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SECTION 115 OF THE COPYRIGHT ACT:

IN NEED OF AN UPDATE?

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 11, 2004

Serial No. 75

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 
(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

JOHN R. CARTER, Texas 

TOM FEENEY, Florida 

MARSHA BLACKBURN, Tennessee 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

WILLIAM L. JENKINS, Tennessee 

SPENCER BACHUS, Alabama 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

JOHN R. CARTER, Texas 

HOWARD L. BERMAN, California 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York

BLAINE MERRITT, Chief Counsel 

DAVID WHITNEY, Counsel 

JOE KEELEY, Counsel 

MELISSA L. MCDONALD, Full Committee Counsel 

ALEC FRENCH, Minority Counsel 
(III)

C O N T E N T S 

MARCH 11, 2004

Page 

The Honorable Lamar Smith, a Representative in Congress From the State 

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property .................................................................................................... 1

The Honorable Howard L. Berman, a Representative in Congress From the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 2

WITNESSES 

The Honorable Marybeth Peters, Register of Copyrights, Copyright Office 

of the United States, The Library of Congress 

Oral Testimony ..................................................................................................... 4

Prepared Statement ............................................................................................. 5

Biography .............................................................................................................. 18

Mr. Jonathan Potter, Executive Director, Digital Media Association 

Oral Testimony ..................................................................................................... 19

Prepared Statement ............................................................................................. 20

Biography .............................................................................................................. 30

Mr. Carey R. Ramos, Counsel, Paul, Weiss, Rifkind, Wharton and Garrison, 

on behalf of the National Music Publishers Association 

Oral Testimony ..................................................................................................... 31

Prepared Statement ............................................................................................. 32

Biography .............................................................................................................. 36

Mr. Cary Sherman, President and General Counsel, Recording Industry Association of America 

Oral Testimony ..................................................................................................... 37

Prepared Statement ............................................................................................. 38

Biography .............................................................................................................. 42

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement by the Honorable Lamar Smith ........................................... 54

Prepared Statement by the Honorable Howard Berman ..................................... 57

Letter to Chairman F. James Sensenbrenner, Jr. from Eric Polin, Partner, 

Wixen Music Publishing, Inc. with attached letter to David O. Carson, 

Esq., General Counsel, United States Copyright Office and letter to the 

Honorable Marybeth Peters, Register of Copyright, United States Copyright 

Office from Eric Polin, Partner, Wixen Music Publishing, Inc. ........................ 59

Letter to Chairman Lamar Smith and the Honorable Howard Berman from 

Marilyn Bergman, President and Chairman of the Board, American Society 

of Composers, Authors and Publishers (ASCAP) .............................................. 66

Letter to Chairman Lamar Smith from the Honorable Marybeth Peters, Register of Copyrights, United States Copyright Office ......................................... 69

Letter to the Honorable Lamar Smith and the Honorable Howard Berman 

from Frances W. Preston, President, Chief Executive Officer, Broadcast 

Music, Inc. (BMI) ................................................................................................. 72

(1)

SECTION 115 OF THE COPYRIGHT ACT:

IN NEED OF AN UPDATE? 

THURSDAY, MARCH 11, 2004

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 12 p.m., in Room 

2141, Rayburn House Office Building, Hon. Lamar S. Smith (Chair 

of the Subcommittee) presiding. 

Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. 

Today’s oversight hearing is on ‘‘Section 115 of the Copyright 

Act: In Need of an Update.’’ I’ll recognize myself for an opening 

statement, then the Ranking Member, and then we’ll proceed to 

hear the testimony of the witnesses today. 

Let me open this hearing by recognizing a simple truth: Most 

people don’t think about music licenses when they listen to music 

at home, in their car, or on their iPods. Technology continues to 

change how we hear music. From piano rolls, to vinyl records, to 

eight-tracks, to CD’s, and now MP3’s, Americans have many ways 

to enjoy music. Only within the past decade have Americans been 

able to regularly access music transmitted in digital form. 

Digital formats not only ensure that the listener hears a perfect 

reproduction, but they also create new business models. Yet the 

laws that govern music licensing have changed infrequently. Some 

testifying today feel that more changes to the Copyright Act are required to update it. Others feel that existing laws are adequate. 

Online music has quickly become a growth industry generating 

additional revenues for artists and providing legal alternatives to 

online pirate, peer-to-peer sites. No longer can a music pirate attempt to rationalize his or her theft by saying that there are no 

legal online alternatives. 

I’m pleased to see that the catalogues of online music services 

continue to expand. It is true that a few artists have chosen not 

to make their recordings available online, and that is certainly 

their right. It is also my right to listen to music on 45’s instead of 

on a CD; not that I would make that choice. So I would urge artists 

who have not made their music available online to enter the 21st 

century. 

This Subcommittee examined online music issues a few years ago 

to determine if Congressional intervention was warranted. The 

Subcommittee decided to wait until the market matured. Although 
2

the focus of the Committee several years ago was on webcasting, 

the public has expressed a far greater interest in legal 

downloading. This change is an important reminder to Congress, as 

we review section 115 of the Copyright Act. 

Although some in Washington may believe that we can predict 

the future, Congress has repeatedly proved it cannot. The role of 

Congress should be to set general guidelines for the marketplace, 

without preventing new business models from developing. 

I am concerned that laws and procedures first designed in the 

piano-roll era may not be adequate for the digital era. So I am 

pleased to see that the Copyright Office already is updating some 

of the procedural requirements of section 115. 

The private sector is often the best place to resolve the disputes 

that inevitably arise as new business models evolve. I am pleased 

that the RIAA, the NMPA, the Harry Fox Agency, and the Songwriters Guild agreed in October 2001 on some basic principles concerning online music subscription services. However, it might have 

been better if online webcasters had been a party to this agreement. Since this was not the case, I look forward to hearing from 

the witnesses today on webcasting concerns related to section 115. 

We should clarify the legal issues that remain outstanding, to ensure that this market continues to grow. 

This concludes my opening statement, and the gentleman from 

California, Mr. Berman, is recognized for his opening statement. 

[The statement of Mr. Smith follows in the Appendix] 

Mr. BERMAN. Thank you, Mr. Chairman. Our private sector witnesses appear to share a strong interest in the success of the legal 

music marketplace: The business survival of Digital Media Association members depends on the success of the legitimate online music 

services. The success of new legal music offerings like downloads 

and DVD audio will provide vital new sources of royalties for members of the National Music Publishers Association. RIAA members 

will benefit in a number of ways, through the distribution of their 

works in secure new formats, through their ownership of some online music services, and through the royalties generated by independent services. 

Our witnesses are similarly united in the desire to stem music 

piracy. Though in different ways, piracy, both online and off, bedevils DiMA, NMPA, and RIAA members alike. Since the success of 

new music formats and online music services is a critical element 

in stemming the piracy tide, our witnesses have additional reasons 

to work to achieve the success. 

So at least at the macro level, the interests of our private sector 

witnesses today are strongly aligned. Unfortunately, this alignment 

of interests doesn’t translate into an alignment of strategies for 

stimulating the legal music marketplace. Our witnesses appear to 

disagree pretty strongly about the availability, scope, cost, and convenience of both voluntary and statutory licenses for making reproductions of copyrighted musical compositions. NMPA appears to 

maintain that such licenses are easily obtained, and points to the 

success of iTunes Music Store as proof. Our other witnesses appear 

to strongly disagree. 

Clearly, the legitimate online music marketplace has made tremendous strides in the past few years, and these strides dem-
3

onstrate that copyright owners are fully committed to its development. In fact, all our witnesses deserve—including the Copyright 

Office—deserve some measure of credit for these advances. 

In 1999, only the pirate version of Napster provided music consumers an opportunity to download a wide variety of popular 

music. Today a number of legitimate services, including Napster 

Version 2, iTunes, Rapsody, PressPlay, MusicNow, and many others, offer consumers cheap, legal mechanisms for downloading hundreds of thousands of songs. 

Unfortunately, despite their meteoric growth, legal online music 

services still represent the equivalent of a fly on the back of the 

online piracy elephant. The 30 million downloads sold by iTunes in 

the past year are encouraging, but are nothing compared to the billions of copyrighted songs illegally downloaded through peer-topeer services every month. The approximately 500,000 songs available through most legal music services represent an exponential increase from a few years ago, but pale in comparison to the millions 

of different songs available through the illegal services. 

While the downloading revolution calls into question the longterm viability of music—physical music formats, they will continue 

to make up the lion’s share of the music market in the near term. 

Thus, it is clear that music copyright owners must mitigate—migrate to secure physical formats. If they continue to make music 

available on unprotected CD’s, they are driving their own piracy 

problem. 

The rollout of new secure physical formats, unfortunately, has 

been less than dramatic. Only a handful of albums have been released on copy-protected CD’s in the U.S. DVD audio has not penetrated the marketplace. And the pre-loading of music on personal 

computers or other devices hasn’t gotten much traction. Clearly, 

something must be done to make new legal music offerings, both 

online and off, more competitive with the abundance of conveniently available, free, illegal music. 

As I have noted, success in achieving this challenge will benefit 

all of our private sector witnesses. And my questioning of the witnesses will be directed through the prism of two interrelated questions. First, does 115 facilitate or hinder the rollout of new legal 

music offerings? Secondly, depending on the answer to the first 

question, what, if anything, should Congress do to change Section 

115? I’ll be interested in hearing our witnesses. Thank you, Mr. 

Chairman. 

[The prepared statement of Mr. Berman follows in the Appendix] 

Mr. SMITH. Yes. Thank you, Mr. Berman. And without objection, 

the opening statements of other Members will be made a part of 

the record, as will the complete statements of all of our witnesses. 

Also, in the interest of time today and because there are time 

constraints, without objection, I will make a part of the record the 

complete biographies of all of the witnesses today, too. 

Mr. SMITH. Our witnesses today are the Honorable Marybeth Peters, Register of Copyrights, Copyright Office of the United States, 

The Library of Congress; Jonathan Potter, Executive Director, Digital Media Association; Carey R. Ramos, Counsel, Paul, Weiss, 

Rifkind, Wharton and Garrison, on behalf of the National Music 
4

Publishers Association; and Cary Sherman, President and General 

Counsel, Recording Industry Association of America. 

Ms. Peters, we’ll begin with you. 

STATEMENT OF THE HONORABLE MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE 

UNITED STATES, THE LIBRARY OF CONGRESS 

Ms. PETERS. Mr. Chairman, Mr. Berman, distinguished Members 

of the Subcommittee, I appreciate the opportunity to appear before 

you today to testify regarding possible revisions of the compulsory 

license for the making and distributing of phonorecords. Technological developments have changed how the music industry makes 

and markets its products to consumers. Computers and digital 

technology allow anyone to reproduce a sound recording and the 

musical work embodied in it, and distribute those works to the 

world with the stroke of a key. 

Because of these changes, Congress adjusted the compulsory license in 1995, to provide for the making and distribution by transmission of digital phonorecords. Record companies and most publishers have favored the continued existence of this license when 

the issue has come up for review. Yet despite changes to Section 

115 in 1995, businesses still find it difficult to use the compulsory 

license to provide digital downloads and on-demand performances. 

Today, NMPA in its testimony states its member companies do 

not find the license an impediment to launching new services. They 

take the position that 115 is not broken, and doesn’t need to be 

fixed. I question this position. How does a service like MusicNet or 

iTunes clear the rights in the music, rights that need to be cleared 

quickly? It seems extremely difficult. 

The compulsory license requires searching Copyright Office 

records to determine the owner of each work; serving notices of intention to use each and every work on a copyright owner identified 

in the records of the office. Where the owner of the musical composition is not identified, a notice for that work must be filed with 

the Copyright Office itself. The Office has not received any notices 

from music services. 

If the compulsory license isn’t used, then a voluntary negotiated 

license is necessary. NMPA says its licensing affiliate, the Harry 

Fox Agency, can accommodate the licensing of these musical compositions. The recording industry states that 40 percent of the 

works to be licensed cannot be licensed by Fox. And of course, 

under the compulsory licenses, record companies could license musical compositions; but to our knowledge, they are not using the 

compulsory license. 

With respect to the administrative provisions, relief is in sight. 

Today we did propose rules that were published in the Federal 

Register. And they would, to the extent possible, get rid of many 

of the obstacles; but not all of the obstacles. 

Unfortunately, a service wishing to use compulsory licenses will 

still need a large amount of time and money to identify the copyright owner of each work, in order to serve the required notice. 

More importantly, there are some fundamental problems regarding the scope of the license. Emerging businesses that provide eas-
5

1The music industry construed the reference in Section 1(e) of the 1909 Act as referring only 

to a nondramatic musical composition as opposed to music contained in dramatico-musical compositions. See MELVILLE B. NIMMER, NIMMER ON COPYRIGHT, § 16.4 (1976). This interpretation 

was expressly incorporated into the law by Congress with the adoption of the 1976 Act. 17 

U.S.C. § 115(a)(1). 

ily accessible music in multiple digital formats need to make multiple reproductions. The question is: Does 115 cover them? 

These questions currently before the office deal with this issue. 

In the midst of our consideration of these questions, RIAA, NMPA, 

and Harry Fox concluded an agreement that represented a marketplace solution to the licensing problems associated with these models. This does eliminate legal ambiguities. It does not, however, 

solve the legal questions for a service that wants to use the Section 

115 compulsory license to clear rights. 

Moreover, many online music services, such as those represented 

by DiMA, disagree, and object to the solutions reached. And I am 

not optimistic that these issues can be resolved by means of a 

Copyright Office regulation. 

So the question for you is, what, if anything, should be done? My 

first choice would be to eliminate the license and replace it with 

a collective licensing system—a collective licensing system similar 

to that used throughout the world and already in place in this 

country for clearing public performance of music. I’m referring to 

the ASCAP and BMI models of voluntary blanket collective licensing. They seem to be the most cost-effective, time-efficient method 

to ensure that there are no infringed rights or economic harm to 

the copyright owner resulting from unauthorized online uses. 

Voluntary blanket license would seem particularly useful when 

there are hundreds of thousands of songs to be transmitted. And 

they can adapt to new technology, and they work well internationally; unlike compulsory licenses, which are limited to a particular 

country. 

In conclusion, I do think change is necessary. The compulsory license either needs to be eliminated, or it needs to be made workable. I look forward to working with you on this. 

[The prepared statement of Ms. Peters follows:]

PREPARED STATEMENT OF MARYBETH PETERS

Mr. Chairman, Mr. Berman, and distinguished members of the Subcommittee, I 

appreciate the opportunity to appear before you to testify on the Section 115 compulsory license, which allows for the making and distribution of physical 

phonorecords and digital phonorecord deliveries. The compulsory license to allow for 

the use of nondramatic musical works has been with us for 95 years and has resulted in the creation of a multitude of new works for the pleasure and consumption 

of the public, and in the creation of a strong and vibrant music industry which continues to flourish to this day. Nevertheless, the means to create and provide music 

to the public has changed radically in the last decade, necessitating changes in the 

law to protect the rights of copyright owners while at the same time balancing the 

needs of the users in a digital world. 

BACKGROUND

1. Mechanical Licensing under the 1909 Copyright Act 

In 1909, Congress created the first compulsory license to allow anyone to make 

a mechanical reproduction (known today as a phonorecord) of a musical composition 1 without the consent of the copyright owner provided that the person adhered 

to the provisions of the license. The impetus for this decision was the emergence 

of the player piano and the ambiguity surrounding the extent of the copyright owner’s right to control the making of a copy of its work on a piano roll. The latter ques-
6

2 209 U.S. 1 (1908). 

tion was settled in part in 1908 when the Supreme Court held in White-Smith Publishing Co. v. Apollo Co.2 that perforated piano rolls were not ‘‘copies’’ under the 

copyright statute in force at that time, but rather parts of devices which performed 

the work. During this period (1905–1909), copyright owners were seeking legislative 

changes which would grant them the exclusive right to authorize the mechanical reproduction of their works—a wish which Congress granted shortly thereafter. Although the focus at the time was on piano rolls, the mechanical reproduction right 

also applied to the nascent medium of phonograph records as well. 

Congress, however, was concerned that the right to make mechanical reproductions of musical works might become a monopoly controlled by a single company. 

Therefore, it decided that rather than provide for an exclusive right to make mechanical reproductions, it would create a compulsory license in Section 1(e) of the 

1909 Act which would allow any person to make ‘‘similar use’’ of the musical work 

upon payment of a royalty of two cents for ‘‘each such part manufactured.’’ However, 

no one could take advantage of the license until the copyright owner had authorized 

the first mechanical reproduction of the work. Moreover, the initial license placed 

notice requirements on both the copyright owners and the licensees. Section 101(e). 

The copyright owner had to file a notice of use with the Copyright Office—indicating 

that the musical work had been mechanically reproduced—in order to preserve his 

rights under the law, whereas the person who wished to use the license had to serve 

the copyright owner with a notice of intention to use the license and file a copy of 

that notice with the Copyright Office. The license had the effect of capping the 

amount of money a composer could receive for the mechanical reproduction of this 

work. The two cent rate set in 1909 remained in effect until January 1, 1978, and 

acted as a ceiling for the rate in privately negotiated licenses. 

Such stringent requirements for use of the compulsory license did not foster wide 

use of the license. It is my understanding that the ‘‘mechanical’’ license as structured under the 1909 Copyright Act was infrequently used until the era of tape piracy in the late 1960s. When tape piracy was flourishing, the ‘‘pirates’’ inundated 

the Copyright Office with notices of intention, many of which contained hundreds 

of song titles. The music publishers refused to accept such notices and any proffered 

royalty payments since they did not believe that reproduction and duplication of an 

existing sound recording fell within the scope of the compulsory license. After this 

flood of filings passed, the use of the license appears to have again became almost 

non-existent; up to this day, very few notices of intention are filed with the Copyright Office. 

2. The Mechanical License under the 1976 Copyright Act 

The music industry adapted to the new license and, by and large, sought its retention, opposing the position of the Register of Copyrights in 1961 to sunset the license one year after enactment of the omnibus revision of the copyright law. Music 

publishers and composers had grown accustomed to the license and were concerned 

that the elimination of the license would cause unnecessary disruptions in the music 

industry. Consequently, the argument shifted over time away from the question of 

whether to retain the license and, instead, the debate focused on reducing the burdens on copyright owners, clarifying ambiguous provisions, and setting an appropriate rate. The House Judiciary Committee’s approach reflected this trend and in 

its 1976 report on the bill revising the Copyright Act, it reiterated its earlier position ‘‘that a compulsory licensing system is still warranted as a condition for the 

rights of reproducing and distributing phonorecords of copyrighted music,’’ but ‘‘that 

the present system is unfair and unnecessarily burdensome on copyright owners, 

and that the present statutory rate is too low.’’ H. Rep. No. 94–1476, at 107 (1976), 

citing H. Rep. No. 83, at 66–67 (1967). 

To that end, Congress adopted a number of new conditions and clarifications in 

Section 115 of the Copyright Act of 1976, including:

• The license becomes available only after a phonorecord has been distributed 

to the public in the United States with the authority of the copyright owner 

(§ 115(a)(1));

• The license is only available to someone whose primary intent is to distribute 

phonorecords to the public for private use (§ 115(a)(1));

• licensee cannot duplicate a sound recording embodying the musical work 

without the authorization of the copyright owner of the sound recording 

(§ 115(a)(1));
7

3 Congress intended the term ‘‘made’’ ‘‘to be broader than ‘manufactured’ and to include within 

its scope every possible manufacturing or other process capable of reproducing a sound recording 

in phonorecords.’’ H. Rep. No. 1476, at 110 (1976). 4For purposes of Section 115, ‘‘the concept of ‘distribution’ comprises any act by which the 

person exercising the compulsory license voluntarily relinquishes possession of a phonorecord 

(considered as a fungible unit), regardless of whether the distribution is to the public, passes 

title, constitutes a gift, or is sold, rented, leased, or loaned, unless it is actually returned and 

the transaction cancelled.’’ Id. 5This provision replaced the earlier requirement in the 1909 law that a copyright owner must 

file a notice of use with the Copyright Office in order to be eligible to receive royalties generated 

under the compulsory license. 6 In 1993, Congress passed the Copyright Royalty Tribunal Reform Act of 1993, Pub. L. 103–

198, 107 Stat. 2304, which eliminated the Copyright Royalty Tribunal and replaced it with a 

system of ad hoc Copyright Arbitration Royalty Panels (CARPs) administered by the Librarian 

of Congress.

