaction costs. In cases where they cannot succeed in obtaining all of the rights they need to make a musical composition available, the legal music services simply cannot offer that selection, thereby making them less attractive to the listening public than the pirates. Reforming Section 115 to provide a streamlined process by which legal music services can clear the rights they need to make music available to consumers will enable these services to compete with, and I believe effectively combat, piracy.
This is spot on.

SVML also notes one of Peters' conclusions:

Except for the consent-decree issues with the public performance societies, a collective licensing approach could ostensibly be done today without legislation -- this proposal appears to focus on eliminating the assurance that a license can be had, as well as the statutory rate for same. According to Peters: "I recognize that if the proposal is enacted, some current music industry participants may have to adjust their business practices to maintain their current levels of profitability without the artificial rate ceiling afforded by the statutory license."
Adjust their business practices, indeed.

Let the debate begin!

GrafoDexia has some thoughts ( Summary and Some Analysis of Peters' Testimony). Read the whole thing.

Comments (1) + TrackBacks (0) | Category: Copyright


1. Precision Blogger on June 23, 2005 08:56 AM writes...

I've proposed an alternate fix to this mess: “Musician Donations Anonymous". Why not allow those who don't pay for their music to make direct micro-payments to the artists?
- The Precision Blogger

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