The Phonorecord Compulsory License Statute and the Unresolved 'Arrangement Privilege'

The Copyright Act of 1976 reflects a balance of the competing interests of copyright holders and those wishing to build on their existing works. As to composers of music, on one hand it secures to copyright holders the exclusive rights of exploitation in the manners prescribed by Sec. 106 ' for example, to make and distribute phonorecords of the composition or provide for its digital delivery online. On the other hand, the Act recognizes that new creation is often rooted in existing works, and therefore allows a new artist to borrow from existing works in appropriate circumstances without fear of being labeled an infringer.

For over a century, one such “carve-out” from the exclusive rights secured to copyright owners has been the compulsory license in and to musical works, codified at 17 U.S.C. Sec. 115. (The terms “statute” and “compulsory license statute” in this article refer exclusively to Sec. 115.) Yet certain of Sec. 115's parameters have never been clearly defined.

This article discusses the “arrangement privilege” in Sec. 115, why the breadth of the privilege is ambiguous, the potential effect of the ambiguity upon new creative efforts, and one possible method of compensating for the ambiguity and thereby furthering Congress' purpose in providing for the compulsory music license.

Compulsory Licenses and Derivative Works

Section 115 allows anyone to make and distribute his or her own recording of a musical composition without the consent of the copyright owner, provided the composition qualifies and the licensee fulfills the statutory requirements. The composition qualifies if it is a non-dramatic musical work that has earlier been distributed to the public with the authority of the copyright owner, as with the commercial release of a record. The statutory requirements are: 1) provision of timely and proper notice to the copyright owner; 2) that the compulsory licensee's primary purpose in making phonorecords is to distribute them to the public for private use; 3) payment of per-unit royalties at a rate set by the Copyright Royalty Board; and finally 4) that the compulsory licensee does not make any major change to the composition beyond that necessary to conform it to his or her own style or manner of interpretation.

Specifically, Sec. 115 provides in pertinent part that “[a] compulsory license includes the privilege of making a musical arrangement of the work to the extent necessary to conform it to the style or manner of interpretation of the performance involved, but the arrangement shall not change the basic melody or fundamental character of the work, and shall not be subject to protection as a derivative work[.]” 17 U.S.C. Sec. 115(a)(2). In other words, a licensee may permissibly alter the underlying composition, but only to a certain extent. Beyond that point, the new arrangement becomes a derivative work not properly the subject of a compulsory license.

Herein lies the ambiguity. The Copyright Act defines “derivative work” as a “work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording ' or any other form in which a work may be recast, transformed, or adapted.” 17 U.S.C. Sec. 101. By definition, therefore, every phonorecord created under a compulsory license is a derivative work based upon the underlying musical composition that is licensed, whatever the arrangement. Section 115 exempts arrangements falling within its provisions from protection as derivative works (and claims of infringement), but the point at which an arrangement alters the underlying composition too much to remain within the compulsory license statute is unclear. The distinction is important because beyond that point, the right to prepare derivative works of a composition is generally the exclusive right of the copyright holder.

Little Guidance in Law

There is little in statutory or case law purporting to delineate the “arrangement privilege” set forth in Sec. 115(a)(2). The statute includes no applicable definitions. The Copyright Act's legislative history provides that the purpose of the limitation set forth in Sec. 115(a)(2) is to prevent the underlying musical composition from being “perverted, distorted, or travestied” in deference to the composer's moral rights, but does not expound further. H.R. Rep. 94-1476, at 62 (1976). Section 115 vests the Register of Copyrights with power to augment and clarify certain of the statute's provisions by regulation (for example, the form and contents of statutory notice), but this is not one of them.

The Register of Copyrights will sometimes touch upon the scope of the “arrangement privilege” when exercising discretion to resolve “novel questions of law” concerning the Copyright Act arising in a rate setting proceeding (see, 17 U.S.C. Sec. 802(f)(1)(B)(I)), but stops short of attempting to define the privilege. For example, in 2006 the Register passed on whether and how Sec. 115 should be applied to “arrangements” of popular songs as polyphonic ringtones for cellular phones. (See, Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, 71 F.R. 64303 (2006).) The Register determined that such ringtones could qualify for compulsory licensure if all statutory requirements were satisfied. They were not disqualified as a category because they are ringtones (rather than traditional “phonorecords”) or because the ringtone “arrangement” generally truncates the underlying composition. Id. at 64314-15. As for whether particular ringtones change the “basic melody” or “fundamental character” of a composition however, the Register declined to set forth criteria or otherwise undertake a “granular analysis” of such “factual issues and potentially close questions.” The Register instead deferred to the courts to decide those issues on a case-by-case basis. Id. at 64311.