• A musical work may be rearranged only ‘‘to the extent necessary to conform 

it to the style or manner of the interpretation of the performance involved,’’ without ‘‘chang[ing] the basic melody or fundamental character of the work,’’ (§ 115(a)(2));

• A licensee must still serve a Notice of Intention to obtain a compulsory license 

on the copyright owner or, in the case where the public records of the Copyright Office do not identify the copyright owner and include an address, the 

licensee must file the Notice of Intention with the Copyright Office 

(§ 115(b)(1));

• A licensee must serve the notice on the copyright owner ‘‘before or within 

thirty days after making, and before distributing any phonorecords of the 

work.’’ Otherwise, the licensee loses the opportunity to make and distribute 

phonorecords pursuant to the compulsory license (§ 115(b)(1));

• A copyright owner is entitled to receive copyright royalty fees only on those 

phonorecords made 3 and distributed 4 after the copyright owner is identified 

in the registration or other public records of the Copyright Office 

(§ 115(c)(1)); 5

• The rate payable for each phonorecord made and distributed is adjusted by 

an independent body which, prior to 1993, was the Copyright Royalty Tribunal.6

• A compulsory license may be terminated for failure to pay monthly royalties 

if a user fails to make payment within 30 days of the receipt of a written notice from the copyright owner advising the user of the default (§ 115(c)(6)).

The Section 115 compulsory license worked well for the next two decades, but the 

use of new digital technology to deliver music to the public required a second look 

at the license to determine whether it continued to meet the needs of the music industry. During the 1990s, it became apparent that music services could offer options 

for the enjoyment of music in digital formats either by providing the public an opportunity to hear any sound recording it wanted on-demand or by delivering a digital version of the work directly to a consumer’s computer. In either case, there was 

the possibility that the new offerings would obviate the need for mechanical reproductions in the forms heretofore used to distribute musical works and sound recordings in a physical format, e.g., vinyl records, cassette tapes and most recently audio 

compact discs. Moreover, it was clear that digital transmissions were substantially 

superior to analog transmissions. In an early study conducted by the Copyright Office, the Office noted two significant improvements associated with digital transmissions: a superior sound quality and a decreased susceptibility to interference 

from physical structures like tall buildings or tunnels. See Register of Copyrights, 

U.S. Copyright Office, Copyright Implications of Digital Audio Transmission Services (1991). 

3. The Digital Performance Right in Sound Recordings Act of 1995

By 1995, Congress recognized that ‘‘digital transmission of sound recordings [was] 

likely to become a very important outlet for the performance of recorded music.’’ S. 

Rep. No. 104–128, at 14 (1995). Moreover, it realized that ‘‘[t]hese new technologies 

also may lead to new systems for the electronic distribution of phonorecords with 

the authorization of the affected copyright owners.’’ Id. For these reasons, Congress 

made changes to Section 115 to meet the challenges of providing music in a digital 

format when it enacted the Digital Performance Right in Sound Recordings Act of 

1995 (‘‘DPRA’’), Pub. L. 104–39, 109 Stat. 336, which also granted copyright owners 

of sound recordings an exclusive right to perform their works publicly by means of 

a digital audio transmission, 17 U.S.C. § 106(6), subject to certain limitations. See
8

7 ‘‘A digital phonorecord delivery of a sound recording is actionable as an act of infringement 

under section 501, and is fully subject to the remedies provided by sections 502 through 506 

and section 509, unless—

(I) the digital phonorecord delivery has been authorized by the copyright owner of the 

sound recording; and

(II) the owner of the copyright in the sound recording or the entity making the digital 

phonorecord delivery has obtained a compulsory license under this section or has otherwise been authorized by the copyright owner of the musical work to distribute or authorize the distribution, by means of a digital phonorecord delivery, of each musical 

work embodied in the sound recording.’’

17 U.S.C. § 115(c)(3)(H)(i).

17 U.S.C. § 114. The amendments to Section 115 clarified the reproduction and distribution rights of music copyright owners and producers and distributors of sound 

recordings, especially with respect to what the amended Section 115 termed ‘‘digital 

phonorecord deliveries.’’ Specifically, Congress wanted to reaffirm the mechanical 

rights of songwriters and music publishers in the new world of digital technology. 

It is these latter amendments to Section 115 that are of particular interest today. 

First, Congress expanded the scope of the compulsory license to include the making and distribution of a digital phonorecord and, in doing so, adopted a new term 

of art, the ‘‘digital phonorecord delivery’’ (‘‘DPD’’), to describe the process whereby 

a consumer receives a phonorecord by means of a digital transmission, the delivery 

of which requires the payment of a statutory royalty under Section 115. The precise 

definition of this new term reads as follows:

A ‘‘digital phonorecord delivery’’ is each individual delivery of a phonorecord 

by digital transmission of a sound recording which results in a specifically 

identifiable reproduction by or for any transmission recipient of a phonorecord of that sound recording, regardless of whether the digital transmission is also a public performance of the sound recording or any nondramatic musical work embodied therein. A digital phonorecord delivery does 

not result from a real-time, nonintegrated subscription transmission of a 

sound recording where no reproduction of the sound recording or the musical work embodied therein is made from the inception of the transmission 

through to its receipt by the transmission recipient in order to make the 

sound recording audible.

17 U.S.C. § 115(d). What is noteworthy about the definition is that it includes elements related to the right of public performance and the rights of reproduction and 

distribution with respect to both the musical work and the sound recording. The 

statutory license, however, covers only the making of the phonorecord, and only 

with respect to the musical work. The definition merely acknowledges that the public performance right and the reproduction and distribution rights may be implicated in the same act of transmission and that the public performance does not in 

and of itself implicate the reproduction and distribution rights associated with either the musical composition or the sound recording. In fact, Congress included a 

provision to clarify that ‘‘nothing in this Section annuls or limits the exclusive right 

to publicly perform a sound recording or the musical work embodied therein, including by means of a digital transmission.’’ 17 U.S.C. § 115(c)(3)(K). 

Another important distinction between traditional mechanical phonorecords and 

DPDs brought about by the DPRA is the expansion of the statutory license to include reproduction and transmission by means of a digital phonorecord delivery of 

a musical composition embodied in a sound recording owned by a third party, provided that the licensee obtains authorization from the copyright owner of the sound 

recording to deliver the DPD.7 Thus, the license provides for more than the reproduction and distribution of one’s own version of a performance of a musical composition by means of a DPD. Under the expanded license, a service providing DPDs can 

in effect become a virtual record store if it is able to clear the rights to the sound 

recordings. More importantly, the DPRA allows a copyright owner of a sound recording to license the right to make DPDs of both the sound recording and the underlying musical work to third parties if it has obtained the right to make DPDs from 

the copyright owner of the musical work. See 17 U.S.C. § 115(c)(3)(I), S. Rep. No. 

104–128, at 43 (1995).

Apart from the extension of the compulsory license to cover the making of DPDs, 

Congress also addressed the common industry practice of incorporating controlled 

composition clauses into a songwriter/performer’s recording contract, whereby a recording artist agrees to reduce the mechanical royalty rate payable when the record 

company makes and distributes phonorecords including songs written by the performer. In general, the DPRA provides that privately negotiated contracts entered 
9

into after June 22, 1995, between a recording company and a recording artist who 

is the author of the musical work cannot include a rate for the making and distribution of the musical work below that established for the compulsory license. There 

is one notable exception to this general rule. A recording artist-author who effectively is acting as her own music publisher may accept a royalty rate below the statutory rate if the contract is entered into after the sound recording has been fixed 

in a tangible medium of expression in a form intended for commercial release. 17 

U.S.C. § 115(c)(3)(E). 

The amended license also extended the current process for establishing rates for 

the mechanical license to DPDs. Under the statutory structure, rates for the making 

and reproduction of the DPDs can be decided either through voluntary negotiations 

among the affected parties or, in the case where these parties are unable to agree 

upon a statutory rate, by a Copyright Arbitration Royalty Panel (‘‘CARP’’). Pursuant 

to Section 115(c)(3)(D), the CARP must establish rates and terms that ‘‘distinguish 

between digital phonorecord deliveries where the reproduction or distribution of the 

phonorecord is incidental to the transmission which constitutes the digital phonorecord delivery, and digital phonorecord deliveries in general.’’

The difficult issue, however, is identifying those reproductions that are subject to 

compensation under the statutory license, a subject I will discuss in greater detail. 

REGULATORY RESPONSES

1. Notices of Intention to Use and Statements of Account 

Section 115(b) requires that a person who wishes to use the compulsory license 

serve a notice of his or her intention to use a musical composition with the copyright 

owner before or within thirty days after making, and before distributing any 

phonorecords. Regulations in place since the enactment of the 1976 Copyright Act 

followed the statutory scheme and required that a separate Notice of Intention be 

served for each nondramatic musical work embodied or intended to be embodied in 

phonorecords to be made under the compulsory license. Following the statutory 

scheme, the regulations provided that if the registration or other public records of 

the Copyright Office do not identify the copyright owner of a particular work and 

include that owner’s address, the person wishing to use the compulsory license could 

file the Notice of Intention with the Copyright Office. 37 C.F.R. § 201.18. The regulations also implemented the statutory requirement that each licensee pay royalties, 

on a monthly basis, to each copyright owner whose musical works the licensee is 

using, and that each licensee serve monthly statements of account and an annual 

statement of account on each copyright owner. 37 C.F.R. § 201.19. 

The regulations governing this requirement were amended after the passage of 

the DPRA in order to accommodate the making of DPDs. Initial amendments to the 

rules were promulgated on July 30, 1999, and addressed when a DPD is made, manufactured, or distributed for purposes of the Section 115 license such that the obligation to pay the royalty fee attaches. The amended regulation provided that a DPD 

be treated as a phonorecord made and distributed on the date the phonorecord is 

digitally transmitted. The amended regulation also provided a mechanism for the 

delivery of a usable DPD where, in the first instance, the initial transmission failed 

or did not result in a complete and functional DPD. 64 FR 41286. (July 30, 1999). 

Because these rules were dealing with new concepts applicable to developing services in a nascent industry, the Office adopted the rules on an interim basis and left 

the door open to revisit the notice and recordkeeping requirements. 

Two years later, the Office initiated a second rulemaking proceeding to address 

concerns of musical work copyright owners and users of the compulsory license, especially those developing new digital music services with the intention of developing 

extensive music libraries with hundreds of thousands of titles in order to offer these 

recordings to their subscribers for a fee. See 66 FR 45241 (August 28, 2001). Both 

sides wanted easier ways to meet the requirements for obtaining the license, including more convenient methods to effect service of the Notice of Intention to use the 

license on the copyright owners, a provision to allow use of a single notice to identify 

use of multiple works, a simplification of the elements of the notice, and a provision 

to make clear that a notice may be legally sufficient even if the notice contains 

minor errors. 

We thought many of these suggestions were appropriate and perhaps long overdue. Thus, we are pleased to announce that the Office is publishing today in the 

Federal Register proposed amendments to the regulations governing the notice and 

recordkeeping requirements that are designed to increase the ease with which a person who intends to utilize the license may effect service on the copyright owner and 

provide the information required to identify the musical work. We are aware that 

many interested parties will not find the proposed changes sufficient to create a 
10

8The fee for the filing of Notices of Intention may be changed only after a study has been 

made of the costs connected with the filing and indexing of the Notices. The fee adjustment 

must be submitted to Congress and may be instituted only if Congress has not enacted a law 

disapproving the fee within 120 days of its submission to Congress. 17 U.S.C. § 708(a)(5), (b).

seamless licensing regime. However, the extent of any change we can make in the 

regulations is limited by the scope of the law and, as we explain in the current notice, a number of the changes proposed by the interested parties would require a 

change in the law. Nevertheless, we believe the proposed amendments represent 

progress in meeting the needs of digital services seeking use of the license as a 

means to clear the rights to make and distribute a vast array of musical works in 

a DPD format, and they also offer improvements to the copyright owners who receive compensation under the Section 115 license. Specifically, the new rules propose the following notable changes:

• A copyright owner may designate an authorized agent to accept the Notices 

of Intention and/or the royalty payments, although the rules do not require 

that a single agent perform both functions;

• In the case where the copyright owner uses an authorized agent to accept the 

notices, the rules would require the copyright owner to identify to whom 

statements of account and royalty payments shall be made;

• A person intending to use the compulsory licence may serve a Notice of Intention on the copyright owner or its agent at an address other than the last 

address listed in the public records of the Copyright Office if that person has 

more recent or accurate information than is contained in the Copyright Office 

records;

• A Notice of Intention may be submitted electronically to a copyright owner 

or its authorized agent in cases where the copyright owner or authorized 

agent has announced it will accept electronic submissions.

• Multiple works may be listed on a single Notice of Intention when the works 

are owned by the same copyright owner or, in the case where the notice will 

be served upon an authorized agent, the agent represents at least one of the 

copyright owners of each of the listed works;

• If a Notice of Intention includes more than 50 song titles, the proposed rules 

give the copyright owner or its agent a right to request and receive a digital 

file of the names of the copyrighted works in addition to the original paper 

copy of the Notice.

• A Notice of Intention may be submitted by an authorized agent of the person 

who seeks to obtain the license;

• Harmless errors that do not materially affect the adequacy of the information 

required to serve the purposes of the notice requirement shall not render a 

Notice of Intention invalid.

• In order to recover the Copyright Office’s costs in processing Notices of Intention that are filed with the Office, the filing fee that has been required for 

the filing of a Notice of Intention with the Copyright Office when the identity 

and address of the copyright owner cannot be found in the registration or 

other public records of the Copyright Office will also be required when a Notice of Intention is filed with the Office after the Notice has been returned 

to the sender because the copyright owner is no longer located at the address 

identified in the Copyright Office records or has refused to accept delivery; 

and

• The fee charged for the filing of a Notice of Intention with the Copyright Office will be based upon the number of musical works identified in the Notice 

of Intention. We are studying the costs incurred by the Office in connection 

with such filings and I will submit to Congress new proposed fees that cover 

such costs. The resulting fee should be considerably lower per work than the 

current fee.8

I am hopeful that these proposed changes will facilitate the use of the license for 

both copyright owners and licensees, and I expect to adopt the proposed rules in 

final form after considering comments on the proposed rules and making any necessary modifications. I believe that these changes represent the best that the Office 

can do under the current statute, but I recognize that it may be advisable to amend 

Section 115 to permit further changes in the procedure by which persons intending 

to use the compulsory license may provide notice of their intention. I will discuss 

some possible amendments later in my testimony. 
11

Moreover, these regulations only address the technical requirements for securing 

the compulsory license. During the last rate adjustment proceeding, questions of a 

more substantive nature arose with respect to DPDs, requiring the Office to publish 

a Notice of Inquiry to consider the very scope of the Section 115 license. I will now 

turn to a discussion of those issues. 

2. Consideration of what constitutes an ‘‘incidental digital phonorecord delivery’’

In 1995 when Congress passed the DPRA, its intent was to extend the scope of 

the compulsory license to cover the making and distribution of a phonorecord in a 

digital format—what Congress referred to as the making of a digital phonorecord 

delivery. Since that time, what constitutes a ‘‘digital phonorecord delivery’’ has been 

a hotly debated topic. Currently, the Copyright Office is in the midst of a rulemaking proceeding to examine this question, especially in light of the new types of 

services being offered in the marketplace, e.g. ‘‘on-demand streams’’ and ‘‘limited 

downloads.’’ See 66 FR 14099 (March 9, 2001). 

The Office initiated this rulemaking proceeding in response to a petition from the 

Recording Industry Association of America (‘‘RIAA’’), asking that we conduct such 

a proceeding to resolve the question of which types of digital transmissions of recorded music constitute a general DPD and which types should be considered an incidental DPD. RIAA made the request after it became apparent that industry representatives found it difficult, if not impossible, to negotiate a rate for the incidental 

DPD category, as required by law, when no one knew which types of prerecorded 

music were to be included in this category. 

Central to this inquiry are questions about two types of digital music services: 

‘‘on-demand streams’’ and ‘‘limited downloads.’’ For purposes of the inquiry, the 

music industry has defined an ‘‘on-demand stream’’ as an ‘‘on-demand, real-time 

transmission using streaming technology such as Real Audio, which permits users 

to listen to the music they want when they want and as it is transmitted to them,’’

and a ‘‘limited download’’ as an ‘‘on-demand transmission of a time-limited or other 

use-limited (i.e., non-permanent) download to a local storage device (e.g., the hard 

drive of the user’s computer), using technology that causes the downloaded file to 

be available for listening only either during a limited time (e.g., a time certain or 

a time tied to ongoing subscription payments) or for a limited number of times.’’ The 

Office has received comments and replies to its initial notice of inquiry. I anticipate 

that we will conclude the proceeding this year after either holding a hearing or soliciting another round of comments from interested parties in order to get a fresh 

perspective on these complex and difficult questions in light of the current technology and business practices. 

The perspective of music publishers appears to be clear. They have taken the position that both on-demand streams and limited downloads implicate their mechanical 

rights. Moreover, they maintain that copies made during the course of a digital 

stream or in the transmission of a DPD are for all practical purposes reproductions 

of phonorecords that are covered by the compulsory license. The recording industry 

supports this view, recognizing that while certain reproductions of a musical work 

are exempt under Section 112(a), other reproductions do not come within the scope 

of the exemption. For that reason, the recording industry has urged the Office to 

interpret the Section 115 license in such a way as to cover all reproductions of a 

musical work necessary to operate such services; and, we are considering their arguments. In the meantime, certain record companies and music publishers have 

worked out a marketplace solution. 

a. Marketplace solution 

In 2001, the RIAA, the National Music Publishers’ Association, Inc. (‘‘NMPA’’), 

and the Harry Fox Agency, Inc. (‘‘HFA’’) entered into an agreement concerning the 

mechanical licensing of musical works for new subscription services on the Internet. 

Licenses issued under the RIAA/NMPA/HFA agreement are nonexclusive and cover 

all reproduction and distribution rights for delivery of on-demand streams and limited downloads and include the right to make server copies, buffer copies and other 

related copies used in the operation of a covered service. The license also provides 

at no additional cost for ‘‘On-Demand Streams of Promotional Excerpts,’’ which are 

defined as a stream consisting of no more that thirty (30) seconds of playing time 

of the sound recording of a musical work or no more than the lesser of ten percent 

(10%) or sixty (60) seconds of playing time of a sound recording of a musical work 

longer than five minutes. 

The industry approach to resolving the problems associated with mechanical licensing for digital music services is both innovative and comprehensive, resolving 

certain legal questions associated with temporary, buffer, cache and server copies 

of a musical work associated with digital phonorecord deliveries purportedly made 
12

under the Section 115 license, as well as the use of promotional clips. The Office 

welcomes the industry’s initiative and creativity, and fully supports marketplace solutions to what really are commercial transactions between owners and users. 

However, parties should not need to rely upon privately negotiated contracts exclusively to clear the rights needed to make full use of a statutory license, or need 

to craft an understanding of the legal limits of the compulsory license within the 

provisions of the private contract. The scope of the license and any limitations on 

its use should be clearly expressed in the law. 

