Copyright and antitrust: the effects of the Digital Performance Rights in Sound Recordings Act of 1995 in foreign markets.

• Author: Davis, Connie C.

1. INTRODUCTION

   The language of the Copyright Clause of the U.S. Constitution(1) and antitrust laws that prohibit monopolies and restraints of trade(2) may seem contradictory. While the Copyright Clause empowers Congress to grant monopolies to authors as an incentive to create, the antitrust laws reflect a policy against monopolies. However, despite their apparent differences, the two bodies of law work together to encourage innovation, industry, and competition.(3)

   Competition and copyrights have long been recognized as a potential source of antitrust violations. Antitrust problems can arise in the case of copyright acquisition, licensing, and enforcement. The Supreme Court has stated that "the copyright laws confer no rights on copyright owners to fix prices among themselves or otherwise to violate antitrust laws."(4) In Data General Corp. v. Grumman Systems Support Corp.,(5) the First Circuit Court stated that "[a]lthough creation and protection of original works of authorship may be a national pastime, the [Sherman Antitrust Act (Sherman Act)] does not explicitly exempt such activity from antitrust scrutiny and courts should be wary of creating implied exemptions."(6) The Supreme Court has also stated that the "neither the Sherman Act nor the Copyright Act works as a partial repeal of the other."(7) Thus, the two laws must be harmonized.

   Attempts at harmonizing the two laws have been concentrated in the areas of refusal to license copyrighted material and blanket licensing of copyrighted music. The greatest area of concern is blanket licensing of copyrighted nondramatic music. Blanket licenses give licensees the right to perform any and all of the compositions owned by a particular performance rights society (PRS). The practice of issuing blanket licenses for a fee has come under fire as price fixing, which is a per se violation of the Sherman Act.(8)

   In 1995, Congress passed the Digital Performance Rights in Sound Recordings Act (DPRSRA)(9) in an effort to deal with the licensing problems associated with nondramatic musical works. The DPRSRA created a right in sound recordings to perform the copyrighted work publicly by means of a digital audio transmission, as well as established a compulsory licensing scheme.(10) However, the DPRSRA fails to address the problem of licensing of nondramatic works in foreign markets.

   Currently, in many foreign markets, regulation permit the network to broadcast nondramatic musical works, such as music videos, only if the network has a license for the right to perform the video--the public performance right.(11) Typically, the: music company or the various PRSs hold this right.(12) In many cases, the music companies control the various PRSs. In order to broadcast in many foreign countries, U.S. music programming services must pay a blanket-licensing fee to the PRS of the country in which they wish to broadcast. Because of the control by music companies, the practice in foreign countries has been subject to accusations of price fixing and restraint of trade.(13) In the United States, DPRSRA exempts noninteractive, nonsubscription services (networks supported by advertisement),(14) which eliminates the potential for alleging Sherman Act violations.

   This Note advocates extending the DPRSRA to foreign markets. Part II of this Note gives an overview of the development of sound recordings protection by the Copyright Act of 1976 (1976 Act)(15) and the DPRSRA. It further discusses the nature of antitrust and its application to the blanket licensing of sound recordings. Part III reports the status of PRSs in foreign countries and the possible violations of antitrust law. Part IV summarizes how courts have interpreted and applied antitrust law to copyright. Part V poses challenges and discusses the concerns that have arisen in light of the new legislation.

