Ringtone Copyright Royalty Upheld by Appeals Court

Ringtones, part of a $729 million market for mobile phone downloads, should carry a royalty of 24 cents per item rather than a percentage of revenue, an appeals court ruled, rejecting a challenge brought by the recording industry.

The U.S. Court of Appeals for the District of Columbia upheld the royalty structure set by the Copyright Royalty Board as well as the 1.5 percent monthly fee it established for late payments. The Recording Industry Association of America claimed the decisions of the board, a three-member panel appointed by the Librarian of Congress, were “arbitrary and capricious.”

The association had sought to tie royalties for ringtones using music its members distribute to revenue, arguing that falling prices made the rate unreasonable. Popular ringtones, such as Jay-Z’s “Empire State of Mind” or Journey’s “Don’t Stop Believin,’” sell for $2.99 on the Verizon Wireless website.

The court agreed with the board that the fixed rate it established in October 2008 is more directly tied to “the nature of the right being licensed.”

Jonathan Lamy, a spokesman for the trade group, said the ruling will “provide a roadmap that will help facilitate more timely payments to songwriters and publishers, an objective we all share.”

The mobile shipments, which include ringtones, ringbacks, and full-length content, declined 25 percent in 2009 to $729 million, the Recording Industry Association of America said in a January report. Ringtones make up about 60 percent of that market, it said.

The Copyright Royalty Board is charged with setting royalty terms and rates when copyright owners and licensees are unable to negotiate agreements by themselves.

The case is Recording Industry Association of America Inc. v. Librarian of Congress, 09-1075, U.S. Court of Appeals for the District of Columbia (Washington).

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net

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