The 1995 amendments to Section 115, however, do not provide clear guidelines 

for use of the Section 115 license for the making of certain reproductions of a musical work needed to effectuate a digital transmission other than to acknowledge that 

a reproduction may be made during the course of a digital performance, and that 

such reproduction may be considered to be an incidental DPD. 

But are they? Section 115 does not provide a definition for incidental DPDs, so 

what constitutes an ‘‘incidental DPD’’ is not always clear. While some temporary 

copies made in the course of a digital transmission, such as buffer copies made in 

the course of a download, may qualify, others—such as buffer copies made in the 

course of a transmission of a performance (e.g., streaming)—are more difficult to fit 

within the statutory definition. In either case, it is clear that such copies need to 

comply with the statutory definition in order to be covered by the compulsory license. In other words, the copies must result in an ‘‘individual delivery of a phonorecord which results in a specifically identifiable reproduction by or for any transmission recipient of a phonorecord of that sound recording.’’ 17 U.S.C. § 115(d) (emphasis added), Similar questions can be raised with respect to cache copies and intermediate server copies made in the course of (1) downloads and (2) streaming of 

performances. 

Apparently because of such uncertainties, the RIAA/NMPA/HFA agreement includes a section entitled ‘‘Legal Framework for Agreement.’’ It contains two provisions that delineate how temporary copies made in order to provide either a limited 

download or an on-demand stream fit within the statutory framework of the Section 

115 license. Specifically, it provides that

under current law the process of making On-Demand Streams through Covered Services (from the making of server reproductions to the transmission 

and local storage of the stream), viewed in its entirety, involves the making 

and distribution of a DPD, and further agree that such process in its entirety (i.e., inclusive of any server reproduction and any temporary or 

cached reproductions through to the transmission recipient of the On-Demand Stream) is subject to the compulsory licensing provisions of Section 

115 of the Copyright Act;[and]

that under current law the process of making Limited Downloads through 

Covered Services (from the making of server reproductions to the transmission and local storage of the Limited Download), viewed in its entirety, 

involves the making and distribution of a DPD, and further agree that such 

process in its entirety (i.e., inclusive of any server reproductions and any 

temporary or cached reproductions through to the transmission recipient of 

the Limited Download) is subject to the compulsory licensing provisions of 

Section 115 of the Copyright Act.

Paragraph 8.1(a) and (b), respectively, of the RIAA/NMPA/HFA Licensing Agreement (as submitted to the Copyright Office on December 6, 2001). 

Of course, the parties’ interpretation with respect to the scope of the Section 115 

license is not binding on the Copyright Office or the courts. It merely represents 

their mutual understanding of the scope of the Section 115 license as a term of their 

privately negotiated license, an understanding that I believe is not shared by everyone in the world of online music services. This is an issue that I will address in 

the rulemaking proceeding concerning digital phonorecord deliveries, and it is quite 

possible that I will reach a different interpretation as to what falls within the scope 

of the license, especially with respect to on-demand streams. 

The critical question to be decided is whether an on-demand stream results in reproductions that reasonably fit the statutory definition of a DPD, and creates a 

‘‘phonorecord by digital transmission of a sound recording which results in a specifically identifiable reproduction by or for any transmission recipient,’’ as required by 

law. Unless it does so, such reproductions cannot be reasonably considered as DPDs 

for purposes of Section 115, no matter what position private parties take within the 

four corners of their own agreement. What is more clear is that the delivery of a 

digital download, whether limited or otherwise, for use by the recipient appears to 

fit the statutory definition, since it must result in an identifiable reproduction in 
13

order for the recipient to listen to the work embodied in the phonorecord at his leisure. 

b. Possible legislative solutions 

The Section 115 compulsory license was created to serve the needs of the phonograph record industry and has operated reasonably well in governing relationships 

between record companies and music publishers involving the making and distribution of traditional phonorecords. However, the attempt to adapt the mechanical license to enable online music services to clear the rights to make digital phonorecord 

deliveries of musical works has been less successful. With respect to problems involving the requirement that licensees give notice to copyright owners of their intention to use the compulsory license, I believe that I have exhausted the limits of my 

regulatory authority with the notice of proposed rulemaking published today. With 

respect to problems involving the scope and treatment of activities covered by the 

Section 115 compulsory license, I may soon be able to resolve some of the issues 

in the pending rulemaking on incidental digital phonorecord deliveries, but it seems 

clear that legislation will be necessary in order to create a truly workable solution 

to all of the problems that have been identified. 

At this point in time, I do not have any specific legislative recommendations, but 

I would like to outline a number of possible options for legislative action. I must 

emphasize that these are not recommendations, but rather they constitute a list of 

options that should be explored in the search for a comprehensive resolution of 

issues involving digital transmission of musical works. I certainly have some views 

as to which of these options are preferable, and in many cases those views will be 

apparent as I describe the options. I would be pleased to work with the Subcommittee and with composers, music publishers, record companies, digital music 

services and all interested parties in evaluating these and any other reasonable proposals. 

The options that should be considered fall into two distinct categories: (1) legal 

questions concerning the scope of the Section 115 license, and (2) technical problems 

associated with service of notice and payment of royalty fees under the Section 115 

license. 

Among the options that should be considered relating to the scope of the license are:

• Elimination of the Section 115 statutory license. Although the predecessor to Section 115 served as a model for similar provisions in other countries, today all of those countries, except for the United States and Australia, 

have eliminated such compulsory licenses from their copyright laws. A fundamental principle of copyright is that the author should have the exclusive 

right to exploit the market for his work, except where this would conflict with 

the public interest. A compulsory license limits an author’s bargaining power. 

It deprives the author of determining with whom and on what terms he wishes to do business. In fact, the Register of Copyrights’ 1961 Report on the General Revision of the U.S. Copyright Law favored elimination of this compulsory license. 

I believe that the time has come to again consider whether there is really 

a need for such a compulsory license. Since most of the world functions without such a license, why should one be needed in the United States? Is a compulsory license the only or the most viable solution? Should the United States 

follow the lead of many other countries and move to a system of collective 

administration in which a voluntary organization could be created (perhaps 

by a merger of the existing performing rights organizations and the Harry 

Fox Agency) to license all rights related to making musical works available 

to the public? Should we follow the model of collective licenses in which, subject to certain conditions, an agreement made by a collective organization 

would also apply to the works of authors or publishers who are not members 

of the organization? Will the creation of new digital rights management systems make such collective administration more feasible? 

In fact, we already have a very successful model for collective administration of similar rights in the United States: performing rights organizations 

(ASCAP, BMI and SESAC) license the public performance of musical works— for which there is no statutory license—providing users with a means to obtain and pay for the necessary rights without difficulty. A similar model 

ought to work for licensing of the rights of reproduction and distribution. 

As a matter of principle, I believe that the Section 115 license should be 

repealed and that licensing of rights should be left to the marketplace, most 

likely by means of collective administration. But I recognize that many parties with stakes in the current system will resist this proposal and that there 
14

9Technically, these are phonorecords rather than copies. See 17 U.S.C. § 101 (definitions of 

‘‘copies’’ and ‘‘phonorecords’’), but terms such as ‘‘buffer copy’’ and ‘‘server copy’’ have entered 

common parlance.

would be many practical difficulties in implementing it. The Copyright Office 

would be pleased to study the issue and prepare a report for you with recommendations, if appropriate. Meanwhile, there are a number of other options for legislative action that merit consideration.

• Clarification that all reproductions of a musical work made in the 

course of a digital phonorecord delivery are within the scope of the 

Section 115 compulsory license. This may well be something that I will 

be able to do in regulations issued in the pending rulemaking on incidental 

phonorecord deliveries, but if I conclude that it is beyond my power to reach 

that conclusion under current law, consideration should be given to amending 

Section 115 to provide expressly that all reproductions that are incidental to 

the making of a digital phonorecord delivery, including buffer and cache copies and server copies,9 are included within the scope of the Section 115 compulsory license. Consideration should also be given to clarifying that no compensation is due to the copyright owner for the making of such copies beyond 

the compensation due for the ultimate DPD. 

• Amendment of the law to provide that reproductions of musical 

works made in the course of a licensed public performance are either 

exempt from liability or subject to a statutory license. When a 

webcaster transmits a public performance of a sound recording of a musical 

composition, the webcaster must obtain a license from the copyright owner for 

the public performance of the musical work, typically obtained from a performing rights organazation such as ASCAP, BMI or SESAC. At the same 

time, webcasters find themselves subject to demands from music publishers 

or their representatives for separate compensation for the reproductions of 

the musical work that are made in order to enable the transmission of the 

performance. I have already expressed the view that there should be no liability for the making of buffer copies in the course of streaming a licensed public 

performance of a musical work. See U.S. Copyright Office, DMCA Section 104 

Report 142–146 (2001); Statement of Marybeth Peters, The Register of Copyrights, before the Subcommittee on Courts, the Internet, and Intellectual 

Property, Committee on the Judiciary, Oversight Hearing on the Digital Millennium Copyright Act Section 104 Report, December 12–13, 2001. I have also 

pointed out that it is inconsistent to provide broadcasters with an exemption 

in Section 112(a) for ephemeral recordings of their transmission programs but 

to subject webcasters to a statutory license for the functionally similar server 

copies that they must make in order to make licensed transmissions of performances. DMCA Section 104 Report, U.S. Copyright Office 144 n. 434 

(2001). In this respect, the playing field between broadcasters and webcasters 

should be leveled, either by converting the Section 112(a) exemption into a 

statutory license or converting the Section 112(e) statutory license into an exemption. 

I can also see no justification for providing a compulsory license which covers ephemeral reproductions of sound recordings needed to effectuate a digital 

transmission and not providing a similar license to cover intermediate copies 

of the musical works embodied in these same sound recordings, but that is 

what Section 112 does in its current form. Parallel treatment should be offered for both the sound recordings and the musical works embodied therein 

which are part of a digital audio transmission.

• Expansion of the Section 115 DPD license to include both reproductions and performances of musical works in the course of either digital phonorecord deliveries or transmissions of performances, e.g., in 

the course of streaming on the Internet. As noted above, many of the problems faced by online music services arise out of the distinction between reproduction rights and performance rights, and the fact that demands are often 

made upon services to pay separately for the exercise of each of these rights 

whether the primary conduct is the delivery of a DPD or the transmission of 

a performance. Placing both uses under a single license requiring a single 

payment—a form of ‘‘one-stop shopping’’ for rights—might be a more rational 

and workable solution.

Among the options that have been proposed relating to service of notice and payment of royalty fees under the Section 115 license are suggestions by users who 
15

have expressed their frustration with the cumbersome process involved in securing 

the Section 115 license, including:

• Adoption of a model similar to that of the Section 114 webcasting license, requiring services using the license to file only a single notice 

with the Copyright Office stating their intention to use the statutory 

license with respect to all musical works. Section 115 currently requires 

the licensees to serve notices identifying each musical work for which they intend to make and distribute copies under the compulsory license. This system 

has worked fairly well and is sensible with respect to the traditional mechanical license, but do such requirements make sense for services offering DPDs 

of thousands of musical works? The current system does have the virtue of 

giving a copyright owner notice when one of its works is being used under 

the compulsory license. Removing that requirement would mean that a copyright owner would find it much more difficult to ascertain whether a particular work owned by that copyright owner is being used by a particular licensee under the compulsory license. However, removing that requirement 

would avoid—or at least defer—the problems compulsory licensees currently 

have in identifying and locating copyright owners of particular works. The 

problems might be only deferred rather than avoided because the licensee 

would still have to identify and locate the copyright owner in order to pay royalties to the proper person—at least when the copyright owner has registered 

its claim in the musical work.

• Establishment of a collective to receive and disburse royalties under 

the Section 115 license. Again, Section 114 may provide a useful model. 

Royalties under the Section 114 statutory license, which are owed to copyright owners of sound recordings rather than of musical works, are paid to 

SoundExchange, an agent appointed through the CARP process to receive the 

royalties and then to disburse them to the copyright owners. Such a model 

might be worth emulating under the Section 115 license, especially if the requirement of serving notices of intention to use the compulsory license on 

copyright owners is abandoned. While such a scheme offers obvious benefits 

to licensees, copyright owners (and, in particular, those copyright owners who 

are readily identifiable under the current system) might find themselves receiving less in royalties than they receive under the current system, since administrative costs of the receiving and disbursing entity presumably would be 

deducted from the royalties and the allocation of royalties might result in 

some copyright owners receiving less than they would receive under the current system, which requires that each copyright owner be paid precisely (and 

directly) the amount of royalties derived from the use of that copyright owner’s musical works.

• Designation of a single entity, like the Copyright Office, upon which 

to serve notices and make royalty payments. I am skeptical of the benefits of this approach, which would shift to the Copyright Office the burden 

of locating copyright owners and making payments to them. The administrative expense and burden would likely be considerable, and giving a government agency the responsibility to receive such finds, identify copyright owners 

and make the appropriate payments to each copyright owner is probably not 

the most efficient means of getting the royalties to the persons entitled to 

them.

• Creation of a complete and up-to-date electronic database of all musical works registered with the Copyright Office. I suspect that proponents of this solution have very little knowledge of the difficulty and expense that would be involved in creating an accurate and comprehensive list 

of owners of copyrights in all musical works. Determining who owns the copyright in a particular work is not always a simple matter. Someone reviewing 

the current Copyright Office records to determine ownership of a particular 

work would have to search both the registration records and the records of 

documents of transfer that are recorded with the Office. While basic information about post-1977 registrations and documents of transfer is available 

through the Office’s online indexing system, in any case where ownership of 

all or some of the exclusive rights in a work have been transferred it would 

be necessary to review the copy of the actual document of transfer maintained 

at the Copyright Office (and not available online) to ascertain exactly what 

rights have been transferred to whom. Chain of title can often be complicated. 

Addresses of copyright owners are not available in the Office’s online indexes. 

And the information in the Office’s current registration and recordation systems could not easily be transformed into a database containing current copy-
16

right ownership information. Moreover, neither registration nor recordation of 

documents of transfer is required by law; therefore, there are many gaps in 

the Office’s records. Where there is a record, it is not necessarily up to date. 

It is difficult to fathom how the Office could create an accurate, reliable and 

comprehensive database of current ownership of musical works. While the 

registration and recordation system works reasonably well when a person is 

seeking information on ownership of a particular work, such information 

must usually be interpreted by a lawyer (especially if there have been transfers of ownership). The system is not well-suited for the type of large-scale 

licensing of thousands of works in a single transaction that is desired by online music services.

• Shifting the burden of obtaining the rights to the sound recording 

copyright owner. Online music services generally transmit performances or 

DPDs of sound recordings that have already been released by record companies. The record company already will have obtained a license—either directly 

from the copyright owner of the musical work that has been recorded or by 

means of the section 115 statutory license—for use of the musical work. The 

record company may well have already obtained a section 115 license to make 

DPDs of the musical work as well, and one would expect that this will increasingly be the case. Because record companies already have substantial incentives and presumably have greater ability to clear the rights to the musical works that they record, consideration should be given to permitting online 

music services—who must obtain the right to transmit phonorecords of the 

sound recording from the record company in any event—see 17 U.S.C. 

§ 115(c)(3)(H)(i) (quoted above in footnote 7)—to stand in the shoes of the 

record company as beneficiaries of the compulsory license for DPDs. The online music company could make royalty payments to the record company for 

the DPDs of the musical works, and the record company (which might charge 

the online music company an administrative fee for the service) could pass 

the royalty on to the copyright owner of the musical work. As noted above, 

Section 115(c)(3)(I) already appears to permit the record company to license 

the right to make DPDs of the musical compositions to other online music 

services. Clarification of this provision and expansion to provide for funneling 

royalty payments through the record companies might lead to more workable 

arrangements.

• Creation of a safe harbor for those who fail to exercise properly the 

license during a period of uncertainty arising from the administration of the license for the making of DPDs. Under current law, a person 

who wishes to use the Section 115 compulsory license must either serve the 

copyright owner with a Notice of Intention if he can identify and locate the 

copyright owner based on a search of Copyright Office records or file a Notice 

of Intention with the Copyright Office if he cannot so identify or locate the 

copyright owner. While the expenses involved in this process may be considerable, it is hard for me to agree that there is uncertainty about how to comply 

with the license. On the other hand, currently Section 115 exacts a harsh 

penalty for those who fail to serve the Notice of Intention or make royalty 

payments in a timely fashion: they are forever barred from taking advantage 

of the compulsory license with respect to the particular musical work in question. I have reservations about creating a ‘‘safe harbor’’ for the making of unauthorized DPDs during a time when a service has failed to comply with the 

requirements of the license, but I believe consideration should be given to affording a service the opportunity to cure its default and use the compulsory 

license prospectively, even if the service is liable for copyright infringement 

for the unauthorized transmissions made prior to the service’s compliance.

• Extension of the period for effectuating service on the copyright 

owner or its agent beyond the 30 day window specified in the law.

There is merit in this proposal, especially in light of the current provision 

that absolves a licensee from making payments under the statutory license 

until after the copyright owner can be identified in the registration or other 

public records of the Copyright Office. Difficulties in ascertaining the identities and addresses of the copyright owners may also justify a more liberal approach. I could imagine a system that, for example, required a service to serve 

the copyright owner with a Notice of Intention within 30 days of the service’s 

first use of the musical work or within one year of the time when the copyright owner is first identified in the records of the Copyright Office—whichever date is later—but with an obligation to make payments retroactive to the 

date on which the copyright owner was first identified in the Copyright Office 
17

records. Under such a system, services would only have to search the Office’s 

records once a year in order to avoid liability for failing to have ascertained 

that a copyright owner’s identity has become available in the Office’s records.

• Provision for payment of royalties on a quarterly basis rather than 

a monthly basis. It is my understanding that most licenses negotiated with 

copyright owners under Section 115 (e.g., the licenses given by the Harry Fox 

Agency in lieu of actual statutory licenses) provide for quarterly payments 

rather than the monthly payments required under the compulsory license. It 

is also my understanding that one of the reasons for the statutory requirement of monthly payments, as well as some of the other statutory requirements, was a determination that use of the compulsory license should only 

be made as a last resort, and that licensees should be encouraged to obtain 

voluntary licenses directly from the copyright owners or their agents, who 

would offer more congenial terms. Users might find a requirement of quarterly payments rather than monthly payments to be beneficial, but copyright 

owners presumably would prefer to receive their payments more promptly; 

moreover, if a licensee defaults on payment, a quarterly payment cycle would 

be more disadvantageous to the copyright owner than a monthly cycle. 

Amending Section 115 to require quarterly payments might lead many more 

licensees to elect to obtain statutory licenses rather than deal directly with 

publishers or their agents. Consideration should be given to whether that 

would be desirable.

• Provision for an offset of the costs associated with filing Notices with 

the Office in those cases where the copyright owner wrongfully refuses service. In general, I believe that persons using a statutory license 

should bear the cost associated with obtaining the license. However, if the 

copyright owner has wrongfully refused to accept service of a Notice of Intention, there is something to be said for the notion of shifting those additional 

costs incurred by the licensee as a result of the wrongful refusal.

In general, I do support the music industry’s attempt to simplify the requirements 

for obtaining the compulsory license and its desire to create a seamless licensing 

regime under the law to allow for the making and distribution of phonorecords of 

sound recordings containing musical works. 

However, the need for extensive revisions is difficult to assess. Prior to the passage of the DPRA, each year the Copyright Office received fewer than twenty notices of intention from those seeking to obtain the Section 115 license. Last year, 

two hundred and fourteen (214) notices were filed with the Office, representing a 

significant jump in the number of notices filed with the Office over the pre-1995 era. 

Yet, the noted increase represents only 214 song titles, a mere drop in the bucket 

when considered against the thousands, if not hundreds of thousands, of song titles 

that are being offered today by subscription music services. While we acknowledge 

that this observation may merely reflect the reluctance of users to use the license 

in its current form to clear large numbers of works, as well as the fact that users 

may file with the Office only when our records do not provide the identity and current address of the copyright owner, it may also represent the success of viable marketplace solutions. 

