[Federal Register Volume 65, Number 238 (Monday, December 11, 2000)]
[Rules and Regulations]
[Pages 77292-77302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31457]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM 2000-3B]


Public Performance of Sound Recordings: Definition of a Service

AGENCY: Copyright Office, Library of Congress.

ACTION: Final rule.

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SUMMARY: The Copyright Office is amending its regulatory definition of 
a ``Service'' for purposes of the statutory license governing the 
public performance of sound recordings by means of digital audio 
transmissions in order to clarify that transmissions of a broadcast 
signal over a digital communications network, such as the Internet, are 
not exempt from copyright liability under section 114(d)(1)(A) of the 
Copyright Act.

DATES: Effective December 11, 2000.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
Tanya M. Sandros, Senior Attorney, Copyright Arbitration Royalty Panel, 
P.O. Box 70977, Southwest Station, Washington, D.C. 20024. Telephone: 
(202) 707-8380. Telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION:

Procedural History

    On March 16, 2000, the Copyright Office published a notice of 
proposed rulemaking (``NPRM'') seeking comment on whether the 
transmission of an AM/FM radio broadcast signal over the Internet by 
the broadcaster that originates the AM/FM signal is exempt from 
copyright liability under the exemption to the digital performance 
right in sound recordings set forth in section 114 of the Copyright 
Act, title 17 of the United States Code. 65 FR 14227 (March 16, 2000). 
The Office initiated this rulemaking proceeding in response to a 
petition from the Recording Industry Association of America (``RIAA'').
    In its petition, RIAA asked the Office to adopt a rule ``clarifying 
that a broadcaster's transmission of its AM or FM radio station over 
the Internet . . . is not exempt from copyright liability under section 
114(d)(1)(A).'' RIAA also believes that ``until the Office rules, the 
parties will not agree on who qualifies for the Section 114 performance 
license.'' Petition at 7.
    The Office agreed with RIAA's observation and postponed the pending 
rate adjustment proceeding, the purpose of which is to set the rates 
and terms for the public performance of a sound recording by means of 
digital audio transmissions under the section 114 statutory license and 
to establish the rates and terms for the making of an ephemeral 
recording in accordance with the section 112 statutory license. See 63 
FR 65555 (November 27, 1998); 64 FR 52107 (September 7, 1999). The 
Office took this action because it recognized that the outcome of the 
rulemaking would have the effect of deciding whether the rates and 
terms set in that

[[Page 77293]]

proceeding would apply to broadcasters who stream their AM or FM radio 
stations over the Internet. 65 FR 14227 (March 16 , 2000).
    A finding that the section 114(d)(1)(A) exemption covered a digital 
transmission of an AM or FM radio station made by an FCC-licensed 
broadcaster, including transmissions made by the broadcaster over the 
Internet, would likely mean that broadcasters, who are currently 
parties to the rate adjustment proceeding, would withdraw from the 
proceeding since the rates and terms to be decided would not apply to 
any transmission made by an FCC-licensed broadcaster. This, in turn, 
would narrow the scope of the issues and evidence presented to the 
CARP.
    After the publication of the NPRM, the National Association of 
Broadcasters (``NAB'') filed an action in the U.S. District Court for 
the Southern District of New York on behalf of its members, asking for 
a declaratory judgment that nonsubscription simultaneous transmissions 
of radio broadcasts via the Internet by FCC-licensed broadcasters are 
exempt from the limited sound recording performance right. See National 
Ass'n of Broadcasters v. Recording Indus. Ass'n of Am., No. 00 Civ. 
2330 (S.D.N.Y., filed March 27, 2000). The NAB then moved to suspend 
the rulemaking proceeding, Docket No. RM 2000-3, until the Court had 
ruled in this case.
    Before making a decision on the merits of the motion to suspend, 
the Office published a second notice in which it requested comments on 
whether to grant the motion to suspend the rulemaking proceeding and 
await the decision of the U.S. District Court for the Southern District 
of New York. 65 FR 17840 (April 5, 2000).
    For the reasons set forth herein, the Copyright Office is denying 
the NAB's motion to suspend this rulemaking and is announcing a final 
rule to clarify that a transmission by an FCC-licensed broadcaster of 
its AM or FM radio broadcast over the Internet is not exempt from the 
limited public performance right for digital transmissions under 
section 114(d)(1)(A).

The Commenters

    In response to the NPRM, the Office received comments from the 
following commenters: BroadcastAmerica.com, Inc. 
(``BroadcastAmerica''); jointly, American Society of Composers, Authors 
and Publishers, Broadcast Music, Inc., and SESAC, Inc. (collectively, 
the ``Performing Rights Organizations''); Digital Media Association 
(``DiMA''); jointly, Balogh Broadcasting Company, Inc., Big Mack 
Broadcasting, Inc., Hall Communications, Inc., KSTP-AM, L.L.C., KSTP-
FM, L.L.C., LBJS Broadcasting Company, L.P., Lyle Broadcasting 
Corporation, M&M Broadcasters, Ltd., Rice Capital Broadcasting Inc., 
Twin Lakes Communications, Inc., Zimmer Broadcasting Company, Inc., 
Zimmer Communications, Inc., Zimmer Radio of Mid-Missouri, Inc., and 
ZRG of Illinois, Inc. (collectively, ``Broadcasters I''); jointly, 
AMFM, Inc., Bonneville International Corporation, CBS Corporation, 
Clear Channel Communications, Inc., Cox Radio, Inc., Emmis 
Communications Corporation, and National Association of Broadcasters 
(collectively, ``Broadcasters II''); State Broadcasters Associations 
(``State Broadcasters''); Criswell Center For Biblical Studies 
(``Criswell''); and jointly, The Recording Industry Association of 
America, Inc., Association for Independent Music, American Federation 
of Musicians, and American Federation of Television and Radio Artists 
(collectively, ``Copyright Owners''), including a separate memorandum, 
Copyright Liability of Broadcasters for Webcasting Their AM/FM Radio 
Signals, prepared by Robert Gorman (``Gorman'').
    Reply comments were filed by Entercom Communications Corp., and 
five of the eight commenters: the Copyright Owners; Broadcasters I; 
DiMA; State Broadcasters; and Broadcasters II.

The Copyright Office's Authority To Conduct This Rulemaking

    a. Authority to act. The Copyright Office stated in the NPRM that 
it initiated this proceeding under the rulemaking authority granted by 
17 U.S.C. 702, to ``interpret the statute in accordance with Congress'' 
intentions and framework and, where Congress is silent, to provide 
reasonable and permissible interpretations of the statute.'' 65 FR 
14227, citing 57 FR 3284, 3292 (January 29, 1992). Our authority to act 
is supported by Satellite Broadcasting and Communications Ass'n of Am. 
v. Oman, 17 F.3d 344 (11th Cir. 1994) (``SBCA''), and Cablevision Sys. 
Dev. Co. v. Motion Picture Ass'n of Am., Inc., 836 F.2d 599 (D.C. 
Cir.), cert. denied, 487 U.S. 1235 (1988) (``Cablevision''), where the 
Eleventh Circuit and the D.C. Circuit expressly acknowledged the 
Office's authority to provide reasonable interpretations of the cable 
statutory license. See, SBCA, 17 F.3d at 347 (``The Copyright Office is 
a federal agency with authority to promulgate rules concerning the 
meaning and application of section 111''); Cablevision, 836 F.2d at 
608-09(same). See also, DeSylva v. Ballentine, 351 U.S. 570, 577-78 
(1956)(recognizing that Copyright Office's interpretation of the 
Copyright Act should ordinarily receive deference).
    Most of the commenters do not challenge the Office's rulemaking 
authority in this proceeding. However, the Broadcasters suggest that 
the Office may be without authority to interpret the extent of the 
section 114(d)(1)(A) exemption. They argue that the interpretation of 
section 114(d)(1)(A) sought by RIAA in this proceeding--whether 
copyright liability does or does not attach to transmissions of radio 
stations over the Internet--is very different from previous rulemaking 
proceedings of the Office interpreting provisions of other compulsory 
licenses.
    Specifically, the Broadcasters submit that SBCA and Cablevision are 
poor precedent for supporting rulemaking authority in this case. In 
SBCA, the Office determined that satellite carriers were not eligible 
for the cable compulsory license for their retransmission of over-the-
air broadcast signals, thereby subjecting these retransmissions to 
copyright owners' exclusive rights. In Cablevision, the Office 
interpreted the meaning of the term ``gross receipts'' as it appeared 
in the section 111 cable compulsory license. According to the 
Broadcasters, the copyright liability of satellite carriers and cable 
systems was already established, and the Office was merely sorting out 
the terms of a compulsory license. In this proceeding, however, the 
Office is being called upon to decide whether any copyright liability 
exists at all for broadcasters who stream their radio signals over the 
Internet. If, according to the Broadcasters, there is no copyright 
liability for such activity because it is exempted by section 
114(d)(1)(A), then the Copyright Office has no jurisdiction over that 
activity because it does not implicate the copyright laws. The 
Broadcasters conclude that the Copyright Office does not have any 
authority to address the status of broadcaster transmissions of radio 
signals over the Internet until such time as a federal court decides 
the issue.
    If the Broadcasters' position is accepted, the Copyright Office's 
ability to administer section 114 of the Copyright Act will be 
frustrated. Section 114 treats the public performance of sound 
recordings by digital audio transmissions in one of three ways: the 
performance is either exempt from copyright liability, subject to 
copyright

