ASCAP is suing AT&T for failure to pay
public performance royalties for their sale of musical ringtones. According to
ASCAP's opposition to AT&T's recently filed motion, ASCAP rebukes
AT&T's claim that a ringtone is no different than a song downloaded from
iTunes and therefore does not require the payment of performance royalties. In
response, ASCAP argues that when a ringtone plays to signal an incoming call,
the public performance right is triggered in two ways—once when the ringtone is
digitally transmitted to the phone (via the streaming transmission/delivery)
and again when the song is actually played on the consumer's phone to the
public. According to the filing and a statement released by ASCAP, AT&T,
and not the consumer, is then directly liable and responsible for the
corresponding public performance royalties because the consumers' phones are on
AT&T's network, and AT&T controls the entire series of steps that allow
and trigger the ringtone performance based on incoming calls. Of course, in the
alternative, AT&T claims that to the extent AT&T is not directly
liable, secondary liability attaches via the doctrines of inducement, vicarious
and contributory liability—essentially, liability for contributing to and
benefiting from the unlawful performance of ringtones by AT&T customers.
This argument is likely designed to cut against the exemption codified in the
Copyright Act allowing the "performance of a nondramatic literary or
musical work … to the public without any purpose of direct or indirect
commercial advantage… if there is no direct or indirect admission charge."
(see 17 U.S.C. § 110(4)). This would, in theory, prevent ASCAP from proceeding
against individual consumers who, although they may be publicly performing a
musical work according to Copyright Act, are doing so without commercial
advantage and thus not infringing. ASCAP also reveals in its motion that it has
consistently licensed other mobile carriers' sale and distribution of
ringtones, charging "2% of revenue and an alternative usage-based fee
calculation." In fact, ASCAP claims that prior to the Second Circuit's
2007 decision that digital downloads of sound recordings do not trigger the
public performance right (see United States v. ASCAP, 485 F. Supp. 2d 438
(S.D.N.Y. 2007)) (the "Download Decision"), "very few parties
ever questioned or challenged ASCAP on the question of whether ringtones
required public performance licenses." For business people and
transactional lawyers alike, perhaps the most notable takeaway from ASCAP's
motion stems from AT&T's claim that the ringtone providers (e.g., Jamster,
ThumbPlay, etc.), not AT&T, "bear contractual responsibility for
securing public performance rights." In other words, AT&T is stating
that if public performance royalties are due, it is the responsibility of
content providers, aggregators, and ringtone creators to make payments to the
performing rights organizations, not distributors like AT&T and other
mobile carriers/network operators. Put simply, this contention highlights the
need for parties to these types of agreements to be more explicit than ever
about which party will be responsible for performance royalties if and to the
extent any public performance rights are implicated. Here, AT&T is pointing
the finger at the providers, and to the extent this tactic works, the providers
would be responsible for paying royalties based not only on their own revenue,
but the mobile carriers' revenue, which, according to the ASCAP's standard licensing agreements, is deemed part of the provider's "client
revenue" that is included in the "royalty base" for calculating
provider payments to ASCAP. Moreover, any party ultimately saddled with responsibility
for making performance payments would not only be required to pay 2% of revenue
to ASCAP, but would also be required to remit similar amounts to the two other
major performing rights organizations in the U.S. (i.e., BMI, SESAC), raising
the total performance royalty rate to more than 6% of revenue–a sizeable
payment, and in addition to the mechanical reproduction fees due to those same
publishers and writers that are members of the performing rights organizations.
Ultimately, ASCAP, in its attempt to receive royalties from AT&T, devotes
the majority of its motion to arguing the extensive nature of ASCAP's control
over the ringtone in an effort to distinguish ringtones from full-audio
downloads addressed in the Download Decision, as the outcome of this case may
very well turn on the question of the party responsible for triggering the
performance. In other words, if an ongoing connection is maintained or required
whenever the ringtone is played on a consumer's phone (e.g., similar to the
connection required when a sound recording is streamed over the internet), then
the second kind of public performance (i.e., the digital transmission
performance) may be triggered. On the other hand, if AT&T can successfully
argue that the ringtone is downloaded only once to a consumer's phone (similar
to an iTunes track) without simultaneous or near simultaneous playback and
continues to reside on the device exclusively, then merely prompting the
playback of same by AT&T for an incoming call should fall more squarely within
the confines of the Download Decision. No matter what side you come down on,
ASCAP's PR machine has been slammed in the past for seeking payment from less
than profit driven adversaries, including campfire balladeers such as the Girl
Scouts. This time around though, eager to combat a slew of negative news
reports trashing ASCAP's pursuit of ringtone monies, ASCAP moved quickly to
address the matter with its own membership, dispatching the following
clarification to its writers and composers: "Bottom line, ASCAP is
striving to license those that make a business of transmitting its members'
music. This holds true for any medium where businesses have been built by using
this music as content or a service – whether terrestrial broadcast, satellite,
cable, Internet or wireless carriers providing audio and video content. To be
completely clear, ASCAP's approach has always been to license these businesses
– not to charge listeners/end-users." Also, noteworthy in ASCAP's
response, is the fact that ASCAP states that it is "in Federal Rate Court
with the two largest U.S. wireless carriers," evidencing that ASCAP will
be staging this battle for ringtone royalties on multiple fronts, including
with Verizon, AT&T and possibly ringtone providers supplying the mobile carriers.
Needless to say, this will be a long, hard-fought battle and the public
performance organizations, still reeling from the Download Decision (which
incidentally is still in the appeals process), will not go quietly when the
mobile carriers continue to enjoy revenue in the billions from the sale of
ringtones. As always, we will continue to closely monitor this case given the
potential impact on our clients' businesses and the need for licensing and
distribution contracts that accurately delineate each party's roles and
responsibilities in this constantly evolving digital space.