Certainly we have heard few complaints about the operation of Section 115 in the 

context of the traditional mechanical license. To the extent that reform of the license 

is needed, it may be that the traditional mechanical license should be separated 

from the license for DPDs, and that two different regimes be created, each designed 

to meet the needs of both copyright owners and the persons using the two licenses. 

In any event, the critical issue centers on clarifying the scope of the compulsory 

license in the digital era. I have outlined only a few possible approaches to reform 

of the Section 115 compulsory license. While there is a clear need to correct some 

of the deficiencies in Section 115, I believe that it is important for all the interested 

parties—copyright owners, record companies, online music services and others—to 

work together to evaluate various alternative solutions in the coming months. I commend you, Mr. Chairman, for convening this hearing to discuss the problems associated with the use of the Section 115 license in a digital environment, and I look 

forward to working with you, members of the Subcommittee, and the industries represented at this table to find effective and efficient solutions to make the Section 

115 compulsory license available and workable to all potential users and strike the 

proper balance between their needs and the rights of the copyright owners.
18
19

Mr. SMITH. Thank you, Ms. Peters. 

Mr. Potter. 

STATEMENT OF JONATHAN POTTER, EXECUTIVE DIRECTOR, 

DIGITAL MEDIA ASSOCIATION 

Mr. POTTER. Thank you, Mr. Chairman, Mr. Berman, and Members of the Subcommittee, for the opportunity to speak this morning about the importance of reforming Section 115. 

This Subcommittee leads the battle against piracy, and we applaud your promotion of enforcement and education. Today’s hearing focuses on the third, most powerful weapon against piracy: the 

marketplace, where royalty-paying DiMA companies like AOL, 

Apple, Microsoft, Yahoo, and RealNetworks compete every day 

against online black markets. 

Millions of people who lawfully enjoy and purchase music online 

illustrate the power of consumer choice and of offering great music 

with flexible usage rules and fair prices. But we need to do even 

better. And we need your help to modernize Section 115, to ensure 

that our services and the creators to whom we pay royalties prevail 

against scofflaw alternatives. 

115 reform can be summarized in three points: First, why the 

Section 115 mechanical compulsory license, which should promote 

the growth of music markets and royalties payments, instead is inhibiting legal royalty-paying online media services. Second, why 

the private market for music publishing rights does not effectively 

substitute for the 115 license. And third, how Congress can streamline and clarify the law to benefit songwriters, music publishers, 

record companies, online services, and consumers, all while helping 

to curb piracy. 

First, license and payment administration reform. Online services must clear licenses for hundreds of thousands of songs owned 

by more than 40,000 publishers. In an age of digital databases and 

online banking, it seems silly to require card file searches to identify copyright owners or to send notices and royalties by certified 

mail. We thank Register Peters for announcing today that some administrative processes will be streamlined. And we urge you to provide the Register authority to fully improve these licensing rules. 

The scope of the 115 license also needs clarification. It is uncertain whether 115 authorizes only the copies of songs that are delivered to consumers, or also the copies that are a necessary part of 

the distribution process, such as server copies. And it is also uncertain whether 115 can authorize subscription services. 

Most difficult is the risk associated with streaming services that 

perform songs on demand to subscribers who pay a monthly fee. 

Online music services pay performance royalties to ASCAP, BMI, 

and SESAC for this activity; but music publishers assert that these 

performances also implicate mechanical reproduction rights. 

Since August 2001, Register Peters has publicly agreed with 

DiMA that only one right and royalty are implicated. However, because the Copyright Act has strict liability standards and very expensive statutory damages, some companies, including our members, have agreed to pay double royalties as litigation insurance. 

This is wrong. And we ask you to clarify in legislation that a second royalty is not due. 
20

My second point is that, contrary to others’ suggestion, the private market cannot solve the 115 administration or statutory license scope issues. The Harry Fox Agency licenses only about 65 

percent of available music. So even if Harry Fox, RIAA, and DiMA 

resolved all issues privately, 35 percent will remain stuck in the 

dysfunctional 115 licensing regime. 

Also, though HFA functions for many publishers as an issuer of 

variations of the compulsory license, it has stood as a gatekeeper, 

without guidance from courts or the Congress, deciding on a voluntary basis whom to license, on what terms, and whether to offer 

less rights than are available under Section 115, or to insist on 

more rights than the law requires. Moreover, HFA refuses to disclose in advance what works and what rights it can license. And 

then it denies about 50 percent of all license requests that are submitted by online services. 

Conversely, ASCAP and BMI license all comers for all musical 

works in a user-friendly manner. You sign a form; you get licensed. 

You play by the rules, and you will not be sued for infringement. 

Third, since private markets cannot provide effective solutions, 

DiMA suggests legislation as follows: Authorize full modernization 

of the 115 process, including electronic searches, notice, and payments. Additionally, good-faith licensees who try to pay royalties 

deserve safe-harbor protections against infringement liability. 

Second, modernize 115 so it licenses all reproduction associated 

with online distribution, including server and network copies. 

Third, confirm that online performance services do not implicate 

a second right or royalty, and that limited download subscription 

services are covered by Section 115. 

Fourth, provide a percentage-of-revenue royalty option which will 

promote product and service innovation, including more anti-piracy 

options. 

And finally, the Subcommittee should consider a statutory blanket license for the entire music repertory. An agent like ASCAP, 

or the Harry Fox Agency, if it chooses, could efficiently license all 

compositions and accept industry royalties to all copyright owners. 

A blanket license would enable services to launch without litigation 

risk, and ensure prompt royalty payments and distributions, which 

benefits music publishers, composers, and songwriters. 

Mr. Chairman, DiMA looks forward to working with you, with 

Mr. Berman, with Register Peters, and my colleagues at the witness table and others, toward a more workable, efficient, and modern mechanical compulsory license. Thank you. 

[The prepared statement of Mr. Potter follows:]

PREPARED STATEMENT OF JONATHAN POTTER

Mr. Chairman, Representative Berman, and Members of the Subcommittee: 

Thank you for inviting me to testify today on behalf of the innovative, royaltypaying online music services offered by DiMA member companies, including by 

AOL, Apple, Microsoft, MusicMatch, Napster, RealNetworks, and Yahoo!. DiMA 

companies’ success is critical to America’s music industry, so I appreciate the opportunity to share the great strides that our companies have made toward building attractive royalty-paying online music services. More importantly, however, I will 

highlight how Section 115 of the Copyright Act—which should be a building block 

of online music services’ growth—instead remains the most significant roadblock impeding our industry’s progress, and how this Subcommittee might consider updating 
21

the law to benefit all the relevant constituencies—artists, publishers, recording companies, online services, and consumers. 

DiMA members express their appreciation to Chairman Smith and Representative 

Berman for focusing the Subcommittee on curbing copyright piracy through a balanced approach that combines enforcement of the laws and public education. DiMA 

agrees with the Subcommittee that enforcement and education are critical foundations of any effort to deter piracy of copyrighted works. But, we believe firmly that 

piracy cannot be combated successfully unless consumers are offered a better 

choice—legal, royalty-paying services that include quality music, flexible usage 

rules, great personalization and first-class customer service, all for a fair price. By 

modernizing Section 115 of the Copyright Act and by clarifying how it applies to 

different types of digital music services, Congress can assist DiMA companies and 

the music industry compete against and curb piracy by ensuring the availability of 

the most comprehensive, most attractive royalty-paying offerings. 

In recent years this Subcommittee has responded several times to promote the 

business and legal environment of legitimate online services. A statutory license was 

provided for webcasters in 1998, and the Small Webcasters Settlement Act was enacted in 2002. Both of these measures established a relatively stable legal environment for webcasting, and stimulated the creation of thousands of Internet radio stations. Most recently this Subcommittee moved CARP reform legislation through the 

House and DiMA hopes this legislation will soon become law. 

In May 2001, three company CEOs, representing the online media and recording 

industries, testified before this Subcommittee that music publishing licenses were 

the single greatest impediment to launching great online music services. In December 2001 Register of Copyrights Marybeth Peters testified that music publisher representatives were taking advantage of legal uncertainties with respect to the application of § 115 to new digital services and were aggressively demanding licenses for 

services already licensed by other collecting societies. Register Peters urged Congress to fix the problem by amending the law 

In the same December 2001 hearing, Messrs. Ramos and Sherman also testified, 

but from a different songbook. They promoted a so-called ‘‘landmark’’ agreement between the recording and music publishing industries and The Harry Fox Agency, 

that they claimed would solve the problems identified in the May 2001 hearing and 

permit new subscription services to launch, gain publishing licenses easily and on 

a nondiscriminatory basis, and curb piracy. 

As the Subcommittee is aware, there has been recent good news in the online 

music industry. Every month tens of millions of Americans visit AOL Music, the 

iTunes Music Store, Rhapsody and the RealNetworks Music Store, Napster, 

MusicMatch, Yahoo Music and MSN Music. These services stream more than 500 

million songs and videos every month, sell more than two million downloads each 

week. 

But again we are before this Subcommittee discussing how the outdated Section 

115 of the Copyright Act continues to retard the success of online services. Although 

the online music situation has improved, it is not good enough—for songwriters, 

music services, record companies or, we hope, for Congress. What is holding back 

online music services today is the same impediment of three years ago: the inability 

of legal music services to easily obtain and pay for clear, certain, risk-free music 

publishing licenses, notwithstanding nearly 100 years of federal policy which favors 

clarity, simplicity, and straightforward licensing. 

Congress established the Section 115 compulsory ‘‘mechanical’’ reproduction license in 1909 to facilitate the licensing of musical works for piano rolls. Congress’s 

goal at that time, and during the 100 years since, has been to promote the development of new music markets by making copyrighted compositions widely available, 

while also ensuring that copyright owners are aware of uses of their work and that 

royalties are paid. 

Fast-forward almost 100 years and the underlying goals and principles remain the 

same. Royalty-paying online services are precisely the type of new music market 

that Congress intends to promote; and the Section 115 compulsory mechanical license could and should be playing an important role in building online music services with broad catalogs and the ability to compete with online black markets. Unfortunately, Section 115 is not very useful to online services, because (i) the licensing process is unworkable for digital music services; and (ii) its ambiguous scope 

causes uncertainty, risk, and excessive double-dip royalty payments. 

The § 115 licensing process is dysfunctional because:

(a) it imposes outdated paper-based and traditional mailing requirements that 

hinder prospective licensees’ ability to efficiently identify copyright owners, 

license their works and pay them royalties. While these systems may have 
22

been acceptable for licensing a few works at a time for compact discs, they 

cannot support the launch of a new online music service with a catalog of 

hundreds of thousands of songs;

(b) its licensing and pricing standards were designed for simple physical, manufactured products, and simply are not feasible in the world of digital distribution;

(c) its requirements are scrupulously precise and its penalties for noncompliance are harsh. Failure to comply strictly with these cumbersome requirements not only subjects a service to infringement liability, it also disqualifies a service form obtaining a compulsory license to that work forever. And 

do not underestimate the chill in the online music industry created by the 

Copyright Act’s combination of a strict liability standard with extraordinarily high statutory penalties. Though intended to protect copyright 

owners and to be used against pirates, this combination of strict liability, 

high monetary penalties and a detailed, outdated statute is promoting fear 

and paralysis rather than innovation and new markets.

There are several disagreements about the scope of § 115’s application to legal, 

royalty-paying digital music services:

(a) there is disagreement about whether on-demand Internet radio services 

which merely perform music require mechanical reproduction licenses, 

though they do not permit users to make or possess any reproduction; 

DiMA and the Register of Copyrights believe that on-demand performances 

may justify a higher performance royalty than pre-programmed radio services (and ASCAP and BMI charge almost a 50 percent surcharge for ondemand performances), but that the server-based and incidental reproductions associated with performance services are either royalty-free fair use 

or should be exempted from royalties under the ephemeral recording exemption that is provided to terrestrial broadcasters in § 112 of the Copyright Act;

(b) there is disagreement about whether the § 115 license extends to subscription services, which charge consumers monthly in contrast to download 

services that charge per song purchased;

(c) there is disagreement about whether the § 115 license extends to all reproductions that are necessarily made to support distribution of a song, e.g., 

by a download store, or whether incidental network and transient reproductions or server copies require an additional license and payment.

Though the law and its impacts are complex, the overall result of the shortcomings of § 115 are quite simple. This compulsory, guaranteed-to-be-available publishing license that Congress intended to be a meaningful alternative to direct licenses with 10,000 publishers and thereby promote new music markets and generate royalties to songwriters, is instead so administratively burdensome and of 

such uncertain scope that it is no alternative at all, and is undermining rather than 

promoting innovation and new royalty-paying markets. 

To compete most effectively against online black markets DiMA companies’ music 

selection must be comprehensive—we need all the music that a compulsory licenses 

promises. To achieve stability and promote innovation, we need clarity with respect 

to whether and how § 115 applies to online music business models of today and in 

the future. 

Several times the compulsory mechanical license has been updated to account for 

changing technologies and business models, but the evidence that it needs additional revision is overwhelming and conclusive. DiMA urges the Subcommittee to 

update this law for the next generation new market—innovative online services that 

with your support can be commercially successful and the best weapon against piracy. 

I. WHAT ARE THE PROBLEMS WITH

THE SECTION 115 COMPULSORY MECHANICAL LICENSE?

A. The license clearance process is so cumbersome as to be dysfunctional 

The most apparent deficiencies of the mechanical compulsory license are its administrative requirements, which are obligated by the statute and Copyright Office 

regulations. 

§ 115(b)(1) requires users of compulsory mechanical licenses to ‘‘serve notice of intention [to use the compulsory license] on the copyright owner’’ prior to a musical 

work’s use (emphasis added). Regulations require copyright owners to receive actual 
23

advance notice of the intended use of a work by certified or registered mail. However,

• Finding copyright owners can be almost impossible. Only about 20 percent of 

musical works are registered in the Copyright Office; many are not registered 

until several months after publication; and registrations are rarely updated 

when ownership rights are transferred.

• For pre-1978 works, copyright owner information is available only on card 

files that must be searched manually in the Copyright Office on a song-bysong basis.

• If a copyright owner is identified, the licensee must notify the owner using 

a 2-page form for each individual composition, and send the form and then 

monthly statements of use and royalty checks by certified or registered mail.

• If the copyright owner cannot be located users must file a similar 2-page form 

in the Copyright Office, and pay a $12 administrative fee per composition. 

This fee is prohibitively expensive considering that typically 25% of copyright 

owners cannot be located, meaning a comprehensive online service might 

have to pay the fee (and fill out the form) hundreds of thousands of times.

The process of identifying and providing notice to a copyright owner, or determining that notice is not possible because there is no registration data or the data 

is incorrect, might take several weeks per copyright. This is not helpful when a 

service is competing against online black markets that have no licensing costs, no 

marketing costs, no content acquisition costs, and have made the song available 

while the royalty-paying service is still filling out forms and sending registered mail. 

At minimum, even merely as a matter of government oversight, modernization 

and customer service, there is no escaping that this licensing process does not work. 

And if the compulsory mechanical license is to continue to exist, we urge the Subcommittee to at least ensure that it is administrable, efficient, and employs modern 

technology. 

E. The scope of 115 does not comport with the necessary manufacturing practices of 

the digital download business or the physical recording business. 

The antiquated Section 115 undermines online services because it requires that 

royalties be paid for every reproduction that is ‘‘made and distributed.’’ This was 

reasonable for 90+ years when most observers believed that each reproduction or 

phonorecord—a piano role or a vinyl record or compact disc—was intended for distribution and, thus, deserved a royalty. For online services, however, not every fixation or reproduction is intended for distribution, because many reproductions necessarily occur in the electronic process of delivering a download. 

Read literally, § 115 might mean that reproductions that are not distributed, but 

which are necessary to the manufacturing or distribution process (e.g., server copies, 

archive copies and network and cache copies and buffer copies), are not eligible to 

be licensed pursuant to § 115. And if that is the case then digital download stores 

and subscription services may be risking crushing infringement lawsuits, because 

these technologically necessary copies are not currently being licensed separately 

with each of more than 10,000 music publishers. 

This is also an issue for the traditional recording industry, whose compact disc 

manufacturing process requires production of a so-called ‘‘glass master’’ that the factory uses to stamp each blank CD into a phonorecord. Does the § 115 license, by 

implication and based on historical practice, cover this reproduction though it clearly is not intended for distribution? 

The risk is even greater for online services than it is for physical CD manufacturers. Product manufacturers might have a waiver and estoppel defense based on decades of not being sued with respect to the glass master, but online services, whether 

independent or owned by traditional record companies, have no such defense available. The infamous MP3.com and Farmclub lawsuits brought by music publishers 

against online music services that had not secured reproduction rights licenses for 

their server copies, are evidence of the enormous swords that the current Copyright 

Act has handed to publishers to shut down new services that have not complied 

with the publishers’ views about what licenses are required for server copies. 

Congress could not possibly have intended that a compulsory license must be accompanied by a direct license for the very same work with respect to the very same 

activity; otherwise the compulsory license would have no value at all. This, however, 

is the absurd result if the § 115 license does not cover all necessary reproductions 

made in the process of manufacturing the reproductions that are intended for distribution. 
24

F. It is Unclear Whether or How § 115 Applies to Subscription Services and their 

Specific Offerings. 

Today—more than two years after they were the subject of the ‘‘landmark’’ HFARIAA agreement that was to have solved associated publishing disputes—the activities at the heart of today’s online music subscription services remain burdened by 

controversy and disagreement about what rights they implicate and what licenses 

are necessary. 

Generally these services (which may be of particular interest to the Subcommittee 

because they are at the heart of the new legal university-based services) incorporate 

two separate products—limited downloads and on-demand streams (or on-demand 

radio). 

With respect to on-demand streaming services, music publishers claim a mechanical right is implicated by the server copies and other reproductions of the composition which are merely intended to facilitate the licensed performance (which generates performance royalties, e.g., to ASCAP, BMI or SESAC). In this instance the 

publishers’ mechanical right claims are not associated with distribution of a song, 

but rather because they claim that on-demand streams substitute for distributions 

that would have generated mechanical royalties. This analysis absurdly would obligate on-demand streaming services to pay two royalties to the same publishers for 

a single activity, although the performance rights organizations are already receiving a 50% surcharge for on-demand performance royalties as compared to pre-programmed Internet radio. Nevertheless, the double-dip royalty has been agreed to by 

the recording industry in the RIAA-HFA agreement. Fortunately the Copyright Office has maintained a principled position in this dispute, and in 2001 recommended 

that Congress clarify that performance royalties pay completely for on-demand performances, and that mechanical royalties should not be obligated by Internet radio 

performances, including by on-demand performances. 

Another issue concerns whether limited downloads (which are generally locked on 

a consumer’s PC hard drive and are usable only for a period covered by a subscription fee) are licenseable under § 115(g)(4), which applies to phonorecords made for 

the purpose of distribution by ‘‘rental, lease or lending.’’ The Harry Fox-RIAA agreement explicitly covers subscription services under § 115, but DiMA companies report 

to me that some publishers have disagreed with that view. If Congress wishes for 

innovative distribution services to flourish, including those that are explicitly and 

effectively substituting for online black markets, then clarification would be helpful. 

Questions have been raised as the applicability of § 115(g)(4) to subscription services generally, perhaps because the subscription payment is not tied to a specific 

work that is being licensed. Here again we urge the Subcommittee to clarify the law 

based on simple goals that have withstood the test of time—promoting new markets 

and assuring payment of royalties. By focusing on these goals DiMA believes these 

scope issues will be resolved favorably, both for innovative royalty-paying services 

and the creators whose works are winning consumer loyalty. 

