Is Pandora Really a Non-Interactive Service? Does It Really Qualify for Compulsory Licenses and Lower Rates?

What Is interactive radio?  And why isn’t Pandora considered interactive radio?

Although Pandora has always regarded themselves as a “non-interactive” Internet radio service  from what I can tell this assumption has never really been properly tested. The question is important because if Pandora is  “interactive” -not non-interactive -it could no longer rely on compulsory licenses.  Instead it would have to negotiate with rights holders to use sound recordings.  Further it would no longer be able to engage in its patented direct licensing shenanigans and “create evidence” for the copyright royalty board.  All of this would be a net plus for rights holders as Pandora has been relentless in trying to lower royalties paid to songwriters and performers.  And besides a little good faith negotiation never hurt anyone.

I will say that I have always felt that Pandora oversteps the bounds of what should be considered a non-interactive webcasting service.  Mostly because it’s… well it’s interactive!  It allows me to build my very own personal radio station based on a particular artist, even a particular song.  I can skip tracks, I can give a track a thumbs up, or give a track a thumbs down and I won’t ever hear that track again!  It’s very interactive.

But more importantly, if I build my personal station using just the artist (and not specific song) the first song played is almost always a song by the artist I requested.  If I specify a particular song and artist, I always get a track by that artist within the first five songs.  If I don’t want to wait for the first few songs to play,  I can “skip” the first four tracks to get to a song by the specified artist.  So for all practical purposes I can almost immediately make the service play a track by the artist I want to hear.

This intuitively seems to make Pandora an interactive internet radio service.

What does the law say?

I realize  using my own intuition for what is interactive and non-interactive is not law. So what does the law say?   I dug out the relevant paragraph that currently applies (H.R. Rep. No. 105-796 at 88):

Subsection 114(j)(7)—‘‘interactive service.’’ The definition of ‘‘interactive service’’ is amended in several respects. First, personal- ized tranmissions—those that are specially created for a particular individual—are to be considered interactive. The recipient of the transmission need not select the particular recordings in the program for it to be considered personalized, for example, the recipient might identify certain artists that become the basis of the personal program. 

This seems very clear.   Indisputable even.  Further the fact the cited paragraph is a clarification of the definition of interactive service it would seem to carry extra weight.  The previous definition had been criticized for being too vague, so this paragraph is intended to be more precise, more literal, and less open to interpretation than the previous language. Congress really meant it when they modified the  description.

From this we can objectively conclude that congress  clearly intended to include this specific kind of “personalization” as interactive. To argue otherwise is absurd. Otherwise why give it as an example?

Again let’s look at that last line:

“the  recipient might identify certain artists that become the basis of the personal program.”

If I can start my own personal radio station based on an artist and it immediately plays a song by the artist it is clearly giving me the artist “on demand.”  Clearly Pandora is interactive.  I think most reasonable people would come to the same conclusion.  But here is the problem.   Pandora (and other “non-interactive” services) take the position that they are no different than the now-defunct LAUNCHcast  And because  the Second Circuit Court of Appeals ruled that LAUNCHcast was non-interactive it follows that Pandora is also non-interactive.

Does this truly follow?  I don’t think it does.

The Second Circuit and Launch Media. 

Once upon a time there was a internet music service called LAUNCHcast.  And if you or I examined this service we might reasonably conclude that the service was “interactive” and hence could not avail itself of the compulsory licenses.   This is in fact what BMG/Arista argued in 2001 and subsequently took LAUNCHcast to court.  But the Second Circuit disagreed and allowed LAUNCHcast to be classified as non-interactive.   This decision was upheld by the Second Circuit Court of Appeals in 2009.

Many broadcast attorneys were surprised by the original decision and the result of the appeal. Even those that generally welcomed the expanded flexibility it granted internet broadcasters seemed to think it was maybe a little too good to be true.   As one IP litigator noted at the time:

In my opinion, the LAUNCHcast decision is quite persuasive. The court’s research into the legislative history is exhaustive, and its understanding of the relevant technology is impressive. But, if you read just the text of the definition of interactive service, it’s a pretty counter-intuitive result. – See more at: http://ipbreakdown.com/blog/pandora-almost-wasnt-the-definition-of-interactive-part-11-of-our-online-music-services-series/#sthash.pAxwQ8Gn.dpuf

There was even a sort of “fix” proposed, gradations of interactivity to create a sort of  “pseudo interactive streaming” service, since in the view of many the court should have kept LAUNCHcast in the interactive service but simply applied different rates.

