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Court Rules AM/FM Simulcasters Must Pay Royalties

The Third U.S. Circuit Court of Appeals in Philadelphia has upheld a ruling by the U.S. Copyright Office requiring radio stations that stream broadcasts over the Internet must pay royalties to recording companies and artists as well as to composers. Traditional over-the-air radio stations only pay royalties to songwriters.

While AM and FM stations have long enjoyed the royalty exemptions to artists and labels on the premise that radio airplay promotes sales, Congress decided in passing the 1998 Digital Millennium Copyright Act (DMCA) that Internet-only radio stations would not have the exemptions.

The Recording Industry of America Association (RIAA), the principal music industry trade representing the major labels, then asked for a Copyright Office ruling if the DMCA applied to radio stations simulcasting over the Internet.

The Copyright Office ruled that the royalty payment provisions applied equally to webcasters and stations simulcasting over the Internet, which prompted an appeal from station owners and the National Association of Broadcasters (NAB). The broadcasters maintained Congress meant the DMCA to apply only to downloading services, although the language of the DMCA is vague, at best, on that point.

In August of 2001, U.S. District Judge Berle M. Schiller in Philadelphia upheld the Copyright Office ruling. Friday's decision by the Third U.S. Circuit Court of Appeals found no reason to overturn Berle's decision.

"The DMCA's silence on AM/FM webcasting gives us no affirmative grounds to believe that Congress intended to expand the protections contemplated," the Philadelphia appeals decision reads. "The exemptions the (DMCA) afforded to radio broadcasters were specifically intended to protect only traditional radio broadcasting, and did not contemplate protecting AM/FM webcasting."

The NAB vowed to appeal the ruling.

"NAB disagrees with the court opinion, which we believe serves to stifle efforts by hometown radio stations to better serve listeners. We will be exploring all of our legal and legislative options to overturn this decision, which we believe misinterprets the intent of Congress," the group said in a statement.

The RIAA, on the other hand, was delighted with the decision.

"We applaud the court's ruling, affirming our view of the law that artists and record companies should be fairly compensated for the use of their music on the Internet," said RIAA President Cary Sherman.