G. Requiring royalties to be calculated on a penny-rate and per-work basis is overly 

restrictive in a dynamic market when consumer offerings and prices are changing 

dramatically to meet demand 

In the 1976 Act § 115(c)(2) required licensees to pay royalties of 23⁄4 cents for each 

work embodied in a phonorecord, and authorized future rate adjustments to be negotiated or determined by arbitration. In the almost 30 years since the rate has always been set at a fixed penny-rate for each work embodied in a phonorecord. Today’s rate is 8.5 cents per work; in 2006 the rate will increase to 9.1 cents per work. 

This fixed-rate per-work royalty rate calculation creates several problems in today’s 

music dynamic music industry. 

The most significant problem is that the rate structure cannot adapt to products 

and services that are changing in response to consumer demand and in an effort 

to inhibit piracy. Calculating royalties on a per-work or per-reproduction basis was 

reasonable during the several decades when albums and CDs included a fixed number of reproductions of songs. Today, however, copy-protected and copy-limited CDs 

and downloads are being offered, but they often include or permit several reproductions of the work. For example:

• A dual-session CD includes two versions of every song, each version in a different format. This ensures consumer flexibility, e.g., the ability to play the 

CD in a traditional CD player and a computer, but it also limits consumers’ 

ability to use the PC to copy the songs or to convert them into unprotected 

formats. 

Consumers perceive a copy-protected dual-session CD as a single product 

that plays in the same devices as a traditional CD, or perhaps as a product 
25

with less value than the traditional unprotected CD that also played in multiple devices but permitted unlimited copying. Publishers, however, 

opportunistically view the dual-session CD as being two reproductions and, 

thus, obligating two royalties. Should, however, this CD generate double- or 

triple-royalties to publishers because in an effort to stem piracy the CD has 

two or three copy-protected reproductions of works rather than a single unprotected reproduction? Recently the Harry Fox Agency issued its formal 

opinion that multiple-session CDs require multiple royalties.

• Similarly, an online service could test-market downloads that limit consumers 

to making three copies on CD or portable devices, but publishers have suggested that this would require four royalties—one for the original download 

and three more for the authorized consumer reproductions. One major recording company has actually prohibited online services from limiting how many 

copies of downloaded songs can be made, or sought an indemnification from 

the online service, for fear that this anti-piracy limitation would trigger double, triple, and quadruple mechanical royalties, or more.

In addition to the royalty issues associated with innovative products and services, 

today’s sound recording prices are also innovative—they have dropped dramatically 

in response to consumer demand, and in an effort to retain market share in the 

competition against piracy. Three years ago CDs with about twelve songs were 

priced at $11 wholesale and $16 retail, and mechanical royalties were less than 10% 

of the wholesale price. Today downloads are priced at about 70 cents wholesale and 

as low as 79 cents retail, and publishers are receiving 12 percent of the wholesale 

price and often 10 percent or more of the retail price. In 2006 downloads may be 

priced at $1.19, but DiMA companies expect they are just as likely to be priced at 

69 cents; only time will tell. Whatever happens to prices, the publishers proportional 

share of revenue should not dramatically increase or decrease, but rather should adjust along with industry economics. 

Regardless of whether the publishers’ interpretation of current law is correct, the 

issue for this Subcommittee is whether the law should be amended so as to not even 

permit the publishers’ argument that it (a) requires only fixed-price royalties when 

all other prices are changing dramatically; and (b) imposes multiple royalties solely 

because the publishers works are being protected against unauthorized copying; and 

(c) creates risk rather than certainty whenever a new technology or business model 

(e.g., limited downloads and on-demand streams) is developed. And more generally, 

is § 115 designed to promote new legal markets by simplifying the payments of royalties, or to promote piracy by requiring multiple royalties, fixed price royalties and 

increasing risk? 

II. THE HARRY FOX AGENCY DOES NOT OFFER A SERVICE THAT ADEQUATELY

SUBSTITUTES FOR A WELL-CRAFTED ADMINISTRABLE § 115 LICENSE. 

Some may claim that the § 115 license is outdated and irrelevant, and that the 

Harry Fox Agency licenses the same mechanical right more efficiently. The facts 

prove otherwise. 

First, Fox licenses only between 60 and 65 percent of available compositions, compared to the § 115 license which covers 100 percent. If royalty-paying online music 

services are to compete with royalty-free online black markets, we need the ability 

and right to license 100 percent of the music that is supposed to be available under 

a § 115 compulsory license. 

Second, a compulsory license is available as a matter of right to all prospective 

licensees. By contrast, the Harry Fox Agency—unlike ASCAP, BMI or 

SoundExchange—is not required to and does not have the rights to license to all. 

When a prospective licensee seeks licenses for a new business model or technology, 

even if seeking only to bulk license the rights otherwise available through the § 115 

process and willing to pay full statutory royalties, HFA often refuses to license, or 

its member publishers do not permit it to license, or licensing is endlessly delayed. 

I have personally been told by a senior HFA executive that if an innovative business 

developer wants a license, she must be prepared to demonstrate the strength of the 

idea, the financial strength of the company, and to negotiate a royalty rate. This 

does not sound like ASCAP, BMI or SoundExchange, who post their license forms 

on public websites in an effort to attract licensees with a simple and nondiscriminatory process. 

Third, HFA is capable of providing a license that has rights equivalent to § 115 

rights, but it also can and does offer more rights or less rights when it suits its own 

institutional interests or those of its member publishers.
26

• In a widely-reported litigation between music publishers and the Universal 

Music Group concerning UMG’s Farmclub online music service, billions of dollars in statutory damages were implicated when the court found that UMG’s 

licenses from HFA did not include all rights that were otherwise available 

under § 115, but rather included fewer rights. If the largest recording company in the world and all of its sophisticated lawyers were confused by HFA 

and § 115, and as a result inadvertently infringed copyrights in approximately 

25,000 songs, the existing § 115 is obviously flawed for the online music industry and HFA is obviously not the solution.

• The reverse occurred several months later, when the recording industry 

sought to avoid future infringement suits and Farmclub-like litigations by 

signing an agreement with HFA that would provide the rights that otherwise 

would be provided under § 115. In this instance HFA refused to provide a license for only the rights available under § 115, and instead required the recording industry to also license and pay for non-existent mechanical rights associated with on-demand streaming—license terms that the recording industry did not want and that the Register of Copyrights has said are not necessary.

Fourth, even when HFA cooperates in licensing online services, and commits to 

expedite license clearances and provide legal certainty, it fails to provide the quality 

of service that business requires, and that Congress should expect, from a compulsory licensor. Consider the following:

• HFA refuses to disclose to licensees which publishers it represents except on 

a song-by-song basis in response to a formal license request. This secretiveness is contrary to common business practice, when a seller or licensor eagerly discloses what is available so as to attract purchasers or licensees.

• Moreover, every publisher retains the right to withdraw works from any HFA 

license. This creates significant hardship among licensees who rely on HFA, 

only to later have works withdrawn from their available catalog.

• When a service submits a license request and a list of compositions to HFA 

the response often takes 1–2 weeks, or longer. The response typically has 

three categories—songs that are licensed, songs that are not in the HFA catalog, and ‘‘we don’t know.’’

• In the two and a half years that record companies and online services have 

been operating pursuant to the RIAA-HFA agreement, the experience of our 

members and other licensees has been that 40–60 percent of the millions of 

licenses requested have been denied, either because the songs are not in 

HFA’s repertoire or, more frequently, because HFA cannot determine whether 

they are or not in the HFA repertoire. According to HFA’s own responses to 

the prospective licensees, the largest majority of license denials are because 

the HFA database—even after almost $20 million in recent investment—has 

not been able to match the composition data submitted with the license request—title, composer, album, UPC code, etc—to a particular song. Some 

might suggest that online services are submitting faulty data to HFA, but our 

members report that the data they submit to HFA is precisely the data provided to the online service by the record company.

• Even HFA’s confident ‘‘yes’’ responses have included errors, and it is the online services that bear the very high legal risk which results. On hundreds 

of occasions, HFA responses to license requests have included false 

positives—approvals for compositions that actually are not in HFA’s repertoire. Why is this a problem? Because a service that relies on HFA’s approval will immediately make that song available for distribution, and be liable for infringement under the strict liability standards of the Copyright Act. 

There is no safe harbor for well-intended licensees, and HFA’s contract with 

licensees does not indemnify licensees, even in the limited situation of false 

positives. Moreover, once a service has made available on its website an HFA 

‘‘false positive,’’ current section 115 permanently disqualifies that service from 

ever utilizing the § 115 compulsory license with regard to that composition.

So unless HFA can license with absolute confidence and legal certainty 100% of 

available compositions, and can approve and process licenses expeditiously, without 

regard to new technologies or business models and without coercively imposing unwanted license terms or denying license terms that are desired, HFA can never be 

an adequate substitute for an efficient and comprehensive § 115 compulsory license. 
27

VI. THE UNWORKABLE AND INEFFECTIVE § 115 LICENSING PROCESS LEAVES LICENSEES

NO CHOICE EXCEPT TO LICENSE THROUGH HFA, AND TO YIELD TO AGGRESSIVE HFA

PRACTICES. 

In October 2001, following the stinging infringement verdict against Universal 

Music Group in the Farmclub lawsuit, the recording industry signed a license with 

the National Music Publishers Association and HFA to enable the launch of licensed 

online music services, in a manner that supposedly was free of legal risk. At the 

December 2001 hearing of this Subcommittee Messrs. Sherman and Ramos, who 

also join me before you today, congratulated their industries for their so-called ‘‘marketplace’’ agreement that reportedly resolved all the music publishing problems that 

theretofore had prevented licensed online music services from launching. However, 

as we have discussed above, the agreement solved very few of the fundamental publishing problems for online services. 

This RIAA-HFA agreement is remarkable for several reasons. Most notably, as described by Mr. Ramos in that December 2001 hearing, the recording and publishing 

industries agreed that the process of producing and delivering ‘‘on-demand 

streams’’—which are, of course, performances—‘‘entail[s] the making and distribution of copies of musical works and, accordingly, constitute digital phonorecord deliveries (or ‘DPDs’) within the meaning of Section 115 of the Copyright Act.’’ In other 

words, the recording industry agreed that a transitory performance constitutes a 

‘‘distribution’’ of a phonorecord, which heretofore had only been associated with 

physical manifestations such as piano rolls, vinyl records, cassettes and compact 

discs—and downloads which incorporate a possessory experience. 

Hopefully the Subcommittee will agree with the Register of Copyrights, who 

opined in the August 2001 Section 104 Study and in the December 2001 hearing 

that reproductions made in the technical process of delivering a performance—even 

an on-demand performance—are royalty-free fair use (a defense, by the way, that 

Universal Music Group did not raise in the Farmclub lawsuit); indeed, Register Peters suggested that copyright law should be clarified to ensure that such reproductions are exempted from royalty obligations—just as terrestrial broadcasters’ ephemeral recordings are exempted by § 112 of the Copyright Act. 

But there is no principled legal basis to conclude—as the publishers and recording 

industry did in their agreement—that reproductions associated with the delivery of 

performances are ‘‘made and distributed’’ and therefore covered by § 115 only if the 

performances are ‘‘on-demand’’ and not if the performances are part of a pre-determined program. However, no record label or online service that licenses music from 

HFA can complain about this unprincipled position, since the Agreement contains 

a specific silencer clause that prohibits signatories from disagreeing publicly—including before this Subcommittee—with HFA’s imposition of payment obligations for 

nonexistent rights. 

What the recording industry wanted was to license to online services the right to 

offer consumers two new subscription offerings: on-demand streams and tethered 

downloads. Tethered downloads are downloads that cannot be removed from the 

subscriber’s hard drive. They cannot be copied to a blank CD or an MP3 player or 

uploaded to the Internet. The consumer experience is limited compared to a CD, but 

the entirety of the song is actually distributed to and then located on the consumer’s 

PC. There is no disagreement that tethered downloads are reproductions that are 

made and distributed, and therefore are covered by the § 115 license. That is the 

license that the recording industry sought from the Harry Fox Agency. Yet, HFA 

refused to grant them that license, unless they also licensed on-demand streams. 

If there had been in place a workable § 115 compulsory license, the recording industry would have been able to license every composition desired for the tethered 

download subscription services, and never would have signed a mechanical license 

for on-demand streams that they did not need or want, never paid the Harry Fox 

Agency a $2,000,000 advance that was never recouped, and would not still be paying 

$83,000/month to extend that unwanted and unnecessary license. 

But the reality is that § 115 is antiquated, inefficient, and perhaps legally insufficient, which left the recording industry no choice but to accept rights they did not 

need as the price for the rights they wanted. 

As discussed in other parts of this testimony, the results of the HFA license have 

been disastrous. Licensees get no advance notice as to what publishers or compositions HFA does or does not represent. More than 50% of license requests have not 

been granted. Licensees have paid millions of dollars in advances to HFA, but still 

do not know what royalty rate will be charged them. And, there have been no reports that any of the millions of dollars paid by recording companies and online 

services to HFA have been paid to songwriters or publishers. 
28

Of course Messrs. Sherman and Ramos’s rosy predictions of December 2001 have 

not come to pass, which is why we are here today. But regardless of the administrative hurdles that continue unabated, it is essential that the Committee now implement the Register’s recommendation—that transitory performances of sound recordings or compositions should not trigger a mechanical license or a reproduction right 

or royalty of any kind. 

VII. SOLUTIONS ARE AVAILABLE THAT WILL ENSURE FULL COMPENSATION TO

RIGHTSHOLDERS, REDUCE SERVICES’ LEGAL RISK AND PROMOTE INNOVATIVE COM- PREHENSIVE OFFERINGS THAT CAN EFFECTIVELY COMPETE AGAINST PIRACY. 

DiMA appreciates that today’s oversight hearing does not require endorsement of 

a single solution, and so I will take this opportunity to suggest several alternatives 

that we believe merit this Committee’s consideration. Given the need for online 

services to expand to meet consumer demand and to help fight online piracy, we 

urge the Subcommittee to rapidly consider the available alternatives and to move 

quickly toward a legislative proposal that will make the Section 115 license effective 

and efficient. The end result of any of our suggested alternatives would serve to promote Congress’s historical goals with respect to the § 115 mechanical compulsory li- cense—simple and straightforward availability of compositions, and assurance of 

royalties to songwriters and publishers.

1. Modernize Administration of § 115 License. If the Committee chooses to simply 

improve the efficiency of the existing § 115 license, several steps are necessary 

and appropriate:

a. Congress should direct the Copyright Office (or a contractor) to create an 

electronically searchable database of all known registered copyrighted works. 

DiMA and our companies want to pay creators all the royalties that are due, 

but copyright owners that cannot be found cannot be paid.

b. End the requirement of separate notices for each song licensed, of paperbased forms, and of notice and payment by registered or certified mail. Instead Congress should authorize batch electronic filing of reports that compositions will be used or have been used, have notices transmitted electronically to registered copyright owners or maintained in the Copyright Office 

if works are not registered. Of course, Congress should also authorize timely 

and transparent electronic payments of royalties.

c. Today the Copyright Office does not accept payments on behalf of songwriters and publishers, and if a work is not registered or the registration 

not up-to-date, the licensee can use the work royalty-free. Instead, to ensure 

that creators are paid by licensees, Congress could direct the Copyright Office (or an agent) to accept royalties on behalf of Copyright owners whose 

works are licensed, with payment to be made when the copyright owner registers the work or updates registration information.

d. Perhaps most importantly, licensees that have attempted in good faith to 

utilize the compulsory mechanical license should not be penalized for the inadequacies of the Copyright Office process or the Harry Fox database. Rather, any legislation should provide good faith licensees with ‘‘safe harbor’’ protection against penalties or infringement liability, so that section 115 becomes a tool for mutual benefit, not a trap for the unwary.

2. Modernize the Scope of the § 115 License to Cover ‘‘All Necessary’’ Reproductions 

or Phonorecords. As discussed earlier, some have argued a literal interpretation of Section § 115 that covers only phonorecords that actually have been 

‘‘made and distributed,’’ but excludes the physical means used to produce them. 

This interpretation, if accepted by a court, would expose to infringement liability the glass master and stamper copies that are inherently necessary for the 

production of record albums and CDs, as well as the many copies of a work 

that necessarily are made as part of the technological underpinnings of a digital download service. This would undermine 95 years of Congressional intent 

to promote the production and distribution of sound recordings that generate 

royalties for songwriters and publishers. Clarifying this ambiguity would not 

be complicated, and would meaningfully reduce the legal uncertainty associated with digital distribution.

3. Clarify that § 115 Does Not Apply to Performance Services, and That it Does 

Apply to Limited Download Subscription Services. As discussed earlier, the 

Harry Fox Agency has aggressively exploited the ambiguities of § 115 to demand licenses for on-demand performances, notwithstanding the Register of 

Copyrights’ conclusion that no such license is required, and that royalties asso-
29

ciated with such performances should be performance royalties rather than mechanical royalties. We urge the Committee to act on this recommendation. Additionally, clarity regarding the application of § 115 to subscription services 

generally would be helpful, to confirm the general belief that limited download 

subscription services are covered by the § 115 license.

4. Clarify Legal Authority to Set Percentage-of-Revenue Royalties. As discussed 

earlier, the availability of a percentage-of-revenue alternative for calculating 

mechanical license royalties would provide helpful rate flexibility at a time of 

product and service innovation and price fluctuation. Some have expressed concern that publishers’ revenue would be disproportionately reduced in comparison to sound recording revenue or consumer electronics revenue. They worry, 

for example, that companies might give music away for free in order to sell associated goods and services, so the revenue bases for calculating publishing 

royalties would be substantially reduced. Such a concern is at best hypothetical. This has never been a problem for European publishers, who for several decades have calculated mechanical royalties on a percentage-of-revenue 

basis. Additionally, for several decades here in the United States—during economic booms and busts when broadcast revenue goes up and goes down—publishers have collected billions of dollars in performance royalties based on percentage of revenue calculations.

5. Convert the § 115 license into a blanket license, and conform it structurally with 

all modern compulsory and statutory licenses. The mechanical compulsory license is provided only on a per work basis because in 1909 when the license 

was developed, and in 1976 when it was modified, licensees typically licensed 

only a handful of compositions at one time in order to produce a piano roll or 

composition book or a record album. 

Today, however, online services require hundreds of thousands or even a million licenses simultaneously, as they compete—against each other and against 

online black markets—to offer consumers the most comprehensive music selection possible. Only with a blanket license can services be confident of non-infringing access to all available music for purposes of lawful commercial distribution, which is precisely Congress’s goal during the past 100 years. Only 

through a blanket license can services launch free of legal risk, which would 

free tremendous resources for marketing, customer service, and improving systems to deliver royalties electronically. 

I am not suggesting that the Congress consider granting online music services an all-you-can-eat-for-one-low-price license, nor am I suggesting that services would avoid providing detailed reports of use to ensure that royalties are 

paid accurately to deserving songwriters. Rather I am suggesting that just like 

ASCAP, BMI, SoundExchange, and license administration collectives in Europe, the Copyright Office or its designee simply could grant licenses on a nondiscriminatory basis for the use of all copyrighted compositions for all necessary associated reproductions, contingent upon the regular filing of detailed 

reports of how compositions are used and which compositions are used. This 

would not transfer the burden of royalty accounting to songwriters, and would 

not eliminate the technological problems facing the Copyright Office and HFA 

today. But it would enable services to create robust offerings without legal risk, 

and to pay more money to songwriters and less to lawyers—and that is a winwin for America.

Three years ago Mr. Ramos promised this Subcommittee that the Harry Fox 

Agency would bulk license, electronically, on a non-discriminatory basis, and enable 

online music services to launch without legal distress if they work with HFA. Instead HFA licenses only whom they please and when they please, rejects more than 

50% of license requests submitted by licensees, hides their database from licensees 

that pay millions of dollars to use the repertoire and pay the songwriters that HFA 

represents, and causes more risk than it mitigates by aggressively seeking to license 

rights that do not exist and by providing false positives when licenses are approved. 

