(Q1)If a person provides me a CD (one that they have presumably purchased) of a song they want exported to the module, would I be required to obtain a mechanical or compulsory license to transfer the music to the module? I realize that this would be required if I were providing the music and selling pre-recorded modules.
This is a good question, and the answer is, as near as I can tell, maybe. It's clearly okay for a consumer who purchases a music CD, tape or record to make an archival copy for backup (Audio Home Recording Act, now part of the Copyright statutes). The courts have held that it is okay for a consumer to rip their CD's into MP3 and then put them on a portable player (RIAA v. Diamond, don't have the full case cite in my head). However, the courts have also held that it is NOT lawful for a company to provide a service to allow a consumer to upload a CD to a server so that the consumer (and only the consumer) can listen to the CD at another location (where he presumably has access to a computer, but not the original CD) (RIAA v. MyMP3.com).
The problem here is that the laws and caselaw give the CONSUMER a right to time- and space-shift and archive his own music, but do not give the same protections to someone providing a service to do so.
I have heard that there are other companies out there that will rip your CD's to MP3 's for you -- you can mail them your CD's, and they will return the CD's to you along with DVD's or CD's holding MP3's of your collection -- you might want to contact one of them to see what their position is. I don't know of any caselaw that says one way or the other if you need a license for this sortof business -- my reading of the caselaw suggests that what you are proposing would likely be found to be not lawful under the current climate and caselaw, but I haven't read every case in the last year, so there may be something I'm not aware of.
(Q2) Would the license be required if I did not charge for the service of transferring the song from CD to the module.
Copyright infringement is generally dependent on whether the copyright holder suffers damages, not whether the infringer is making any money or not, so this is really irrelevant. I know you are probably wondering if there is some sort of "fair use" argument here, but I doubt it -- the "fair use" laws favor educational and other nonprofit uses, not just an "I'm not making any money on this" argument...
(Q3) What if I did charge a separate fee for transfer service. Would the license be required then?
Doesn't matter when or if a fee is applied -- if there is infringement, there's infringement.
(Q4) If the answer to any of the above is yes, then why? I think a person who has purchased a CD should have the right to record it as long as it is for personal use.
Well, look at what you wrote -- "I think a person who has purchased a CD should have the right to record it as long as it is for personal use" -- that is perfectly correct. However, in your case, YOU are the own "recording" the CD (or, more accurately, creating an archival or time- and space-shifted copy), but you are NOT the one who purchased the CD. The one who purchased the CD has those rights -- but it is not clear if that person has the rights to lend the CD to someone else to do the archiving and shifting for them.
As I noted above, I don't think that there is any helpful caselaw on your side, and some caselaw that suggests what you are doing is probably not lawful. However, as always, if you are about to start a new business, it's worthwhile to take your information down to a local lawyer who can review ALL of the facts of your personal situation, and review current caselaw, to determine the lawfulness (and the extent of lawfulness) of your business.
