Licensing

Licensing is the authorization to use licensed material, such as software, patents, trademarks, brands, and copyrighted works, by a third party. In licensing music, a licensor grants permission to a licensee to use the copyrighted music. The basis for licensing is copyright law, which grants several exclusive rights to copyright holders, in particular the right to copy, perform, disseminate, broadcast, and use it online. The copyright holder is entitled by law to give the permission to a third party to exploit certain or all rights reserved. Therefore, the rights holder has to be compensated by the licensee. Music licensing is the permission of a copyright holder (e.g., composer, lyricist, songwriter, or arranger) and holder of neighboring rights (e.g., record labels) to a licensee to exploit the copyrighted musical work. In return, the licensee has to compensate the copyright holder.

The copyright holder grants the licensee the right to copy, perform, disseminate, broadcast, and use a copyrighted work, as well as a recorded copy of a copyrighted work online. The basis for licensing a musical work is a contract. A licensing contract includes the term, territorial limits, and renewal provisions of the license, and stipulates whether or not it is exclusively granted. The agreement may also include some form of compensation, such as a flat fee for a defined period, or royalty payments determined by the number of copies sold or the total revenues acquired.

An important exemption from licensing music in U.S. copyright law is the fair use doctrine. Fair use recognizes the right of the public to make reasonable use of a copyrighted work without the copyright holder's consent. Copyrighted music may be used in the classroom for teaching purposes, in the context of research, and as citations in works of criticism, satire, and news reporting. Sampling, however, does not qualify as fair use, which is why each small piece used in the sampled work has to be licensed.

In continental European copyright law, fair use is unknown. Most national copyright laws rely instead on the concept of “private use.” Private use is a compulsory license granted by law that governs the use of copyrighted music when it is only privately used, without any commercial interest. Such private use is compensated by a levy on all recording and storage devices, as well as blank audiovisual carriers such as music cassettes, compact discs (CDs), and DVDs, which is collected by a collecting society to distribute it to the rights holders. The U.S.-Audio Home Recording Act of 1992 also allows the noncommercial copying of a recording if a royalty rate is paid on the basis of the Fairness in Music Licensing Act of 1998. The royalty rate, however, is only applicable for CDs that are sold for music use (not for blank computer CDs, CD burners, and MP3 players).

Another compulsory license stipulation in U.S. copyright law holds that when a copyright owner gives the permission to a third party to distribute recordings of nondramatic works to the public, any other person may also record and distribute recordings after paying a statutory royalty rate on each record made. This concept of compulsory mechanical license was extended to broadcast recordings on Internet radios, including Webcasting. Secondary transmission (cable TV) and music boxes are also subject to compulsory licensing.

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