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###### Library of Congress

###### Copyright Office

          - 37 CFR Parts 262 and 263
          - [Docket Nos. 2002-1 CARP DTRA3 and 2001-2 CARP DTNSRA]

# AGENCY:

Copyright Office, Library of Congress.

# ACTION:

Final rule.

# SUMMARY:

The Copyright Office of the Library of Congress is announcing final regulations that set rates and terms for the public performance of a sound recording made pursuant to a statutory license by means of certain eligible nonsubscription transmissions and digital transmissions made by a new type of subscription service. The final rule also announces rates and terms for the making of related ephemeral recordings. The rates and terms are for the 2003 and 2004 statutory licensing period, except in the case of a new subscription service, in which case the license period runs from 1998 through 2004.

# DATES:

*Effective Date:*                         March 8, 2004.                    

*Applicability Dates:*                         The regulations govern the license period which commenced on January 1, 2003, and ends on December 31, 2004, except in the case of a new subscription service, in which case the regulations govern the license period which commenced on October 28, 1998, and ends on December 31, 2004.                    

# FOR FURTHER INFORMATION CONTACT:

                        David O. Carson, General Counsel, or Tanya M. Sandros, Senior Attorney, Copyright Arbitration Royalty Panel (CARP), P.O. Box 70977, Southwest Station, Washington, DC 20024. Telephone: (202) 707-8380; Telefax: (202) 252-3423.                              ( print page 5694)    

# SUPPLEMENTARY INFORMATION:

                    With the passage of the Digital Performance Right in Sound Recordings Act of 1995, as amended by the Digital Millennium Copyright Act of 1998, copyright owners of sound recordings have enjoyed an exclusive right to perform their works publicly by means of certain digital audio transmissions, subject to certain limitations. 17 U.S.C. 114. Among these limitations are certain exemptions and a statutory license which allows for the public performance of sound recordings as part of “eligible nonsubscription transmissions” and digital transmissions made by “new subscription services.” [1] 

                    The section 114 statutory license, however, does not necessarily cover all the rights needed to effectuate a digital transmission. It is often necessary for the licensee to first make a number of digital copies of the sound recording in order to bring about the transmission. For this reason, Congress created a new statutory license in 1998 with the passage of the Digital Millennium Copyright Act of 1998, Public Law 105-304, to allow for the making of ephemeral reproductions for the purpose of facilitating certain digital audio transmissions pursuant to the section 114 statutory license, including those transmissions made by eligible nonsubscription services and new subscription services.                     *See*17 U.S.C. 112(e).                

The procedure for setting the rates and terms for these two statutory licenses is a two-step process. 17 U.S.C. 112(e)(3), (4), and (6) and 17 U.S.C. 114(f)(2). The first step requires the Librarian of Congress to initiate a voluntary negotiation period in order to give interested parties an opportunity to reach consensus with respect to the applicable rates and terms through an informal process. However, in the event the parties are unable to reach an agreement during this period, sections 112(e)(4) and 114(f)(2)(B) direct the Librarian of Congress to convene a three-person Copyright Arbitration Royalty Panel (“CARP”) for the purpose of determining the rates and terms for the compulsory license, provided that an interested party files a petition in accordance with 17 U.S.C. 803(a)(1), requesting the formal proceeding.

                    The initial schedule of rates and terms for the sections 112 and 114 licenses applicable to eligible nonsubscription services for the period from October 28, 1998, to December 31, 2002, was published on July 8, 2002, after a formal hearing before a CARP.                     *See*67 FR 45239 (July 8, 2002). Yet, this announcement did not settle the matter for long. It only established rates and terms for the license period ending December 31st of that year.                

                    For this reason, the Library initiated a new proceeding to adjust the rates and terms applicable to eligible nonsubscription transmissions for the 2003-2004 license period by publishing a notice in the                     **Federal Register**                     in January 2002 announcing the six-month voluntary negotiation period that commences a rate adjustment proceeding.                     *See*67 FR 4472 (January 30, 2002). The Librarian took this step even though the rates for 1998-2002 had not been announced, in order to comply with the timetable set forth in sections 112(e)(7) and 114(f)(2)(C)(i)(II). Specifically, these sections require the Librarian to publish a notice commencing the negotiation process in the first week of January 2000 and at two year intervals thereafter, unless the parties have agreed to an alternative schedule during the settlement phase of the process. In any event, the parties did not negotiate a proposed settlement during the specified period to cover the next license period and opted instead to file petitions with the Office, requesting that the Librarian of Congress convene a CARP to adjust the rates and terms for the license period 2003-2004. Two such petitions were filed with the Copyright Office. The Recording Industry Association of America, Inc. (“RIAA”) filed one of the two petitions, and IOMedia Partners, Inc., 3WK, Digitally Imported Radio, IM Networks, Inc., Beethoven.com, LLC, All Bass Radio, Discombobulated, LLC, Wolf FM and Integrity Media Group, Inc. d/b/a Boomer Radio, filed jointly a second petition on behalf of certain licensees.                

