The Recording Industry Association of America and Internet-only webcasters, which already pay record label royalties, asked the government agency to determine if a federally licensed radio signal made over a digital network is exempt from copyright liability under 1995 Digital Performance Right provisions.

The Copyright Office ruled that rebroadcasting a radio signal over the Internet constitutes making a digital copy of RIAA members’ work and record companies must be paid when a radio station streams its product via webcast.

And just to make sure nobody gets a free ride for even one day, the office also announced the fees – once determined by an arbitrator – will be retroactive to the date the station began webcasting.

“We are gratified the U.S. Copyright Office agreed with our position,” RIAA president Hilary Rosen said. “They reached the right conclusion as a matter of law and sensible policy. This is an important right for artists and record companies.”

Inside Radio, an industry publication, reports that roughly 4,000 of 14,000 traditional radio stations also stream their programming over the Internet.

It’s widely expected the decision will be appealed by broadcasters, who contend the federal law exempting them from paying record company royalties for regular broadcast applies to simultaneous broadcasts over the Internet.

The copyright office ruling “is directly contrary to existing federal law and Congressional intent as expressed in the Copyright Act,” Edward O. Fritts, president of the National Association of Broadcasters, told the Los Angeles Times.

Even if the ruling is upheld on appeal, it may not be the last word on the subject.

The NAB has already filed suit in U.S. District Court in New York asking for a ruling on the same issue, arguing that Congress specifically exempted broadcasters in legislation related to digital music transmission. The NAB also contends that royalties are already paid to songwriters and music publishers.

According to the New York Times, the Internet radio audience comprises about 4 percent the number of traditional radio listeners. But the audience for Internet radio is rapidly expanding.

It’s not immediately clear what affect the ruling may have on independent radio stations or non-commercial, educational stations such as National Public Radio members. It’s expected that some of the indies with high Internet listenership – such as KPIG in Watsonville, Calif. – would be hard hit.

According to the Los Angeles Times, a copyright panel will take up the issue of how much the record labels can charge for digital broadcast royalties and a decision is expected next summer.

Jonathan Potter, director of the Digital Media Association, told the newspaper that the RIAA members last week had asked webcasters to pay 15 percent of their gross revenue, which is about 10 times what they have to pay songwriters for licenses.