It is time for Congress to provide for today’s online music environment the same 

rights it provided in 1909, 1976, and what this industry needs—a compulsory mechanical license that relieves legal risk to well-intended royalty-paying services, that 

promotes new markets for music, and assures royalty payments to songwriters. A 

simple, updated, functional risk-free non-discriminatory § 115 license would be a 

win-win for creators, distributors and consumers. 

Thank you.
30
31

Mr. SMITH. Thank you, Mr. Potter. 

Mr. Ramos. 

STATEMENT OF CAREY R. RAMOS, COUNSEL, PAUL, WEISS, 

RIFKIND, WHARTON AND GARRISON, ON BEHALF OF THE 

NATIONAL MUSIC PUBLISHERS ASSOCIATION 

Mr. RAMOS. Initially, I would like to thank the Chairman, Mr. 

Berman, and the distinguished Members of the Committee for the 

opportunity to appear here today on behalf of the National Music 

Publishers Association. 

I thought it might be helpful, for starters, if I explained a little 

bit about what NMPA is and what a music publisher is. The National Music Publishers Association, which was founded over 80 

years ago, is the leading organization representing the interests of 

music publishers in the United States. 

What is a music publisher? A music publisher is a company or, 

in many instances, an individual, that represents the interests of 

songwriters by promoting their songs; by publishing their songs in 

sheet music; and by licensing the use of their songs for reproduction and distribution in CD’s, on the Internet, through public performances, and exercising the other rights available under the 

copyright law. 

I want to stress, the role of the music publisher is to represent 

the interests of the songwriter. The music publishing industry, unlike the record industry, is very unconcentrated. The Harry Fox 

Agency, alone, represents over 27,000 music publishers. There are 

many music publishers who, as I said, are individuals. In fact, they 

are songwriters who have set up their own music publishing companies to represent them in licensing their music. That is a very 

common practice in the industry. 

And the typical arrangement between the songwriter and the 

music publisher is a split of all the licensing royalties that are received. Today, the average, I would say, is about three-quarters 

going to the songwriter, and a quarter going to the music publisher. Obviously, in the case of the songwriter who has his own 

music publishing firm, they would collect 100 percent. 

But when we talk about royalties here today, most of these royalties are going to the music publisher—forgive me, are going to the 

songwriter. And most of the costs associated with running systems 

to make licenses available are borne by the songwriter. That is important to keep in mind. 

In that respect, I’d just like to give a little bit of economic context. There’s a lot of discussion here about law, but what’s actually 

going on in the marketplace? To date, the Harry Fox Agency, which 

licenses over 90 percent of the commercially significant music that 

is distributed in the United States—and I emphasize commercially 

significant, because there are lots of obscure songs out there which 

Harry Fox may not represent. To date, the Harry Fox Agency has 

collected $2.6 million for digital distribution of music on the Internet, total to date. That is less than 0.2 percent of all the collections 

by the Harry Fox Agency. Most of the HFA’s collections are for 

physical delivery. So far, this has been a very small part of their 

business. 
32

iTunes, which reports that it has made 30 million downloads 

since it was launched last April, has paid Harry Fox $150,000, or 

Harry Fox has received $150,000. Those licenses are going through 

the record companies. That’s how much that Harry Fox has received so far. Harry Fox expects to receive much more. And this is 

the main message that the music publishers, the music publishing 

industry, has today for the Committee. They believe in the Internet. It is in their commercial interest to license their songs, because they don’t distribute music. Unless they grant licenses, they 

won’t collect royalties; they won’t make any money. 

They have been working as hard as they can to make music 

available on the Internet, to increase that $2.6 million, that 0.2 

percent, to a much more significant figure. They are committed to 

doing that. And the Harry Fox Agency has adopted a number of 

significant changes, which would not be reflected in the law because they’re done in the private marketplace, to achieve that. 

They do bulk licensing. They do not license on a song-by-song 

basis; they do bulk licensing. They do it electronically. They don’t 

require you to mail the application; they do it electronically. They 

have a quick turnaround, which they have shortened in recent 

months to 4 hours on a license request. They have agreed in the 

case of co-owned works to license the entire work, even if they do 

not represent all of the co-owners; a major concession that is an expensive and potentially risky issue for them to undertake, but they 

have stepped up to the plate and done that. 

The Harry Fox Agency, as I have said, is committed to making 

a wide array of music available on the Internet and to work on a 

private marketplace basis to achieve those results. It’s doing that 

now and, as I said, it has every reason to continue doing so. Thank 

you. 

[The prepared statement of Mr. Ramos follows:]

PREPARED STATEMENT OF CAREY R. RAMOS

Mr. Chairman, Mr. Berman, and Members of the Subcommittee, thank you for 

this opportunity to testify on behalf of the National Music Publishers’ Association 

(NMPA) on the ‘‘Mechanical Compulsory License’’ under section 115 of the Copyright Act. NMPA is the principal trade association representing the interests of 

music publishers in the United States. The more than 800 music publisher members 

of NMPA, along with their subsidiaries and affiliates, own or administer the majority of U.S. copyrighted musical works. For more than eighty years, NMPA has 

served as the leading voice of the American music publishing industry—from large 

corporations to small businesses—before Congress and in the courts. 

The Harry Fox Agency (‘‘HFA’’) is the licensing affiliate of the NMPA. It provides 

an information source, clearinghouse and monitoring service for licensing musical 

copyrights, and acts as licensing agent for more than 27,000 music publisher principals, which in turn represent the interests of more than 160,000 songwriters 

BACKGROUND

Enacted in 1909, the Mechanical License is the oldest statutory license in copyright law. This statutory mechanism allows commercial users of nondramatic musical works to invoke the compulsory license and reproduce and distribute such works 

at a royalty rate set by the statute, as long as the terms and conditions of section 

115 are followed. The 1909 Act set the statutory rate at 2 cents per song, and this 

rate did not change for 679 years, when Congress added a rate-adjustment mechanism for the statutory rate. Since that time, the statutory rate has increased—usually by industry negotiation—and today stands at 8.5 cents per song. If the mechanical right statutory rate had increased commensurate with the Consumer Price 

Index, the rate today would be 37 cents per song. At 8.5 cents, the current ‘‘mechan-
33

ical rate’’ thus represents a substantial bargain as compared to the rate set by Congress in 1909. 

While the 8.5 cents statutory rate acts as a ceiling, it does not act as a floor. 

Music copyright owners are free to negotiate lower rates with users of copyrighted 

musical works, and often do. In some instances, contractual provisions such as ‘‘con- trolled composition clauses’’ in the recording contracts of certain artists require the 

composers of musical works to accept 75% or less of the statutory rate. As a result, 

the average actual rate paid for musical works is significantly less than 8.5 cents 

per song. 

The most significant recent amendment of section 115 occurred in 1995, when the 

Digital Performance Right in Sound Recordings Act confirmed that the reproduction 

and distribution rights of music copyright owners are implicated—and the statutory 

compulsory license is available—when a phonorecord is transmitted electronically by a ‘‘digital phonorecord delivery’’ (‘‘DPD’’). Unfortunately, while Congress and the 

music industry assumed in 1995 that the Internet would provide an exciting new 

medium for the distribution of music, the environment turned sour in 1999 with the 

launch of the Napster service. Since then, unfortunately, piracy has dominated 

Internet distribution of music. No royalties from these ‘‘peer-to-peer’’ transmissions 

of copyrighted musical works are received by authors, songwriters, and music publishers. Since 1999, when Napster was launched, music publishers have seen their 

mechanical royalties plummet by 22 percent. 

Although unauthorized P2P services continue to dominate Internet delivery of 

music, the recent launch of Apple’s iTunes service—and other paid download services—has finally begun to fulfill the promise that the Internet offered as a legitimate marketplace for music. NMPA and its members are excited about these new 

services and strongly support their efforts. 

It should be emphasized that our members have every economic incentive to issue 

as many licenses to new, legitimate Internet music services as possible. It is only 

through license agreements that our members are compensated. As of today, NMPA 

has issued over 1.75 million licenses for musical works to 39 different companies 

offering digital musical services. These licenses represent the vast majority of musical works for which there is any meaningful level of consumer demand. 

Pursuant to the 1995 Act, NMPA and RIAA negotiated an agreement in 1997 

whereby ‘‘digital’’ rates and terms for ‘‘downloads’’ of musical works would mirror 

the rates for ‘‘physical phonorecords’’ sold between January 1, 1998 and December 

31, 2007. In the Fall of 2001, NMPA, HFA and RIAA negotiated a second agreement, under which the two sides agreed that: (1) compulsory licenses under section 

115 would be made available to subscription services offering ‘‘limited downloads’’

and ‘‘on-demand streams’’ of musical works, and (2) the subscription services could 

launch their businesses at the time of the agreement and pay royalties in the future 

when royalty rates for such transmissions were set. HFA has entered into similar 

subscription licensing arrangements with Full Audio, Listen.com the new Napster. 

CARP REFORM BILL

Mr. Chairman and Mr. Berman, we thank you for your help in drafting and advancing the ‘‘CARP Reform’’ bill to passage in the House. There are many changes 

in this legislation that are helpful to music publishers, through both a reform of the 

general ‘‘arbitration’’ style of rate- setting and distribution of royalties and various 

technical amendments to section 115. 

PRESENT EVALUATION OF SECTION 115

In the view of NMPA, no additional legislative changes to section 115 are necessary at this time. The basic principles of the section 115 compulsory license remain reasonable and appropriate, even in the digital era. In exchange for the guaranteed right of music users to reproduce and distribute nondramatic musical works, 

music copyright owners are guaranteed a return on their works (currently 8.5 cents 

per song, or up to $1.04 for a 12-song album that typically retails for $15). A rateadjustment mechanism promotes voluntary agreements among music copyright owners and those who would use their works commercially, while affording ‘‘the copyright owner a fair return for his creative work’’ pursuant to the various factors 

under section 801(b)(1)). These principles make as much sense in the digital era as 

they did in the physical phonorecord era. 

The recent success of iTunes confirms that current law is not an impediment to 

consumer demand for digital delivery of music when a commercially viable product 

is made available. In the last few years, this committee has heard from critics of 

section 115 that the unwieldy music publisher community impedes the mass licensing of music, and thus the electronic availability of wide ranges of music. These crit-
34

1 Report at 132. 

2 Report at xxiv. 

3 Report at 138 (quoting Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566-

67 (1985)). 4 Report at 139 (quoting Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 449-50 

(1984)). 

ics have suggested that amendments to section 115 would facilitate cheaper and 

faster access to musical works, and thus greater public acceptance of lawful sources 

of digitally-transmitted music. The recent success of iTunes shows, however, that 

the critics of section 115 should have spent less time lobbying Congress and more 

time developing products that U.S. consumers of music actually desired. The creators of iTunes appear to have figured out what U.S. music consumers actually 

want—easy access to and reasonable prices for downloads from vast libraries of online music. 

The Harry Fox Agency, the licensing arm of NMPA, represents over 27,000 music 

publishers. It has invested enormous sums of money on IT improvements in the past 

few years to ensure that large-scale electronic licensing is a reality. Tremendous 

strides have been made in the last few years. The available catalogue is well in the 

hundreds of thousands of musical works. And it will continue to grow. 

A CAUTIONARY NOTE

There is a great economic incentive for industries to encourage Congress to endorse by legislation the technological ‘‘flavor of the month.’’ Given section 115’s 

prominent role in licensing music over the Internet and via other new technologies, 

copyright policy-makers should be particularly cognizant of the rapid technological 

change in this arena. Let me give a concrete example. 

Under Section 104 of the DMCA, the Copyright Office was directed to write a report on the impact of recent copyright law amendments on electronic commerce and 

technological development. The Copyright Office transmitted this report in August 

of 2001, and one of its recommendations was to exempt from the reproduction right 

‘‘temporary buffer copies that are incidental to a licensed digital transmission of a 

public performance of a sound recording and any underlying musical work.’’ The Office noted that it had been persuaded by webcasters that such copies had ‘‘no economic value.’’

There are both legal and technological problems with the Section 104 Report. 

Legal Flaws. The Report predates our subscription services agreements with 

RIAA, Listen.com and others and, unlike those agreements, does not distinguish between on- demand and radio-style streaming. This is a critical distinction. To the 

extent that the Report recommends a statutory exemption from mechanical licensing for radio-style streaming, we respectfully submit that no exemption is needed. 

Publishers have never required, and have now expressly agreed not to require, mechanical licenses for such streaming. To the extent that the Report may be construed to seek a statutory exemption for on-demand streaming, however, such legislation would seriously impair the copyright in musical works and deprive songwriters and music publishers of a vital source of licensing income. 

The Report correctly concludes that streaming involves the copying of musical 

works. The ‘‘aggregate effect’’ of streaming, it states, ‘‘is the copying of the entire 

[musical] work.’’ 1

The Report, however, then proceeds to consider whether so-called ‘‘buffer’’ copies 

made in the course of streaming are nevertheless a ‘‘fair use’’ of copyrighted music. 

Applying the factors codified in Section 107 of the Copyright Act, the Report concludes that, because two of the four factors (the transformative nature and economic 

value of the use) favor the user rather than the copyright owner, a ‘‘strong case’’

could be made that the making of a ‘‘buffer’’ copy in the course of streaming is a 

fair use not subject to the payment of royalties.2 The law is crystal- clear, however—

and the Report acknowledges—that the doctrine of fair use ‘‘is limited to copying 

by others which does not materially impair the marketability of the work which is 

copied.’’ 3 In conducting the fair-use analysis, the law requires that consideration be 

given to whether, ‘‘if [the use] should become widespread, it would adversely affect 

the potential market for the copyrighted work.’’ 4 Here, there can be no question 

that on-demand streams—which allow consumers to choose the songs they want, 

when they want to hear them—will displace record sales, and therefore directly affect ‘‘the marketability of the work that is being copied,’’ or the ‘‘potential market 

for the copyrighted work,’’ so as not to qualify as a fair use. Under these circumstances, it defies economic reality to say that ‘buffer’’ copies are fair use. Indeed, 

it would do violence to the fair use doctrine to do so. 
35

5S. Rep. No. 104–128 at 362 (1995). 6Performers’ and Performance Rights in Sound Recordings, 103d Cong. 4 (1993) (statement 

of Ralph Oman, Register of Copyrights, accompanied by Marybeth Peters, Policy Planning Adviser to the Register of Copyrights). 7 141 Cong. Rec. H10,098-108 at 10,103 (1995) (statement of Rep. Sensenbrenner). 

The potential for the on-line delivery of music to displace record sales, in fact, was 

Congress’s principal concern in enacting the Digital Performance Right in Sound Recordings Act of 1995 (the ‘‘DPRA’’). The legislative history of the DPRA states that 

the Act was intended to respond to the concern that ‘‘certain types of subscription 

and interactive audio services might adversely affect sales of sound recordings and 

erode copyright owners’ ability to control and be paid for the use of their work.’’ 5

Or, in the words of then-Register of Copyrights Ralph Oman, ‘‘[W]ill what you call 

the ‘celestial jukebox’ replace Tower Records and the corner outlet stores and their 

glitzy stock of CD’s, tapes, and records?’’ 6

Chairman Sensenbrenner put it this way: ‘‘[N]ew interactive services are being 

created which allow consumers to use their TV’s and computers to order any recording at any time. These subscriber services threaten sales of CD’s, records and 

tapes.’’ 7

The Report did not consider on-demand streams in its analysis. It appeared to address only radio-style webcasting (for which, as noted, we do not seek mechanical 

licenses in our agreements with the RIAA and similar services). Given the direct 

and substantial impact that on- demand streaming will have on record sales, there 

is no basis for concluding that ‘‘buffer’’ copies made in the course of streaming a 

song on demand are a fair use of the underlying copyrighted work. 

Finally, the fair use doctrine is ill-suited to the inquiry and analysis undertaken 

by the Report here. It is an equitable doctrine, to be applied in fact-specific circumstances. To apply it broadly, without the benefit of a fully developed factual 

record, as the Report does, is inconsistent with the terms of Section 107. 

Technology. On the technological front, in June of 2002, NMPA engaged an expert 

in computer streaming technology (Dr. Andrew Cromarty) and delivered a report to 

the Copyright Office showing that, as of June 2002, ‘‘temporary’’ buffer copies incidental to digital transmissions of a sound recording were often not temporary, provided the consumer with many benefits of a permanent copy, and therefore did have 

economic value. 

Dr. Cromarty explained that the ‘‘temporary’’ copy is not so temporary, rather, it 

is saved permanently on the hard-drive of a consumer’s computer in a ‘‘cache’’. This 

is done to provide the user a functionality equivalent to ownership: immediate playback on demand of the previously streamed content, and continuous playback in 

case the internet connection is unstable. These variations on streaming technology 

will continue to be made—especially because the competitive pressure from popular 

downloading services like iTunes will induce streaming services to offer downloadlike functionality. The point is simply that reliance on a term like ‘‘temporary buffer 

copy’’ in a dynamically changing technological context could create significant adverse, unintended consequences. This would especially be the case if such a malleable category were deemed exempt from copyright law: this would provide an incentive to use technology that barely met the definition while providing an economically 

significant benefit for which the consumer would be charged. In this situation, it 

would be unfair for the technology company to reap all of the benefit and for the 

artist to be uncompensated. 

In short, NMPA respectfully suggests that Congress treat with great caution a 

legislative request from any industry based on the assumption that a particular 

technology of the moment is here to stay and that the law should be amended to 

accommodate it. As we have seen over and over again, rapid technological change 

is inevitable. A change in the law, however, is much less certain. 

CONCLUSION

In summary, NMPA believes that section 115 is not in need of legislative change. 

While NMPA members continue to be battered by Internet piracy, we are enthusiastic about the new music download and subscription services and believe that they 

will ultimately prevail over unlawful copying. NMPA strongly supports these new 

business models through the licensing process both because it is in our economic interest and because it is the right thing to do. The basic policies set forth in section 

115 remain wise and reasonable and do not require revision at this time. 

Thank you for this opportunity to testify, and I look forward to answering your 

questions.
36
37

Mr. SMITH. Thank you, Mr. Ramos. 

Mr. Sherman. 

STATEMENT OF CARY SHERMAN, PRESIDENT, RECORDING 

INDUSTRY ASSOCIATION OF AMERICA 

Mr. SHERMAN. Thank you, Mr. Chairman, Representative Berman, and Members of the Subcommittee. I am Cary Sherman, 

president of the Recording Industry Association of America. I’m 

grateful for the opportunity to present our views concerning the operation of the 115 mechanical compulsory license. 

I’d like to thank you for focusing attention on this arcane, but 

important, subject. As you know, while very few people are familiar 

with how musical works are licensed, it has a profound effect on 

the manner in which consumers are able to enjoy music. Whether 

consumers will be able to buy new physical products that combine 

in a single disc both CD technology and new high-resolution formats like DVD and super-audio CD’s, a disc that will play in whatever devices the consumer may have, depends on the efficient and 

successful operation of the mechanical license. 

Whether consumers will enjoy the convenience of having their 

new computers or portable music players come with the music they 

want already on the machine also depends on a functional licensing 

system. And these are just two examples of the kinds of new products and services that are awaiting licensing. 

Record companies have had a long and generally successful business relationship with music publishers, based on Section 115. 

However, that relationship has not been without its rough spots, 

and we are in a rough spot now. I’d like to briefly describe some 

problems that we are presently experiencing with the operation of 

the mechanical licensing system that are affecting our ability to 

bring consumers the exciting new formats I mentioned and many 

others. We are hopeful that, with your encouragement, we will be 

able to resolve our differences with the publishers in the marketplace. But presently, we are not making much progress, and so we 

can’t rule out the possibility that addressing these issues legislatively may be necessary. 

