NEW YORK (Reuters) - The fees paid by Yahoo Inc and RealNetworks Inc for licenses to play music on the Internet should be recalculated, a U.S. appeals court ruled on Tuesday in the first case over music usage involving so-called new media.
Yahoo and RealNetworks had sought separate blanket licenses to publicly play the entire repertory of the not-for-profit American Society of Composers, Authors and Publishers (ASCAP) on some of their websites and services.
The 2nd U.S. Circuit Court of Appeals in New York said the analysis by a U.S. district court in determining the fees in 2008 was flawed in two major respects and sent it back for reconsideration.
In a written opinion, a three-judge panel said the district court "did not adequately support the reasonableness" of the method it used to measure the value of the Internet companies' music use or of applying a royalty rate of 2.5 percent to the companies' music-use revenue.
It instructed the lower court to determine whether there are "more precise or practicable" methods of setting a rate for the use of ASCAP members' music.
The case is not the first time a court has ruled on licensing fees to be paid to ASCAP for users of music, but the first involving "new media" as opposed to "old media" such as broadcast TV and radio.
The Internet companies had appealed the lower court's assessment of fees for licenses.
Sunnyvale, California-based Yahoo said in an emailed statement that the company "looks forward to the establishment of a truly reasonable royalty license rate that properly accounts for music use on its services."
RealNetworks of Seattle, Washington, did not immediately respond to requests for comment.
ASCAP says more than 390,000 composers, songwriters, lyricists and music publishers in the United States exclusively license their music through the organization. It licenses about 45 percent of all of the musical works played online, according to the court record.
"We anticipate that in the end, the proceeding will result in a fair and favorable license fee to be paid by commercial online services for the valuable intellectual property they use to sustain their businesses," ASCAP said in an emailed statement.
On a separate issue, the appeals court agreed with a lower court's 2007 decision "that a download of a musical work does not constitute a public performance of that work" under copyright law. ASCAP had argued that digital downloads, or copies of music, are also public performances for which the copyright owners must be compensated.
In agreeing with the lower court ruling on that issue, the appeals court cited a section of the Copyright Act stating that to "perform" means to recite, render, play, dance or act it either directly or through a device or process.
"Music is neither recited, rendered, nor played when a recording (electronic or otherwise) is simply delivered to a potential listener," the opinion said in part.
ASCAP said it was studying Tuesday's decision, which it has the right to appeal.
The case is USA v American Society of Composers, Authors and Publishers et al, U.S. Court of Appeals for the 2nd Circuit No. 09-0539.
Reporting by Grant McCool; Editing by Steve Orlofsky and Matthew Lewis