                    Likewise, in accordance with the time frame set forth in the law for the purpose of setting rates and terms for use of the section 114 license by new subscription services, the Library initiated a six-month voluntary negotiation period to adjust the rates and terms for new subscription services.                     *See*66 FR 9881 (February 12, 2001). Again, no settlement was reached by the end of the six-month period. Consequently, Music Choice and the RIAA filed separate petitions with the Copyright Office requesting that a CARP be convened in order to set the rates and terms for the public performance of sound recordings by new subscription services.                

## Proposed Settlement Agreements

The parties in both proceedings continued to negotiate in good faith beyond the statutorily mandated six-month negotiation periods in hopes of reaching an industry wide settlement. Ultimately, they succeeded, as evidenced by the adoption of the proposed rates and terms as final rules. The process, however, required the consideration of three separate agreements, explained herein.

                    On May 1, 2003, the Copyright Office published a notice in the                     **Federal Register,**                     requesting comment on proposed regulations that set rates and terms for the use of sound recordings in certain eligible nonsubscription transmissions made pursuant to section 114 during the 2003 and 2004 statutory licensing period, as well as for the making of ephemeral recordings necessary for the facilitation of such transmissions in accordance with the section 112(e) license. The proposal also included rates and terms for the use of sound recordings in transmissions made by new subscription services from 1998 through December 31, 2004, and the making of the related ephemeral recordings under these same statutory licenses. 68 FR 23241 (May 1, 2003). These proposed rates and terms were part of a settlement agreement negotiated by SoundExchange, a division of the RIAA, the American Federation of Television and Radio Artists (“AFTRA”), the American Federation of Musicians of the United States and Canada (“AFM”), and the Digital Media Association (“DiMA”) and were submitted to the Copyright Office on April 14, 2003, along with a petition requesting that the Office publish the proposed rates and terms pursuant to § 251.63(b) of title 37 of the Code of Federal Regulations, which the Office did.                     *Id. See*68 FR 23241 (May 1, 2003).                

                    The April 14 proposal was later superseded by a second proposal which was submitted to the Copyright Office on May 8, 2003. The new agreement amended the proposal in the April 14 submission with the approval of the parties to the first agreement and included, for the first time, rates and terms for simulcasts of AM and FM radio broadcast programming. These new rates were the result of an agreement between SoundExchange,                           ( print page 5695)                        AFM, and AFTRA (collectively, “Copyright Owners and Performers”), on the one hand, and Broadcasters,[2]                                          on the other hand. The May 8 agreement also included proposed rates and terms applicable to business establishment services that make ephemeral phonorecords pursuant to section 112(e) for the purpose of transmitting a public performance of a sound recording under the limitation on exclusive rights specified by section 114(d)(1)(C)(iv). These rates and terms were agreed to by the Copyright Owners and Performers and Music Choice, the only business establishment service participating in this proceeding, and cover the 2003 and 2004 statutory license period. As before, the Petitioners requested that the Office publish the amended proposed rates and terms for public comment pursuant to 37 CFR 251.63(b).                     *See*68 FR 27506 (May 20, 2003).                

                    On July 3, 2003, SoundExchange, the American Council on Education, and the Intercollegiate Broadcasting System, Inc., jointly with Harvard Radio Broadcasting Co., Inc. submitted the third and final proposal to the Copyright Office. It proposed rates and terms for use of the section 112 and section 114 statutory licenses by noncommercial licensees during the 2003-2004 license period that are identical to the statutory rates and terms adopted by the Librarian for the period ending December 31, 2002.                     *See*67 FR 45239 (July 8, 2002). It should be noted, however, that many noncommercial webcasters will not be using these rates and terms for this time period. Instead, certain noncommercial licensees will operate under the rate structure adopted in a separate license, negotiated with RIAA in accordance with the Small Webcaster Settlement Act of 2002.                     *See*68 FR 35008 (June 11, 2003).                

