The RIAA and music publishers, concerned that consumers' ability to make perfect digital copies of music would destroy the market for audio recordings, had threatened to sue companies and had lobbied Congress to pass legislation imposing mandatory copy protection technology and royalties on devices and media.
The AHRA is often overlooked, but it establishes a number of important precedents in US copyright law that defined the debate between device makers and the content industry for the ensuing two decades. These include:
The Act also includes blanket protection from infringement actions for private, non-commercial analog audio copying, and for digital audio copies made with digital audio recording devices.
DAT was available as early as 1987 in Japan and Europe, but device manufacturers delayed introducing the format to the United States in the face of opposition from the recording industry. The recording industry, who feared that the ability to make perfect, multi-generation copies would spur widespread copyright infringement and lost sales, had two main points of leverage over device makers. First, consumer electronics manufacturers felt they needed the recording industry's cooperation to induce consumers — many of whom were in the process of replacing their cassettes and records with compact discs — to embrace a new music format. Second, device makers feared a lawsuit for contributory copyright infringement.
Despite their strong playing hand, the recording industry failed to convince consumer electronics companies to voluntarily adopt copy restriction technology. The recording industry concurrently sought a legislative solution to the perceived threat posed by perfect multi-generation copies, introducing legislation mandating that device makers incorporate copy protection technology as early as 1987. These efforts were defeated by the consumer electronics industry along with songwriters and music publishers, who rejected any solution that did not compensate copyright owners for lost sales due to home taping.
The impasse was broken at a meeting in Athens in 1989, when representatives from the recording industry and the consumer electronics industry reached a compromise intended to enable the sale of DAT recorders in the United States. Device manufacturers agreed to include Serial Copy Management System (SCMS) in all consumer DAT recorders in order to prevent serial copying. The recording industry would independently pursue legislation requiring royalties on digital audio recording devices and media.
A year later the songwriter Sammy Cahn and four music publishers, unhappy with the absence of a royalties provision in the Athens agreement, filed a class action copyright infringement suit against Sony. The plaintiffs sought declaratory and injunctive relief that would have prevented the manufacture, importation or distribution of DAT recorders or media in the United States. The suit brought Sony to heel. In July 1991, Sony, as part of larger agreement between the recording industry and consumer electronics makers, agreed to support legislation creating a royalty scheme for digital media. In exchange, Cahn and the publishers agreed to drop the suit.
With all the major stakeholders satisfied, the bill easily passed both houses of Congress. President George H. W. Bush signed the AHRA into law in 1992 proclaiming " S. 1623 [AHRA] will ensure that American consumers have access to equipment embodying the new digital audio recording technology. It also protects the legitimate rights of our songwriters, performers, and recording companies to be fairly rewarded for their tremendous talent, expertise, and capital investment. this will be accomplished by fairly compensating these artists for the copying of their works and by creating a system that will prevent unfettered copying of digital audio tapes.
The statutory definition states:
A "digital audio recording device" is any machine or device of a type commonly distributed to individuals for use by individuals, whether or not included with or as part of some other machine or device, the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use.
The definition of "digital audio recording medium" is similar:
A "digital audio recording medium" is any material object in a form commonly distributed for use by individuals, that is primarily marketed or most commonly used by consumers for the purpose of making digital audio copied recordings by use of a digital audio recording device.
In each case, the principal distinction between what is and is not covered by the AHRA is determined by whether or not the device is marketed or designed (or in the case of media, commonly used by consumers) to make audio recordings, not the device's capabilities. A CD-R recorder included as part of a personal computer would not be a digital audio recording device under the Act, since the personal computer was not marketed primarily for making copies of music. The same recorder, sold as a peripheral and marketed for the express purpose of making digital audio recordings, would fall under the Act's definition of a recording device.
The AHRA's definition of "digital audio recording media" explicitly excludes pre-recorded but recordable media, and storage media used primarily to store information other than musical works.
This exception was crucial in RIAA v. Diamond Multimedia Systems, Inc., the only case in which the AHRA's provisions have been examined by the federal courts. The RIAA filed suit to enjoin the manufacture and distribution of the Rio PMP300, one of the first portable MP3 players and the forerunner to the iPod, because it did not include the SCMS copy protection required by the act, and Diamond did not intend to pay royalties. The 9th Circuit, affirming the earlier District Court ruling in favor of Diamond Multimedia, ruled that the "digital music recording" for the purposes of the act was not intended to include songs fixed on computer hard drives. The court also held that the Rio was not a digital audio recording device for the purposes of the AHRA, because 1) the Rio reproduced files from computer hard drives, which were specifically exempted from the SCMS and Royalty payments under the act, 2) could not directly record from the radio or other transmissions.
