A radio broadcaster is arguing that geofencing exempts it from performance royalties for webcast songs; Could this lawyered loophole backfire on the industry?

For two years, TV broadcasters have railed against Aereo’s innovative interpretation of the Copyright Act based on what Aereo claims to be technological developments. According to Aereo, its interpretation would relieve Aereo of copyright obligations. Now, in an ironic turn of events, a radio broadcaster is asserting its own innovative interpretation of a separate provision of the Copyright Act, an interpretation that (a) is based on technological developments and (b) would relieve the interpretation’s proponent of copyright obligations.

If this new argument is ultimately endorsed by the courts, it could lead to major changes in webcasting copyright law – including some changes not likely to be welcomed by broadcasters. Those changes could include, at least theoretically, creation of the Performance Right that the broadcast industry has fought for years.

The broadcaster in question is VerStandig Broadcasting (VerStandig), licensee of some FM stations in Virginia. The technological development VerStandig is relying on: geofencing, which permits a webcaster to limit accessibility to its programming based on the physical location of the computers receiving the webcast. Geofencing works by checking the “receiving computer’s IP address, WiFi and GSM access point, GPS coordinates, or some combination against a real world map of those virtual addresses”.

The provision of the Copyright Law in question in Section 114, which provides a limited exemption from the requirement that a webcaster pay royalties for the performance of copyrighted sound recordings. While broadcasters are exempt from such performance royalties for their broadcast programming, they’re still on the hook for those royalties for recorded performances that they retransmit on the Internet. But thanks to Section 114(d)(1)(B)(i), even those retransmissions are exempt if they don’t go “more than a radius of 150 miles from the site of the radio broadcast transmitter”.

VerStandig’s claim: as long as it uses geofencing to make its streamed signal inaccessible to computers more than 150 miles from its station’s transmitter, it owes no performance royalty.

Much like Aereo’s claims (which involve an entirely different area of the Copyright Act), VerStandig’s have a certain facial appeal. But their ultimate validity requires deeper analysis, and their ultimate effect could be unpleasant for broadcasters.

On February 28, 2014, VerStandig notified SoundExchange, which administers the statutory license applicable to webcasting, of VerStandig’s intent to begin webcasting its Station WTGD via a simulcast of the station’s over-the-air signal. VerStandig further asserted that by using geofencing, it would fall within the 150-mile exemption found in Section 114. VerStandig asked SoundExchange to confirm that VerStandig’s approach would not be subject to a legal challenge.

SoundExchange responded two weeks later in a letter stating – not surprisingly – that  “SoundExchange does not share your view.” According to SoundExchange, the Section 114 exemption applies only to “retransmissions of broadcasts by cable systems to their subscribers or retransmissions by broadcasters over the air. It does not apply when broadcasters simulcast their own programming over the internet.” The letter strongly urged VerStandig to obtain licenses for the simulcast transmissions.

In response, VerStandig took the fight to federal court. It asked the U.S. District Court in Harrisonburg, Virginia to issue a Declaratory Judgment providing (among other things) that: a live stream of its FM broadcasts over the Internet to listeners physically located within 150 miles of the FM station’s transmitter is an exempt transmission under Section 114(d)(1)(B)(i) of the Copyright Act; such a stream is therefore not an infringement of any rights protected by the Copyright Act; no statutory license is required; and SoundExchange has no right to collect royalties for streaming to listeners located within 150 miles of the particular station’s transmitter.

The whole thing raises a number of questions touching on several subjects from the applicability of specific statutory provisions in this case to its potential effect on an entire industry. 

Why haven’t we heard much about this exemption before? Because it never mattered. First and foremost, most people probably thought the 150-mile exemption applied only to what we usually think of in terms of “retransmission”: retransmission of broadcast signals by a cable system or an over-the-air translator or booster. And even if anybody did think that the exemption might apply to webcasting, it was pretty much a moot point because there was no way to tell when an Internet listener was within 150 miles of the transmitter, let alone ensure that only people within that geographic area received the stream. 