[[Page 77294]]

owners' exclusive rights, or subject to statutory licensing. The 
Library of Congress and the Copyright Office are charged with 
conducting a copyright arbitration royalty panel (``CARP'') proceeding 
to set the rates and terms of the statutory license, and the Library 
has already begun the CARP process (and stayed its initiation pending 
the resolution of this rulemaking proceeding). Many broadcasters, and 
the NAB, have stayed out of the proceeding on the grounds that they 
qualify for the section 114(d)(1)(A) exemption. If these parties are 
not covered by the exemption (as the Office is determining today), they 
should be afforded the opportunity to participate in the CARP 
proceeding.\1\ CARP proceedings are adversarial in nature, making it 
critical that the interests of all affected copyright owners and users 
are represented in the proceeding so that the CARP has a full and 
complete evidentiary record on which to render its determination. 
Without such information, the CARP cannot render a complete and 
accurate decision, thereby compromising the efficiency of the section 
114 license.
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    \1\ Any broadcaster who wishes to participate and has not yet 
filed a notice of intention to do so in the pending proceeding 
should file such notice in accordance with the requirements set 
forth in a separate Federal Register notice addressing this issue.
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    Under the Broadcasters' approach, copyright users of sound 
recordings can effectively impede a CARP proceeding by claiming that 
their activities are not implicated by the proceeding until a federal 
court determines that they are. The Copyright Office would then be 
forced either to go forward with the CARP proceeding with an incomplete 
record, or to postpone the proceeding until after a ruling has been 
obtained from a federal court. If no ruling is obtained through private 
litigation, or conflicting decisions are handed down by the federal 
courts, the Library may not be able to have a CARP at all. The 
Copyright Office concludes that Congress intended no such result.
    Broadcasters distinguish the SBCA case by observing that the issue 
therein was whether a satellite carrier was a ``cable system'' for 
purposes of Section 111 compulsory licensing. In contrast, according to 
Broadcasters, the issue here is whether their ``particular conduct 
falls under the purview of the Copyright Act.'' Broadcasters II Reply, 
at 9-11. They argue that because the activities of the satellite 
carriers in SBCA related to ``particular conduct admittedly implicating 
copyright liability,'' the Office had the power to determine whether 
that conduct was within the scope of the cable compulsory license. But 
they contend that where the activity is exempt under a specific 
statutory provision, the conduct may not be considered further by the 
Office under its authority to promulgate regulations to administer a 
compulsory license, the scope of which, but for the exemption, would 
otherwise include such activity.
    The Office finds this distinction artificial and unpersuasive. 
Here, as in SBCA, the issue is whether a particular type of activity 
falls within the scope of a statutory compulsory license. The fact that 
Broadcasters claim to be exempt from the performance right for sound 
recordings does not deprive the Office of the ability to determine 
whether they are subject to the section 114 compulsory license. In 
order to determine whether broadcasters transmitting performances of 
their broadcast signals over the Internet are subject to the compulsory 
license, it is necessary to address their claim that they enjoy the 
exemption under section 114(d)(1)(A) when they engage in that activity. 
If they are exempt, then the inquiry proceeds no further. If they are 
not exempt, then there appears to be no dispute that their activity is 
subject to the section 114(f) compulsory license. Broadcasters cite 
absolutely no authority for the proposition that an agency may not 
determine whether conduct falls within a particular regulatory scheme 
administered by the agency when a claim of exemption is made by the 
party whose conduct is in question.\2\
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    \2\ We note as well that the Broadcasters' distinction does not 
dispositively adjudicate the substantive rights of copyright users. 
In both situations, a party aggrieved by a decision of the Office 
can seek judicial review. Satellite carriers disagreed with the 
Office's negative determination of their eligibility for the section 
111 license and brought the SBCA litigation. If broadcasters do not 
agree with the Office's determination in this proceeding, they 
likewise can seek judicial review.
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    In sum, the Copyright Office concludes that it does possess the 
authority to conduct this rulemaking, based on our responsibility to 
conduct a CARP proceeding to establish rates and terms for the section 
114 license, as provided in section 114 itself and chapter 8 of the 
Copyright Act, and the Office's general rulemaking authority granted by 
section 702 of the Act.
    b. Advisability of acting. Most of the comments address the 
advisability of the Copyright Office's undertaking of this rulemaking 
proceeding. Not surprisingly, those commenters representing 
broadcasters favor postponement or cancellation of this proceeding, 
pending the outcome of the NAB action in the Southern District of New 
York. For the reasons described below, the Office believes that it is 
appropriate to exercise its authority and resolve this rulemaking 
proceeding now.
    First, the Copyright Office disagrees with the assertion that a 
federal court is better suited at this point to determine whether 
broadcaster transmissions over the Internet are exempted by section 
114(d)(1)(A) of the Copyright Act. We do not question the competence or 
expertise of the United States District Court for the Southern District 
of New York to interpret the copyright laws, and ultimately this issue 
may be resolved by the courts following the Office's ruling. But in the 
first instance, where the law is complex and requires clarification, 
the general policy is to allow the agency to complete its action, 
particularly ``where the function of the agency and the particular 
decision sought to be reviewed involve exercise of discretionary powers 
granted the agency by Congress, or require application of special 
expertise.'' Miss America Organization v. Mattel, Inc., 945 F.2d 536, 
540 (2nd Cir. 1991), citing McKart v. United States, 395 U.S. 185 
(1969); see also, Cablevision, 836 F.2d at 608 (``The Copyright Office 
certainly has greater expertise in such matters than do the federal 
courts.'')
    Moreover, the Office has a long and extensive history of 
administering and interpreting the Copyright Act, especially the 
statutory licensing provisions of the Copyright Act. See, e.g., 49 FR 
13029 (April 2, 1984)(definition of gross receipts under section 111 
license); 57 FR 3284 (January 29, 1992)(definition of a cable system 
under section 111 license); 62 FR 18705 (April 17, 1997)(establishing 
filing regulations for SMATV systems under section 111). The Office 
also produced for Congress two studies on the advisability of adopting 
a performance right for sound recordings. Copyright Implications of 
Digital Audio Transmission Services: A Report of the Register of 
Copyrights (1991); Subcomm. on Courts, Civil Liberties, and the 
Administration of Justice of the Committee on the Judiciary House of 
Representatives, 95th Cong., Performance Right in Sound Recordings 
(Comm. Print 1978). And the Register of Copyrights testified before 
both the Senate and House of Representatives on the legislation that 
amended sections 106 and 114. See Digital Performance Right in Sound 
Recordings Act of 1995: Hearings on S. 227 Before the Senate Comm. On 
the Judiciary, 104th Cong., (March 9, 1995); Digital Performance Right 
in Sound Recordings Act of 1995: Hearings on H.R. 1506 Before the 
Subcomm. On Courts and Intellectual