## Objections to the Proposed Rates and Terms

                    The Copyright Office received objections to the proposals announced in the May 20 and the August 21 notices from four entities: Live365.com, Lester Chambers (“Chambers”), Royalty Logic, Inc. (“RLI”) and SRN Broadcasting & Marketing, Inc. (“SRN”). Specifically, Live365.com objected to the rates and terms applicable to commercial webcasters, but withdrew its objections early in the process, obviating the need to consider its concerns further. Similarly, SRN objected to these same rates. However, SRN was eventually dismissed from the proceedings for its failure to comply with the Orders issued in this proceeding and the rules governing this process.                     *See*                     Order in Docket No. 2002-1 CARP DTRA3, dated August 15, 2003. That left the objections of RLI and RLI's client, Lester Chambers, which, in both cases, concerned the appointment and responsibilities of those agents designated to collect and distribute the royalty fees.                

                    An objection, however, can only be considered if the party filing the objection has a significant interest in the outcome of the proceeding. In the case of RLI, the Office determined that RLI had no independent standing to pursue its own objections but held that RLI could represent the interests of its client, Lester Chambers, provided that Chambers expressly authorized RLI to represent its interest in these proceedings.                     *See*                     Order in Docket Nos. 2002-1 CARP DTRA3 and 2001-2 CARP DTNSRA, dated August 18, 2003. Consequently, at the beginning of the hearing phase of this proceeding, Chambers, as represented by RLI, was the only remaining party that had filed an objection to the proposed rates and terms. This objection, however, became moot on January 8, 2003, when RLI filed a notice with the Copyright Office withdrawing its Notice of Intent to Participate in these proceedings and its Direct Case.                

Because there are no longer any parties objecting to the proposed rates and terms, the Librarian is adopting as final regulations the rates and terms for the section 112(e) and section 114 licenses proposed in the May 20 and August 21 notices. The rates and terms apply to the public performance of a sound recording by means of certain eligible nonsubscription transmissions and digital transmissions made by a new type of subscription service. The final rules also announce rates and terms for the making of related ephemeral recordings. The rates and terms are for the 2003 and 2004 license period, except in the case of new subscription services, in which case the license period runs from 1998 through 2004.

Adoption of the rules presented herein as final regulations concludes the above-captioned proceedings.

# List of Subjects in 37 CFR Parts 262 and 263

      - Copyright
      - Digital audio transmissions
      - Performance right
      - Sound recordings

## Final Regulation

In consideration of the foregoing, the Copyright Office adds parts 262 and 263 to 37 CFR to read as follows:

# PART 262—RATES AND TERMS FOR CERTAIN ELIGIBLE NONSUBSCRIPTION TRANSMISSIONS, NEW SUBSCRIPTION SERVICES AND THE MAKING OF EPHEMERAL REPRODUCTIONS

        - 262.1 
        - General.
        - 262.2 
        - Definitions.
        - 262.3 
        - Royalty fees for public performance of sound recordings and for ephemeral recordings.
        - 262.4 
        - Terms for making payment of royalty fees and statements of account.
        - 262.5 
        - Confidential information.
        - 262.6 
        - Verification of statements of account.
        - 262.7 
        - Verification of royalty payments.
        - 262.8 
        - Unclaimed funds.

Authority:17 U.S.C. 112(e), 114, 801(b)(1).

§ 262.1 

                                (a)                                 *Scope.*                                 This part 262 establishes rates and terms of royalty payments for the public performance of sound recordings in certain digital transmissions by certain Licensees in accordance with the provisions of 17 U.S.C. 114, and the making of Ephemeral Recordings by certain Licensees in accordance with the provisions of 17 U.S.C. 112(e), during the period 2003-2004 and in the case of Subscription Services 1998-2004 (the “License Period”).                            

                                (b)                                 *Legal compliance.*                                 Licensees relying upon the statutory licenses set forth in 17 U.S.C. 112 and 114 shall comply with the requirements of those sections, the rates and terms of this part and any other applicable regulations.                            

                                (c)                                 *Relationship to voluntary agreements.*                                 Notwithstanding the royalty rates and terms established in this part, the rates and terms of any license agreements entered into by Copyright Owners and services shall apply in lieu of the rates and terms of this part to transmissions within the scope of such agreements.                            

