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We already discussed how ACTA negotiators last week announced the timing of a “meeting” lunch for negotiators with consumer rights groups in such a way that it was impossible for most of those groups to attend, and then the negotiators refused to resch… Continue reading →

A few years back, we covered the legal fight pitting ASCAP against Yahoo and RealNetworks, where the two internet companies were told to pay up based on a ridiculously arbitrary fee formula, including a totally made up multiplier called the “music-use-adjustment-fraction.” The really scary part was that it calculated the revenue based on all of Yahoo’s revenue. So, yes, even though Yahoo makes most of its revenue in ways that have nothing to do with music, its total revenue is used as part of the calculation. The one good thing that came out of the legal fight was the court making it clear to ASCAP that a download is not a performance, which requires a separate fee. As you may recall, ASCAP has been trying to claim just about anything involving music is a “public performance,” in a weak attempt to get more cash.

Both sides appealed. Yahoo and RealNetworks appealed the crazy fee formula, and ASCAP appealed the claim that a download was not a public performance. The Second Circuit appeals court has now ruled and gone against ASCAP on both issues. It reaffirmed that a download is not a public performance (and thus, performance rights fees are not applicable) and rejected the bizarre calculation method used, as not “adequately supported” as being reasonable.

A few highlights:

The fact that the statute defines performance in the audio-visual context as “show[ing]” the work or making it “audible” reinforces the conclusion that “to perform” a musical work entails contemporaneous perceptibility. ASCAP has provided no reason, and we can surmise none, why the statute would require a contemporaneously perceptible event in the context of an audio-visual work, but not in the context of a musical work.

The downloads at issue in this appeal are not musical performances that are contemporaneously perceived by the listener. They are simply transfers of electronic files containing digital copies from an on-line server to a local hard drive. The downloaded songs are not performed in any perceptible manner during the transfers; the user must take some further action to play the songs after they are downloaded. Because the electronic download itself involves no recitation, rendering, or playing of the musical work encoded in the digital transmission, we hold that such a download is not a performance of that work….

The court also scolds ASCAP for blatantly misreading other opinions on what constitutes a public performance and points out that ASCAP appears to “misread the definition of ‘publicly,’” noting that ASCAP’s definition of a public performance seems to “render superfluous” the term “a performance” in the Copyright Act. Ouch.

As for the royalty fees, the court is pretty clear that it doesn’t buy the formula being used:

First, the district court did not adequately support the reasonableness of its method for measuring the value of the Internet Companies’ music use. Second, the district court did not adequately support the reasonableness of the 2.5% royalty rate applied to the value of the Internet Companies’ music use.

In other words, you don’t just get to make up numbers out of nowhere.

That said, the court does say that it isn’t necessarily against using such a “music-use-adjustment-fraction,” it just needs the number to actually be supported. This is unfortunate, as it leads to improperly using non-music revenue as part of the calculation for how much should be paid for the music license. However, the court tries to deal with this by saying that the reasonable support needed would justify what the multiplier factor would be. Its main concern with the lower court’s ruling was that it didn’t take this into account and used a measure that made little sense (time spent listening to streams) which had little bearing on ad revenue:

The district court’s MUAF accounts for the value of Yahoo!’s music use by using the amount of time that music is streamed. Streaming time, however, neither drives nor correlates with Yahoo!’s advertising revenue. The record evidence makes plain that Yahoo!’s advertising revenue model more accurately correlates with the number of times a particular page is accessed by users than to the duration of streaming time.

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