Digital division: levies as an alternative to traditional copyright enforcement mechanisms.

• Author: Gluth, Matthew

1. THE RIAA FINDS IT IS NOT ALONE ON THE ISLAND

   When Internet file sharing technology began to threaten the record industry in the late 1990s, the industry fired a salvo of lawsuits at the software innovators. (1) When the campaign failed to produce anything but more nimble, decentralized technology, the industry set its sights on the software's users--the industry's own customers. (2)

   Between 2003 and 2008, the Recording Industry Association of America ("RIAA") filed suit against more than 30,000 music fans, including the elderly, college students, children, and even the dead. (3) A college student with $500 to her name was hounded for $7,500 for 10 songs. (4) A Minnesota mother of three faced a $220,000 jury verdict for sharing 24 songs. (5) A Chicago woman was hit with a $25,000 judgment for downloading songs she already owned on CD in order to save the time she would have spent uploading her 250 CDs to her computer. (6)

   The RIAA is not the only entity attempting to subdue the proliferation of file sharing. Internationally, the strategy has been much the same. Beginning in 2004, the International Federation of the Phonographic Industry ("IFPI") filed suit against alleged file sharers in Denmark, Germany, Italy, and Canada. (7) During the next five years, the campaign would expand into Poland, Sweden, Mexico, China, and elsewhere. (8)

   Then, in January of 2009, the Isle of Man responded by proposing to immunize its 80,000 citizens from lawsuits by either the RIAA or IFPI. (9) Broadband subscribers (the island has a 100 percent broadband rate), will pay a nominal tax of 1 [pounds sterling] per month for a blanket license to download unlimited digital files, even from illegal "pirate" sites. (l0)

   The Isle of Man's proposal remains in legal limbo. (11) But, the concept reappeared this past fall in Brazil, where a coalition of artists, producers, and academics known as the Network for Copyright Reform proposed, during a draft review of the country's copyright law, to legalize online file sharing in exchange for a levy of 3 percent of the monthly broadband fee. (12)

   These proposals raise serious questions for the music industry and the future of copyright law: could a levy actually work for Brazil or the Isle of Man, and could it work for the United States? (13)

2. INTRODUCTION

   When the levy proposals are placed in a broader conceptual and historical framework, the question of its viability turns on whether the differences in the present situation are to be deemed as differences of degree or differences of kind. That is to say, whether flawless digital reproduction and instant copying to remote locations anywhere in the world are problems of greater magnitude than copyright theft under previous technologies, so that increased enforcement might effectively address the problem, or whether new technologies change the whole concept, so that the laws and strategies must be reconceived.

   Consider a thought experiment; begin with the paradigm transaction--a voluntary license. A fruit stand has apples. People who want to buy apples come to the stand and they haggle to determine the proper price per apple. Likewise, a performer could record her own song, which attracts fans, and the parties could negotiate over the price of a recording. The fan would benefit from the use of the work. The performer receives the payment. The persons closest to the exchange fashion the price, which represents the value to them.

   There are many virtues in that arrangement. Most particularly, people who are not benefiting are not paying. But, due to technological and economic changes at various points in history, society has faced the situation where the voluntary license paradigm was not feasible with regard to artistic licenses. (14) In these instances, a levy or blanket license system was created to address the infeasibility of negotiation between the creator and the consumer.

   One of the first historical examples of such a system is the American Society of Composers, Authors and Publishers ("ASCAP"), which was created for the licensing of musical performance rights. (15) Copyright on a musical composition includes the fight to control the public performance of the music. (16) Radio stations publicly perform a huge amount of music, and often do not know far enough in advance what they want to use. (17) Because of the large number of potential copyright owners coupled with the small window to negotiate, it simply was not feasible for the radio station to contract individually with every copyright owner for the music it wanted to use. (18)