The case of the new dual-disc format is a good illustration. This 

is a disc that will offer consumers the ability to enjoy new music 

on their existing CD players as well as the new DVD or superaudio CD player they may own or buy in the future. These products come with multiple versions of the same music in what is basically the different languages of the different players on which they 

can be used; much as a user manual might offer the same instructions in different languages, so that any user can read it. 

We believe it is clear that under Section 115, the required payment is one mechanical royalty per song, per disc. That is not just 

a sensible reading of the statute; it is a sensible business result. 

The user can only listen to the music on one player at a time. 

Moreover, consumers are demanding added value for their music 

dollars, and the industry must deliver attractive new products to 

get them back into the habit of buying instead of taking music for 

free. What better than a dual disc that gives them the flexibility 

of transitioning from their existing CD players to the new high-resolution formats of the future? 
38

To our surprise, the publishers issued a notice informing licensees that any disc with more than a single version of the same 

music on it would require separate and specific licensing, and requiring that licensees make a specific offer for payment in addition 

to the prevailing statutory rate. This would fundamentally change 

the economics of the industry by requiring multiple payments for 

the same music, when consumers are getting no more music, just 

a more convenient way of listening to it. 

We may think that we’re right on the law, but as a practical 

matter, our companies cannot obtain licenses and pay the royalty 

required by law, because the compulsory licensing provisions of 

Section 115 are too cumbersome to be used. Therein lies the problem. We theoretically have a right to a license, but, as a practical 

matter, we can’t exercise that right. 

The administrative burdens of current Section 115 are not the 

only problem. Existing regulations provide for a per-unit, pennyrate royalty. That worked fine when record companies sold only a 

few types of physical products. But that rigid structure has not 

adapted well to new technologies in the current dynamic marketplace. Record companies would like to sell and license a variety of 

great new products, but the cents-rate structure doesn’t translate 

well for these new offerings. 

Take for example the new subscription services that offer, for a 

monthly fee, a combination of streams for listening and various 

kinds of downloads that offer everything from temporary to permanent ownership. How do you even calculate the cents-rate for that 

service? 

A percentage royalty rate, by contrast, would enable these products to be launched and find an appropriate price point in a dynamic marketplace. The amount of the royalty would adjust automatically, as market conditions varied. Most foreign countries base 

mechanical royalty rates on a percentage of the selling price. Why 

can’t we? 

These are complex issues, and resolving them is not easy. But if 

the overall purpose of Section 115 was to ensure the ready availability of musical compositions, that objective is no longer being 

achieved. We sincerely hope that we will be able to resolve these 

problems quickly in negotiations with our music publisher colleagues. But time is of the essence. The marketplace won’t wait. 

The plague of piracy continues to spread. If we cannot get there on 

our own, we may be back to ask for your help. Thank you very 

much. 

[The prepared statement of Mr. Sherman follows:]

PREPARED STATEMENT OF CARY H. SHERMAN

I am Cary Sherman, President of the Recording Industry Association of America 

(‘‘RIAA’’), and I am grateful for the opportunity to present our views concerning the 

operation of the mechanical compulsory license provided by Section 115 of the Copyright Act. I would like to begin by thanking the Subcommittee, under the leadership 

of Chairman Smith and Ranking Minority Member Berman, for focusing its attention on the arcane but important subject of mechanical licensing of musical works. 

As you probably know, RIAA is the trade group that represents the U.S. recording 

industry. Its member record companies create, manufacture or distribute approximately 90% of all legitimate sound recordings produced and sold in the United 

States and comprise the most vibrant national music industry in the world. As such, 

we have somewhat mixed feelings about Section 115. On the one hand, RIAA’s 
39

members have historically obtained the vast majority of mechanical licenses. On the 

other hand, as creators, we respect the rights of songwriters and other creators to 

exercise control over, and receive fair compensation for, use of their creative works. 

We do not in principle favor compulsory licensing, although after nearly a century 

of compulsory mechanical licensing, it is so woven into the fabric of the music publishing industry that it is difficult to contemplate the music business without it. 

Record companies have had a long, broad-based business relationship with the 

owners of musical work copyrights, based on Section 115. That relationship has generally been successful for both the music industry and consumers. However, that relationship has not been without rough spots, and we are in a rough spot now. This 

afternoon I will describe some problems that we are presently experiencing with the 

operation of the mechanical licensing system that are affecting our ability to bring 

consumers exciting new formats for the music they enjoy. We’re hopeful that with 

your encouragement we will be able to resolve our differences with the publishers 

concerning these issues, as a business matter, in the marketplace. But presently, 

we are not making much progress. Congress could facilitate resolution of these 

issues by extending to physical product mechanical license negotiations the antitrust exemption that section 115 already provides for negotiations concerning 

downloads—as the House has voted to do in H.R. 1417 (the CARP reform bill). However, the antitrust exemption is not a complete solution to the present problems in 

the mechanical licensing system, so we can’t rule out the possibility that it might 

ultimately be helpful to do something more to address some of these issues legislatively or through Copyright Office rulemaking. 

BACKGROUND

It might be helpful if I began with some background concerning the compulsory 

mechanical license. Compulsory licensing of ‘‘mechanical’’ reproductions of musical 

works—that is, reproductions of sound recordings of musical works—has been part 

of U.S. copyright law since 1909, when Congress extended the rights of music publishers to mechanical reproductions. The recorded music business was in its infancy 

in 1909, so the compulsory license has provided the framework for the relationship 

between the recording and music publishing industries since the very beginning. 

Section 115 continues the basic structure of the 1909 Act compulsory license. In 

contrast to later statutory licenses and the practice in many foreign markets, Section 115 requires copyright users to license every individual work by following cumbersome procedures. The regulations provide even more cumbersome procedures for 

reporting usage information. Because the official procedures are so cumbersome, the 

marketplace long ago adopted workarounds. For example, the National Music Publishers’ Association’s subsidiary The Harry Fox Agency and others offer a simpler 

process for obtaining and reporting usage under mechanical licenses of essentially 

statutory scope. Even with these workarounds, record companies have borne a very 

large mechanical license administrative burden, but the system has generally 

worked. 

In addition, current Section 115 regulations provide for a per-unit penny-rate royalty set for long periods of time. As I describe below, that rigid structure has not 

adapted well to new technologies in the current dynamic marketplace. A percentage 

royalty increasingly looks like a better way of addressing new consumer products 

and services, and greater short term flexibility to respond to market conditions 

would improve the mechanical licensing system. 

MECHANICAL LICENSING ISSUES ARE IMPEDING INTRODUCTION OF

NEW PRODUCTS AND SERVICES

Anyone who has read the newspapers in the last several years has heard about 

the tremendous pain that piracy has inflicted on the whole music industry. Sales 

of recorded music products have declined some 25% over the past three years, depriving the public of creative new music as record companies have been forced to 

slash their artist rosters and support for new artists, as well as costing thousands 

of jobs due to retail store closings and record company retrenchment. Our colleagues 

the music publishers and songwriters feel this pain too, although less acutely due 

to the performance and other revenue streams they receive. 

We are working hard to lure customers back through a range of exciting new consumer product and service offerings. These include physical discs (we call them 

‘‘multisession discs’’) that can be played on computers, SACD and DVD players, as 

well as CD players; computers and portable players preloaded with a broad array 

of music that consumers can ‘‘unlock’’ on a per-tune basis or as part of a subscription service; CDs and DVDs with extra tracks or even albums that consumers can 

buy, or keys to extra content that consumers can download from the Internet; and 
40

downloads and physical products with digital rights management systems that protect artists’ rights while allowing users to make a limited number of personal use 

copies. We’re also trying to develop new revenue streams by, for example, licensing 

master ring tones for use on cellphones. 

It is important that mechanical licenses be as available for these new offerings 

as they always have been for more traditional offerings. Toward that end, we have 

tried hard to work with publishers to keep them abreast of these offerings and work 

out any issues. However, disagreements concerning the application of the Section 

115 license, and the inflexibility of the per-unit statutory royalty set for a 10 year 

period (in contrast to a percentage royalty) are impeding the introduction of these 

offerings in the U.S. By contrast, in other countries, mechanical royalty rates are 

usually based on a percentage of the sales price. It is possible that mechanical licensing issues in the U.S. could lead to a situation where foreign markets have access to new consumer products that cannot be released in the U.S. 

The situation concerning multisession discs is instructive. Multisession discs can 

take many forms. Record companies are currently testing DualDisc, a format that 

typically contains an album encoded for traditional CD players on one side and the 

same album for DVD players on the other. Most SACD discs are also multi-session, 

including stereo and surround-sound SACD sessions and CD sessions. We think that 

these new consumer products are compelling for a number of reasons—they provide 

a single product playable on most consumer music players, they offer a new convenience to consumers, they reduce duplicative inventory, and they move the marketplace to products of higher quality and greater capacity than the CD. More importantly, we know that if we want consumers to buy our music, we have to let them 

play the music in whatever players they have. Multisession discs are the way to 

allow consumers to play music on the various platforms that are available. 

It’s the ‘‘multisession’’ technology—putting differently-encoded renderings of the 

same music for each format on a single disc—that makes this possible. Thus, one 

disc could have two to five renderings of the same recordings. We believe it is clear 

that the Section 115 license covers multisession discs and that the required payment is one mechanical royalty (e.g., 8.5 cents) per disc. However, the Harry Fox 

Agency (‘‘HFA’’) has suggested that each multisession disc is in fact two to five ‘‘phonorecords,’’ requiring specific licensing (and in the case of compulsory licenses, 

presumably payment at the statutory rate) for each session. But despite the merits 

of multisession discs, paying more than a single mechanical royalty would be unwarranted as a business proposition. 

Nonetheless, HFA has notified its licensees that it will not issue licenses on any 

other basis without specific publisher consent. From what I have heard, many individual publishers seem to have embraced HFA’s view that payment of 2 to 5 mechanical royalties per disc is required, so individual company agreements have been 

few and far between. I am not hopeful that individual negotiations will meet market 

demand within a time that might help reverse the bite of piracy. 

Because this issue arises under a compulsory license and affects all of both industries, we have sought to discuss the issue with HFA on an industry basis. Citing 

antitrust concerns, the publishers have declined. As you probably know, later compulsory licenses in the Copyright Act contain language granting authority for collective negotiation of matters relevant to the operation of the compulsory license ‘‘notwithstanding any provisions of the antitrust laws.’’ As a result of an amendment 

in 1995, Section 115 contains an antitrust exemption for mechanical license negotiations concerning downloads. For historical reasons that exemption does not apply to 

physical products. We are grateful that in H.R. 1417 (the CARP reform bill), the 

House voted unanimously to remedy this historic anomaly and extend the Section 

115 antitrust exemption to physical products. 

While we believe that extension of the antitrust exemption to physical products 

is important to help us bring consumers exciting new formats for the music they 

enjoy, the antitrust exemption is not a complete solution. Among other things, it 

would only allow us to do a private deal with HFA, not to obtain access to the 30–

40% of works not licensable through HFA. Thus, it is possible that there may need 

to be a change in the Section 115 regime itself. 

It is likely that the section 115 regime ultimately will need to move toward a percentage royalty to give it the flexibility to adapt and retain its vitality in the face 

of technological innovation. When record companies sold only a few types of physical 

products, the cents rate worked well. But record companies are now selling, licensing or contemplating a great variety of products, including not only multisession 

discs but preloaded offerings that consumers can ‘‘unlock’’ through online transactions; offerings with bonus material; products with digital rights management systems that allow limited personal use copying, and subscription devices that offer 

both streams and limited downloads for a single monthly fee. These products are 
41

distributed through different channels and have different economics. Applying the 

cents rate to some of the models is often impossible and economically infeasible. A 

percentage royalty rate, by contrast, would enable these products to launch and find 

an appropriate price point in a dynamic marketplace. The amount of the royalty 

would also adjust automatically as market conditions varied. The Section 115 regime also would benefit from the flexibility to adjust rates more frequently, and if 

necessary to open up rates between scheduled CARP proceedings to address new 

consumer product offerings. 

THE SUBSCRIPTION SERVICES AGREEMENT IS A MODEL OF

HOW SUCH ISSUES CAN BE RESOLVED

We have previously hit bumps in the road of our relationship with the publishers 

when questions have arisen concerning the application of the compulsory license to 

new technologies. But we have been able to resolve them. For example, several 

years ago, questions concerning the application of the compulsory license to subscription services, and our consequent inability to obtain licenses for those services 

promptly, became an impediment to the launch of services. We resolved those issues 

through a Subscription Services Agreement between RIAA, NMPA and HFA that 

provided a framework for licensing services. That agreement had its desired effect 

of allowing new services to enter the marketplace. In late 2001, RIAA and NMPA 

asked the Copyright Office to adopt regulations implementing the same framework 

as the agreement, to make clear that services can rely upon the compulsory license 

as to all musical works, and not just those licensable through HFA. We hope that 

the Copyright Office will act in the near future upon our joint request to adopt regulations implementing the agreement. 

CONCLUSION

We’re hopeful that with your encouragement we will be able to resolve our differences with the publishers concerning the current generation of new formats as 

a business matter, just as we did in the case of the Subscription Services Agreement. This is a critical time for everyone in the music industry. Without new products to excite consumers, we risk losing an entire generation of music lovers to piracy. Record companies are working hard to meet that challenge, but we need the 

help of others in the industry to achieve that goal.
42
43

Mr. SMITH. Thank you, Mr. Sherman. 

Let me address my first question to all the witnesses who are 

here today. And this is only slightly digressing, but it’s a little bit 

of a question on behalf of songwriters. I am just curious—and 

maybe, Ms. Peters, we’ll start with you—whether you think that 

royalty payments should be a flat rate, or a percentage amount? 

Ms. PETERS. I don’t have a preference one way or the other. I 

think, whatever it is, it has to work. And certainly, with the hundreds of thousands of songs, it seems that if you go song by song, 

it may not be the appropriate model. 

Mr. SMITH. Okay. Mr. Potter? 

Mr. POTTER. We believe there should be the option. We think 

there should be the option of a percentage of revenue. We think it 

adds flexibility for innovative products and services, as Mr. Sherman was describing. We think it’s worked at least reasonably well 

in Europe for a long time. Songwriters have been paid through a 

percentage-of-revenue royalty. 

Mr. SMITH. Okay. Mr. Ramos? 

Mr. RAMOS. We believe that the rates should be, as it has been 

for close to a century, a flat rate, a set rate. And there are a couple 

of reasons for that. And this is really with the songwriters’ ultimate interests in mind. 

First, if you have a percentage rate, that would subject us to the 

risk that companies which took licenses would use music as a loss 

leader. iTunes is a good example. And I’m not accusing Apple or 

iTunes, because I think it’s a wonderful service. But it’s no secret 

that Apple’s primary interest is in selling computers and iPods. 

And the music is what attracts people to their site to buy that 

equipment. If they offer the music, they’ll sell the equipment. It’s 

a wonderful business model for them. It may not be a good business model for songwriters, who don’t sell computer equipment. 

That’s one significant concern. 

The other concern is that—is really an auditing concern. Computers, if they can do one thing, they can count. They can count 

the number of times that songs are downloaded. And to simply assign a number to each count and say, ‘‘That’s how much the songwriter gets,’’ we think is a simple, easily audited system; where we 

don’t have to get into questions about how much revenue they 

earned, and did they take deductions for, you know, this item or 

that item. It’s just a much simpler system. Thank you. 

Mr. SMITH. Okay. And Mr. Sherman? 

Mr. SHERMAN. Well, we feel strongly that the time has come to 

look at a percentage royalty. We think it will solve many of the 

problems that we’re presently confronting in the marketplace, and 

make irrelevant many of the legal issues that have surrounded the 

offering of these new services. 

It is true that there is always a risk that a company like Apple 

would look at music as a loss leader, but record companies don’t 

look at it that way. Record companies have exactly the same interests as music publishers in the way that they license. And in any 

event, there are certainly mechanisms that we’d be able to agree 

upon to avoid that kind of risk. 

Mr. SMITH. Okay. Thank you, Mr. Sherman. It sounds like two 

for percentage, one for flat rate, and one for whatever works best. 
44

What about additional royalty payments for second-session CD’s, 

Mr. Sherman? 

Mr. SHERMAN. We feel that this is a counterproductive proposal, 

frankly. We think that we, as an industry, ought to be offering consumers more value on the physical discs that we’re selling. The notion of asking record companies to pay more in order to provide 

more convenience for consumers doesn’t make a lot of sense to us. 

They’re still getting just one music album; it just happens to play 

in two different ways. 

Mr. SMITH. Thank you. Okay. Mr. Ramos? 

Mr. RAMOS. Mr. Sherman and I are in agreement that this 

should be negotiated, and we think that it can be. One matter of 

clarification—— Mr. SMITH. This should be what? 

Mr. RAMOS. Mr. Sherman and I are in agreement that this is a 

matter that should be negotiated. In fact, we’ve been working to do 

that. And this Committee has assisted us in that regard by passing 

the CARP reform legislation, which will include an antitrust exemption to give us, you know, protection from potential lawsuits, 

in order to be able to do that. 

But the most important thing I wanted to say is that the Harry 

Fox Agency policy is not that they would collect multiple royalties 

for each of these sessions; but rather, that each of the sessions 

needs to be licensed. What the rates should be, is a different question. 

In the marketplace today, these products, these SACD and DVD 

audios, generally sell for prices substantially higher than CD’s. So 

there is additional value there, and we think that should be reflected in a fair rate paid to the songwriter. 

Mr. SMITH. Okay. Thank you. Mr. Potter? 

Mr. POTTER. The additional value, I think, would be reflected in 

a higher royalty if we were on a percentage-of-revenue system. So 

if the prices are higher for super-audio CD’s, that would address 

the additional value issue. 

We are troubled by the idea of negotiating in the private market 

the laws, essentially, which would then extend to the 35 or higher 

percentage of music that the Harry Fox Agency does not control. 

Mr. Ramos said 90 percent of commercially significant music. I 

would think there’s a definition of ‘‘commercially significant music’’

that extends to small songwriters and small record labels who sell 

smaller amounts, but whose royalties are just as valuable. 

Mr. SMITH. Okay. Thank you, Mr. Potter. 

Mr. Ramos, I want to squeeze in one more question. Ms. Peters, 

in her written testimony, at least, said that one option was to 

eliminate Section 115, in favor of a system that we have in Europe 

where you have a collaborative effort, and various organizations 

would merge. What do you think of that idea? And would you be 

willing to participate? Just be very brief, if you will. 

Mr. RAMOS. I will. The music publishers favor marketplace solutions. So if we were to ship to—I mean, they would certainly be 

open to considering repealing 115, doing away with the compulsory 

license, and going to a marketplace solution. No question about it. 

I think, Mr. Chairman, you might want to ask that question to 

my clients’ customers, on this side here——
45

Mr. SMITH. If my time had not expired, that was my intent. 

Mr. RAMOS. Yes. 

Mr. SMITH. With everybody’s allowance, perhaps, Mr. Sherman, 

can you respond very quickly? And then we’ll go to Mr. Potter. 

Mr. SHERMAN. Well, by and large, we would be open to considering anything that would create a workable system. The problem 

that we’ve got is not whether it’s compulsory licensing or not; it’s 

that we have a system that just is no longer functional in the digital age. 

Mr. SMITH. Something has to happen. Yes, Mr. Potter. 

Mr. POTTER. I think if the Harry Fox Agency wanted to, you 

know, go visit the Justice Department and get a consent decree to 

operate with transparency and in a blanket license manner, where 

they licensed all comers on a non-discriminatory basis, we would 

be open to that sort of system. 

Mr. SMITH. Thank you all. The gentleman from California is recognized for his questions. 

