Law in the Internet Society

Has Copyright Law in the Music Industry Gone Too Far?

-- By SamSchaffer - 11 Oct 2019

As music migrates to the digital realm, it is hard to ignore the increasingly vapid nature of our analogue options for entertainment. The Guardian has reported on the slow death of music venues in cities – this despite a growing music industry. Only expensive mega-festivals share in the growth that digital has spurred. As in radio, localism in the music industry is waning.

If we are to reinvigorate local music, copyright law needs to be changed. Bars and restaurants – the places where new artists cut their teeth – are less able to hire live acts due to the fees charged by the PROs. These businesses are already risky endeavors, and the extra cost of the licensing fees forces them to hire cheaper DJs.

Luckily, digital has enabled artists to reach larger audiences than ever before. I propose that we leverage this new development to subsidize local live music. This could be accomplished by including live acts in the US copyright law’s “business exemption.”

Debate over the 110(5) "business exemption"

Federal copyright law enables composers and songwriters to demand royalty payments for any public performance of copyrighted material (17 U.S.C. 106). A public performance is defined as a gathering of “a substantial number of persons outside of a normal circle of a family and its social acquaintances” (17 U.S.C. 101). Small venues of less than 3,750 square feet or that use 6 speakers max are exempt if they transmit the music through radios or other devices, but the carve-out does not extend to live acts (17 U.S.C. 110(5)(B)(ii)).

These limitations in 110(5)(B) were fiercely debated. In Twentieth Century Music Corp. v. Aiken, the Supreme Court declined to find the owner of a small fast-food restaurant liable for copyright infringement by broadcasting radio music through 4 speakers throughout the restaurant. For the Court, the main objective of copyright law is “‘to so frame an act that it would accomplish the double purpose of securing to the composer an adequate return for all use made of his composition and at the same time prevent the formation of oppressive monopolies, which might be founded upon the very rights granted to the composer for the purpose of protecting his interests.’” Aiken (citing H.R.Rep. No. 2222, 60th Cong., 2d Sess. 7 (1909)).

Aiken led to Congress enacting the Copyright Act of 1976. The Act broadly defined “public performance,” and the “homestyle exemption” was codified. Ross McAloon, Comply or Crumble (2012). However, the Act did not define the exemption’s limits. The Act’s legislative history reveals that the Senate and the House were not exactly in agreement regarding its extent.

Small business owners lobbied for a rewrite. In response, Congress enacted the Fairness in Musical Licensing Act of 1998 (“FMLA”), which added the controversial “business exemption” under Section 110(5).

The FMLA agitated international agreements. The United States is a signatory of the Berne Convention (1886), which requires all signatories to maintain certain copyright law standards. The TRIPs Agreement (1994) set the foundation for enforcement of those standards by enabling the WTO to impose sanctions. Building on the Berne Convention, the TRIPs Agreement also sought to standardize the exceptions to copyright that signatories could establish.

The European Community (“EC”) complained that the 110(5) business exemption violated the TRIPs Agreement. The concern was that the business exemption had the potential to cause an unreasonable loss of income to copyright holders. An international panel ultimately found that the exemption was over-inclusive. Regardless, Congress declined to amend 110(5), and the US ultimately paid the EC $3.3 million pursuant to a temporary agreement in 2003.

Does the 110(5) business exemption still cause an unreasonable loss of income to copyright holders?

Artists outsource copyright enforcement to performance rights organizations (“PROs”). ASCAP was the first such organization, founded in 1914. Since then, other PROs have emerged on the scene, including Broadcast Music, Inc. (“BMI”). Artists agree to assign their copyrights to the PROs, and the PROs then ensure that the songwriters and publishers receive compensation whenever their music is played publicly.

By most measures, PROs have lived up to their end of the deal. In 2018, ASCAP collected $1.227 billion in licensing fees, $1.109 billion of which was distributed back to the artists and publishers. Last fiscal year, BMI collected $1.283 billion in licensing fees, $1.196 billion of which was sent back to the artists and publishers. Both organizations consistently distribute 90% of their revenue to their artists and publishers.

These organizations have massive reach, spanning network television, cable, film, radio, digital, bar/restaurants, hotels, concerts, retail stores, fitness centers – and campfires. Last fiscal year, BMI processed 2.19 trillion performances. The vast majority of these “performances” were digital – 98%. While digital only constituted 28% of BMI’s domestic revenue last year, it largely drove domestic growth (75%). Even so, the bulk of PRO revenues still come from traditional sources, such as TV, film, and radio. Live music is lumped into a catch-all category that ASCAP and BMI refer to as “general” or “background” revenue, which makes up only 18% of collections in BMI’s case.


Our current copyright laws were crafted before music could be duplicated for virtually zero cost. Artists needed to chase down every performance of their works just to make a living. But the success of PROs has reduced this need. Live performances in small venues now make up a shrinking sliver of revenues. With these developments, we can afford an amendment to the business exemption. In order to make the amendment more palatable, I propose that the max venue size for the business exemption be reduced in order to comply with international standards. With this arrangement, artists would not be substantially harmed, since this category is only a thin slice of their revenue stream, is the most expensive slice to collect, and applies in fewer circumstances. The amendment might increase music sales, as Napster did. The end-results would be a boon to local food and music, and artists could see greater income.

There is no such thing as a simple revision of the copyright act. You could not possibly move any such small change through Congress without attracting all the other small changes that everyone else wants to make. A one-sided argument of the form you present here would of course also be immediately countered by all the other parties who would have similar heart-warming reasons for opposing your exemption. A discussion of legislation that leaves out the legislative process is not complete, and the strongest way forward with this draft is to make the problem statement more compact in order to provide room to discuss the other realities.

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r4 - 10 Feb 2020 - 15:12:42 - SamSchaffer
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