[[Page 77295]]

Property of the House Comm. On the Judiciary, 104th Cong. (June 28, 
1995). Thus, we believe we are well-suited to interpret section 114, 
including the extent of the section 114(d)(1)(A) exemption.
    Second, not only have the commenters to the NPRM not cited any 
authority that the Copyright Office must defer to a federal court 
action, but they have not cited any cases where a government agency has 
deferred action to a federal court a matter before the agency. Goya 
Foods, Inc. v. Tropicana Prods, Inc., 846 F.2d 848 (2d Cir. 1988), and 
Nader v. Allegheny Airlines, Inc., 426 U.S. 290 (1976) are cited by the 
Broadcasters for the proposition that the matter of the section 
114(d)(1)(A) exemption ``lies within the traditional realm of judicial 
competence.'' Goya, 846 F.2d at 851. Neither of these cases, however, 
involved a government agency deferring judgment to a federal court on a 
matter clearly within the agency's jurisdiction. In fact, both cases 
involved just the opposite; a court's decision not to stay a judicial 
proceeding pending the resolution of an agency proceeding. There is 
not, therefore, any legal authority that compels or counsels the Office 
to stay this proceeding in deference to the court in New York.
    Third, there is a need to resolve the status of broadcast 
transmissions over the Internet for purposes of the CARP proceeding to 
establish rates and terms for the section 114 statutory license as 
quickly as possible. As discussed above, the success of a CARP 
proceeding depends upon a full and complete record. This means that all 
parties who are potentially subject to the section 114 license must be 
identified and given the opportunity to participate in the CARP 
proceeding. The NAB/RIAA litigation in the Southern District of New 
York may not be resolved for several years,\3\ which leaves the 
Copyright Office two undesirable choices: postpone the CARP until that 
litigation is resolved, or proceed with what we believe would be an 
insufficient record and receive an incomplete decision from the CARP. 
Neither of these choices is acceptable; therefore, the Office is now 
deciding whether the simultaneous transmission of an over-the-air radio 
broadcast transmission made by an FCC-licensed broadcaster over the 
Internet is exempt from the digital performance right.
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    \3\ At the time this Federal Register notice was prepared, 
RIAA's motion to dismiss NAB's claims was still pending in the 
court, and no further motions have been filed. It seems highly 
unlikely that the court will resolve the merits of the declaratory 
relief action in the near future.
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    Fourth, NAB has sought a declaratory judgment from the New York 
district court and is not currently being sued for copyright 
infringement. There is considerable question whether NAB has presented 
the district court with a live case and controversy, and the RIAA has 
sought dismissal of the case on jurisdictional grounds. If the suit is 
dismissed, there will be no opportunity for a court to interpret the 
meaning of the section 114(d)(1)(A) exemption, at least until such time 
as a copyright infringement action is brought against a broadcaster for 
transmitting over-the-air radio broadcasts on the Internet. The Office 
needs to act now to move the CARP proceeding forward.
    Finally, even if the New York district court rules, and the case is 
appealed through the Second Circuit, that is still not the final word 
from the federal court system. Other suits may be brought in other 
federal circuits, creating the potential for conflicting 
determinations. Thus, we believe it makes far greater sense for the 
Copyright Office to address the status of broadcast transmissions over 
the Internet and the section 114(d)(1)(A) exemption, given that it is 
the expert agency entrusted with the authority to interpret the meaning 
of the provisions of the Copyright Act.

Scope of the Section 114(d)(1)(A) Exemption

    In 1995, Congress enacted the Digital Performance Right in Sound 
Recordings Act (``DPRA''), Public Law 104-39, which created an 
exclusive right for copyright owners of sound recordings, subject to 
certain limitations, to perform sound recordings publicly by means of 
certain digital audio transmissions. Among the limitations on the 
performance right was the creation of a new compulsory license for 
nonexempt, noninteractive, digital subscription transmissions, 17 
U.S.C. 114(f), and an exemption for certain nonsubscription 
transmissions. 17 U.S.C. 114 (d)(1)(A)(i)-(iii) (1995).
    Congress passed the DPRA in response to the growth in the use of 
digital technology to provide recordings with superior sound quality 
(e.g., digital phonorecord deliveries) and the growth of digital 
transmission services that could offer a consumer a digital 
transmission of a particular sound recording on demand. Congress 
realized that these advancements offered new and better ways to 
distribute music to the consumer, but at the same time, it recognized 
that the current law was inadequate to protect the interests of the 
copyright owners whose livelihoods depend upon the revenues generated 
from the sales of their works. Thus, Congress created a limited 
performance right in sound recordings. S. Rep. No. 104-128, at 14 
(1995) (hereinafter ``1995 Senate Report'').
    In drafting the DPRA, Congress tried to balance the interests of 
the music industry,\4\ traditional users of sound recordings,\5\ and 
those who wished to utilize the new technologies to make transmissions 
of sound recordings. The expressed intent of Congress in passing the 
Act was ``to provide copyright holders of sound recordings with the 
ability to control the distribution of their product by digital 
transmissions, without hampering the arrival of new technologies, and 
without imposing new and unreasonable burdens on radio and television 
broadcasters, which often promote, and appear to pose no threat to, the 
distribution of sound recordings.'' 1995 Senate Report at 15. This 
change, however, was not meant to alter or upset in any way the 
longstanding relationship between the record industry and broadcasters. 
Broadcasters II at 15, citing 1995 Senate Report, at 9; accord H.R. 
Rep. No. 104-274, at 6 (1995) (hereinafter ``1995 House Report'').
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    \4\ ``[T]he legislation is a narrowly crafted response to one of 
the concerns expressed by representatives of the music community, 
namely 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.'' 1995 Senate Report at 15.
    \5\ Prior to the passage of the DPRA, FCC-licensed broadcasters, 
cable systems and satellite systems all transmitted or retransmitted 
sound recordings in their programming without incurring any 
copyright liability for the public performance of a sound recording. 
Congress, in acknowledging the promotional value to the record 
companies that flows to them through advertiser-supported, free 
over-the-air broadcasting, included specific exemptions in the law 
from the digital performance right for these users. See 17 U.S.C. 
114(d)(1)(A), (B) and (C).
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    To strike the proper balance between these parties, Congress 
created three exemptions for nonsubscription transmissions, including 
an express exemption for a nonsubscription broadcast transmission. 17 
U.S.C. 114(d)(1)(A)(i)-(iii)(1995). It is the scope of this exemption, 
which has been debated since the passage of the DPRA, see Reply 
Comments of the National Association of Broadcasters at 9-12 (dated 
June 20, 1997), submitted in Docket No. RM 97-1, that is the subject of 
this proceeding.
    Broadcasters take a broad view of the exemption. Their position is 
that any transmission made by an FCC-licensed broadcaster, whether made 
over-the-air or over the Internet, falls within the scope of the 
section 114(d)(1)(A) exemption. Not surprisingly, Copyright Owners and 
DiMA take a different view and interpret the scope of the exemption 
more narrowly. Their position is that a