For digital audio recording devices, manufacturers and importers pay a 2% royalty on the device's transfer price, with a minimum royalty of $1 and a maximum of $8 ($12 for dual recorders) per device. For digital audio recording media, manufacturers and importers pay a 3% royalty.
The remaining two thirds of the royalties are placed in the Sound Recordings Fund. Four percent of these funds are taken off the top for non-featured musicians and vocalists (distributed by the American Federation of Musicians and AFTRA), what remains is split 60/40 between two sets of "interested copyright parties". Interested copyright parties, a heretofore unknown category in copyright law, is defined by the act as featured artists receive 40%, and the owners of the right to reproduce sound recordings (an individual or company, mostly the record label, who owns the master sound recording) receive 60%. These parties receive royalties through the Alliance of Artists and Recording Companies (AARC) according to the extent to which their recordings were sold, based on sales in the United States, both digitally and retail.
|Sound Recordings Fund||Musical Works Fund|
|Record Labels (sound recording copyright holders)||38.4%||Music Publishers||16.65%|
|Non-featured Instrumentalists and Vocalists||2.7%|
|Percentage of Total Fund||66.7%||Percentage of Total Fund||33.3%|
The inclusion of the reproduction rights holders was unprecedented in United States copyright law. Almost thirty-nine percent of the royalties collected under the AHRA go not to songwriters and musicians, but to the record labels who own the right to copy and distribute their recordings. The justification for this cross subsidy is that the copying enabled by the digital technology is a loss of profits for the recording industry, and that they should be compensated for this loss.
It is unclear whether the recording industry ever thought that revenue from royalties would compensate for revenues lost to the first generation copying authorized by the AHRA. Given their willingness to block all distribution of all digital audio recording media and devices in the United States, that the combination of SCMS and the price premium imposed by royalties was intended to cripple the market. It is also possible that given a new technology, and the Act's unprecedented provisions (royalties, legislative mandates for copy protection), they could not predict the impact of the AHRA on adoption of the new technology.
Regardless of their intent, AHRA royalties have never been a significant revenue stream for anyone, least of all the recording industry. Revenues for the Copyright Office's Digital Audio Recording Technologies (DART) Fund peaked at $5.2 million in 2000, and have been declining, at times precipitously, ever since. Revenues for 2005 were approximately $2.4 million. According to its Web site, the Alliance of Artists and Recording Companies (with its 38% share of all DART royalties) has distributed less than $19 million since 1993, a figure which includes home taping royalties from three other countries.
"No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.
According to the Senate, this provision was intended to conclusively resolve the debate over audio home taping, and "[create] an atmosphere of certainty to pave the way for the development and availability of new digital recording technologies and new musical recordings. They were partially successful: this provision made the sale of DAT and Minidisc possible in the United States, by protecting device manufacturers, importers and distributors from infringement suits like Cahn v. Sony.
Private, noncommercial copies by consumers using "digital audio recording devices" are explicitly protected by §1008. The Senate report defines noncommercial as "not for direct or indirect commercial advantage", offering examples such as making copies for a family member, or copies for use in a car or portable tape player.
However, language in the RIAA v. Diamond Multimedia decision described above suggests a broader reading of the Section 1008 exemptions, providing blanket protection for "all noncommercial copying by consumers of digital and analog musical recordings" and equating the spaceshifting of audio with the fair use protections afforded home video recordings in Sony v. Universal Studios:
In fact, the Rio's operation is entirely consistent with the Act's main purpose — the facilitation of personal use. As the Senate Report explains, "[t]he purpose of [the Act] is to ensure the right of consumers to make analog or digital audio recordings of copyrighted music for their private, noncommercial use." S. Rep. 102-294, at *86 (emphasis added). The Act does so through its home taping exemption, see 17 U.S.C. S 1008, which "protects all noncommercial copying by consumers of digital and analog musical recordings, " H.R. Rep. 102-873(I), at *59. The Rio merely makes copies in order to render portable, or "space-shift", those files that already reside on a user's hard drive. Cf. Sony Corp. of America v. Universal City Studios, 464 U.S. 417, 455(1984) (holding that "time-shifting" of copyrighted television shows withVCR's constitutes fair use under the Copyright Act, and thus is not an infringement). Such copying is paradigmatic non-commercial personal use entirely consistent with the purposes of the Act.
This language, however, may be dicta.