Internet Radio Services Win Legal Victory Over Record Companies

The U.S. Court of Appeals for the Second Circuit recently considered the case of Yahoo!'s LAUNCHcast, an Internet radio station that provides listeners with individualized webcasting, and ruled that LAUNCHcast was not an "interactive service" under the Digital Millennium Copyright Act. The significance of this ruling allowed the company to pay only the statutory license fee set by the Copyright Royalty Board instead of having to negotiate a more costly licensing structure. Broadcasters of interactive services are required to pay specific fees to the copyright owner of each sound recording played.

The Second Circuit is the first appellate court to rule on such a matter, and its opinion discussed possible ways in which Internet radio providers may avoid being deemed an "interactive service." Despite requiring user input of favorite group, LAUNCHcast did not give its users enough direct control over the songs being played to be considered an "interactive service", which is a stream of songs created specifically for an individual or specifically requested by an individual.

The ruling comes as a blow to the plaintiff, Sony BMG music and named plaintiff, Bertelsmann AG's Arista Records, who argued that the use of the site diminishes overall record sales due to the specific consumer customization involved. The court rejected the argument, suggesting that the listener has no choice to replay a song or fast-forward through a song, and each song page contains a hyperlink allowing the user to purchase the song if he chooses.

Some public input into the final individualized Internet stations is permissible, according to the ruling, and that does not automatically create an interactive service. LAUNCHcast, a division of Yahoo, Inc., allowed consumers to pick artists, preferred genres and rate specific songs, but this only helped to create a "hash table" in which songs would then be accumulated and broadcast to the listener.

The decision will likely spark debate and lobbying in the Congress to precisely define the meaning of "interactive services" in a way more favorable to record companies. But for now, if you give the consumer what he needs, but not what he specifically wants, most liability should disappear like yesterday's hit records.

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