§ 262.2 

For purposes of this part, the following definitions shall apply:

                                (a)                                 *Aggregate Tuning Hours*                                 means the total hours of programming that the Licensee has transmitted during the relevant period to all Listeners within the United States from all channels and stations that provide audio programming consisting, in whole or in part, of eligible nonsubscription transmissions or noninteractive digital audio transmissions as part of a new subscription service, less the actual                                       ( print page 5696)                                    running time of any sound recordings for which the Licensee has obtained direct licenses apart from 17 U.S.C. 114(d)(2) or which do not require a license under United States copyright law. By way of example, if a service transmitted one hour of programming to 10 simultaneous Listeners, the service's Aggregate Tuning Hours would equal 10. If 30 minutes of that hour consisted of transmission of a directly licensed recording, the service's Aggregate Tuning Hours would equal 9 hours and 30 minutes. As an additional example, if one Listener listened to a service for 10 hours (and none of the recordings transmitted during that time was directly licensed), the service's Aggregate Tuning Hours would equal 10.                            

                                (b)                                 *Broadcast Simulcast*                                 means                            

(1) A simultaneous Internet transmission or retransmission of an over-the-air terrestrial AM or FM radio broadcast, including one with previously broadcast programming substituted for programming for which requisite licenses or clearances to transmit over the Internet have not been obtained and one with substitute advertisements, and

(2) An Internet transmission in accordance with 17 U.S.C. 114(d)(2)(C)(iii) of an archived program, which program was previously broadcast over-the-air by a terrestrial AM or FM broadcast radio station, in either case whether such Internet transmission or retransmission is made by the owner and operator of the AM or FM radio station that makes the broadcast or by a third party.

                                (c)                                 *Business Establishment Service*                                 means a service making transmissions of sound recordings under the limitation on exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv).                            

                                (d)                                 *Copyright Owner*                                 is a sound recording copyright owner who is entitled to receive royalty payments made under this part pursuant to the statutory licenses under 17 U.S.C. 112(e) or 114.                            

                                (e)                                 *Designated Agent*                                 is the agent designated by the Librarian of Congress as provided in § 262.4(b).                            

                                (f)                                 *Ephemeral Recording*                                 is a phonorecord created for the purpose of facilitating a transmission of a public performance of a sound recording under the limitations on exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv) or for the purpose of facilitating a transmission of a public performance of a sound recording under a statutory license in accordance with 17 U.S.C. 114(f), and subject to the limitations specified in 17 U.S.C. 112(e).                            

                                (g)                                 *Licensee*                                 is a person or entity that                            

(1) Has obtained a compulsory license under 17 U.S.C. 114 and the implementing regulations therefor to make eligible nonsubscription transmissions, or noninteractive digital audio transmissions as part of a new subscription service (as defined in 17 U.S.C. 114(j)(8)), or that has obtained a compulsory license under 17 U.S.C. 112(e) and the implementing regulations therefor to make Ephemeral Recordings for use in facilitating such transmissions, or

(2) Is a Business Establishment Service that has obtained a compulsory license under 17 U.S.C. 112(e) and the implementing regulations therefor to make Ephemeral Recordings, but not a person or entity that:

(i) Is exempt from taxation under section 501 of the Internal Revenue Code of 1986 (26 U.S.C. 501);

(ii) Has applied in good faith to the Internal Revenue Service for exemption from taxation under section 501 of the Internal Revenue Code and has a commercially reasonable expectation that such exemption shall be granted; or

(iii) Is a State or possession or any governmental entity or subordinate thereof, or the United States or District of Columbia, making transmissions for exclusively public purposes.

                                (h)                                 *Listener*                                 is a player, receiving device or other point receiving and rendering a transmission of a public performance of a sound recording made by a Licensee, irrespective of the number of individuals present to hear the transmission.                            

                                (i)                                 *Nonsubscription Service*                                 means a service making eligible nonsubscription transmissions.                            

                                (j)                                 *Performance*                                 is each instance in which any portion of a sound recording is publicly performed to a Listener by means of a digital audio transmission or retransmission (                                *e.g.,*                                 the delivery of any portion of a single track from a compact disc to one Listener) but excluding the following:                            

                                (1) A performance of a sound recording that does not require a license (                                *e.g.,*                                 the sound recording is not copyrighted);                            

(2) A performance of a sound recording for which the service has previously obtained a license from the Copyright Owner of such sound recording; and

(3) An incidental performance that both:

(i) Makes no more than incidental use of sound recordings including, but not limited to, brief musical transitions in and out of commercials or program segments, brief performances during news, talk and sports programming, brief background performances during disk jockey announcements, brief performances during commercials of sixty seconds or less in duration, or brief performances during sporting or other public events and

(ii) Other than ambient music that is background at a public event, does not contain an entire sound recording and does not feature a particular sound recording of more than thirty seconds (as in the case of a sound recording used as a theme song).

