A major battle is erupting between some digital media companies and major music publishers, which may lead to federal litigation, Billboard.biz has learned.

The Digital Media Assn. filed a brief late today in a royalty rate-setting proceeding arguing that an interactive stream should not require a license to reproduce a composition (a digital phonorecord delivery, or DPD, license under section 115 of the Copyright Act). Major publishers are expected to react quickly and strongly, pointing to contracts made as early as 2001 in which digital companies acknowledged the right and promised to pay royalties retroactively when rates were finally set.

"This action taken by DiMA is a slap in the face to every songwriter in America," says David Israelite, NMPA president/CEO. "In addition to breaking their promise, DiMA is taking the unconscionable position that they shouldn't pay songwriters for the use of their songs."

When DiMA did not propose a rate for interactive streams as the CRB section 115 proceeding began two years ago, the Harry Fox Agency in December 2006 notified MusicNet that HFA was withdrawing its proposed license for interactive streams from the service, which supplied music for Microsoft, MTV, Yahoo! and others. The mechanical rights agency charged that DiMA's position implied an attempt by its member companies to avoid paying royalties for the past five years.

In 2001, HFA entered an agreement with the RIAA (which represented labels who then held ownership interests in many online services such as MusicNet), and later with other services, conditionally licensing interactive streams. Although there has not been a legal decision stating whether or not an interactive stream requires a license for reproducing compositions (which HFA licenses for many publishers) in addition to one for performing them (which ASCAP, BMI or SESAC license), the online services reportedly acknowledged the reproduction right in interactive streams and agreed to pay royalties for streams and limited downloads once rates were set through industry negotiations or a rate proceeding. Under the agreements, royalties would be paid retroactive to 2001.

In the brief filed Jan. 7 and obtained by Billboard.biz, DiMA requests the CRB to refer a "novel question of law" to the Copyright Office for a decision. DiMA argues that an interactive stream is not a digital phonorecord delivery (DPD), and therefore does not require a reproduction license.

"Digital music services believe that digital performances are like radio and should require a performance license only," DiMA said in a statement. "Disagreement about the scope of the rights needed has impeded digital music innovation for almost ten years... The Copyright Royalty Judges are about to determine royalty rates for digital mechanical rights utilized by music services during the years 2001-2012, and so clarifying whether the royalty should be applied to Internet radio and other digital music streams is now necessary and unavoidable."

DiMA executive director Jonathan Potter declined further comment.