credit: iStockphoto/Kajdi SzabolcsHARRISONBURG, Va. — A streaming royalty lawsuit brought by a Virginia broadcaster is being watched as a potential precedent that could dramatically overhaul royalty payments that radio stations pay for webcasting their on-air signals.
That would be good news for broadcasters. Many large owners have said they aren’t making money with streaming, while many smaller owners have given up or haven’t tried due to high royalty fees.
VerStandig Broadcasting is headquartered in Bethesda, Md., and owns stations in Virginia, Pennsylvania and Maryland. It wants to use a streaming technology known as geo-fencing to allow it to cap the online retransmission of its broadcast programming to within 150 miles of a station’s transmitter and not trigger the sound performance royalty fees (see sidebar).
GEO-FENCING: WHAT IS IT?
Geo-fencing is a location-based technology that creates a virtual perimeter around an area or location ranging in size from a single building to an entire state. The technology allows an entity to determine if a user’s mobile phone, device or computer is within this perimeter based upon the user’s IP address, WiFi and GSM access points, and GPS coordinates.
VerStandig Broadcasting claims in court documents that geo-fencing allows data made available over the Internet to be restricted to recipients based on their physical locations. “When data is geo-fenced, only recipients physically located within the authorized locations can access the data. Recipients located outside the designated zone receive a message explaining the data is unavailable,” according to VerStandig filings.
VerStandig claims geo-fencing “is a proven technology used by the gaming industry to restrict access to online gambling to recipients in jurisdictions where gaming is legal.”
President John VerStandig said he is working with GeoComply, a supplier of geolocation solutions for the gaming industry. Other companies offer the technology. For example, radio webcasting service provider Triton Digital offers Geoblocking as an optional feature on its streaming media platform to manage visitors’ access to a station’s online stream.
“Geoblocking can be used in order to comply with distribution contracts or limit unwanted uses,” according to Triton’s website. “You can create rules to allow or restrict access based on criteria such as the geographic location [country , region, city], the DMA and the radius within a specific location.”
VerStandig said his company had considered using Triton’s technology but “we couldn’t get assurances [from Triton] it would work correctly 100 percent of the time.” Triton declined to comment for this story.
— Randy Stine
The “declaratory judgment action,” filed by VerStandig in federal court in Harrisonburg, Va., in April, argues that using geo-fencing would qualify it for an exemption under webcasting copyright law and protection from royalties gathered by SoundExchange, the entity responsible for collecting digital performance royalties and distributing them to copyright owners.
SoundExchange is a nonprofit organization funded by a portion of the royalties that it collects from broadcasters on behalf of copyright owners who register with the organization. The Librarian of Congress designated it as the sole collective for gathering and distributing royalties. In 2013, it collected $656 million in royalties from approximately 2,500 entities in the United States, according to court documents.
SoundExchange moved to dismiss the suit in June, arguing that the court lacks jurisdiction; it claims in court documents that the Copyright Office has definitively ruled “the 150-mile exemption applies to digital retransmissions of radio broadcasts over cable and satellite systems, but does not apply to retransmissions made over the Internet.”
The attorney representing SoundExchange did not reply to a request for comment for this story.
Observers believe if VerStandig’s complaint is upheld by the court, it would allow other radio stations to stream broadcast retransmissions online within a 150-mile radius and not pay royalty fees.
According to court documents filed by VerStandig, when Congress passed the Digital Performance Right in Sound Recordings Act in 1995, data sent over the Internet could not be restricted to recipients in specific physical locations. “As a result, radio stations that have sent their AM/FM broadcasts to listeners over the Internet were not able to satisfy the 150-mile exemption and have had to pay royalties to the owners of copyrights in the sound recordings that are part of the stations’ broadcasts.”
VerStandig argues that the Copyright Act provides that a “copyrighted sound recording may be performed digitally, without infringing the copyright or payment of a royalty, when, among other things, it is part of a radio station’s AM/FM broadcast that is being retransmitted no more than 150 miles from the station’s transmitter.”
A September opinion of a Virginia magistrate judge appears to be a setback for VerStandig. The preliminary decision, which is non-binding, recommended that the case should be tossed because of lack of a “controversy” between the parties.
