Entertainment and Music Law Resource Center Mirror Site
What’s in the "Magic Bundle" of Rights?
The rights the copyright owner of a sound recording has:
The Right of Reproduction – which allows the owner of the copyright to exclude all others from reproducing the work in the form of a copy or phonorecord. 17 U.S.C.A. § 106(1). Basically, the copyright owner can make all the copies he wants and prevent others from making copies without permission.
The Right to create a Derivative Work – which allows the owner to create a new work that is based upon the original copyrighted work. 17 U.S.C.A. § 106(2) grants the copyright owner:
a. The exclusive right to prepare a derivative work; and
b. The exclusive right to exclude all others from preparing a derivative work.
The statutory definition of derivative work is very broad: A "derivative work" is a work based upon one or more pre-existing works such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction…"17 U.S.C.A. § 101. This right to control the use of your original work beyond the actual form it was first expressed is very important. Sampling is an obvious area where this right is important, because it prevents artists from sampling the "sound recording" to create a new song without the owner of the copyright in the "sound recordings" permission.
Just a quick note: The owner of the copyright has very limited control over the use of the composition however. As we discussed earlier, the owner of the musical composition copyright will receive a compulsory royalty for the use of the composition, which will be paid to their publishing company. We will come back to this in a few minutes.
The Right to Distribute copies or phonorecords – allows the copyright owner in the sound recording to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending. 17 U.S.C.A. § 106(3) ( The underlined words are very important –read on to find out why)
This distribution right is really a limitation dressed up as a right. Once the copyright owner sells or transfers ownership of the work, the original owner loses the right to control distribution of that copy. This limitation is called the "First Sale Doctrine." See American International Pictures, Inc. v. Foreman, 576 F.2d 661 (5th Cir.1978). The copyright owner has the right to control the distribution of only the first copy. After the first sale, the buyer, and new owner of the copy, is free to sell that copy to anyone else he wants to sell it to –even if the copyright owner has conditioned sale on the buyer’s promise to not resell the work. Note that the first sale doctrine does not give the buyer the right to make copies of the copy and redistribute it, merely it gives the right to offer for sale the copy he bought when he no longer wants it. The entire used CD store industry operates because of this doctrine.
Example 2: A buyer goes to Tower Records and buys the brand new Marshall Crenshaw CD. Later, that week finding out that Marshall is coming in concert and that he needs money to buy the tickets, he takes the CD down to the local used CD store and sells the Crenshaw CD to the store. The CD store in return can resell that same Crenshaw CD to someone else. Not only is this practice permitted by the Copyright Act it is encouraged by the Copyright Act. The "First Sale" doctrine operates to provide the author of an original work the opportunity to get some cash from the sale of a copy of the work. However, once the owner has derived the benefit from the protection, unlike a patent, the copyright holder has no control over the subsequent distribution of the copy. What the copyright law protects is against copying, not distribution.
The recording industry is rightly incensed by this practice. They are in business to make money (are not we all?) and they would like a second bite of the copyright apple. If you recall, some of the major labels tried to squeeze "Mom and Pops" [Small independent retail stores] to prevent them from carrying used CD’s by threatening their co-op advertising rates. This was aimed at discouraging the market for used CD’s. There have been other attempts to Lobby Congress to change the Copyright Act to give further distribution rights but so far Congress has not taken up the challenge. What the recording industry [and the software industry] has succeeded in curtailing is the practical limits of the First Sale Doctrine. What if we change the Marshall Crenshaw hypothetical we just looked at to this problem:
Example 3: Our buyer purchases the new Marshall Crenshaw CD from Tower and then a week later sells the CD to "Rent-a-Record" who then rents the CD to buyer #2. The sale from Buyer to the store is protected under the First sale doctrine. However, the rental to buyer #2 is not.
The record industry was worried that record stores might purchase the copies at wholesale straight from the distributor and then rent or lease the records to the public, much like videotapes. The release potential would be unparalleled –a rent –a-record store could purchase the latest and greatest hits at wholesale and then rent them out so they could be taped at home or even copied onto CD and then returned to the store where they could be rented out again. At the request of the record industry, Congress grafted on the following exception to the first sale doctrine, which forbids without authorization of the owner of a copyright in a sound recording or a computer program the commercial renting, leasing, or lending of a phonorecord. 17 U.S.C.A. § 109(b)(1)(a). There are a few exceptions to this prohibition –mostly aimed at non-profits, libraries, and educational institutions.
Example 4: Instead of buying the Marshall Crenshaw CD from Tower, the person receives the CD as a promo item for entering a contest on the record company’s web-site. The Used CD store buys the promo copy of the CD from the contest winner and then resells that copy as usual to buyer #2.
There has been no first sale of the promo CD. As such the original copyright owner, usually the record company has the right to control the distribution of that promotional copy. In fact, if you have every visited a Used CD store you will find that there are a significant percentage of promo CDs waiting to be bought. Promo CDs are sent out by record labels to radio and retail to promote the artist’s new product. In the artists recording contracts these are "real free goods." As these are used to promote the artist and the company receives no money directly from them these are royalty free. That is, the artist does not receive royalties on these promotional CDs. The labels try to protect themselves by giving notice that the CD is "For Promotional Use Only –Not for Sale" and therefore retains the right to control distribution of the work. The technical argument is that the label is only transferring possession of the CD and not ownership or title. If the transfer is only possession then the label, if it wishes, as the owner of the copyright in the sound recording could regain possession of the previously distributed sound recording.