[[Page 77296]]

transmission of a radio signal over the Internet, generally referred to 
as a webcast, is subject to the copyright owner's public performance 
right, even when the transmission is made by an FCC-licensed 
broadcaster and is identical to an over-the-air transmission. See 17 
U.S.C. 106(6). They further argue that Congress could not possibly have 
meant to exempt anything other than over-the-air broadcasts in the 
DPRA, because Congress had not even yet considered transmissions of 
sound recordings over the Internet and how they fit into the statutory 
scheme. This is a critical point, because the scope of the exemption 
did not change when Congress amended section 114 in 1998 with the 
passage of the DMCA.
    To resolve this question, we examine the legislative history of the 
DPRA and the DMCA to discern what Congress intended to do and when it 
intended to do it. From this examination, it is clear that in 1995, 
Congress' focus was not on Internet transmissions of sound recordings, 
but rather on the emerging interactive services, e.g., the pay-per-
listen, audio-on-demand, or ``dial-up'' services for a particular 
recording or artist, and the existing noninteractive subscription 
services that offered nearly continuous play of music through cable and 
satellite services. See 1995 Senate Report at 22.
    Consideration of Internet services came later once it became clear 
that the DPRA did not adequately address their operations. The House 
Manager's Report for the DMCA makes this point clearly:

    At the time the DPRSRA [Digital Performance Right in Sound 
Recordings Act] was crafted, Internet transmissions of music were 
not the focus of Congress' effort. Thus, while the DPRSRA created a 
statutory license for certain subscription services that existed at 
the time, not enough was known about how nonsubscription music 
services would evolve on the Internet or in other digital media. 
However, given the proliferation and evolution of such services as 
well as the licensing complexities described above, it is now 
appropriate to address the licensing of nonexempt nonsubscription 
digital audio transmissions.

    Staff of the House of Representatives Comm. on the Judiciary, 105th 
Cong., 2d Sess., Section-by-Section Analysis of H.R. 2281 as Passed by 
the United States House of Representatives on August 4, 1998 at 51 
(Comm. Print, Serial No. 6, 1998) (hereinafter ``House Manager's 
Report'').
    It was during the DMCA debate in 1998 that Congress focused on the 
need to clarify how the law applied to the transmission of a sound 
recording by a noninteractive, nonsubscription service streaming music 
over the Internet. These services, now known in the industry as 
webcasters, had argued that they, like the broadcasters, were non-
infringing users because noninteractive, nonsubscription transmissions 
were exempt under section 114(d)(1)(A)(i) (1995). The record industry 
did not agree, arguing that the transmissions were subject to the newly 
created digital performance right. DiMA at 4.
    Congress revisited the issue and, ultimately, amended sections 114 
and 112 to clarify ``that the digital sound recording performance right 
applies to nonsubscription digital audio services such as webcasting, 
addresses unique programming and other issues raised by Internet 
transmissions, and creates statutory licensing to ease the 
administrative and legal burdens of constructing efficient licensing 
systems.'' House Manager's Report at 50.
    These changes were part of the Digital Millennium Copyright Act of 
1998 (``DMCA''), Public Law 105-304, which among other things, amended 
section 114 by creating a new statutory license for nonexempt eligible 
nonsubscription transmissions (e.g., webcasting) and nonexempt 
transmissions by preexisting satellite digital audio radio services to 
perform sound recordings publicly in accordance with the terms and 
rates of the statutory license. 17 U.S.C. 114(f)(1998). The DMCA also 
amended section 114(d)(1)(A) to ``delete two exemptions that were 
either the cause of confusion as to the application of the DPRA to 
certain nonsubscription services (especially webcasters) or which 
overlapped with other exemptions (such as the exemption in subsection 
(A)(iii) for nonsubscription broadcast transmissions). The deletion of 
these two exemptions [was] not intended to affect the exemption for 
nonsubscription broadcast transmissions.'' 1998 House Report at 80.
    The question, however, is what constitutes a nonsubscription 
broadcast transmission for purposes of the DPRA, since its meaning 
remained unchanged when Congress amended section 114 in 1998. Both 
Copyright Owners and DiMA maintain that a ``nonsubscription broadcast 
transmission'' is nothing more than a traditional over-the-air 
broadcast made by an FCC-licensed broadcaster. Broadcasters disagree 
and argue that the definition of a ``broadcast transmission'' for 
purposes of the section 114 license is not so limited, but includes all 
transmissions of an AM or FM radio signal, even those over the 
Internet, if made by the FCC-licensed broadcaster.
    In answering this question, Broadcasters and Copyright Owners each 
argue that the statutory language and licensing scheme, the legislative 
histories of the DPRA and the DMCA, and public policy considerations 
support its respective position.

Statutory Language and Legislative History

    a. Statutory definitions. The DPRA established three exemptions 
from the digital performance right for certain nonsubscription 
transmissions, including an express exemption for a ``nonsubscription 
broadcast transmission.'' It read, in relevant part, as follows:

    (1) Exempt Transmissions and Retransmissions.--The performance 
of a sound recording publicly by means of a digital audio 
transmission, other than as a part of an interactive service, is not 
an infringement of section 106(6) if the performance is part of--
    (A)(iii) a nonsubscription broadcast transmission.

17 U.S.C. 114(d)(1)(A)(iii) (1995).

    Broadcasters assert that the statutory language is clear and 
unambiguous on its face and that where this is so, one need not resort 
to the legislative history to discern the meaning of the statutory 
terms. Broadcasters I at 7; Broadcasters II at 18. Broadcasters II also 
rely on the well-established proposition that where a term is defined 
by the statute, an agency and the courts are constrained to adhere to 
this definition when interpreting the provisions of the act, citing Fox 
v. Standard Oil, 294 U.S. 87, 95-96 (1935).
    Using these principles, the Broadcasters analyze the statutory 
definitions of the relevant terms set forth in section 114(j) to 
determine whether a webcast of an AM/FM radio station's programming is 
exempt. These terms were defined in the DPRA as follows:

    A ``broadcast'' transmission is a transmission made by a 
terrestrial broadcast station licensed as such by the Federal 
Communications Commission.

17 U.S.C. 114(j)(2) (1995).
    A ``digital audio transmission'' is a digital transmission as 
defined in section 101, that embodies the transmission of a sound 
recording. This term does not include the transmission of any 
audiovisual work.

17 U.S.C. 114(j)(3)( (1995).
    A ``nonsubscription'' transmission is any transmission that is 
not a subscription transmission.

17 U.S.C. 114(j)(5) (1995)

A ``transmission'' includes both an initial transmission and a 
retransmission.

    17 U.S.C. 114(j)(9) (1995).\6\

    \6\ The definition ``transmission'' was amended in the DMCA. It 
now reads: ``A `transmission' is either an initial transmission or a 
retransmission.'' 17 U.S.C. 114(j)(15) (1998).

---------------------------------------------------------------------------

[[Page 77297]]

