2nd Circuit: Internet radio website that streams customized stations not required to pay royalties to individual copyright holders; statutory license fee is sufficient

Launch Media, Inc. was the original operator LAUNCHcast, a website that offered users Internet radio stations that play songs that are within a particular genre, or which are similar to a particular song or arist that the user selects.

LAUNCHcast offered radio stations with playlists that were customized to the preferences of individual listeners.   Listeners were asked to identify or rate various artists and music genres.  Users could also rate songs as they are played, and users could select an amount of “unrated” (i.e., newly-presented) music that would be played on their station.  The system then created a playlist of songs for the user by randomly generating a larger list of songs, then excluding songs that did not match various criteria based on user preferences and ratings.  Users could pause or skip songs, but they could not re-play or select specific songs.

The Digital Millennium Copyright Act (DMCA) requires those who offer an interactive service via digital audio transmission to pay licensing fees to the individual copyright holders.  However, most digital audio transmissions that are not interactive need only pay a statutory license fee under 17 U.S.C. § 114(d).  The DMCA defines an “interactive service” as one “that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording, whether or not as part of a program, which is selected by or on behalf of the recipient.”  (17 USC § 114(j)(7).)

Arista Records and other copyright holders filed the original suit in 2001, alleging that the LAUNCHcast service violated the DMCA because Launch Media did not pay the royalties to the individual copyright holders.  However, in what it characterized as the first federal appellate court decision addressing whether individualized Internet radio is an “interactive” service, the US Court of Appeals for the 2nd Circuit sided with Launch Media.  (Arista Records LLC v Launch Media, Inc., no. 07-2576-cv, Aug. 21, 2009.) 

Finding that the question of whether or not a particular service is interactive is a matter of law for a judge to decide rather than a jury, the Court found that LAUNCHcast was not an “interactive service” under the DMCA.  Stating that an interactive service is one that either (1) allows a user to select specific songs, or (2) allows a user to receive a program that is “specially created” for a user, the Court ruled that LAUNCHcast did neither.  On the question of whether LAUNCHcast’s customized stations were “specially created” for a user, the Court stated that the service “does not provide sufficient control to users such that users will choose to listen to the webcast rather in lieu of purchasing music, thereby — in the aggregate — diminishing record sales.”  The Court paid particular attention to the question of whether LAUNCHcast’s playlists were predictable to a user.  Finding that the only predictability of LAUNCHcast’s custom was that a user could choose to not hear a particular song again, the court found that LAUNCHcast’s sercice was not predictable enough to be an “interactive service” within the meaning of the DMCA.