New York — A federal appeals court in New York chaired by three-judge panel issued a ruling Friday in favor of Yahoo Inc Internet radio stations from paying higher music royalties every time it plays a song on its LAUNCHcast Webcasting service, which provides individualized music streams to Web users, in a setback to labels such as Sony Corp.’s BMG Music and Bertelsmann AG’s Arista Records, affirming an earlier verdict.
Instead, in its ruling on the case (Arista Records LLC et al v. Launch Media), the three-judge panel said the service would only be required to pay licensing fees set by SoundExchange, a nonprofit that collects royalties on sound recordings. It was the first federal appeals court to decide the issue.
Yahoo spokeswoman Kim Rubey said the Sunnyvale, California-based company is pleased with the ruling and looks forward to providing “the best online music experiences” to customers.
“It delivers a great clarity to an area that has pestered innovators for a long time,” said Jonathan Potter, executive director the Digital Media Association, which represents Internet companies. “There has been 10 years of litigation over this. Companies have been put out of business because of this issue.”
Friday’s landmark decision is a major setback for record producers that have struggled with slumping sales as customers increasingly obtain music online or through other means.
“It is an immediate loss for the recording industry,” said Rey Sanchez, chairman of the department of music, media and industry at the University of Miami and a voting member of the National Academy of Recording Arts and Sciences.
“If the service had been deemed interactive, Yahoo would have to negotiate fees with every record label to use their songs. Instead, it only has to pay licensing fees.”
He further added that the difference “signals a shift in the culture of how people access music, and how to monetize that access.”
Reuters quoted Judge Richard Wesley, writing for the court: “There is no general right of performance in the sound recording copyright. There is only a limited right to performance of digital audio transmission with several exceptions to the copyright, including the one at issue in this case.”
Yahoo had won the case in 2007, but Sony appealed, resulting in Friday’s ruling. A Sony BMG spokesman Brian Garrity declined to comment, as did Jonathan Lamy, a spokesman for the Recording Industry Association of America.
Other recording companies involved in the case included Capitol Records Inc, Motown Records Co and Virgin Records America Inc, among others, court papers show.
The decesion is an “excellent news” for independent record labels, said Rich Bengloff, president of the American Association of Independent Music.
The suit sprang up way back in 2001, when a unit of Sony sued Launch Media claiming the service was avoiding a law that requires those who provide specific playlists of songs over the Internet to pay rights holders. Yahoo also acquired Launch Media that year, but has since turned over control of the service to CBS Radio, a division of the same corporation that publishes CNET News.
The appeals court also blamed trial judge Richard Owen for giving potentially misleading jury instructions in the case, but said it did not need to address the issue.
Meanwhile, it is a clear victory for Yahoo and LAUNCHcast, which streams music based on users’ preferences for particular genres, artists or songs. But it is quite a different story the major labels, represented by plaintiffs including Sony’s Arista Records, Bad Boy Records, BMG Music, Capital Records, Motown Records and Virgin Records America, among others.
The case is Arista Records LLC et al v. Launch Media Inc, U.S. Second Circuit Court of Appeals, No. 07-2576 (Mahhattan).