Now I’m not trying to re-litigate the Launch media decision,  the real question is whether Pandora is interactive not LAUNCHcast.   However let me at least outline my  general criticism of the LAUNCHcast decision.  For if my reasoning is legally sound (due diligence if you are not aware I have no legal training) I believe it is very significant.

While the decision on LAUNCHcast is admirable in its craftsmanship (some would say admirable in a Rube Goldberg sort of way) it ultimately rests on some assumptions that I don’t think one can necessarily assume.  Further if I diagram the argument (I won’t do that here as it is a beast), it seems to rely on some false inductive reasoning at key points.  ( I will admit it’s possible that I don’t really understand the argument).   But these criticisms are ultimately unimportant, for IMHO there is a much bigger flaw.

The real problem with the decision requires one to  “zoom out” and look at the decision as a forest and not trees. From that “zoomed out” perspective you can see an enormous and troubling contradiction.

Specifically the Second Circuit’s interpretation of the law eliminates the need for an entire class of interactive services set up by the very same law.   How is the Second Circuit’s interpretation of the law possibly consistent with what congress intended?  Clearly congress didn’t intend to set up a class of interactive services that were unnecessary because they were actually non-interactive services.  But that is the consequence of the decision.

Two Classes of Interactive Services

 The DMCA not only distinguishes between non-interactive and interactive services, it further subdivides the interactive services in to two categories:

An “interactive service” is 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 U.S.C. § 114(j)(7))

or as described by Mary Ann Lane in the Alabama Law Review:

The DMCA provides two models of interactive services: (1) a program that is specially created for the recipient and (2) a program that allows an individual to request a particular sound recording.

As many commentators have observed the court explicitly accepted this distinction and only attempted to clarify whether LAUNCHcast was interactive under the first model.  Again quoting Lane in the Alabama Law Review:

The Second Circuit’s opinion began with a focus on the type of interactive service in which a program is “specially created” for the recipient. Because a LAUNCHcast user cannot request a particular song on demand, the court did not consider the other model of an interactive service—a program that allows a user to request a particular sound recording.

While the court focused on what was meant by “specially created” the court does not seem to address the fact that this decision effectively moves all services that congress intended to classify as interactive under model (1) to non-interactive.    It virtually depopulates the entire category.   This clearly is not what congress intended when it created (and then further clarified) this category of interactive services.

Are there any services in the US that are classified as interactive under model (1)? This is a serious question. I really don’t know.  Are there any services that are not on-demand that negotiate for sound recording licenses?  I’ve asked around but no one is quite sure.   I’m sure there must be a few but I can’t seem to find any.   iTunes radio and Spotify radio all appear to be classified as non-interactive.   Certainly if there are any services they must represent such an insignificant portion of the market that we can reasonably call this  category empty.    And this fact appears to be the direct consequence of this decision.

Reductio ad Absurdum

So now let’s go back to my earlier questions.   Pandora considers itself a non-interactive service presumably based on the LAUNCHcast decision.  The idea is LAUNCHcast was ruled non-interactive so Pandora is similar and therefore it follows non-interactive.  So does it truly follow? Is that truly the correct logical conclusion to make?   And if indeed it does follow that Pandora is non-interactive what does that say about the Second Circuit’s decision?

I say that no matter which logical fork you take, eventually you undermine the argument that Pandora is a non-interactive service.

1.  Assume the LAUNCHcast decision also classifies Pandora as non-interactive. But clearly Pandora allows  “the recipient to identify certain artists that become the basis of the personal program.” This is clearly interactive as this is one of the examples listed in the DMCA.  Therefore  a) the LAUNCHcast decision is  wrong or b) the decision is improperly applied to Pandora.

Either way Pandora does not get the benefit of the LAUNCHcast decision.

2. Assume Pandora does not have the benefit of the LAUNCHcast decision.  Then again, on its own merits and as noted above it passes the test for interactive and thus fails the test for non-interactive.

Either way Pandora is interactive.

Why are they even before the CRB as a Non-Interactive Service?   To quote Walter in The Big Lebowski  “Smokey, this isn’t ‘Nam, there are rules.”

 

 

 

 

 

 

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