All commenters agree that the statutory definitions for a 
``transmission,'' a ``digital audio transmission,'' and a 
``nonsubscription transmission'' are clear and that the transmissions 
in dispute qualify as nonsubscription, non-interactive, digital audio 
transmissions for purposes of the DPRA. See Broadcasters II at 20; 
Gorman at 28 n.89. The dispute lies with the definition of a 
``broadcast transmission.''
Broadcasters argue that the pivotal element in the definition is the 
designation of the nature of the entity making the transmission--not 
the method of the transmission. In other words, the fact that an FCC-
licensed broadcast station makes the transmission is dispositive. Thus, 
Broadcasters reason that any transmission made by a terrestrial 
broadcast station licensed by the FCC, whether disseminated over-the-
air or transmitted over the Internet, fits the statutory definition of 
a ``nonsubscription broadcast transmission'' and therefore, is 
expressly exempt under the section 114(d)(1)(A)(iii) (1995) exemption 
and remains exempt under the current section 114(d)(1)(A) (1998) 
provision. Broadcasters I Reply at 6; Broadcasters II Reply at 17. 
Furthermore, they contend that transmissions made by FCC-licensed 
broadcasters ``do, in fact, comply with FCC content requirements to 
promote the public interest and serve the local community.'' 
Broadcasters II Reply at 17.
    In creating a safe harbor for radio broadcasts, Congress identified 
key factors that ``place[d] such programming beyond the concerns that 
animated the creation of the limited public performance right in sound 
recordings in Section 106(6). Specifically, radio programs that (1) are 
available without subscription; (2) do not rely upon interactive 
delivery; (3) provide a mix of entertainment and non-entertainment 
programming and other public interest activities to local communities 
to fulfill FCC licensing conditions; (4) promote, rather than replace, 
record sales; and (5) do not constitute ``multichannel offerings of 
various music formats.'''' Broadcasters II at 26-27 (footnote omitted), 
citing 1995 Senate Report at 15. Broadcasters argue that these 
characteristics apply equally to the transmission of a local radio 
broadcast signal whether transmitted over-the-air or streamed via the 
Internet; and consequently, all transmissions of radio broadcasts 
should be exempt without regard to the method of transmission.
Copyright Owners and DiMA disagree with the Broadcasters' approach. 
They argue that the exemption for a ``nonsubscription broadcast 
transmission'' was adopted in order to shelter broadcasters from the 
new digital performance right, if and when they converted their over-
the-air signals from an analog to a digital format. Gorman at 9; DiMA 
at 3. In direct opposition to the Broadcasters' approach, Copyright 
Owners focus on how the word ``terrestrial'' and the phrase ``licensed 
as such by the FCC'' are used in the definition of a ``broadcast 
station.'' See also, DiMA Reply at 2.
They contend that use of the word ``terrestrial'' limits the exemption 
to over-the-air transmissions made by a broadcast station and, thus, by 
implication, excludes from the exemption any nationwide transmissions 
by radio stations that broadcast via satellite. Gorman at 29. They 
point out numerous citations in the legislative history which make it 
abundantly clear that Congress meant to protect traditional over-the-
air broadcast transmissions. For example,
    The sale of many sound recordings and the careers of many 
performers have benefitted considerably from airplay and other 
promotional activities provided by both noncommercial and 
advertiser-supported, free over-the-air broadcasting. * * * H.R. 
1506 does not change or jeopardize the mutually beneficial economic 
relationship between the recording and traditional broadcasting 
industries.

1995 House Report, at 13 (emphasis added).

    [F]ree over-the-air broadcasts are available without 
subscription, do not rely on interactive delivery, and provide a mix 
of entertainment and non-entertainment programming and other public 
interest activities to local communities to fulfill a condition of 
the broadcasters' license. The Committee has considered these 
factors in concluding not to include free over-the-air broadcast 
services in the legislation.

Id. (emphasis added).

    The classic example of such an exempt transmission is a 
transmission to the general public by a free over-the-air broadcast 
station, such as a traditional radio or television station, and the 
Committee intends that such transmissions be exempt regardless of 
whether they are in a digital or nondigital format, in whole or in 
part.

1995 Senate Report at 19 (emphasis added).

    They also argue that use of the phrase ``licensed as such by the 
FCC'' ``reflects Congressional intent to limit the scope of the 
exemption to those activities for which a broadcast station needs an 
FCC license.'' Gorman at 29 (footnote omitted). The focus here is on 
the nature of the transmission and not the characterization of the 
entity making the transmission. From this perspective, the only 
transmissions which are exempt under section 114(d)(1)(A) are those 
made by an FCC-licensed broadcaster under the terms of its license. In 
general, such transmissions are over-the-air transmissions made within 
the broadcaster's local service area. Webcasts of AM/FM radio signals 
are not so limited and, therefore, do not fit the statutory definition 
of a ``broadcast'' transmission for purposes of the DPRA. Id. at 29-30; 
see also DiMA Reply at 2.
    Copyright Owners acknowledge that their interpretation of the 
exemption is narrower than the Broadcasters' but argue that the 
exemption for ``broadcast transmissions'' must be construed in this 
manner because the statute provides a complete exemption from the 
digital performance right in sound recordings. In making this argument, 
they rely upon the general rule of statutory construction that 
exemptions must be construed narrowly, ``and any doubt must be resolved 
against the one asserting the exemption,'' in order to preserve the 
purpose of the provision. Tasini v. New York Times Co., 206 F.3d 161, 
168 (2nd Cir. 2000). Specifically, they argue that a narrow 
interpretation of the exemption is particularly warranted in this 
context ``where denying the exemption would still leave AM/FM Webcasts 
eligible for a statutory license (rather than subjecting them to full 
copyright liability).'' Gorman at 19.
    Broadcasters dispute Copyright Owners' contention that it is 
appropriate to read the exemption for broadcast transmission so 
narrowly. They claim that Copyright Owners ignore Congress' intent to 
construe the digital performance right narrowly and limit the right 
only to certain digital transmissions of sound recordings. Broadcasters 
II Reply at 24-25. Broadcasters argue further that it is inconceivable 
that after refusing for decades to grant copyright owners of sound 
recordings a sound recording performance right, Congress ``intended to 
sweep within a newly-created and narrowly-circumscribed performance 
right broadcaster transmissions over the Internet of their broadcast 
programming.'' Broadcasters II Reply at 21 (emphasis omitted).
    Historically, the Copyright Office construes limitations on 
copyright narrowly, especially those rights constrained by a compulsory 
license. See 49 FR 14944, 14950 (April 16, 1984) and 57 FR 3284, 3293 
(January 29, 1992). This tenet is fully consistent with the rules of 
statutory construction which require ``[s]tatutes granting exemptions 
from their general operation [to] be strictly construed, and any doubt 
must be resolved against the one asserting the exemption.'' See 73 Am. 
Jur. 2d 313 (1991); Tasini, supra.

[[Page 77298]]