SoundExchange argued to Magistrate Judge Joel Hoppe that VerStandig had not been at risk of being sued by the company for copyright royalties when it filed its suit, and said it did not threaten legal action against VerStandig. “No case or controversy yet exists between the parties,” SoundExchange pleaded in its argument to dismiss the lawsuit.
SoundExchange did say it sent VerStandig a letter outlining prevailing law that showed the 150-mile exemption at issue does not apply to radio retransmissions over the Internet, according to court records, but said it never threatened litigation. Court records indicate SoundExchange’s reply came only after the company received a request for clarification from the broadcaster.
The magistrate wrote that VerStandig’s desire to know whether geo-fencing would protect it from copyright liability was understandable, but he questioned whether the suit raised a “justiciable controversy” and whether SoundExchange has the authority to bring an action to compel a broadcaster to obtain a statutory license.
In his decision, Judge Hoppe stated that any dispute that may arise in that scenario is between the copyright owner and the broadcaster. Thus, the copyright owners themselves, who are not a part of the litigation, “must act” so that this particular injury can be “cured.” However, Hoppe concluded SoundExchange can sue to collect royalties and other fees if a broadcaster does not comply with the terms of its statutory license.
VerStandig disagreed with the magistrate and, according to court records, believes his recommendation was based on a “fundamental misconception” about the suit. Seeking a declaration that it will not be liable for copyright infringement under the Copyright Act, it claims the magistrate’s findings were incomplete and based on an understanding that the company planned to use geo-fencing only on WTGD(FM) in Harrisonburg, Va., which does not stream on-air programming.
But VerStandig also intends to use the technology on the current Internet audio streams of WQPO(FM) and WJDV(FM), also in Harrisonburg. This matters, according to the broadcaster, because WQPO and WJDV are already party to the statutory license with SoundExchange.
“That relationship drives both the ripeness and jurisdiction,” of its declaratory judgment action, VerStandig concluded.
VerStandig officials said they intend to use geo-fencing eventually on all of their radio stations’ online retransmissions.
U.S. District Court for the Western District of Virginia Judge Michael Urbanski will make the final decision and can take the magistrate’s decision into consideration.
“A BIG DEAL”
Broadcast industry observers believe VerStandig’s case could reshape the royalty landscape.
“If VerStandig wins, it would be a big deal to a lot of broadcasters,” said David Oxenford, a communications attorney with Wilkinson Barker and Knauer LLC.
Oxenford said all radio broadcasters that stream their on-air programming must pay performance royalties to SoundExchange. Geo-fencing their streams, if it works accurately, could give broadcasters an exemption.
“Geo-fencing to some degree has been around for some time, but it is becoming more reasonable at this point for broadcasters to rely on.”
Nothing is stopping VerStandig or any broadcaster from using geo-fencing on its stream right now, Oxenford said, but an owner would run the risk of being sued by SoundExchange.
“If the broadcaster is wrong on their beliefs as to what the law says, they would face huge damages,” Oxenford said.
Statutory liability for damages in copyright infringement cases can be as much as $150,000 per infringement, he said. “If you are playing thousands of songs heard by thousands of listeners, you could be talking billions of dollars for large broadcasters.”
The presiding federal judge was expected to hear arguments in late October on SoundExchange’s motion to dismiss and VerStandig’s exceptions to the magistrate’s ruling to dismiss. Several industry observers believe a decision on whether the case proceeds to trial could come later this fall.
During a legal session at the fall Radio Show, NAB EVP/General Counsel Jane Mago said: “We feel the judge will act sometime in the not too distant future.”
Another observer described the most recent developments as the “prelims to see if there is enough there” to get the case to trial. “There is still a long way to go in the process,” he said.
John VerStandig, president of VerStandig Broadcasting, remains confident the case will go to trial.
“The magistrate’s decision is typically accepted by the presiding judge unless exceptions are filed, and that is what we did. We believe the magistrate made significant errors in reaching his opinion,” VerStandig said.
VerStandig said the presiding federal judge has several options. He could accept the magistrate’s opinion, remand the case back to the magistrate for further consideration or order the case to proceed to trial.
“It is unlikely he will rule from the bench during the hearing” in late October. “It’s far more likely he will release a written decision later this fall,” VerStandig said.