                                (k)                                 *Performers*                                 means the independent administrators identified in 17 U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C. 114(g)(2)(D).                            

                                (l)                                 *Subscription Service*                                 means a new subscription service (as defined in 17 U.S.C. 114(j)(8)) making noninteractive digital audio transmissions.                            

                                (m)                                 *Subscription Service Revenues*                                 shall mean all monies and other consideration paid or payable, including the fair market value of non-cash or in-kind consideration paid or payable by third parties, from the operation of a Subscription Service, as comprised of the following:                            

(1) Subscription fees and other monies and consideration paid for access to the Subscription Service by or on behalf of subscribers receiving within the United States transmissions made as part of the Subscription Service;

(2) Monies and other consideration (including without limitation customer acquisition fees) from audio or visual advertising, promotions, sponsorships, time or space exclusively or predominantly targeted to subscribers of the Subscription Service, whether

(i) On or through the Subscription Service media player, or on pages accessible only by subscribers or that are predominantly targeted to subscribers, or

(ii) In e-mails addressed exclusively or predominantly to subscribers of the Subscription Service, or

(iii) Delivered exclusively or predominantly to subscribers of the Subscription Service in some other manner, in each case less advertising agency commissions (not to exceed 15% of those monies and other consideration) actually paid to a recognized advertising agency not owned or controlled by Licensee;

                                (3) Monies and other consideration (including without limitation the proceeds of any revenue-sharing or commission arrangements with any fulfillment company or other third party, and any charge for shipping or handling) from the sale of any product or service directly through the Subscription Service media player or through pages or advertisements                                       ( print page 5697)                                    accessible only by subscribers or that are predominantly targeted to subscribers (but not pages or advertisements that are not predominantly targeted to subscribers), less                            

(i) Monies and other consideration from the sale of phonorecords and digital phonorecord deliveries of sound recordings, 

(ii) The Licensee's actual, out-of-pocket cost to purchase for resale the products or services (except phonorecords and digital phonorecord deliveries of sound recordings) from third parties, or in the case of products produced or services provided by the Licensee, the Licensee's actual cost to produce the product or provide the service (but not more than the fair market wholesale value of the product or service), and

(iii) Sales and use taxes, shipping, and credit card and fulfillment service fees actually paid to unrelated third parties; provided that:

(A) The fact that a transaction is consummated on a different page than the page/location where a potential customer responds to a “buy button” or other purchase opportunity for a product or service advertised directly through such player, pages or advertisements shall not render such purchase outside the scope of Subscription Service Revenues hereunder, and

(B) Monies and other consideration paid by or on behalf of subscribers for software or any other access device owned by Licensee (or any subsidiary or other affiliate of the Licensee, but excluding, for the avoidance of doubt, any entity that sells a third-party product, whether or not bearing the Licensee's brand) to access the Licensee's Subscription Service shall not be deemed part of Subscription Service Revenues, unless such software or access device is required as a condition to access the Subscription Service and either is purchased by a subscriber contemporaneously with or after subscribing or has no independent function other than to access the Subscription Service;

(4) Monies and other consideration for the use or exploitation of data specifically and separately concerning subscribers or the Subscription Service, but not monies and other consideration for the use or exploitation of data wherein information concerning subscribers or the Subscription Service is commingled with and not separated or distinguished from data that predominantly concern nonsubscribers or other services; and

(5) Bad debts recovered with respect to paragraphs (m)(1) through (4) of this section; provided that the Subscription Service shall be permitted to deduct bad debts actually written off during a reporting period.