    Broadcasters argue that this precept favors their interpretation, 
asserting that the newly created digital performance right was narrowly 
crafted and not meant to disturb the traditional broadcasting system in 
place at the time the DPRA was passed. But once created, the right is 
to be defined by reference to the statute, and there is no reason to 
depart from the general rule that the exemption to the right must be 
narrowly construed. The key to determining the scope of the exemption 
is an understanding of the meaning of the term ``broadcast 
transmission.''
    As previously discussed, Broadcasters assert that the exemption 
from the digital performance rights applies not only to traditional 
over-the-air broadcast transmissions, but also to transmissions of 
these signals over the Internet. The Broadcasters interpret the 
exemption in the broadest possible manner based upon their reading of 
the statutory definition for a ``broadcast transmission'' which defines 
the transmission solely on the basis that it was made by an FCC-
licensed broadcaster. They argue that the language is clear and 
unambiguous and so the analysis ends here.
    The Copyright Office does not agree. The use of the descriptive 
phrase ``terrestrial broadcast station licensed as such by the Federal 
Communications Commission'' involves much more than the mere 
designation of a particular entity. In fact, as the Copyright Owners 
argue, Congress appears to have chosen these words not only as a 
convenient way in which to identify the entity entitled to make a 
broadcast transmission, but also as a way to circumscribe which actions 
the entity may legally undertake within the scope of the section 114 
exemption. Even if the Broadcasters' reading of the definition is a 
plausible one, the Copyright Owners' more limited interpretation, 
seconded by DiMA, is at least equally plausible. For this reason, the 
Office turns to the relevant legislative history in order to understand 
how Congress intended the law to operate.
    Turning to the legislative history is appropriate where, as here, 
the precise meaning is not apparent and a clear understanding of what 
Congress meant is crucial to an accurate determination of how Congress 
intended the digital performance right and the statutory scheme to 
operate. See also, 57 FR 3284, 3293 (1992). Consequently, we place 
great weight on the passages in the 1995 House and Senate Reports which 
discuss and characterize broadcast transmissions.
    As noted above, Congress used the descriptive term ``over-the-air'' 
frequently to identify those broadcasts it sought to protect under the 
exemption. Such transmissions are made in accordance with the terms of 
the FCC license issued to the broadcaster. If Congress had discussed or 
referenced any other type of transmission made by an FCC-licensed 
broadcaster, we might be more inclined to support the Broadcasters' 
interpretation of the statutory definition. This is not the case, and 
the Office concludes that Congress used the phrase ``licensed as such'' 
to serve two purposes. First, it identifies the entity entitled to make 
a broadcast transmission under an exemption to the digital performance 
right; and second, it specifies which transmissions made by the 
broadcaster are exempt, that is, those transmissions made over-the-air 
by the broadcasting entity under the terms of the FCC license.
    b. Additional exemptions. Copyright Owners do not limit their 
analysis of the statutory language to the statutory exemption under 
consideration. This is only their starting point. They continue their 
analysis of section 114 under a second well-established rule of 
statutory construction which requires interpretation of each provision 
in a section in such a way as to produce a harmonious whole. 2A 
Sutherland, Stat. Const.Sec. 46.05 (6th ed. 2000); see also 57 FR 3284, 
3292 (1992).
    Of particular interest are the exemptions for a ``retransmission of 
a radio station's broadcast transmission'' set forth in sections 
114(d)(1)(B) and (C) (1995). Section 114(d)(1)(B) restricts 
retransmissions to a 150-mile radius from the site of the radio 
broadcast transmitter, to the local communities served by the 
retransmitter, and those carried by a cable system or a noncommercial 
educational broadcast station. Similarly, section 114(d)(1)(C) exempts 
certain incidental transmissions, transmissions to and within business 
establishments, and those retransmissions made to deliver licensed 
programming to the user.
    Copyright Owners argue that these provisions merely reflect 
congressional intent to grandfather existing retransmission services at 
the time of the passage of the DPRA. Gorman at 10; DiMA Reply at 2-3; 
see also, 1995 Senate Report at 22 (noting that a retransmission over 
the Internet which is being used to facilitate an exempt transmission 
or retransmission, would not qualify as an ``incidental'' 
retransmission under section 114(d)(1)(C)(1)).
    Similarly, DiMA argues that Congress never intended to exempt 
broadcast retransmissions via the Internet; otherwise it would have 
enlarged these exemptions when it passed the DMCA, which it chose not 
to do. See DiMA at 5. In addition, DiMA argues that Congress would not 
have limited the exemption for a ``retransmission'' of a ``broadcast 
transmission'' by differentiating between radio transmissions made by 
terrestrial and non-terrestrial broadcast technologies, if it was 
content with exempting any transmission made by an FCC-licensed 
broadcaster. DiMA Reply at 2. Copyright Owners concur with DiMA on this 
point. In addition, they argue that the definition of an ``eligible 
nonsubscription transmission'' supports this interpretation because it 
includes retransmissions of broadcast signals. Had Congress meant to 
exempt any and all transmissions of a broadcast signal, it would not 
have included this wording in the definition of an ``eligible 
nonsubscription transmission,'' the newly created class of 
transmissions subject to the statutory license. DiMA Reply at 3.
    Broadcasters counter the Copyright Owners' interpretation in regard 
to these exemptions, noting an exception to the 150-mile limitation for 
nonsubscription retransmissions by ``a terrestrial broadcast station.'' 
They also suggest that the limitations on retransmissions were directed 
only to those made by third parties, and not to a simultaneous 
transmission made directly by the FCC-licensed broadcaster. 
Broadcasters II Reply at 25. In addition, Broadcasters stress that a 
transmission of a radio program, even via the Internet, serves the 
needs and interests of the local community as required under the FCC 
license. For these reasons, Broadcasters argue that Congress created a 
specific exemption for certain retransmissions of nonsubscription radio 
broadcast transmissions, including those that are transmitted ``by a 
terrestrial broadcast station, terrestrial translator, or terrestrial 
repeater licensed by the Federal Communications Commission.''
    While it is clear that a broadcast transmission is exempt, it is 
equally clear that a retransmission of a radio signal (though 
technically a transmission) \7\ is exempt only under certain 
circumstances. This fact alone undermines the Broadcasters' assertion 
that any transmission made by an FCC-licensed broadcaster is 
immediately and totally exempt. In addition, their

[[Page 77299]]

specific arguments on this point do not withstand scrutiny.
---------------------------------------------------------------------------

    \7\ A ``transmission'' is either an initial transmission or a 
retransmission. 17 U.S.C. 114(j)(15).
---------------------------------------------------------------------------

    First, the exception to the 150-mile limitation is only for 
retransmissions made by ``a terrestrial broadcast station, terrestrial 
translator, or terrestrial repeater licensed by the Federal 
Communications Commission.'' 17 U.S.C. 114(d)(1)(B)(i)(I). Again, the 
fact that the entity making the retransmission must be licensed by the 
FCC sets limits on how far each retransmission can reach. In no case, 
however, could these retransmissions parallel the reach of the Internet 
or a retransmission made by a satellite. Second, the suggestion that 
the retransmissions discussed in section 114(d)(1)(B) refer only to 
those made by third parties and not to simultaneous retransmissions 
made by the originating broadcaster is groundless. There is no such 
distinction set forth in the statute. And finally, we see no 
significance to the fact that the retransmission of a radio signal may 
meet the license requirements for service to a local community, when in 
fact such a transmission exceeds the geographical limits established 
for the broadcast under the FCC license.
    c. Expansion of the statutory license. Copyright Owners and DiMA 
contend that the original licensing scheme was conceived without any 
significant thought to the transmission of sound recordings by means 
other than the conventional over-the-air transmissions in use at the 
time. Copyright Owners at 12-13; DiMA at 4; See also House Manager's 
Report at 51. This became an obvious problem with the growth of the 
Internet and the rapid increase in the use of the new streaming 
technology to transmit sound recordings over the Internet.\8\
---------------------------------------------------------------------------

    \8\ In fact, streaming was a novel and little recognized--much 
less used--technology in 1995. According to one radio analyst cited 
by DiMA, the number of worldwide radio broadcasts over the Internet 
has grown from a meager 56 stations in 1995 to more than 3500 today. 
DiMA Rely at 4 n.10.
---------------------------------------------------------------------------

    Copyright Owners contend that, in order to address this problem, 
Congress made a significant change to section 114 when it passed the 
DMCA. For example, it amended section 114(d)(2) to extend the statutory 
license to ``eligible nonsubscription transmissions'' and defined the 
term to include retransmissions of broadcast transmissions. 17 U.S.C. 
114(j)(6). Copyright Owners argue that these changes support its 
position that the statutory scheme militates against exempting 
transmissions of AM/FM radio signals over the Internet.
    First, they note that when Congress expanded the statutory license, 
it specifically considered the needs of the emerging services that 
wanted to stream sound recordings over the Internet. See 1998 House 
Report at 80, 82 and 84. They then claim that Congress never ``intended 
to single out any class of webcasters for special treatment, or for 
some webcasters to be exempt and others to be liable.'' Gorman at 24. 
Instead, they argue that Congress amended the DPRA to make all 
webcasters, including those who are also FCC-licensed broadcasters, 
eligible for the statutory license.
    In addition, they note that in the case where the transmitting 
entity does not have the right or ability to control the programming of 
the broadcast station, special terms apply. Congress made these 
transmissions subject to the compulsory license but chose not to make 
these transmissions immediately subject to certain restrictions 
otherwise applicable to a nonexempt, nonsubscription transmission, 
except in the case where the broadcast station regularly violates the 
restriction and the copyright owners give notice to the service making 
the retransmission. See 17 U.S.C. 114(d)(2)(C)(i)-(iii), (ix).
    Copyright Owners argue that ``[t]his language implies that where 
the transmitter can control the content of the signal, [it] must meet 
the conditions of the statutory license. Because the content of AM/FM 
signals can be controlled by the broadcaster, this suggests that 
Congress intended broadcast transmissions to be subject to the 
statutory license.'' Gorman at 25-26 (footnotes omitted). Otherwise, as 
DiMA points out, ``why would Congress have imposed licensing and 
`notice and takedown' requirements on third parties that retransmit 
radio broadcasts, if the broadcaster itself could transmit the same 
programming over the Internet without a license and without 
restriction?'' DiMA Reply at 4 (footnote omitted).
    The Copyright Office believes that the narrowly drawn safe harbors 
for retransmissions of radio signals illustrate Congressional intent to 
distinguish between a traditional over-the-air broadcast transmission 
of an AM/FM radio signal and a retransmission of that signal. Even 
though the statutory definition of a transmission includes both an 
initial transmission and a retransmission, Congress clearly chose to 
treat retransmissions of a radio signal differently. ``Retransmissions 
of radio station broadcast transmissions * * * are exempt only if they 
are not part of an interactive service and fall within certain 
specified categories.'' 1995 Senate Report at 19 (emphasis added). 
These restrictions limit the reach of a retransmission of an AM/FM 
radio signal and neither suggest nor allow for retransmission of an AM/
FM radio signal to a national audience. Had Congress meant to exempt 
without limitation a further broadcast of a radio station's signal 
beyond the limits prescribed by its FCC license, it would not have 
restricted its retransmissions beyond the 150-mile limit to only those 
entities who make such transmissions under the terms of an FCC license, 
or limited subsequent retransmissions to the reach of a terrestrial 
broadcast station, terrestrial translator, or terrestrial repeater. 17 
U.S.C. 114(d)(B)(i).
    d. Ephemeral recordings. The DMCA amended section 112 to adjust for 
changes Congress made to section 114. Copyright Owners argue that 
Congress amended section 112(a) to make clear that a broadcast radio or 
televison station, licensed as such by the FCC, may make a single 
ephemeral copy of a sound recording in furtherance of its transmissions 
within its local service area even when those transmissions are made in 
a digital format. For purposes of section 112(a)(1), the term ``local 
service area'' is used as defined in section 111(f) of the Copyright 
Act. See, H.R. Rep. No. 94-1476, at 103 (1976). This provision limits 
the geographic reach of the signal and makes clear that it is not 
subject to worldwide distribution. In addition, Congress created a 
second statutory license in order to give those entities eligible for a 
section 114 statutory license and those exempt under section 
114(d)(1)(C)(iv) \9\ the right to make one or more ephemeral recordings 
to facilitate their transmissions under the section 112 statutory 
license. See 17 U.S.C. 112(e).
---------------------------------------------------------------------------