The courts therefore have little guidance when called upon to decide whether a recording created under a compulsory license “change[s] the basic melody or fundamental character” of the licensed work. They may therefore easily find triable issues of fact as to whether the “arrangement privilege” has been exceeded (precluding summary judgment), and leave it to a jury to decide. In that circumstance the jurors, who generally lack a musical background, will no doubt look for guidance from the advocates ' and particularly from their expert witnesses. Those experts have in turn proffered opinions amounting to legal conclusions. (See, e.g., TeeVee Toons Inc. v. DM Records Inc., 05 Civ. 5602(JGK) (S.D.N.Y. 2007). In considering whether “remixes” of songs by rapper Lil Jon published by defendant were properly within compulsory license statutes or were infringing derivative works, the district court found a triable issue of fact based on expert affidavits submitted by the parties. The experts therein generally opined to the ultimate issues ' i.e., that certain changes did, or did not, alter “the fundamental character of the work.”)

Potential Effects on New Expression

The vagueness of the compulsory license statute is a potential hindrance to the creative expression that the statute was meant to foster. Musicians wishing to “cover” a previously published song in a new and innovative manner may fear that their adaptation goes too far, and will infringe the copyright holder's exclusive right to prepare derivative works. For their part, copyright holders are free to claim that a new arrangement impermissibly alters the “fundamental character” of the work in an effort to secure a more lucrative voluntary license (assuming they are willing to license the composition at all). Copyright holders are also free to adopt a “wait and see” attitude, claiming infringement of their derivative work right in the underlying composition only after a compulsory licensee has achieved some level of success with his arrangement.

Possible Remedy

The compulsory license statute is not the only context in which a copyright holder's exclusive rights in and to his or her work yields to the common interest of stimulating new creation. For example, the fair use doctrine (17 U.S.C. Sec. 107) provides that use of a copyrighted work for purposes such as criticism, comment or education is not copyright infringement, and sets forth four non-exclusive factors that courts must consider in determining whether an otherwise infringing use of a copyrighted work is fair use. Case law mandates that the court's task is “not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis.” Campbell v. Acuff-Rose, 510 U.S. 569, 577 (1994).

Such a fluid analysis is not as easily justified when delineating the Sec. 115 “arrangement privilege,” however. Unlike a defendant claiming fair use, a compulsory licensee in compliance with the statute has given notice to the copyright holder in the time and manner mandated by the statute and has paid the copyright holder a per-unit royalty for his or her use of the composition. The licensee should therefore receive some predictability as to whether his or her arrangement falls within the statute.

Barring any change to the language of Sec. 115 itself or other legislation defining what degree of alteration affects “the basic melody or fundamental character of the work,” one possible solution may be for a court to presume that an arrangement is within the statute upon a prima facie showing by the licensee. For example, a compulsory licensee who proffers competent evidence of three facts could be presumed within the arrangement privilege: 1) compliance with the statute's provisions relating to notice and accounting; 2) the compulsory licensee's “style” or “manner of interpretation,” generally and in connection with the composition at issue; and 3) colorable adherence to the “basic melody” and “fundamental character” of the song.

A compulsory licensee's compliance with the statute's rigid requirements relating to notice, accounting and payment of royalties allows for a presumption that the licensee intended to comply with the statute in all respects, including through the arrangement. Evidence of the artist's style could explain the most conspicuous alterations to the underlying composition, and also explain what might otherwise be taken at first glance to be an improper alteration to a composition's “fundamental character.” (Consider for example, the case of an a cappella artist performing a song made famous by Jimi Hendrix.) With these first two facts in mind, a court considering whether a new arrangement colorably adheres to the basic melody and fundamental character of the underlying composition could likely make a preliminary determination ' and in appropriate cases, a presumption that the arrangement is within the statute's “arrangement privilege.” The burden of rebutting that presumption would thereafter rest with the copyright holder, who has in any event received payment for use of the composition.

The proposed test above does not define the parameters of the “arrangement privilege” per se, but it could make more predictable the outcome of any dispute relating to whether a particular arrangement is properly subject to a compulsory license. Should litigation arise, its resolution would therefore depend less upon expert opinion, and a court could conceivably grant summary judgment upon the compulsory licensee's prima facie showing of propriety. The additional measure of predictability would further the purpose of Sec. 115 by dissuading copyright holders from pursuing litigation in close cases, and allowing artists to present existing compositions in new ways with substantially less risk.

