(CN) – A federal judge improperly calculated the licensing fees that Yahoo! and RealNetworks pay to stream music online, the 2nd Circuit ruled, calling the judge’s methods “flawed.”
The federal appeals court in Manhattan said the lower court improperly applied a royalty rate of 2.5 percent to music licensed to Yahoo! and RealNetworks by the American Society of Composers, Authors and Publishers (ASCAP).
Writing for the three-judge panel, Judge John Walker Jr. said the federal district court “did not adequately support the reasonableness of its method for measuring the value of the Internet Companies’ music use” or the amount of royalties they should pay.
Yahoo!’s music-use revenue was based, in large part, on the amount of streaming time. But the appellate panel pointed out that Yahoo!’s advertising revenue “more accurately correlates with the number of times a particular page is accessed by users than to the duration of streaming time.”
“It is, thus, unreasonable to use streaming time … as a proxy for the number of times a page is viewed,” Walker wrote.
In the case of RealNetworks, the lower court “failed to explain the basis” for how it calculated fees.
The 2nd Circuit told the federal judge to recalculate the Internet companies’ blanket licensing fees.
ASCAP, which licenses about 45 percent of all online music, also challenged the judge’s finding that digital music downloads do not constitute a “public performance” under copyright law.
The appeals court agreed with the lower court that such digital downloads are not public performances, and thus ASCAP is not entitled to additional compensation.
Online downloads are “simply transfers of electronic files containing digital copies from an online server to a local hard drive,” Walker wrote.
“Music is neither recited, rendered, nor played when a recording (electronic or otherwise) is simply delivered to a potential listener,” he wrote. “Because the electronic download itself involves no recitation, rendering, or playing of the musical work encoded in the digital transmission, we hold that such a download is not a performance of that work.”
Nearly 300,000 musicians, artists and publishers allow ASCAP to license their work. Yahoo! and RealNetworks use the nonprofit’s repertory for online content through their websites and subscription services.
Despite the 2nd Circuit’s ruling, ASCAP told Reuters that it remained confident that it would receive “a fair and favorable license fee.”