Copyright Royalty Stacking: Multiple Payments for Music Licensing

Copyright is a bundle of rights which requires a variety of licenses to use. Copyright royalty stacking means the layering of multiple payments for permission to use copyright-protected materials. It is a phenomenon commonly encountered in copyright licensing transactions, especially music licensing.

My book chapter in Michael Geist’s edited collection, “The Copyright Pentalogy: How the Supreme Court of Canada Shook the Foundations of Canadian Copyright Law,” breaks down the complicated rights structure into a simplified matrix so it can be more easily understood which royalty payments are required for each particular licensee’s activities.

The chapter is also based on my research into these issues as part of my legal practice. I acted as counsel for the intervener, the Canadian Internet Policy and Public Interest Clinic, in the Supreme Court of Canada cases. As a practical matter, I also thought frequently about this issue during my time as legal counsel counsel to the Copyright Board of Canada, the administrative tribunal where cases on this issue most often arise.

Stacked, by Eric, on Flickr.

Stacked, by Eric, on Flickr.

To understand the layers of copyright protection, it is important to recognize that the creation of every original work comes automatically with copyright protection; no registration is needed. An example would be an original musical work (separated into composition and lyrics), which was later performed, recorded, and broadcasted. Rights in the music, performance, recording, and broadcast are separately protected.

Each layer of protection comes with its own set of distinct rights that could potentially belong to different owners and be licensed separately. The taxonomy of protected economic rights can be broadly divided into four categories: (1) copy; (2) perform; (3) distribute; and (4) adapt/create a derivative work, though the specific structure varies widely under international and national laws.

Because of the complex overlapping nature of owner’s rights, the right to use a particular song could require a dozen licensing transactions. To make matters more confusing, some rights are administered individually and some collectively.

Prospective licensees’ practical problem is that the way markets were structured to respond to past licensing agreements may no longer be suited to modern technological or commercial circumstances, which licensees say is inconvenient. Additionally, multiple payments are occasionally routed through different intermediaries to the same party for the same activity, which licensees say is unfair.

Five important copyright cases, which I call Canada’s “copyright quintet,” discussed the emergence of further layering royalties in the form of tariffs. My chapter explains the history of those cases, and provides an analysis of their treatment of copyright licensing requirements.

In an editorial published in the Financial Post, based on my research for this chapter, I explain the basic issue:

[W]hether a distributor of digital content — in this particular case video games ­including music — should pay any more or less than someone who sells copies in bricks and mortar shops or delivers copies by courier. The Copyright Board and Federal Court of Appeal had held that online distribution requires two payments: one to make the copy, and one to transmit it. The Supreme Court has wisely set matters straight with a technologically ­neutral treatment of sales online and off, ­reducing duplication and inefficiencies.

According to established economic theory, a more streamlined system of copyright licensing will increase certainty and reduce transaction costs, thereby growing the market for copyright-protected content.

Here’s the full explanation in my book chapter: