CIIP Subcommittee Approves Section 115 Reform Act

June 8, 2006. Rep. Lamar Smith (R-TX) and Rep. Howard Berman (D-CA) introduced HR 5533 [57 pages in PDF], the "Section 115 Reform Act of 2006", or SIRA. The House Judiciary Committee's (HJC) Subcommittee on Courts, the Internet, and Intellectual Property (CIIP) approved the bill, without amendment, by unanimous voice vote, on June 8.

The bill as introduced and approved makes changes to the discussion draft that was circulated on June 7, 2006, and hyperlinked in the story titled "CIIP May Mark Up SIRA" in TLJ Daily E-Mail Alert No. 1,386, June 7, 2006.

The bill would revise 17 U.S.C. § 115 to provide digital music providers, such as Apple's iTunes, a blanket compulsory license for digital phonorecord deliveries and hybrid offerings.

Rep. Smith (at right), the Chairman of the CIIP Subcommittee, and sponsor of HR 5553, wrote in a statement that "Retailers and online companies should be competing with each other, not competing with piracy".

He said that this bill "paves the way for legal music services to offer a full range of music to consumers. No longer will licensing issues limit services like iTunes, Yahoo, and others from offering consumers what they want, when they want it. The legislation also puts escrowed money into artists' hands. Since 2001, advance money has been paid into escrow by the legal services to pay artists once a final rate was set. This legislation empowers the Copyright Royalty Board to set these final rates and then pay artists the money they have earned years ago."

Rep. Berman, the ranking Democrat on the CIIP Subcommittee, and cosponsor of the bill, stated at the mark up that "with this bill ... we have taken a great leap forward into the digital age". He praised the bill, offered his support, and added that "there is complete consensus that the current Section 115 needs to be fixed". However, he also said that "there is still plenty of work that needs to be done" before the full Committee marks up the bill.

He said that "By providing an environment were legal music services can flourish, the bill will enable customers to receive their choice of music at any time, at any place and in any format, while at the same time ensuring that songwriters receive adequate compensation."

No amendments were offered at this mark up. The Subcommittee approved the bill by unanimous voice vote. The members present were Reps. Smith, Berman, Elton Gallegly (R-CA), Bob Goodlatte (R-VA), William Jenkins (R-TN), Ric Keller (R-FL), Darrell Issa (R-CA), Spencer Bachus (R-AL), Randy Forbes (R-VA), Rick Boucher (D-VA), Zoe Lofgren (D-CA), Linda Sanchez (D-CA), and Adam Schiff (D-CA).

Cursory Summary of HR 5553. HR 5553 amends 17 U.S.C. § 115, which is titled "Scope of exclusive rights in nondramatic musical works: Compulsory license for making and distributing phonorecords". Section 115 covers the licensing of the reproduction and distribution rights for nondramatic musical works.

While HR 5553 makes some changes to the current language of Section 115, it primarily adds a new Subsection 115(e) that provides for a "compulsory license for digital phonorecord deliveries and hybrid offerings".

The June 7 discussion draft did not include these "hybrid offerings". These are defined (at pages 46-47) as "a reproduction or distribution of a phonorecord in physical form subject to a compulsory license under this section where -- (i) a digital transmission of data by or under the authority of the licensee is required to render the sound recording embodied on the phonorecord audible to the end user or to enable the continued rendering of the sound recording after a finite period of time or a specified number of times rendered; or (ii) the phonorecord is made by or under the authority of the licensee at the request of a user for distribution to that user or the user’s designee."

Section 1 of the bill merely provides the title of the bill. Section 2 (at pages 2-51) contains the bulk of the bill; it adds the new Subsection 115(e) to the Copyright Act. Section 3 (at pages 51-53) of the bill adds a new Subsection 115(f) regarding "Performance Right Reserved". Section 4 of the bill (at pages 53-55) adds a new Subsection 115(c)(7) regarding "Interim Rate Process". Section 5 of the bill (at pages 55-57) contains technical amendments to Subsections 115(c) and (d). Section 6 of the bill (at page 57) provides the effective date. Section 7 of the bill (at page 57) provides two savings clauses.

The new Subsection 115(e)(1) provides that this compulsory license covers "(A) the making and distribution of general and incidental digital phonorecord deliveries in the form of full downloads, limited downloads, interactive streams, and any other form constituting a digital phonorecord delivery or hybrid offering; and (B) all reproduction and distribution rights necessary to engage in activities described in subparagraph (A), solely for the purpose of engaging in such activities under the license, including -- (i) the making of reproductions by and for end users; (ii) reproductions made on servers under the authority of the licensee; and (iii) incidental reproductions made under the authority of the license in the normal course of engaging in activities described in subparagraph (A), including cached, network, and RAM buffer reproductions." (See, pages 2-3.)

The new Subsection 115(e)(1) provides that a "digital music provider" (which term is defined at pages 45-46) may obtain a blanket compulsory license "only from a designated agent". (See, page 3.) A blanket license means that digital music providers need not obtain hundreds of licenses from publishers. The new Subsection 115(e)(9) (at pages 13-26) addresses these designated agents.

The new Subsection 115(e)(3) provides for a free compulsory license for "the making of server and incidental reproductions to facilitate noninteractive streaming". (The term "interactive stream" is defined at pages 47-48, while "noninteractive streaming" is defined at page 49 to mean "the radio-style streaming of sound recordings of musical works for which a statutory license is available with respect to the sound recordings under section 114(d)(2)".)