2. BACKGROUND

   1. Traditional Copyright Protection of Sound Recordings

      Congress passed the first federal copyright act in 1790.(16) This statute provided a foundation for the current act, granting to authors and their assigns the rights to maps, charts, and books for two fourteen-year terms.(17) This statute essentially defined what Congress deemed to fall within the constitutional meaning of a "writing." As technology advanced, the list of what constituted a "writing" for purposes of copyright expanded. In 1802, Congress amended the Act in order to grant protection to any person "[w]ho shall invent and design, engrave, etch or work ... any historical or other print or prints...."(18) Congress further expanded the statute in 1831 to include musical compositions,(19) and in 1865, Congress added photographs and photographic negatives to the list of protected works.(20) Congress again, in 1870, updated the copyright statute to include paintings, drawings, statuettes, statuary, and models or designs of fine art.(21) The authors obtained statutory rights to control distribution, display, and reproduction of these "writings."(22)

      The statutory right of exclusive public performance did not exist until 1897.(23) Congress designed this exclusive performance right specifically for dramatic and musical compositions, which were considered "writings" and therefore protected by the copyright statute. Initially, Congress extended the performance right only to the current subject matter covered in the copyright statute.(24)

      It was not until 1973 that sound recordings became the subject matter of copyright and were considered "writings" under the Copyright Act.(25) In 1973, the Supreme Court recognized the federal government's constitutional authority to regulate sound recordings, stating that it is within Congress's power to decide whether a "particular category of `writing[s]' is worthy of national protection."(26) The Court in Goldstein v. California(27) did not address the specific rights that Congress endowed on the authors of sound recordings, and the performance right in sound recordings did not enter the debate.(28) The seeming denial of the performance right by Congress created disarray in state courts as well as in the circuits.(29) In an effort to respond to these problems, Congress amended the Copyright Act to create a limited copyright in sound recordings.(30) However, Congress limited the amendment to prevent duplication of sound recordings but did not include the performance right.

      The right of public performance for musical works, particularly sound recordings, continued to be a pressing issue in the 1976 Act.(31) The 1976 Act changed the copyright protection of sound recordings, granting the sound recordings' copyright holder limited rights. This included the right to prevent unauthorized duplication, distribution, and creation of derivative works, while explicitly denying a grant of a performance right in section 114(a).(32) However, through section 114(d), Congress acknowledged the potential for a right of performance in sound recordings.(33) Section 114(d) required the Register of Copyrights to submit a report to Congress evaluating the adoption of a performance right in sound recordings.(34) The Register submitted a report in 1978, recommending that "section 114 be amended to provide performance rights, subject to compulsory licensing, in copyrighted sound recordings, and that the benefits of this right be extended both to performers (including employers for hire) and to record producers as joint authors of sound recordings."(35)

   2. The Digital Performance Rights in Sound Recordings Act of 1995

      In 1995, Congress enacted the recommendation submitted by the Registrar as the DPRSRA. The 1976 Act, as amended by DPRSRA, provides the creator of an original work, including owners of copyrights in sound recordings, with exclusive rights. Under the 1976 Act, authors may stop others from copying, distributing, publicly displaying, or making derivative works based on an author's protected work.(36) In addition, the DPRSRA added a new subsection 6 to section 106 of the Copyright Act that created a new exclusive right--the digital performance right. Section 106(6) clearly states that the owner of the copyright under this title has the exclusive right in the sound recordings, which allows the owner to perform the copyrighted work publicly by means of a digital audio transmission.(37) Basically, DPRSRA prohibits the unlicensed digital transmissions of sound recordings.

      The DPRSRA subjected the limited right to performance to certain exclusions contained in section 114(d).(38) Section 114(d)(1) establishes a primary exemption for noninteractive, nonsubscription services.(39) This exemption allows broadcasters of free(40) (network) radio and television programming to continue to perform sound recordings without a license. In addition, various secondary transmissions of primary transmissions are exempt under this section.(41)

      Section 114(d)(2)(e) addresses licensing to digital transmission service providers who offer noninteractive programming on a subscription basis.(42) This section creates a compulsory licensing scheme and a voluntary negotiation scheme of licensing between representatives of various PRSs and transmitting entitles.(43) As per sections 114(d)(2)(e) and (f), PRSs and transmitting entities must determine reasonable royalty rates for the licensing of the performance rights of sound recordings.

      The DPRSRA adds another facet to copyright antitrust. The statute creates compulsory licensing and requires arbitration to settle disputes over licensing. In...