   As a result, a group of music creators formed the ASCAP, a collective institution where a radio station could go to obtain one license to use all of the music in the ASCAP repertory. (19) Despite its utility, whenever an institution like ASCAP exists, there can be significant disadvantages. For one, the administrative costs become the make-or-break detail, and indeed, ASCAP has considerable administrative COSTS. (20) Second, ASCAP faces difficulties and potential inequities in deciding how to collect and allocate revenues. (21) Lastly, for a long time, ASCAP was the only such institution in the marketplace--the ensuing antitrust litigation not only endangered ASCAP, but also the whole premise for which ASCAP was created. (22)

   The next historical example is the Copyright Clearance Center ("CCC"), which is a blanket license system created to address the emergence of photocopying. (23) Each time an organization wanted to photocopy a periodical, it would have to negotiate with the individual copyright holder, which was a nearly insurmountable administrative obstacle. The response, analogous to ASCAP, was the CCC. (24) When a professor wants to make a class supplement, the professor goes to the CCC and pays a price that varies by each publisher. (25) But, then the CCC faces the same problem as ASCAP--how does it collect and distribute the money?

   More recently, Congress addressed the infeasibility of negotiation between creator and consumer by implementing a levy system. Congress enacted the Audio Home Recording Act to address the problem of people in their homes copying albums. (26) It was nearly impossible to detect the copying or to enforce laws against it. (27) So, Congress implemented a system that was essentially the same as ASCAP or the CCC, just with a different mechanism. They put a levy and tax on the equipment and tapes being used for reproduction, and distributed the money collected. (28) In comparison with a voluntary license, a levy placed on equip ment is inevitably crude, and contains many inequities. (29) Not everyone uses the equipment to copy copyrighted music, but everyone pays. (30) The prices, which include the levy, are uniform, regardless of usage. Further, the AHRA faced the same issues as ASCAP and CCC--how to collect and distribute the tax revenue?

   Then there are the recent levy proposals. They can be seen as responding to the same problem--Brazilians or residents of the Isle of Man want to download music off the Internet at prices they are willing to pay but cannot negotiate with individual copyright holders. Furthermore, transaction costs are particularly onerous in reproducing musical recordings because there are two copyrights involved: the copyright on the musical composition and the copyright on the recorded performance. (31) If the conclusion is that downloading music implicates both, then a consumer will have to negotiate with two parties. Brazil's and the Isle of Man's levies are designed to cut through the difficulty and costliness of negotiating for music. It says, in effect, "go ahead and do what you do, we'll take care of the compensation." Nevertheless, it faces the same challenges that ASCAP, the CCC, and the United States Congress confronted before it: inequities in collecting the revenue and inaccuracies in distribution.

3. THE PROBLEM OF PUBLIC PERFORMANCES

   Starting in the nineteenth century, the introduction and subsequent widespread use of radio made music ubiquitous, leading to the fight of public performance becoming the largest source of income for most composers, lyricists, and music publishers. (32) In the twenty-first century, between the radio stations, nightclubs, and anywhere from elevators to in-flight entertainment, millions of public performances take place every day. This massive use of music created, very early, a need for a cheap method of collecting and distributing compensation for public performances. (33)

   1. The Formation of ASCAP

      The compensation for public performances now comes, in large part, from collective licensing by organizations termed "performing rights organizations." (34) In a virtually unbroken line of cases following the 1909 Copyright Act, courts found radio stations, (35) clubs, (36) and others to be liable for the broadcasting of music.

      Collective licensing organizations were formed as a clearinghouse to deal with the fact that there was obvious liability but no obvious means for the two parties to negotiate. (37) The purpose of such an organization is two-fold: to allow its member copyright holders to license all public performances of its works and to serve as one-stop shopping for would-be broadcasters to pay for the right to publicly perform such works. (38)

      ASCAP, BMI, (39) and SESAC, Inc. (40) are the three American performing rights licensing organizations. ASCAP is owned and managed by and for the writers and publishers of music. Members of ASCAP grant ASCAP the nonexclusive right to license public performances of their work in exchange for being bound by ASCAP's royalty distribution system. (41) Whereas BMI and SESAC are independent organizations whose affiliates have no say in their governance. (42)

   2. The Structure of a Performing Rights Organization

      ASCAP is a nonprofit organization that distributes all revenues received from licensing fees to copyright holders after deducting operating expenses. (43) Broadly...