The Copyright Act of 1976 reflects a balance of the competing interests of copyright holders and those wishing to build on their existing works. As to composers of music, on one hand it secures to copyright holders the exclusive rights of exploitation in the manners prescribed by Sec. 106 ' for example, to make and distribute phonorecords of the composition or provide for its digital delivery online. On the other hand, the Act recognizes that new creation is often rooted in existing works, and therefore allows a new artist to borrow from existing works in appropriate circumstances without fear of being labeled an infringer.

For over a century, one such “carve-out” from the exclusive rights secured to copyright owners has been the compulsory license in and to musical works, codified at 17 U.S.C. Sec. 115. (The terms “statute” and “compulsory license statute” in this article refer exclusively to Sec. 115.) Yet certain of Sec. 115's parameters have never been clearly defined.

This article discusses the “arrangement privilege” in Sec. 115, why the breadth of the privilege is ambiguous, the potential effect of the ambiguity upon new creative efforts, and one possible method of compensating for the ambiguity and thereby furthering Congress' purpose in providing for the compulsory music license.

Compulsory Licenses and Derivative Works

Section 115 allows anyone to make and distribute his or her own recording of a musical composition without the consent of the copyright owner, provided the composition qualifies and the licensee fulfills the statutory requirements. The composition qualifies if it is a non-dramatic musical work that has earlier been distributed to the public with the authority of the copyright owner, as with the commercial release of a record. The statutory requirements are: 1) provision of timely and proper notice to the copyright owner; 2) that the compulsory licensee's primary purpose in making phonorecords is to distribute them to the public for private use; 3) payment of per-unit royalties at a rate set by the Copyright Royalty Board; and finally 4) that the compulsory licensee does not make any major change to the composition beyond that necessary to conform it to his or her own style or manner of interpretation.

Specifically, Sec. 115 provides in pertinent part that “[a] compulsory license includes the privilege of making a musical arrangement of the work to the extent necessary to conform it to the style or manner of interpretation of the performance involved, but the arrangement shall not change the basic melody or fundamental character of the work, and shall not be subject to protection as a derivative work[.]” 17 U.S.C. Sec. 115(a)(2). In other words, a licensee may permissibly alter the underlying composition, but only to a certain extent. Beyond that point, the new arrangement becomes a derivative work not properly the subject of a compulsory license.

Herein lies the ambiguity. The Copyright Act defines “derivative work” as a “work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording ' or any other form in which a work may be recast, transformed, or adapted.” 17 U.S.C. Sec. 101. By definition, therefore, every phonorecord created under a compulsory license is a derivative work based upon the underlying musical composition that is licensed, whatever the arrangement. Section 115 exempts arrangements falling within its provisions from protection as derivative works (and claims of infringement), but the point at which an arrangement alters the underlying composition too much to remain within the compulsory license statute is unclear. The distinction is important because beyond that point, the right to prepare derivative works of a composition is generally the exclusive right of the copyright holder.

Little Guidance in Law

There is little in statutory or case law purporting to delineate the “arrangement privilege” set forth in Sec. 115(a)(2). The statute includes no applicable definitions. The Copyright Act's legislative history provides that the purpose of the limitation set forth in Sec. 115(a)(2) is to prevent the underlying musical composition from being “perverted, distorted, or travestied” in deference to the composer's moral rights, but does not expound further. H.R. Rep. 94-1476, at 62 (1976). Section 115 vests the Register of Copyrights with power to augment and clarify certain of the statute's provisions by regulation (for example, the form and contents of statutory notice), but this is not one of them.

The Register of Copyrights will sometimes touch upon the scope of the “arrangement privilege” when exercising discretion to resolve “novel questions of law” concerning the Copyright Act arising in a rate setting proceeding (see, 17 U.S.C. Sec. 802(f)(1)(B)(I)), but stops short of attempting to define the privilege. For example, in 2006 the Register passed on whether and how Sec. 115 should be applied to “arrangements” of popular songs as polyphonic ringtones for cellular phones. (See, Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, 71 F.R. 64303 (2006).) The Register determined that such ringtones could qualify for compulsory licensure if all statutory requirements were satisfied. They were not disqualified as a category because they are ringtones (rather than traditional “phonorecords”) or because the ringtone “arrangement” generally truncates the underlying composition. Id. at 64314-15. As for whether particular ringtones change the “basic melody” or “fundamental character” of a composition however, the Register declined to set forth criteria or otherwise undertake a “granular analysis” of such “factual issues and potentially close questions.” The Register instead deferred to the courts to decide those issues on a case-by-case basis. Id. at 64311.