§ 262.3 

                                (a)                                 *Basic royalty rate.*                                 Royalty rates and fees for eligible nonsubscription transmissions made by Licensees pursuant to 17 U.S.C. 114(d)(2) during the period January 1, 2003, through December 31, 2004, and the making of Ephemeral Recordings pursuant to 17 U.S.C. 112(e) to facilitate such transmissions; noninteractive digital audio transmissions made by Licensees pursuant to 17 U.S.C. 114(d)(2) as part of a new subscription service during the period October 28, 1998, through December 31, 2004, and the making of Ephemeral Recordings pursuant to 17 U.S.C. 112(e) to facilitate such transmissions; and the making of Ephemeral Recordings by Business Establishment Services pursuant to 17 U.S.C. 112(e) during the period January 1, 2003, through December 31, 2004, shall be as follows:                            

                                (1)                                 *Nonsubscription Services.*                                 For their operation of Nonsubscription Services, Licensees other than Business Establishment Services shall, at their election as provided in paragraph (b) of this section, pay at one of the following rates:                            

                                (i)                                 *Per Performance Option.*                                 $0.000762 (0.0762¢) per Performance for all digital audio transmissions, except that 4% of Performances shall bear no royalty to approximate the number of partial Performances of nominal duration made by a Licensee due to, for example, technical interruptions, the closing down of a media player or channel switching; Provided that this provision is not intended to imply that permitting users of a service to “skip” a recording is or is not permitted under 17 U.S.C. 114(d)(2). For the avoidance of doubt, this 4% exclusion shall apply to all Licensees electing this payment option irrespective of the Licensee's actual experience in respect of partial Performances.                            

                                (ii)                                 *Aggregate Tuning Hour Option.*                                 (A) Non-Music Programming. $0.000762 (0.0762¢) per Aggregate Tuning Hour for programming reasonably classified as news, talk, sports or business programming.                            

                                (B)                                 *Broadcast Simulcasts.*                                 $0.0088 (0.88¢) per Aggregate Tuning Hour for Broadcast Simulcast programming not reasonably classified as news, talk, sports or business programming.                            

                                (C)                                 *Other Programming.*                                 $0.0117 (1.17¢) per Aggregate Tuning Hour for programming other than Broadcast Simulcast programming and programming reasonably classified as news, talk, sports or business programming.                            

                                (2)                                 *Subscription Services.*                                 For their operation of Subscription Services, Licensees other than Business Establishment Services shall, at their election as provided in paragraph (b) of this section, pay at one of the following rates:                            

                                (i)                                 *Per Performance Option.*                                 $0.000762 (0.0762¢) per Performance for all digital audio transmissions, except that 4% of Performances shall bear no royalty to approximate the number of partial Performances of nominal duration made by a Licensee due to, for example, technical interruptions, the closing down of a media player or channel switching; Provided that this provision is not intended to imply that permitting users of a service to “skip” a recording is or is not permitted under 17 U.S.C. 114(d)(2). For the avoidance of doubt, this 4% exclusion shall apply to all Licensees electing this payment option irrespective of the Licensee's actual experience in respect of partial performances.                            

                                (ii)                                 *Aggregate Tuning Hour Option.*                                —                            

                                (A)                                 *Non-Music Programming.*                                 $0.000762 (0.0762¢) per Aggregate Tuning Hour for programming reasonably classified as news, talk, sports or business programming.                            

                                (B)                                 *Broadcast Simulcasts.*                                 $0.0088 (0.88¢) per Aggregate Tuning Hour for Broadcast Simulcast programming not reasonably classified as news, talk, sports or business programming.                            

                                (C)                                 *Other Programming.*                                 $0.0117 (1.17¢) per Aggregate Tuning Hour for programming other than Broadcast Simulcast programming and programming reasonably classified as news, talk, sports or business programming.                            

                                (iii)                                 *Percentage of Subscription Service Revenues Option.*                                 10.9% of Subscription Service Revenues, but in no event less than 27¢ per month for each person who subscribes to the Subscription Service for all or any part of the month or to whom the Subscription Service otherwise is delivered by Licensee without a fee (                                *e.g.*, during a free trial period), subject to the following reduction associated with the transmission of directly licensed sound recordings (if applicable). For any given payment period, the fee due from Licensee shall be the amount calculated under the formula described in the immediately preceding sentence                                 *multiplied by*                                 the                                       ( print page 5698)                                    following fraction: the total number of Performances (as defined under § 262.2(j), which excludes directly licensed sound recordings) made by the Subscription Service during the period in question,                                 *divided by*                                 the total number of digital audio transmissions of sound recordings made by the Subscription Service during the period in question (inclusive of Performances and equivalent transmissions of directly licensed sound recordings). Any Licensee paying on such basis shall report to the Designated Agent on its statements of account the pertinent music use information upon which such reduction has been calculated. This option shall not be available to a Subscription Service where—                            