    \9\ Section 114(d)(1)(C)(iv) provides that:
    The performance of a sound recording publicly by means of a 
digital audio transmission, other than as a part of an interactive 
service, is not an infringement of section 106(6) if the performance 
is part of--
    (C) a transmission that comes within [] the following 
categor[y]--
    (iv) a transmission to a business establishment for use in the 
ordinary course of its business: Provided, That the business 
recipient does not retransmit the transmission outside of its 
premises or the immediately surrounding vicinity, and that the 
transmission does not exceed the sound recording complement. 17 
U.S.C. 114(d)(1)(C)(iv).
---------------------------------------------------------------------------

    Under the Copyright Owners' construction of the section 112 
amendments, a broadcaster would be unable to make ephemeral recordings 
under the exemption set forth in section 112(a)(1) for the purpose of 
streaming its radio signal because the transmission could not be 
limited to the station's ``local service area.'' Likewise,

[[Page 77300]]

broadcasters would be ineligible for the section 112(e) statutory 
license if AM/FM radio transmissions are exempt, since only a 
transmitting organization entitled to make transmissions under the 
section 114 license or the section 114(d)(1)(C)(iv) business exemption 
can make ephemeral recordings under the statutory license. Because 
Congress' intent was not to prevent broadcasters from making ephemeral 
recordings, Copyright Owners believe the only plausible construction of 
the statute requires the exemption for a ``nonsubscription broadcast 
transmission'' to exclude AM/FM webcasts. Gorman at 27.
    Broadcasters offer a different interpretation of the effect of the 
new amendments. They contend they are eligible to make an ephemeral 
recording under section 112(a) because the ``local service area'' for a 
transmission over the Internet is global in scope. Broadcasters II 
Reply at 26. DiMA agrees with the Broadcasters on this point, citing 
the Conference Report to the DMCA:

    The addition to section 112(a) of a reference to section 114(f) 
is intended to make clear that subscription music services, 
webcasters, satellite digital audio radio services and others with 
statutory licenses for the performance of sound recordings under 
section 114(f) are entitled to the benefits of section 112(a) with 
respect to the sound recordings they transmit.

1998 House Report at 79. DiMA notes that each of the listed services 
has a ``local service area'' that extends beyond the traditional local 
community served by a terrestrial radio station and is either 
``inherently national or global in scope.'' DiMA at 7.
    Fortunately, the Copyright Office need not reach the question 
concerning the scope of the ``local service area'' for an Internet-
originated program to resolve the question as it affects this 
proceeding, since it is the ``local service area'' of the FCC-licensed 
broadcaster that is relevant. The change to section 112(a) was made 
``to extend explicitly to broadcasters the same privilege they already 
enjoy with respect to analog broadcasts.'' 1998 House Report at 78. The 
``local service area'' of a broadcaster is defined by the terms of the 
FCC license under which it operates. The fact that an FCC-licensed 
broadcaster may choose to transmit its signal simultaneously over the 
Internet does not, by virtue of this action, enhance the ``local 
service area'' associated with the initial broadcast of the radio 
signal. To do otherwise would mean that the broadcasting area for a 
particular radio signal as defined by the terms of an FCC license would 
be totally meaningless, since the simultaneous transmission of a radio 
signal over the Internet makes the transmission instantly available 
anywhere in the world.
    Consequently, we agree with the Copyright Owners that section 
112(a) provides an exemption for making an ephemeral recording to a 
broadcaster who is transmitting its signal over-the-air in a digital 
format. It does not allow for the making of an ephemeral recording for 
the purpose of streaming that same signal over the Internet unless the 
transmission is made under the statutory license set forth in section 
114. This interpretation is consistent with our analysis of the 
exemption for a broadcast transmission.

Policy Considerations

    Industry analysts have questioned whether it would have been 
logical for Congress to craft a statutory licensing scheme which 
subjects a third party that licenses a radio station signal for 
streaming purposes to the statutory licensing provisions when the radio 
station itself could perform the same operation without any 
restrictions or restraints under a general exemption. See David J. 
Wittenstein & M. Larrane Ford, The Webcasting Wars, 2 J. Internet. L. 
1,8 (1998); M. Powers, Broadcasters Sue Recording Industry; http://radio.about.com/entertainment/radio/library/weekly/aa/33000b.htm) 
(March 30, 2000).
    Copyright Owners have asked the same question and conclude that it 
would be illogical to allow broadcasters to stream their AM/FM radio 
signal under an exemption but impose copyright liability on a third 
party when it retransmits the identical programming. Furthermore, they 
argue that ``[t]here is certainly nothing in the DPRA or DMCA to 
suggest that the right of a sound recording copyright owner to 
compensation should turn on whether the same transmission is made by 
the broadcaster or the broadcaster's agent.'' Gorman at 23; see also 
Wittenstein & Ford, supra at 8.
    More importantly, however, DiMA argues that by allowing 
broadcasters to stream their programming over the Internet, 
broadcasters get a free pass to engage in the very activity that 
compelled Congress to pass the DPRA. For example, the law forbids an 
online service, subject to the statutory license, from playing multiple 
selections by the same recording artist during any three-hour period. 
DiMA states that should broadcasters be allowed to stream their 
programming over the Internet under the section 114(d)(1)(A) exemption, 
they could ignore the very program restrictions put into place to 
thwart unauthorized copying with impunity and gain market share--and a 
competitive advantage over non-broadcasting webcasters--by virtue of 
these practices. DiMA at 6; DiMA Reply at 4.
    On the other hand, Broadcasters contend that it would be absurd to 
embrace the Webcasters and Copyright Owners' interpretation of the 
statute because it would mean that radio broadcasters would have to 
alter radically their programming practices in order to fit the 
requirements of the statutory license, negotiate voluntary licenses to 
do what they already do over-the-air, or cease streaming activities 
altogether. Broadcasters II at 13; Broadcasters II Reply at 28. They 
argue that such a harsh reading of the statute flies in the face of the 
stated intent of the DPRA because it would alter dramatically the 
longstanding relationship between the record industry and the 
broadcasters that Congress meant to preserve; a relationship which 
historically has had a beneficial and a promotional effect on the sale 
of records. Broadcasters I Reply at 11. Therefore, Broadcasters 
maintain that all streamed broadcasts of AM/FM radio signals made by an 
FCC-licensed broadcaster, whether over-the-air or via the Internet, 
fall within the safe harbor created in the section 114(d)(1)(A) 
exemption.
    Broadcasters also assert that the acknowledged benefits that flow 
from the longstanding relationship between the record industry and 
broadcasters are not lost because a radio program is streamed over the 
Internet. ``If radio broadcasts are beneficial to the record industry 
on a local scale due to the public exposure afforded sound recordings 
from their airplay, that same broadcasting activity is all the more 
beneficial to the record industry on a national or global scale due to 
the even greater public exposure (leading to increased record sales) 
that those recordings will receive.'' Broadcasters II Reply at 32 
(emphasis omitted).
    DiMA disagrees. It argues that a broadcaster would receive the 
greater benefit if allowed to transmit its radio signal over the 
Internet under the section 114(a) exemption because webcasts create an 
additional revenue stream for a broadcaster apart from the advertising 
revenues that flow from the traditional over-the-air broadcast. Since 
all services competing in the Internet market compete for the same 
audience share and advertising dollars, DiMA argues that they should do 
business on the same basis and be subject to the same licensing 
requirements. Broadcasters counter this argument by focusing on the 
restrictions placed on

[[Page 77301]]

the type of advertising that broadcasters are allowed to do under their 
license, e.g., restrictions on tobacco advertising and on promotions 
and contests, and the costs incurred in meeting their obligations to 
serve the needs of their communities. State Broadcasters Reply at 4. In 
fact, broadcasters argue that they will be at a competitive 
disadvantage if they cannot transmit sound recordings over the Internet 
under an exemption and, instead, are subject to potentially prohibitive 
license fees. Id. at 5.
    Interestingly, Broadcasters rely on the fact that the programming 
on a transmission of an AM/FM radio signal over the Internet is 
identical to the programming transmitted on an over-the-air broadcast 
to support their position that these signals are, in both instances, 
exempt. They contend that Congress exempted broadcast transmissions 
because they ``comply with FCC content requirements to promote the 
public interest and serve the local community.'' Broadcasters II Reply 
at 17, 22. In addition, they argue that much of the value of the 
Internet transmission comes from the ability to retain listener 
loyalty, both those within the local community served by the over-the-
air transmission and those ``who are traveling away from their home 
listening areas.'' Broadcasters I Reply at 3. Broadcasters also 
distinguish radio broadcast streams from Internet-originated programs 
on the basis that the radio stations generally program only a single 
channel, unlike the multiple channels of music programming offered by 
Internet-only services. Broadcasters II Reply at 27 n.14.
    Yet, this distinction does not explain why a broadcaster licensed 
by the FCC can freely stream its radio programming over the Internet, 
but a third-party licensee of its content is subject to the statutory 
license. Both transmitting entities are providing exactly the same 
programming which must comply with FCC restrictions and serve the local 
communities. To resolve this apparent paradox, we believe that Congress 
defined discrete categories of transmissions (rather than 
transmitters), then evaluated the potential for displacement of record 
sales on the basis of the characteristics of those transmissions and 
applied the statutory restrictions and exemptions accordingly.
    Using this approach, the Office has determined that the section 
114(d)(1)(A) exemption does not cover transmissions of an AM/FM radio 
signal over the Internet. This conclusion is apparent when one 
considers that under the Broadcasters' entity-based interpretation, a 
broadcaster that created an Internet-only service indistinguishable 
from the services offered by non-broadcaster webcasters would be exempt 
from the digital public performance right, even though its 
transmissions are never part of an over-the-air broadcast. In fact, 
under the Broadcasters' interpretation, a broadcaster could cease 
broadcasting altogether, but continue to enjoy the exemption so long as 
it held the FCC license.
    When Congress crafted the DPRA, it intended that the law would 
accommodate foreseeable technological changes and drafted the bill 
accordingly. At the same time, Congress understood that it could not 
predict how technology would develop or how it would alter the ways in 
which sound recordings were performed or distributed. Nevertheless, its 
intent was clear: ``[I]t is the Committee's intention that both the 
rights and the exemptions and limitations created by the bill be 
interpreted in order to achieve their intended purposes.'' 1995 Senate 
Report at 14.
    The purpose for enacting the DPRA was two-fold: ``first, * * * to 
ensure that recording artists and recording companies will be protected 
as new technologies affect the ways in which their creative works are 
used; and second, to create fair and efficient licensing mechanisms 
that address the complex issues facing copyright owners and copyright 
users as a result of the rapid growth of digital audio services.'' 
House Manager's Report at 49.
    The Copyright Office's determination to read the statutory 
definition of a ``broadcast transmission'' as including only over-the-
air transmissions made by an FCC-licensed broadcaster under the terms 
of that license is consistent with Congress' intent in passing the 
DPRA. This approach preserves the traditional relationship between the 
record companies and the radio broadcasters as it existed in 1995. In 
effect, it allows for the continued transmission of an over-the-air 
radio broadcast signal without regard to whether the transmission is 
made in an analog or a digital format. Such signals, however, are 
limited geographically under the licensing standards of the FCC. At the 
same time, it subjects all other digital transmissions made by a 
noninteractive, nonsubscription service to the terms and conditions of 
the statutory license in order to compensate record companies for the 
increased risk that a listener may make a high-quality unauthorized 
reproduction of a sound recording directly from the transmission 
instead of purchasing a legitimate copy in the marketplace, a risk that 
is clearly greater when the recipient is receiving the transmission on 
a computer, which can instantly replicate and retransmit the 
transmission.
    Congress' intent would be thwarted if an FCC-licensed radio 
broadcaster was allowed to transmit its radio signal over a digital 
communication network, such as the Internet, without any restrictions 
on the programming format. For example, as DiMA suggests, an FCC-
licensed broadcaster could tailor its program to highlight a particular 
artist and announce its intent to do so in advance, thereby increasing 
the likelihood that a listener would be prepared to make a copy of the 
sound recording at the appointed time. Such a result would violate not 
only the letter of the law under our interpretation of the statute, but 
also the very spirit and intent of the law. For these reasons, the 
definition of the term ``Service'' shall be amended to reflect the 
determination of the Copyright Office that any entity that transmits an 
AM/FM radio signal over a digital communications network is subject to 
the terms of the statutory license set forth in 17 U.S.C. 114(d)(2).

List of Subjects in 37 CFR Part 201

    Copyright.


    In consideration of the foregoing, part 201 of 37 CFR is amended in 
the manner set forth below.

PART 201--GENERAL PROVISIONS

    1. The authority citation for part 201 continues to read as 
follows:

    Authority: 17 U.S.C. 702.

    2. Section 201.35(b)(2) is revised to read as follows:


Sec. 201.35  Initial Notice of Digital Transmission of Sound Recordings 
under Statutory License.

* * * * *
    (b) * * *
    (2) A Service is an entity engaged in the digital transmission of 
sound recordings, pursuant to section 114(f) of title 17 of the United 
States Code, and includes, without limitation, any entity that 
transmits an AM/FM broadcast signal over a digital communications 
network such as the Internet, regardless of whether the transmission is 
made by the broadcaster that originates the AM/FM signal or by a third 
party, provided that such transmission meets the applicable 
requirements of the statutory license set forth in 17 U.S.C. 114(d)(2).
* * * * *


[[Page 77302]]


    Dated: November 21, 2000.
Marybeth Peters,
Register of Copyrights.
James H. Billington,
The Librarian of Congress.
[FR Doc. 00-31457 Filed 12-8-00; 8:45 am]
BILLING CODE 1410-31-P