The courts therefore have little guidance when called upon to decide whether a recording created under a compulsory license “change[s] the basic melody or fundamental character” of the licensed work. They may therefore easily find triable issues of fact as to whether the “arrangement privilege” has been exceeded (precluding summary judgment), and leave it to a jury to decide. In that circumstance the jurors, who generally lack a musical background, will no doubt look for guidance from the advocates ' and particularly from their expert witnesses. Those experts have in turn proffered opinions amounting to legal conclusions. (See, e.g., TeeVee Toons Inc. v. DM Records Inc., 05 Civ. 5602(JGK) (S.D.N.Y. 2007). In considering whether “remixes” of songs by rapper Lil Jon published by defendant were properly within compulsory license statutes or were infringing derivative works, the district court found a triable issue of fact based on expert affidavits submitted by the parties. The experts therein generally opined to the ultimate issues ' i.e., that certain changes did, or did not, alter “the fundamental character of the work.”)

Potential Effects on New Expression

The vagueness of the compulsory license statute is a potential hindrance to the creative expression that the statute was meant to foster. Musicians wishing to “cover” a previously published song in a new and innovative manner may fear that their adaptation goes too far, and will infringe the copyright holder's exclusive right to prepare derivative works. For their part, copyright holders are free to claim that a new arrangement impermissibly alters the “fundamental character” of the work in an effort to secure a more lucrative voluntary license (assuming they are willing to license the composition at all). Copyright holders are also free to adopt a “wait and see” attitude, claiming infringement of their derivative work right in the underlying composition only after a compulsory licensee has achieved some level of success with his arrangement.

Possible Remedy

The compulsory license statute is not the only context in which a copyright holder's exclusive rights in and to his or her work yields to the common interest of stimulating new creation. For example, the fair use doctrine (17 U.S.C. Sec. 107) provides that use of a copyrighted work for purposes such as criticism, comment or education is not copyright infringement, and sets forth four non-exclusive factors that courts must consider in determining whether an otherwise infringing use of a copyrighted work is fair use. Case law mandates that the court's task is “not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis.” Campbell v. Acuff-Rose , 510 U.S. 569, 577 (1994).

Such a fluid analysis is not as easily justified when delineating the Sec. 115 “arrangement privilege,” however. Unlike a defendant claiming fair use, a compulsory licensee in compliance with the statute has given notice to the copyright holder in the time and manner mandated by the statute and has paid the copyright holder a per-unit royalty for his or her use of the composition. The licensee should therefore receive some predictability as to whether his or her arrangement falls within the statute.

Barring any change to the language of Sec. 115 itself or other legislation defining what degree of alteration affects “the basic melody or fundamental character of the work,” one possible solution may be for a court to presume that an arrangement is within the statute upon a prima facie showing by the licensee. For example, a compulsory licensee who proffers competent evidence of three facts could be presumed within the arrangement privilege: 1) compliance with the statute's provisions relating to notice and accounting; 2) the compulsory licensee's “style” or “manner of interpretation,” generally and in connection with the composition at issue; and 3) colorable adherence to the “basic melody” and “fundamental character” of the song.

A compulsory licensee's compliance with the statute's rigid requirements relating to notice, accounting and payment of royalties allows for a presumption that the licensee intended to comply with the statute in all respects, including through the arrangement. Evidence of the artist's style could explain the most conspicuous alterations to the underlying composition, and also explain what might otherwise be taken at first glance to be an improper alteration to a composition's “fundamental character.” (Consider for example, the case of an a cappella artist performing a song made famous by Jimi Hendrix.) With these first two facts in mind, a court considering whether a new arrangement colorably adheres to the basic melody and fundamental character of the underlying composition could likely make a preliminary determination ' and in appropriate cases, a presumption that the arrangement is within the statute's “arrangement privilege.” The burden of rebutting that presumption would thereafter rest with the copyright holder, who has in any event received payment for use of the composition.

The proposed test above does not define the parameters of the “arrangement privilege” per se, but it could make more predictable the outcome of any dispute relating to whether a particular arrangement is properly subject to a compulsory license. Should litigation arise, its resolution would therefore depend less upon expert opinion, and a court could conceivably grant summary judgment upon the compulsory licensee's prima facie showing of propriety. The additional measure of predictability would further the purpose of Sec. 115 by dissuading copyright holders from pursuing litigation in close cases, and allowing artists to present existing compositions in new ways with substantially less risk.