12 / 01 / 2015

Is Your Business Fit for Royalties?

Let’s say you would like to play music or TV at your place of business; customers seem to like it and your employees are all for it. As a matter of law, can you?

As an initial point, let’s quickly dispense with a couple of common misconceptions,

  • 1) that the artists have been fully compensated by ad revenue, or by your subscription or purchase of a CD or MP3, so you can freely play whatever you like at your business; or,
  • 2) that the law places a blanket prohibition on playing original material for your customers without you first paying royalties. Neither of these statements is accurate, and the actual state of the law requires that you examine some other factors before making your decision.

Does it make a difference what type of business you run? How about the physical size of your business location? The impressiveness of your A/V system? Whether the public or just your employees can hear it? Do you have to sign something or pay anyone any special fees to do so? Does it make a legal difference if the music’s coming from your sweet vinyl collection, a tape or DVD, an internet streaming service, an MP3 playlist, a radio or TV broadcast?  How about through a cable or satellite subscription? The answer to all of these questions is “maybe, but it depends.”

First, a quick historical survey of the legal landscape: As you may know, in the US, original content is protected under federal copyright laws, codified at 17 USC §101 et seq. The owner of a music copyright has the exclusive right to “perform the copyrighted work publicly by means of a digital audio transmission.”  17 U.S.C. §106(6). There are exceptions to this exclusive right, however, which is where it gets complex.

Congress has amended the 1976 Copyright Act many times in attempts to address changes in technology and the market. Moreover, copyright law has been the subject of an enormous body of jurisprudence wrestling with the application of a legal concept with its roots in the 15th century advent of the printing press to modern disputes involving the 21st century explosion of global digital content and distribution. [1]  Of particular application to the question above: in 1998, the 105th Congress passed the Fairness in Music Licensing Act as part of the Sonny Bono Copyright Extension Act. [2] (It is worth noting that although the act is called the Fairness in Music Licensing Act, it affects television broadcasts as well). In any case, the 1998 amendment was in many ways a response to what businesses had long perceived to be over-aggressive threats and lawsuits by music performance rights clearinghouses such as SESAC, ASCAP and BMI. According to business owners, these clearinghouses had been entering business, demanding to inspect premises and threatening suit to collect royalties for unlicensed “public performance” of music and music video broadcasts.

Both historically and currently, when a restaurant or retail or other establishment turns on a radio or television set for the benefit of its customers, that constitutes a public performance of copyrighted works, for which the copyright owner is due royalties for violation of his exclusive rights, unless an exemption applies. Prior to the 1998 amendment, in the publicly open business context, there was only a vague “homestyle” exemption which essentially allowed a single receiving apparatus of the type commonly used in private homes if there was no direct charge to the customer collected by the business owner. [3] This vagueness created opportunity for the clearinghouses aggressive assertions, which in turn threatened everything from local sportsbars to barbershops who would frequently find themselves in legal limbo if a clearinghouse investigation yielded any evidence that a radio broadcast was being played on multiple devices, or that the devices were not “commonly” found in homes or that the menu prices had the economic value of the broadcast baked right into them. [4] Unsurprisingly, restaurant and bar lobbying associations were the primary drivers behind expanding and clarifying the exemption.

So, what does the relevant law say after the 1998 amendments? Well, the text of the current Section 110 covering both the homestyle exception and the 1998 amendment is available online at Cornell’s Legal Information Institute. But, from a practical perspective, it is best to simply look at the facts in the right order:

  1. Charging the patrons to watch? Both the homestyle exemption and 1998 Fairness in Music exemption require that for any exemption from copyright violation to apply, the business playing the content cannot charge its customers a direct fee to watch or listen. [5]
  2. No-Contract Broadcast? The 1998 Fairness in Music exemption applies only to radio and TV broadcasts played in qualifying [6] Music or television played by other means, such as live bands, DJ’s, CDs, streaming, MP3, internet radio, YouTube, Slingbox, Hulu, Netflix, Roku, Apple TV, etc., is in no way covered by the exemption. Interestingly, while the amendment states that cable and FCC- controlled satellite sources are eligible for the exemption, it also notes that the transmission must be licensed by the copyright owner.[7] Practically, this means that for cable, satellite, streaming and other subscription-based transmissions, the subscriber agreement will control. Without reviewing each one specifically, it is worth noting that most providers distinguish their personal home licenses from their commercial licenses and do not allow public or commercial setting performances on home licenses.
  3. Qualifying Business? The homestyle exception, as modified by the 1998 amendment, only applies if your business is sufficient small, or if your audiovisual system is sufficiently simple. The rules are surprisingly specific:
    1. Small Businesses: The homestyle exception for small businesses applies to restaurants and bars with less than 3750 gross square feet of space (excluding parking lots) and to non-dining/drinking establishments with less than 2000 gross square feet of space (excluding parking lots). [8]  These small business can, without a license, play non-contracted radio and television broadcasts without needing to limit the number of speakers or number or size of televisions used.
    2. Larger Businesses: Restaurants/bars larger than 3750 gross square feet or non-dining/drinking establishments larger than 2000 gross square feet can also play non-contract broadcast radio or television, so long as their audiovisual equipment not exceed the following parameters:
      1. Radio Broadcasts:
        1. No more than 6 total loudspeakers;
        2. No more than 4 loudspeakers in any one room or adjoining outdoor space.
      2. Television Broadcasts:
        1. no more than 4 total televisions on the premises;
        2. no more than 1 television per room;
        3. no TV screens greater than 55 inches measured diagonally;
        4. and, as to loudspeakers:
          1. No more than 6 total loudspeakers;
          2. No more than 4 loudspeakers in any one room or adjoining outdoor space.
  4. What about HBO/streaming internet/Apple TV/Netflix, etc? Most likely, no. Sorry. If you are curious, you should review the terms of the license contained in your subscriber agreement. As referenced above, even the expanded exemption under the 1998 amendment defers to the terms of a private license from the copyright owner. [9] An analysis of each current subscriber agreement is beyond the scope of this blog, but it is worth noting that most subscription-based services expressly state somewhere in the legal verbiage something to the effect of “your personal and non-commercial use only, and you agree not to use the service for public performances.” Again, that contract trumps the statutory exemption, described above, and will expose you to statutory liability.
  5. How bad is statutory liability? If you do get sued for using too big a TV, too many speakers, or for showing Game of Thrones at your bar without getting a commercial license, rather than being required to provide actual damages, a copyright holder can elect to pursue damages that are set by statute, which can reach $150,000 per work infringed. If the copyright owner thinks it can prove more than this in actual damages with a reasonable amount of certainty, it can seek those instead, in addition to attorneys’ fees. [10] Further, a corporate form may not protect individual owners from personal liability if they were involved in the day-to-day operations of the business or directly contributed to the infringement.Going back to the illegal download era of the early 2000’s stories abounded of parents being sued for their kids’ illegal downloads with awards in the hundreds of thousands of dollars. ASCAP, BMI and other performance rights clearinghouses continue to be aggressive in using the availability of these serious damage awards to obtain favorable settlements or force payment of commercial licensing fees, particularly as the music recording industry continues to struggle in the shifting digital era. Moreover, in a slightly different context, the Business Software Alliance offers rewards to disgruntled employees to report unlicensed software on business machines. Depending on how the digitization of audiovisual content develops in the next decades, it would not be particularly surprising for television content providers to form a similar alliance offering similar incentives in an attempt to leverage the ASCAP/BMI tactic.
  6. Safe bet? Know your limits if you want to depend on the statute for broadcast television and radio. If you are interested in regularly showing subscriber content in your bar, restaurant or business, best practice is to seek and obtain the right commercial license from your content provider. If you want to play CD’s, MP3’s, streaming, or have a band play cover songs, get the right license from clearinghouse. If you want to play movies, you will have to negotiate directly with film distributors.

[1] The Statute of Anne passed by the Parliament of Great Britain in 1710, created government regulation of copyright protection rather than leaving claims and protection to private parties. Prior to this act, going back to the printing revolution launched by Johannes Gutenberg’s invention of the moveable typeset printing press around 1440, copying restrictions were stated and enforced by printers guilds who exercised monopoly over the artisans owners and operators of early printing presses, and who would be expected to respect one another’s notices not to copy. The Statute of Anne, also known as The Copyright Act or the Copyright Act of 1709 and later completely amended by the Copyright Act of 1842, is important because it was the first in the Anglo-American legal tradition to vest copyright as the intellectual property of the original author, rather than with the publishers who owned the printing presses necessary for production, perhaps presaging a postindustrial set of legal and economic values. This tension between artist rights and reproducer/distributor rights has practical connotations in interpreting modern statutes. See, for example, recent concerns causing record labels to assert the work-for-hire doctrine to prevent artists from laying claims to 35-year-old master recordings under so-called termination rights created when federal copyright law was revised and codified in the mid-1970’s. http://nyti.ms/1iDGnL5

[2] Yes, the same late Sonny Bono of “I Got You, Babe”-singing, Cher-marrying, and Palm Springs-mayoring fame. The Sonny Bono Extension part of the legislation, not directly relevant here, is most notable for extending the term of copyright by twenty years in many instances. See S 505, P.L. 105-298, 11 Stat. 2827, passed by both the House and Senate on October 7, 1998, and signed by President Clinton on October 21, 1998

[3] See 17 USC 110(5)(A)(1997)

[4] This point, and indeed the Fairness in Music Licensing Act itself does not address the issue of reproducing subscriber content; it is limited to broadcast transmissions for which no other subscription agreement controls the parties’ relationships. As with most things, the parties statutory relationship can always be modified by contract, which is something to keep in mind when considering your actual rights in any given situation, namely, the rights granted to you by law less those you have signed away or limited by agreement.

[5] See 17 USC §§110(5)(A)(i); 110(5)(B)(iii)(1998)

[6] See 17 USC §110(5)(B)

[7] See 17 USC §110(5)(B)(v)

[8] See 17 USC §110(5)(B)(i),(ii)

[9] See 17 USC §110(5)(B)(v); See also footnote 4, supra.

[10] See 17 USC §§504, 505

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