(A) A particular computer software product or other access device must be purchased for a separate fee from the Licensee as a condition of receiving transmissions of sound recordings through the Subscription Service, and the Licensee chooses not to include sales of such software product or other device to subscribers as part of Subscription Service Revenues in accordance with § 262.2(m)(3), or

(B) The consideration paid or given to receive the Subscription Service also entitles the subscriber to receive or have access to material, products or services other than the Subscription Service (for example, as in the case of a “bundled service” consisting of access to the Subscription Service and also access to the Internet in general). In all events, in order to be eligible for this payment option, a Licensee may not engage in pricing practices whereby the Subscription Service is offered to subscribers on a “loss leader” basis or whereby the price of the Subscription Service is materially subsidized by payments made by the subscribers for other products or services.

                                (3)                                 *Business Establishment Services.*                                 For the making of any number of Ephemeral Recordings in the operation of a service pursuant to the limitation on exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv), a Licensee that is a Business Establishment Service shall pay 10% of such Licensee's “Gross Proceeds” derived from the use in such service of musical programs that are attributable to copyrighted recordings. “Gross Proceeds” as used in paragraph (a)(3) of this section means all fees and payments, including those made in kind, received from any source before, during or after the License Period that are derived from the use of copyrighted sound recordings pursuant to 17 U.S.C. 112(e) for the sole purpose of facilitating a transmission to the public of a performance of a sound recording under the limitation on exclusive rights specified in 17 U.S.C. 114(d)(1)(C)(iv). The attribution of Gross Proceeds to copyrighted recordings may be made on the basis of:                            

(i) For classical programs, the proportion that the playing time of copyrighted classical recordings bears to the total playing time of all classical recordings in the program, and

(ii) For all other programs, the proportion that the number of copyrighted recordings bears to the total number of all recordings in the program.

                                (b)                                 *Election process.*                                 A Licensee other than a Business Establishment Service shall elect the particular Nonsubscription Service and/or Subscription Service royalty rate categories it chooses (that is, among paragraph (a)(1)(i) or (ii) of this section and/or paragraph (a)(2)(i), (ii) or (iii) of this section) for the License Period by no later than March 8, 2004. Notwithstanding the preceding sentence, where a Licensee has not previously provided a Nonsubscription Service or Subscription Service, as the case may be, the Licensee may make its election by no later than thirty (30) days after the new service first makes a digital audio transmission of a sound recording under the 17 U.S.C. 114 statutory license. Each such election shall be made by notifying the Designated Agent in writing of such election, using an election form provided by the Designated Agent. A Licensee that fails to make a timely election shall pay royalties as provided in paragraphs (a)(1)(i) and (a)(2)(i) of this section, as applicable. Notwithstanding the foregoing, a Licensee eligible to make royalty payments under an agreement entered into pursuant to the Small Webcaster Settlement Act of 2002 may elect to make payments under such agreement as specified in such agreement.                            

                                (c)                                 *Ephemeral Recordings.*                                 The royalty payable under 17 U.S.C. 112(e) for any reproduction of a phonorecord made by a Licensee other than a Business Establishment Service during the License Period, and used solely by the Licensee to facilitate transmissions for which it pays royalties as and when provided in this section and § 262.4 shall be deemed to be included within, and to comprise 8.8% of, such royalty payments. The royalty payable under 17 U.S.C. 112(e) for the reproduction of phonorecords by a Business Establishment Service shall be as set forth in paragraph (a)(3) of this section.                            

                                (d)                                 *Minimum fee.*                                 (1)                                 *Business Establishment Services.*                                 Each Licensee that is a Business Establishment Service shall pay a minimum fee of $10,000 for each calendar year in which it makes Ephemeral Recordings for use to facilitate transmissions under the limitation on exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv), whether or not it does so for all or any part of the year.                            

                                (2)                                 *Other Services.*                                 Each Licensee other than a Business Establishment Service shall pay a minimum fee of $2,500, or $500 per channel or station (excluding archived programs, but in no event less than $500 per Licensee), whichever is less, for each calendar year in which it makes eligible nonsubscription transmissions, noninteractive digital audio transmissions as part of a new subscription service or Ephemeral Recordings for use to facilitate such transmissions, whether or not it does the foregoing for all or any part of the year; except that the minimum annual fee for a Licensee electing to pay under paragraph (a)(2)(iii) of this section shall be $5,000.                            

                                (3)                                 *In General.*                                 These minimum fees shall be nonrefundable, but shall be fully creditable to royalty payments due under paragraph (a) of this section for the same calendar year (but not any subsequent calendar year).                            