The reason this is only a technical argument is that courts have been reluctant to recognize the transfer of possession. Rather, the courts have, as a practical matter, recognized almost every transfer as one of ownership. Even if there has not been an exchange of money for the sound recording, courts have been willing to find other consideration (value) for the exchange such as rendering services in return. Thus, even if no first sale was intended courts will work hard to find that a sale actually took place. The rationale for this decision may in part have to do with the potential civil liability of innocent infringers. Subsequent purchasers of a sound recording may find themselves liable for copyright infringement by purchasing a recording without knowledge of the seller’s rights in the recording. If the seller has no rights then the buyer can only acquire those rights that the seller had. If the seller has only possession and not title (ownership) then the buyer can only acquire possession. If the buyer sells the copy he purchased thinking that he had acquired title, when he only has possession, then he is guilty of infringement for violating the distribution right of the original copyright owner. The key to understanding all this turns on the fact that an individual may be found liable for infringement even if they had no knowledge that they were in fact infringing another person’s copyright. 17 U.S.C.A. § 501 provides that "Anyone who violates any of the exclusive rights of the copyright owner . . . is an infringer of the copyright or right of the author . . .."
Remember that the "first sale" doctrine as it is called is only a limitation on the right of the copyright owner to control distribution of the copy of the original work after the first sale. That is, the first sale doctrine does not authorize the purchaser to make a copy of the work. This should make sense –If a person could purchase a single copy and then copy it for resale a whole legion of recording pirates would exist (oops they do!) and artists would never make any money on their work (generally they don’t –but record manufacturers do it legally). Recall that under the 1909 Copyright Act that was the law until 1976 –a person could make copies of a copyrighted work by paying the copyright owner a royalty of 2 cents per copy. The 1976 Act fixes this problem.
Where does this all lead? Well for those who need it in bold: The first sale doctrine only applies to the chattel –the tangible item that is sold and prevents the copyright owner from controlling the distribution of the thing beyond the first one. However, the reproduction right protects the copyright owner’s ability to prevent the new owner of the thing from making copies.
The next right is not a right that applies to owners of sound recordings. Rather, the Copyright Act takes away one of the rights from the owner of a Copyright in a sound recording :
There is NO right of Performance in Sound Recordings –The copyright owner of a sound recording has no right to exclude others from performing the work publicly. 17 U.S.C.A. § 106(4) gives a performance right to the following works: "in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly." Note that sound recordings are specifically excluded. To further make it clear that this was Congress’ true intention 17 U.S.C.A. § 114(a) states that "the exclusive rights of the owner of copyright in a sound recording . . . do not include any right of performance under § 106(4)."
This means that whoever purchases a recording may also perform or play that recording publicly without paying –read carefully now –the manufacturer of the recording or the performers of the recording anything. BUT , the songwriter (composer) is entitled to royalties for each public performance. This exclusion in the copyright Act is the precise reason why the determination of songwriter(s) is critical for each composition on a recording. The person who gets the credit gets paid. If you don’t get the credit –you don’t get jack.
To clear things up a little bit lets take a look at the songwriting process:
Example 5: Mike Herrera writes songs for MXPX and plays Bass for the band. Mike pens the tune " I’m OK, You’re OK " and then with the help of Yuri (drums and cymbals) and Tom (guitar and backing vocals) they record the song with MXPX the group arranging the song. Mike, Yuri, and Tom play on the recording. A&M Records releases the song and a local radio station begins playing it. It soon gets played 20 times per day. Who gets paid?
Mike as the songwriter gets a royalty as the songwriter for each time the recording is played. The songwriter is the composer of the tune. This composition is a copyrightable work of original authorship separate and distinct from the recording. The fact that the writer also performs the song on the recording is irrelevant. There are 3 copyrights in play on this particular recording:
Mike has a copyright in the underlying composition as he wrote the song;
MXPX has a separate copyright in the arrangement of Mikes composition;
A&M with MXPX hold a copyright in the sound recording itself (this distinction you recall we described earlier) (For purists A&M and MXPX have independently contracted for the copyright in the sound recording as part of the recording agreement and more than likely A&M is the sole copyright holder of the sound recording)
Until Mike authorized the production of the sound recording containing his composition his rights in the composition were unaffected by the limitations contained in § 114. That is as the composer Mike had the right to prevent public performance of his composition. However, once authorized, Mike can no longer control the public performance of the composition –the limitations of § 114 apply to the sound recording and § 115 applies to the composition. § 115 recall is the compulsory license section and requires a royalty be paid to the owner of the copyright in the composition, once authorized, in the amount of roughly (very) 7.01 cents per composition. While this might not seem like a lot of money it is a several fold increase over the 1976 royalty which was "two and three fourth cents or one half of one cent per minute of playing time." This royalty payment operates mechanically –and hence these royalties are called "mechanicals" and are paid to the artists publishing company.
MXPX also gets paid, not as a performer on the recording but as holders of the copyright in the arrangement. In this manner, Mike shares some of his royalty with his bandmates who will not get so irritated when "I’m OK, You’re OK" becomes a huge hit. This is important because when everyone in the band gets paid –bands stay together. This reduces the intra-band conflict. If Tom and Yuri were not sharing in the recording they might be tempted to break away and write their own songs such as "You’re OK, I’m not OK."
