Licensing Digital Music in Brazil, Mexico, and the United States
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LET IT BE: LICENSING DIGITAL MUSIC IN BRAZIL, MEXICO, AND THE UNITED STATES. A COMPARATIVE APPROACH. A DISSERTATION SUBMITTED TO STANFORD LAW SCHOOL AND THE COMMITTEE ON GRADUATE STUDIES OF STANFORD UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF THE SCIENCE OF LAW María José Cordero Salas May 2018 Let It Be: Licensing Digital Music in Brazil, Mexico, and the United States. A Comparative Approach. Abstract Internet and digital technologies have completely transformed the global music industry, including licensing practices. Long-standing copyright concepts and institutions that enable music markets have also been affected. These changes along with pre-existing “copyright fragmentation” pose important challenges for licensing digital music. Using a qualitative case study approach, this thesis focuses on analyzing the licensing practices for download and interactive streaming used in Brazil and Mexico; two of the most relevant music markets in Latin America. The study further draws on a comparative analysis of the licensing practices in these countries and those in the United States. This kind of comparative approach reveals differences in how stakeholders in each nation have chosen to overcome licensing hurdles. It also illuminates how the role of the government and the regulatory framework in each country impacts efficient licensing. This study identifies several trends in licensing music for download and interactive streaming uses. The first pattern consists of the economic rights that must be cleared to obtain these licenses. For downloads, the mechanical right, comprised of the distribution and reproductions rights, must be cleared. For interactive streaming, both the reproduction and the public performance rights must be licensed. While some differences exist in the local laws regarding these rights, these differences do not impact licensing significantly. The study also establishes that standardized practices for licensing digital music exist in all three countries. Digital music providers (DMPs) who need to obtain a license first clear sound recording rights and then, on a local basis, clear musical works rights. DMPs practices derive from the national processes for licensing digital music. The case studies demonstrated that licenses for downloading activities have a two-step process across the board: clearing mechanical rights for sound recordings and musical works. Nonetheless, licensing interactive streaming offers more variability and additional hurdles. In addition to identifying trends in digital licensing practices, this study also reveals pervasive challenges. These include the lack of an authoritative public database that identifies the rights of every song; the lack of transparency in royalties’ distribution; the iv difficulties of identifying licensors for mechanical licenses; and other issues arising from the fragmentation of copyrights. Depending on the nature of the regulatory framework used in each country, it either enables stakeholders to solve their licensing issues or acts as a barrier to problem-solving. These findings suggest that private actors may be best suited to come up with arrangements to coordinate property and develop solutions to licensing problems. This premise is consistent with existing copyright literature, but further empirical testing is necessary. In this context, this study concludes by suggesting that the role of the government in digital licensing of music should be to encourage private actors to implement solutions to enhance licensing, but some caveats exist. For instance, governmental oversight of collective licensing is important to ensure transparency. Such supervision, however, should not deter the capabilities of stakeholders to innovate and implement solutions that can lead to a more efficient scheme. Further, this research contributes to the comparative intellectual property law literature by providing new insight into how the licensing of digital music compares across jurisdictions in the Americas. v Acknowledgements This project is the result of several years of work, in which many individuals and institutions participated in some way. The multinational dimension of this work required the contribution of a myriad of individuals, companies, and institutions that helped me to surmount the enormous challenges found in cross-border research, which at times seemed daunting. I am very grateful to my advisor, Professor Paul Goldstein, and the members of my committee, Professors Lisa Ouellette and Phil Malone, who were essential in guiding me through this process. Their support and advice provided me with an ideal setting to freely explore ideas while receiving keen advice in the most challenging times. I am also grateful to Professor Deborah Hensler, whose support and dedication to the JSD program have created an unmatchable environment to develop empirical legal research. Clara Lewis whose tutoring gave me wonderful guidance in carrying out this project. In addition, the support of my JSD friends, my family away from home, has been fundamental to the accomplishment of this long project. Belonging to the Stanford community has been one of the greatest privileges of my life. I am forever grateful to this community which has allowed me to grow as an academic and as a person. I was fortunate to receive financial or other support from different sources at different times during this process. In particular, I want to acknowledge the MICIT-CONICIT, the Gregory Terrill Cox Research Fellowship from the John M. Olin Program in Law Economics, and the Cañas-Peralta Fund at Stanford Law School, for their generous support. Many individuals were also fundamental to the gathering of data. I especially want to thank Enrico Roberto and to Denis Solera. The most prominent acknowledgment goes to each of my anonymous informants, whose valuable insights and their generosity with their knowledge and time allowed me to understand their experiences in the music industry. Last but not least, I am forever grateful to my friends and family, who have supported me throughout it all. To Dean, my lovely husband, the most fabulous surprise I found at Stanford, and whose love and unconditional support has made this all possible. To my vi mom Dyala, who has been my backbone and eternal source of love. To my dad Carlos, whose intellectual curiosity inspired me to pursue further education. To my siblings Paula, Carlos, and Roberto, for being there along the way. Finally, Lucas, my nephews, and niece for being my joy always. vii Table of Contents Abstract ....................................................................................................................................... iv Acknowledgements ................................................................................................................ vi Table of Contents ................................................................................................................... viii List of Tables ..............................................................................................................................xi List of Abbreviations ............................................................................................................. xii Chapter I. Introduction ............................................................................................................ 1 1. The Puzzle: Licensing Music in a Changing Environment ................................................... 2 2. Structure of the Study and Research Questions ...................................................................... 7 3. Contribution to the Legal Scholarship ......................................................................................... 9 4. Delimitation of the Study ................................................................................................................ 10 5. Principal Findings .............................................................................................................................. 11 Chapter II. Background and Conceptual Framework ................................................ 14 1. Introduction .......................................................................................................................................... 14 2. The Relevant Economic Rights ..................................................................................................... 15 3. The Key Stakeholders ....................................................................................................................... 20 4. Contractual and Management Practices ................................................................................... 24 5. Challenges for Clearing Rights: Fragmentation, Anticommons and Thickets ......... 28 6. Territoriality of Copyright Law .................................................................................................... 31 7. Transaction Costs and Copyright Governance ...................................................................... 32 8. Market Driven & Regulatory Approaches to Reduce Transaction Costs in Music . 35 9. The Case for Empowering Private Actors in the Digital Environment ....................... 41 Chapter III. The United States: A Highly Regulated Licensing Framework ....... 47 1. Introduction .......................................................................................................................................... 47 2. Economic Rights Implicated in Digital Uses in