Notably, the bill does not accord these reproductions fair use status. The final section of the bill (at page 57) provides that "Nothing in this Act shall affect any right, limitation, or defense to copyright infringement, including fair use, under title 17, United States Code."

The new Subsection 115(e)(3) adds that "The license shall cover reproductions made on servers under authority of the licensee and incidental reproductions made under the authority of the licensee in the course of the noninteractive streaming, including cached, network, and RAM buffer reproductions, to the extent reasonably necessary for, and solely for the purpose of, engaging in noninteractive streaming under the license in a technologically reasonable and efficient matter."

The new Subsection 115(e)(8) addresses "Royalty Rates and Terms". It provides that for new license activities, that Copyright Royalty Judges shall conduct a ratemaking proceeding to determine a final rate and terms for any activity for which a license is available under the news Subsection 115(e). It also addresses rates and terms already in effect, pending proceedings, and interim rates. (See, pages 7-13.)

Concerns of Reps. Boucher and Lofgren. Rep. Rick Boucher (D-VA) and Rep. Zoe Lofgren (D-CA) both attended the meeting and expressed their support for the bill. However, they both identified provisions of the bill that they would like to see revised before the full Committee markup.

Rep. Boucher (at right) said "I do intend to support this bill." He said that this bill will encourage lawful online distribution services, and enable them to compete with the illegal peer to peer services. He then identified three areas of concern.

First, he said that "The bill basically says that the incidental copies -- buffer copies, cache copies, server copies -- will be subject to the license that is established in this bill. It is a free license, assuming that certain conditions are met. ... But, my point is that these copies are purely incidental. They have no independent economic value. These incidental copies exist only because they are necessary in order to allow the distribution for which the license is being paid. In the absence of making these temporary incidental copies, the distribution simply cannot occur. And so the buffer copy -- the caches, the server copies -- should in fact be characterized as fair use. And, they should be entirely outside the license. So what I would propose is an exemption in Section 115 for these incidental copies that have no independent economic value. And, in doing that I am merely reflecting the recommendation of the Copyright Office, which in its 104 report said these incidental copies are in fact fair use and the bill should reflect that. We don't have to subject them to this license in order to achieve the goals of this reform."

Second, he said that "This free license is only available as long as the application for which the license is sought does not in any way encourage time shifting. So, if the person who is seeking a license also produces a product  that happens to have a record function, that could be used for time shifting , then that individual entity, or its music services, would not be entitled to the free license. And, that strikes me as particularly .inappropriate. It looks like an attempt to import some of the principles of the Perform Act, which is very controversial, into what I hope at the end of the day will be a non-controversial reform of Section 115. And, so I would strongly urge that this condition, that the product not be encouraging a time shifting, be eliminated in any event."

Third, he argued that "The bill as it is drafted this morning tends to conflate reproductions and performances. And, one of the goals of this reform is to try to get away from the classic double dip, where one copyright holder got paid for the mechanical copy, and another for the performance. Yet, we have placed that same inequity back into the bill by simply conflating reproductions and performances, declaring that a stream, in which no permanent copy is made, is a reproduction, because of the incidental copies that are made. And, that, in turn, leads to the consequence of that license holder, of that particular applicant, who has a streaming technology, having to pay twice, assuming, of course that, with regard his product he does have, with the language of the bill, something that would encourage time shifting, in which case he would not qualify for the free license, with regard to that part of the product."

Rep. Lofgren said that the bill is "an important step forward". She said that she shares Rep. Boucher's concerns, and added that they "can be solved".

She also said that the bill, as introduced, "would preclude TiVo".

Rep. Smith said that he would work with Rep. Boucher and others.

Reaction. Jonathan Potter, Executive Director of the Digital Media Association (DiMA), David Israelite, P/CEO of the National Music Publishers' Association (NMPA) and Mitch Bainwol, Ch/CEO of the Recording Industry Association of America (RIAA) issued a joint statement regarding HR 5553: "Our member companies -- digital music providers, music publishers and recording companies -- stand much to gain from legislation that will bring music licensing into the digital era. We have been working hard over the past months to reach agreement about how to best approach this complicated and difficult task, and we are pleased that the bill introduced by Representatives Smith and Berman today reflects much of that work."

They added that "While we have not reached complete agreement on all aspects of this legislation, we are optimistic that in the coming weeks we will work together with Chairman Smith and Representative Berman to ultimately pass historic legislation that will promote greater innovation and competition among digital music providers, deliver fair compensation to music creators and most importantly, greatly expand music choice and enjoyment for music fans."

Gigi Sohn, head of the Public Knowledge, stated in a release after the vote that "We are disappointed that the bill was approved by the Subcommittee. But we were heartened by the comments of Rep. Boucher and Rep. Lofgren, who accurately recognized that incidental copies of movies or music should not be subject to a copyright license. These copies, made in the buffer of a computer, iPod or other device, simply exist so that the song can be heard or a movie can be viewed and have no economic value. We also agree with comments by Mr. Boucher and Ms. Lofgren that the bill threatens the ability of consumers to listen to music at any time they choose and that it could threaten the existence of digital recording functions, such as TiVO. We look forward to working with the Subcommittee between now and markup at the full Judiciary Committee."