Yahoo's Launchcast Wins Royalty Case Against Sony

When we reported back in July, that a royalty agreement had been reached between SoundExchange, a performance rights organization that's closely tied to the Recording Industry Association of America (RIAA), and internet radio broadcasters, we didn't expect to come back to the topic for several years. In fact, that agreement, good until at least 2014, prompted Tim Westergren, founder of internet radio station Pandora, to proclaim "the royalty crisis is over!"

Yet, today, an appeal in a court case brought against Yahoo's Launchcast Internet radio service has potentially turned the tables on the whole agreement—or at least on the definition of what types of internet radio stations will owe additional revenues.

The case centered on the definition of Launchast, owned by Yahoo and operated by CBS Radio, as an "interactive service" that would be required to pay expanded performance fees, defined in our previous article. Sony BMG Music Entertainment had lost a jury trial in the case, and appealed. (While other labels were involved in the original suit, only Sony BMG pursued the appeal.)

At issue was the case of defining "interactive service" for internet radio stations. The agreement says that an interactive services is one "that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording which is selected by or on behalf of the recipient."

In other words, on-demand content played back at the customer's request. Launchcast featured playlists, and this was one of the primary reasons the initial lawsuit was brought against the service, and a decision in Sony's favor would have rendered any internet radio provider that used playlists liable for the expanded performance fees.

By contrast, a non-interactive services provides "audio or other entertainment programming" to the public, but the current definition does not preclude the use of playlists.

The court's decision to side with Yahoo was based not on whether a user could request a song but instead on the "degree of predictability – based on choices made by the user – that approximates the predictability the music listener seeks when purchasing music."

The court actually used the example of an AM station back in the days when "special requests" could be made as a way to show that Launchast listeners aren't able to predict music even to that level of accuracy.

"Listeners do not even enjoy the limited predictability that once graced the AM airwaves on weekends in America," the court ruling stated, "when 'special requests' represented love-struck adolescents’ attempts to communicate their feelings to 'that special friend.' Therefore, we cannot say LAUNCHcast falls within the scope of the DMCA’s definition of an interactive service created for individual users."

In essence then, even content that is affected by customers' ratings of titles, artists, and albums is not considered by the court to meet the definition of "interactivity" to the extent that the expanded performance fees would be required.

The appeals court's upholding of the earlier jury verdict, Arista Records, LLC v. Launch Media Inc., 07-2576-cv, now has the potential to drive two additional developments:

First, based on the outcome, Launchcast will pay the standard or statutory licensing fees rather than the individual licensing fees that an "interactive service" is required to pay to music copyright holders. In other words, Launchcast is a radio station airing on the web, rather than a "pure play" internet-only radio streaming service.

Second, since this case moved from a jury finding to an appeals court, the appeals finding moves beyond the specific case and has the potential to set precedent for other "interactive services" that have been under siege as part of the recent royalties agreement. While we sense that Tim Westergren, who sided with SoundExchange in championing the new royalty rates, might be a bit chagrined, there seems to be a glimmer of hope in the market again.

"Had there been no appeal, all there would have been is a jury verdict," said Ray Beckerman, on his blog, recordingindustryvspeople.blogspot.com, "which in any other case could have been explained away as being based on, and limited to, a jury’s conclusion as to the facts of the Launch Media case."

The decision by Sony to appeal, Beckerman continued, "resulted in a 42-page appellate decision holding that 'as a matter of law' a personalized internet radio station of the type provided by Launch is not interactive, no matter what the jury might have found. This decision now creates a safe harbor for a whole industry and business model. Thank you SONY!"SoundExchange, at the time of this article, had no comment on its website, or its blog, focusing instead on the inclusion of a new board member, "Motown legend and Detroit City Councilwoman, Martha Reeves. Ms. Reeves has been a great supporter of our mission at SoundExchange and has been active in tracking down other Motown artists who are owed royalties."