But geofencing changed all that. As the VerStandig complaint notes: “[n]ow, because of geo-fencing, data made available over the Internet can be restricted to recipients based upon their physical locations”. And suddenly, the 150-mile exemption looms large.

Is the claim valid?  Hard to say – it’s never been litigated. But that’s because the only time it came up on the past, it was quickly dismissed because it was at that time technologically impossible to limit the range of listenership.

What’s the short-term effect if VerStandig is right? Even though geofencing isn’t cheap, it’s cheap enough that most webcasters would likely try to employ it. 

Note one uncertain aspect of the Section 114 exemption: it’s not clear whether that exemption applies to any listener within 150 miles of the station transmitter or whether it applies only if the station ensures that no listeners can attach the stream outside of 150 miles.

If a court says, yes, there is an exemption for retransmissions within 150 miles of the station transmitter and it’s applied on a per listener basis (i.e., the station doesn’t have to pay for any performances to listeners within that radius), royalties paid by broadcasters engaged in Internet simulcasting would go way down (and the number of stations engaged in simulcasting would probably go way up as the cost of performance royalties would be eliminated). 

If a court says, yes, there is an exemption for retransmissions within 150 miles of the station transmitter and it’s applied on an all or nothing basis (i.e., the station gets the exemption only if not one single listener outside the geofence attaches to the stream), we’ll see a less “world-wide” Internet, at least as far as webcasting is involved. Sure, stations love to reach community expats who have gone off to college or beyond or others interested in their local communities from afar, but they love saving money even more. I think many, possibly most, webcasting stations would prefer to reach more local listeners via multiple devices than more listeners in multiple far-flung locations.

The bigger question: What’s the long-term effect if VerStandig is right? It’s a variation on what we see as the eventual outcome of the Aereo litigation. Faced with an interpretation that, arguably, runs counter to Congress’s initial intent, Congress could be prompted to take steps to clarify that initial intent. But unlike in the Aereo case, such clarification would likely be a lot easier to accomplish. Rather than addressing the Performance Right in a forward-looking way that deals with new technologies – a potentially herculean task – Congress has a couple of “quick fixes” at its disposal. Most obviously, Congress could simply clarify that any court ruling for VerStandig got it wrong and that the 150-mile exemption in Section 114(d)(1)(B)(i) applies only to cable and over-the-air retransmissions and not to webcasting (as SoundExchange claims). 

Or maybe this is the final straw in the long-running battle over a long-proposed Performance Right for over-the-air broadcasting. That has been held at bay for a long time but it’s never been a slam dunk. But if VerStandig wins, the recording industry would have the added argument that it stands to lose a big chunk of revenues because radio broadcasters wouldn’t be paying any royalties for performance of sound recordings, over-the-air or online (as long as the 150-mile limit is maintained). That claim of increased harm might be enough to convince enough legislators to switch their view and enact a Performance Right applicable to broadcasters.

So again we have a novel interpretation of a provision of the Copyright Act, based on claims of technical innovations and intended to exempt a substantial class of transmissions – or retransmissions – from copyright obligations. During oral argument in the Aereo case, Supreme Court Chief Justice John Roberts observed:

I’m just saying your technological model is based solely on circumventing legal prohibitions that you don’t want to comply with, which is fine. I mean that’s you know, lawyers do that.

But there it was a non-broadcaster seeking to be relieved of copyright payments to broadcasters. In the VerStandig case, a broadcaster is taking essentially the same approach to avoid copyright liability to recording artists, albeit with respect to a completely separate and distinct provision of the Copyright Act. Despite the differences between the two cases, the irony is inescapable.

There are a lot of hurdles to jump and questions to answer before this case reaches its final conclusion. But it’s not entirely out of the realm of possibility. Plainly, this case – like Aereo, albeit in a different context – has the ability to upend the broadcast industry. And, like Aereo, it’s all because someone lawyered a loophole.

Broadcasters would be well-advised to keep an eye on the progress of the VerStandig litigation as it wends its way through the courts.