Mr. BERMAN. Thank you, Mr. Chairman. I had a chance to meet 

with both the—at separate times, thank God—with the music publishers and with DiMA, on some of these 115 issues. And my first 

question is for Mr. Potter. This whole issue of the principle versus 

the money; the issue of what should be—changing the licensing 

mechanism, versus how much you’re paying to do it, and to what 

extent are you standing on a—and fighting for a principle here 

which isn’t central to the fundamental business of how much 

money are you having to pay. 

The publishers come to me and they say, ‘‘We’re willing to negotiate and be reasonable on money, but there is this principle that 

we think is important, and we don’t want to change that principle.’’ Let me put it a different way. You take the position that for ondemand—that the Harry Fox Agency’s position on on-demand 

streaming services, that they should obtain licenses for the server, 

catch, buffer, and other reproductions that may occur in the course 

of an on-demand stream. The law shouldn’t be interpreted to require a royalty for such reproductions. And they apparently refuse 

to take an available license from the Harry Fox Agency, your members do, for these reproductions. And instead, you’re asking us to 

exempt them from incurring any copyright liability. 

When we met, one of your member companies noted that it had 

begrudgingly taken a license to the one-click patent from Amazon, 

even though it harbored reservations about that patent’s validity; 

reservations that Mr. Boucher and I have been interested in, a 

question in the larger context that we’ve been interested in, in 

some legislation that we’ve introduced. 

The company chose to take a license, despite these reservations, 

due to business considerations. Amazon is a distributor of that 

company’s products. The company doesn’t want to pay seven to ten 

million in patent litigation costs. I mean, understandable reasons 

why principle didn’t have to get in the way of doing business. 

Your association is not asking that Congress pass legislation to 

protect your members from liability against these questionable patent claims. What’s the difference between the two situations? If 

fear of infringement liability, potential litigation costs, and the desire to maintain a good relationship with a business partner justify 
46

licensing a questionable patent from a fellow technology company, 

why don’t the same business considerations justify licensing questionable uses of copyrights—questionable in your mind, uses of 

copyrights from music publishers? If you can work out the price, 

what’s the difference whether it’s one license, or two licenses, or 

three licenses? 

Mr. POTTER. In the first instance, Mr. Berman—and I appreciate 

the question. I recall the conversation well. I think that the Congress is considering patent reform. And the Patent Office is studying a whole lot of these issues, as to whether they should be 

issuing those sorts of patents. So in fact, some of those companies 

who were paying those litigation insurance royalties, if you will, 

have approached the Congress and asked it. So it is a similar circumstance, in that regard. 

As a second matter, if the Congress would like to guarantee a 

zero royalty, then perhaps my members would be willing to agree 

that everything can be licensable; but only if the license is available. The problem is, the licensing system doesn’t work. If they license all comers, for all uses, on a percentage-of-revenue basis, this 

issue probably, perhaps, goes away. But there is a—we have a 

strict liability statute. We have a very expensive statutory damages 

statute. So if you do not take a license for everything that someone 

views, and you’re wrong, you’re out of business. You are cold-cock 

out of business, with an injunction, lickety-split. So we have a problem where it is true gun-to-the-head licensing. 

With all due respect, Universal Music has marvelously sophisticated lawyers. They thought through their Farm Club business 

plan for a long time before they launched it. I am confident they 

did not think they were infringing on the 115 compulsory license. 

The recording industry has signed a deal with the Harry Fox 

Agency which these gentlemen touted two and a half years ago as 

resolving these issues. It hasn’t done the job. I’m not sure what is 

the ultimate solution, but giving on principle in order to make a 

business deal ultimately might work, but it has to be a package 

deal. 

Mr. BERMAN. All right. Well, are we in recess? Is there a bomb 

attack? Or are there a lot of votes coming up? [Laughter.] 

Mr. GREEN. [Presiding.] There are a fair number of votes coming 

up. We’re just finding out if these are the final votes of the day, 

and then we’ll notify Members and make a decision accordingly. 

Mr. BERMAN. Right. 

Mr. GREEN. I’d like to proceed on with my questions at this time. 

Ms. Peters, just so I understand clearly your testimony and your 

concept of perhaps eliminating the statutory—115 statutory license, is that because you believe that that provision can no longer 

be stretched and tweaked enough to work with modern technology 

and the changing marketplace? 

Ms. PETERS. In part. In part, what I’m really saying is that it 

only works for activities within the United States; that as it exists 

today, it’s very hard to have it adaptable to all the possible permutations that may come up. And there really just doesn’t seem to 

be the need. I don’t see a need where you’re saying the marketplace 

can work here. 
47

Mr. GREEN. Okay. Thank you. A question for each of the witnesses. Would you support making the 115 statutory license similar to the Harry Fox license? 

Mr. POTTER. No. The Harry—what you’re suggesting, sir, is that 

the Harry Fox/RIAA agreement which essentially blends over all 

the gray areas and all the disputes by sort of just characterizing 

everything as the reproductions that happen to occur while you’re 

doing your service, whether it’s a distribution service or a streaming service you’re willing to pay for. The answer is, no. 

We have a situation in this country where the terrestrial broadcasters have an absolute flat exemption for the reproductions they 

make that facilitate licensed performances. So they don’t pay a reproduction right. They are not subject to that liability. 

There is a—you know, I heard Ms. Peters a week or so ago in 

the Satellite Home Viewer Act testimony, and I’ve heard her speak 

otherwise, about how competitive services, equivalent services, 

should be treated alike as a matter of law. And that’s been a DiMA 

principle since the day we founded this organization. 

Merely because our services choose to use the Internet as a pipe, 

instead of the radio as a pipe, the terrestrial airwaves as a pipe, 

should not mean we are subject to more liability, to more royalties, 

or to any discriminatory legal treatment. 

Mr. GREEN. If I can, real quickly, from Mr. Ramos and Mr. Sherman. 

Mr. RAMOS. We would certainly favor the application of the 

Harry Fox agreement, the license agreement we made with RIAA, 

to the music publishing industry, generally. We think that that 

would be a good thing for the marketplace, and we would fully support that. 

Mr. SHERMAN. The—if you’re asking the question more broadly, 

about the relationship between the Fox license and the 115 license, 

the fact of the matter is that the Fox license only works marginally 

better than the 115 system. We operate under the Harry Fox license right now. That’s where 99.999 percent of the licensing is 

done. And we just aren’t getting licensed what we need. This system isn’t working. 

And the examples that I gave earlier about multi-session discs, 

percentage royalty, those are the problems. Because when the Fox 

Agency says ‘‘No,’’ there’s no way to get the issue resolved. And 

that’s the problem we’re facing. 

Mr. GREEN. Okay. Thank you. 

At this point, we’re going to break. We have one 15-minute vote, 

and two 5-minute votes. With your indulgence, we’ll return and finish up our questioning at that point. The Committee stands in recess until that point. 

[Recess.] 

Mr. GREEN. We’ll resume our hearing. And I appreciate the patience of the witnesses. 

Mr. Boucher of Virginia, the time is yours for questions. 

Mr. BOUCHER. Thank you very much, Mr. Chairman. I want to 

commend our witnesses for joining us here today, and for your patience while we had to attend votes on the floor. 
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Ms. Peters, let me ask you this. Do you believe that when there 

is a download of digital music, that both a performance royalty and 

a mechanical royalty should be paid? 

Ms. PETERS. I think, the answer’s going to be ‘‘It depends.’’ Clearly, when there is a download, there is a reproduction. And the 

question is whether or not there is also a performance. And if in 

fact the licensed activity is the download, and the transmission is 

made only to enable that licensed activity, we have taken the position that that is not a separate—we don’t believe that that’s a separate economic activity; and in our Section 104 report we concluded 

that that would be a fair use. 

Mr. BOUCHER. And so under the state of facts as you have 

phrased the state of facts, you would not support an interpretation 

of existing law to require that both a performance royalty and a 

mechanical royalty be paid; is that correct? 

Ms. PETERS. In that specific fact situation, if it’s just the mere 

transmission——

Mr. BOUCHER. Right, as you have described it. 

Ms. PETERS. Right. No. For us, the beneficiaries are the music 

publisher and the songwriter. And you should look at what is the 

purpose of the activity, and the price should be set according to the 

value of that activity. And splicing it up, saying, ‘‘This is a performance, and this is a reproduction,’’ doesn’t make sense to us, because 

we believe the transmission just enables the download. 

Mr. BOUCHER. Okay. Thank you. Do you believe that the statute 

should be amended to clarify that view? 

Ms. PETERS. Every time you amend a law and you start doing 

exceptions, the question is: Do you do damage? We’re in a time period where technology is changing and bringing about different results. I’m not sure. I’d have to really look at what the language 

would be, before I would ever want to say there should be an exception. 

Mr. BOUCHER. Well, I mean, I understand the care with which 

you answer all of your questions here. But let’s presume that the 

language is written in such a way—perhaps in a draft that your 

office would assist us in constructing—as to carry forward your intent. Would you not agree that some statutory clarification, to prevent this double-dipping, would be appropriate? 

Ms. PETERS. We actually would support that. Of course, you realize that the performing rights organizations would be very strongly 

opposed. 

Mr. BOUCHER. Oh, I understand that. But I’m asking you. 

Ms. PETERS. Yes. 

Mr. BOUCHER. All right. 

Ms. PETERS. Yes. 

Mr. BOUCHER. Thank you. Let me further carry forward my 

questioning to you, with respect to incidental server copies. When 

music is made available for legal downloading across the Internet, 

typically, a lot of caching occurs, in order to promote the efficiency 

of the delivery of the music and speed up the delivery times. And 

under current law, some have interpreted the separate making of 

caching copies on servers located throughout the Internet to require the separate payment of royalty fees for each of these copies. 
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A separate copy has to be made for every bit rate. A separate 

copy has to be made in every format in which the music is delivered. And before long, when you multiply this out, you could be 

talking about a thousand or more copies made solely for the purpose of delivering a single song across the Internet. 

And the question is, should these incidental copies, made only for 

the purpose of effectuating the delivery, require the payment of 

separate fees with respect to each of those? Or should we treat this 

essentially as one copy? 

Ms. PETERS. This is exactly the question that we have before us 

in an ongoing rulemaking proceeding. And we do intend to address 

that in our rulemaking, so I’m not going to prejudge at this moment where we’re coming out. But we will be dealing with this 

shortly. 

Mr. BOUCHER. So you’re saying you are aware of the problem——

Ms. PETERS. Oh, absolutely. It’s currently before us. 

Mr. BOUCHER.—and you have a rulemaking that addresses it? 

Ms. PETERS. We have before us a variety of questions on the 

scope of the Section 115 compulsory license. 

Mr. BOUCHER. All right. Okay. Let me ask you about another key 

concern. And that is that with regard to the publisher copyright interest, the songwriter/publisher interest, the Harry Fox Agency, as 

I understand it, has the current authority to clear something on 

the order of 60 to 65 percent of the inventory of music that companies would like to place on the Internet for lawful download. But 

that leaves on the order of 35 to 40 percent of the music unaccounted for, in terms of even identifying who owns the publisher 

interest in that music. 

And given the current structure of minimum statutory damages 

in the copyright law for every incident of a violation, a person 

would place that music on the Internet for lawful download at his 

peril. And the burden really does, under current law, rest on the 

person who wants to use that music, to identify who owns the publisher interest and then obtain clearance of that copyright. And 

that’s a very difficult process. It involves going through card files, 

and it’s a very laborious and time-consuming process, and is practically impossible in the current state of things. 

Would you support some kind of statutory provision that would 

enable the more efficient clearance of that interest with regard to 

the 30—or to 35 to 40 percent of music for which the Harry Fox 

Agency does not have clearance authority? 

Ms. PETERS. I think, actually, I’ve sort of answered that. We 

have to have a system that works. We have to be able to license 

material. To the extent that today there’s a statutory license that’s 

there, and where you can’t find copyright owners you file with us 

and there’s no liability, that system doesn’t work. So, yes, I certainly do favor a system that enables clearance of these works. 

Mr. BOUCHER. Well, thank you. And would you agree that this 

is something we will need to address statutorily? 

Ms. PETERS. Yes. 

Mr. BOUCHER. Okay. Thank you. 

Mr. Chairman, my time has expired. But Mr. Chairman, with 

your indulgence, let me just ask Mr. Sherman if he could also offer 

a comment on that last question. 
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I perceive that the labels have a need to have a more efficient 

clearance process for these publishing interests that really are very 

difficult to identify. Would you agree with that? 

Mr. SHERMAN. I don’t think this is an issue that divides anybody, 

you know. I think everybody wants a system that works. I think 

that the Fox Agency would love to be able to speak for 100 percent 

of the publishers, if it can. And certainly, labels and other licensees 

of the music would like that, as well. Any system that can help get 

us there would be a plus. 

Mr. BOUCHER. And you agree that a statutory system of some 

kind that promotes the more efficient clearance would be appropriate? 

Mr. SHERMAN. I don’t know whether a statutory system is necessary. It’s possible to do something with some kind of voluntary 

collective approach. But we’d be interested in talking about anything that would work. 

Mr. GREEN. The gentleman’s time having expired——

Mr. BOUCHER. Thank you very much, Mr. Chairman. 

Mr. GREEN. And Mr. Berman, I think we have time for you to 

ask one more question. 

Mr. BERMAN. Thank you, Mr. Chairman. And I appreciate that 

the votes and the late start here prevent us from getting into it as 

deeply as we might want; but let me ask one more question. 

Let me ask this one to Mr. Ramos. Mr. Potter has identified a 

number of problems arising from situations where, due to the architecture of digital technology—we’ve just been discussing this, in 

fact—music performances may also necessitate reproduction of the 

musical work. He expresses frustration that on-demand streaming 

companies have to seek a performance license from the performing 

rights organizations, and then seek a reproduction license from 

music publishers. In fact, that’s a frustration he’s been expressing 

for a long time. 

However, on-demand streaming companies apparently do not 

have the same frustrations with securing both reproduction and 

performance licenses from the owners of sound recordings. I assume this is because owners of the sound recordings can act as a 

one-stop shopping location; while antitrust rules prohibit the performance rights organizations and music publishers from granting 

both performance and reproduction licenses. 

Getting away from the issue of ‘‘Is it a performance or is it’’—

assuming both are implicated, as I think there’s a basis for saying, 

should Congress now explore amending the antitrust laws so on-demand streaming companies could obtain all necessary rights to the 

musical work from one entity? 

Mr. RAMOS. In my view, that would not be necessary. And the 

reason is that I think that the mechanisms exist to obtain those 

licenses currently. I think the only question is what the rate should 

be. 

I do not perceive there to be a significant obstacle to licensing, 

to have to obtain a license from the PRO’s as well as Harry Fox. 

And indeed, as a practical matter, since most of these services will 

engage in downloads as well as streaming—I realize there may be 

some companies that focus on just one or the other—they will have 
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to deal with both of those organizations in any event. And as a result, I think it will be equally efficient if it’s licensed separately. 

The key is the rate, is coming up with a fair rate. The deal that 

we made with RIAA was designed to facilitate that, to allow the 

services to get up and running so that we would not—the music 

publishers would not be an obstacle; and to give us a framework 

that we could then arrive at a rate. 

Unfortunately, the level of activity in on-demand streaming has 

been relatively small, as compared to downloads. Consumers, it appears, want to own the music, and they appear to be more interested in the download services. And as a result, there has been little economic data that we can use to arrive at what we think would 

be a fair rate. But currently, the rate is zero from Harry Fox, as 

a practical matter. They don’t have to—the deal is: Use now; pay 

later. And it’s only when we arrive at a rate, will they have to pay. 

So for those two reasons, I think this is not an obstacle. And I 

think, at least at this time, an antitrust exemption would not be 

necessary. I wouldn’t rule out the possibility that at some point in 

the future, when we actually get into real negotiations on what the 

rate should be—and hopefully, I would have those with Mr. Potter, 

as well—that we might, among us, conclude that we need some assistance from Congress in the form of an antitrust exemption, or 

some statutory amendment to facilitate that. But at least at this 

stage, sitting here today, I don’t think that’s necessary. 

Mr. GREEN. Thank you. I’d like to thank the witnesses for their 

testimony. The Subcommittee very much appreciates your contribution. 

This concludes the oversight hearing on section 115 of the Copyright Act. The record will remain open for 1 week. Thank you for 

your cooperation. The Subcommittee stands adjourned. 

[Whereupon, at 1:35 p.m., the Subcommittee was adjourned.] 

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PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN

Mr. Chairman, 

I look forward to what should be a truly compelling hearing today. While the title 

may be dull, and the statute in question impenetrable, the dynamics are really quite 

interesting. 

Our private-sector witnesses appear to share a strong interest in the success of 

the legal music marketplace. The business survival of Digital Media Association 

members depends on the success of their legitimate, online music services. The success of new legal music offerings, like downloads and DVD-Audio, will provide vital 

new sources of royalties for members of the National Music Publishers Association. 

Recording Industry Association of America members will benefit in a number of 

ways: through the distribution of their works in secure new formats, through their 
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ownership of some online music services, and through the royalties generated by 

independent services. 

Our witnesses are similarly united in the desire to stem music piracy. Though in 

different ways, piracy - both online and off - bedevils DiMA, NMPA, and RIAA members alike. Since the success of new music formats and online music services is a 

critical element in stemming the piracy tide, our witnesses have additional reasons 

to work to achieve this success. 

So, at least at the macro level, the interests of our private-sector witnesses are 

strongly aligned. Unfortunately, this alignment of interests does not translate into 

an alignment of strategies for stimulating the legal music marketplace. 

In particular, our witnesses appear to disagree pretty strongly about the availability, cost, scope, and convenience of both voluntary and statutory licenses for 

making reproductions of copyrighted musical compositions. NMPA appears to maintain that such licenses are easily obtained, and points to the success of the iTunes 

Music Store as proof. Our other witnesses appear to strongly disagree. 

Clearly, the legitimate online music marketplace has made tremendous strides in 

the last few years, and these strides demonstrate that copyright owners are fully 

committed to its development. In fact, all our witnesses, including the Copyright Office, deserve some measure of credit for these advances. In 1999, only the pirate 

version of Napster provided music consumers an opportunity to download a wide variety of popular music. Today, a number of legitimate services, including Napster 

Version 2, iTunes, Rhapsody, pressplay, MusicNow, and many others, offer consumers cheap, legal mechanisms for downloading hundreds of thousands of songs. 

Unfortunately, despite their meteoric growth, legal online music services still represent the equivalent of a fly on the back of the online piracy elephant. The 30 million downloads sold by iTunes in the past year are encouraging, but are nothing 

compared to the billions of copyrighted songs illegally downloaded through peer- topeer services every month. The approximately 500,000 songs available through most 

legal music services represent an exponential increase from a few years ago, but 

pale in comparison to the millions of different songs available through the illegal 

services. Through admittedly anecdotal accounts, I understand that many users of 

legal online services still frequent illegal P2P services to obtain otherwise unavailable tracks. 

While the downloading revolution calls into question the long-term viability of 

physical music formats, they will continue to make up the lion’s share of the music 

market in the near-term. Thus, it is clear that music copyright owners must migrate 

to secure physical formats. If they continue to make music available on unprotected 

CDs, they are driving their own piracy problem. 

Unfortunately, the rollout of new, secure physical formats has been less than dramatic. Only a handful of albums have been released on copy-protected CDs in the 

U.S., DVD-Audio has not penetrated the marketplace, and the pre-loading of music 

on PCs or other devices hasn’t gotten much traction. 

Clearly, something must be done to make new legal music offerings, both online 

and off, more competitive with the abundance of conveniently available, free illegal 

music. As I have noted, success in addressing this challenge will benefit all of our 

private-sector witnesses. Therefore, I intend to examine the testimony of our witnesses through the prism of two inter-related questions. First, does Section 115 facilitate or hinder the rollout of new legal music offerings? Second, depending on the 

answer to the first question, what, if anything, should Congress do to change Section 115? 

I am very interested in hearing our witnesses’ arguments on these question, so 

I yield back the balance of my time.
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