Compulsory Licensing of Music on the Internet: A Proper Role for Congress?

Traditional interpretations of the rules and regulations governing copyright protections are being subjected to significant new challenges based on their application to the Internet and other developing technologies. The insurgence of companies such as Napster has forced musicians and record labels to seek relief in the courts, and rightfully so, as music lovers globally were taking advantage of the new ability to download and copy limitless amounts of music without compensating copyright holders for their intellectual properties.

Despite the warranted demise of online music services as we once knew them, their instant success has led to a marketplace that is clamoring for "convenient and affordable" online distribution of music. As a result, the major record labels have entered into partnerships and cross-licensing agreements with two new online distribution services, MusicNet and pressplay — agreements that respond to marketplace demand, while at the same time maintaining the rights and income of copyright holders.

The introduction of the Music Online Competition Act (MOCA), sponsored by Representatives Rick Boucher (D-Virginia) and Chris Cannon (R-Utah), seeks to undermine these agreements as it would, among other actions, invoke compulsory licensing beyond business partnerships between the record labels and online distribution services. In short, MOCA would force record labels to license content through "equal terms" to all nonpartner online distributors.

The Center for Individual Freedom opposes MOCA for several reasons. From a business standpoint, it is nearly impossible to define "equal terms" in distribution deals, where marketing and promotional arrangements, above and beyond the actual price of the content, must be taken into account. In addition, compulsory licensing of music distribution on the Internet raises serious constitutional concerns.

The paper, "Taking" Away Music Copyrights, asks the question: Does compulsory licensing of music on the Internet violate the Fifth Amendment’s Takings Clause? We believe a substantive argument can be made that it does.

While the Constitution grants to Congress the authority to protect copyrights as a property right through Article I and the Fifth Amendment, compulsory licensing, although providing some compensation to copyright holders, destroys one’s right to negotiate terms for the use of intellectual property. In addition, Congress should resist its temptation to intervene in the private marketplace for intellectual property rights by imposing compulsory licensing that discourages private negotiation and inhibits the development of marketplace solutions.