                                (e)                                 *Continuing Obligation.*                                 For the limited purpose of the period immediately following the License Period, and on an entirely without prejudice and nonprecedential basis relative to other time periods and proceedings, if successor statutory royalty rates for Licensees for the period beginning January 1, 2005, have not been established by January 1, 2005, then Licensees shall pay to the Designated Agent, effective January 1, 2005, and continuing for the period through April 30, 2005, or until successor rates and terms are established, whichever is earlier, an interim royalty pursuant to the same rates and terms as are provided for the License Period. Such interim royalties shall be subject to retroactive adjustment based on the final successor rates. Any overpayment shall be fully creditable to future payments, and any underpayment shall be paid within 30 days after establishment of the successor rates and terms, except as may otherwise be provided in the successor terms. If there is a period of such interim payments, Licensees shall elect the particular royalty rate categories it chooses for the interim period as described in paragraph (b) of this section, except that the election for a service that is in operation shall be made by no later than January 15, 2005.                            

                                (f)                                 *Other royalty rates and terms.*                                 This part 262 does not apply to persons or                                       ( print page 5699)                                    entities other than Licensees, or to Licensees to the extent that they make other types of transmissions beyond those set forth in paragraph (a) of this section. For transmissions other than those governed by paragraph (a) of this section, or the use of Ephemeral Recordings to facilitate such transmissions, persons making such transmissions must pay royalties, to the extent (if at all) applicable, under 17 U.S.C. 112(e) and 114 or as prescribed by other law, regulation or agreement.                            

§ 262.4

                                (a)                                 *Payment to designated agent.*                                 A Licensee shall make the royalty payments due under § 262.3 to the Designated Agent.                            

                                (b)                                 *Designation of agent and potential successor designated agents.*                                 (1) Until such time as a new designation is made, SoundExchange, presently an unincorporated division of the Recording Industry Association of America, Inc. (“RIAA”), is designated as the Designated Agent to receive statements of account and royalty payments from Licensees due under § 262.3 and to distribute such royalty payments to each Copyright Owner and Performer entitled to receive royalties under 17 U.S.C. 112(e) or 114(g). SoundExchange shall continue to be designated after its separate incorporation.                            

(2) If SoundExchange should fail to incorporate by July 1, 2003, dissolve or cease to be governed by a board consisting of equal numbers of representatives of Copyright Owners and Performers, then it shall be replaced by successor entities upon the fulfillment of the requirements set forth in paragraphs (b)(2)(i) and (ii) of this section.

(i) By a majority vote of the nine copyright owner representatives on the SoundExchange Board as of the last day preceding the condition precedent in paragraph (b)(2) of this section, such representatives shall file a petition with the Copyright Office designating a successor Designated Agent to distribute royalty payments to Copyright Owners and Performers entitled to receive royalties under 17 U.S.C. 112(e) or 114(g) that have themselves authorized such Designated Agent.

(ii) By a majority vote of the nine performer representatives on the SoundExchange Board as of the last day preceding the condition precedent in paragraph (b)(2) of this section, such representatives shall file a petition with the Copyright Office designating a successor Designated Agent to distribute royalty payments to Copyright Owners and Performers entitled to receive royalties under 17 U.S.C. 112(e) or 114(g) that have themselves authorized such Designated Agent.

                                (iii) The Copyright Office shall publish in the                                 **Federal Register**                                 within 30 days of receipt of a petition filed under paragraph (b)(2)(i) or (ii) of this section an order designating the Designated Agents named in such petitions. Nothing contained in this section shall prohibit the petitions filed under paragraphs (b)(2)(i) and (ii) of this section from naming the same successor Designated Agent.                            

(3) If petitions are filed under paragraphs (b)(2)(i) and (ii) of this section, then, following the actions of the Copyright Office in accordance with paragraph (b)(2)(iii) of this section:

(i) Each of the successor entities shall have all the rights and responsibilities of a Designated Agent under this part 262, except as specifically set forth in this paragraph (b)(3).

(ii) Licensees shall make their royalty payments to the successor entity named by the copyright owner representatives under paragraph (b)(2)(i) of this section (the “Receiving Agent”) and shall provide statements of account on a form prepared by the Receiving Agent. Licensees shall submit a copy of each statement of account to the collective named by the performer representatives under paragraph (b)(2)(ii) of this section at the same time such statement of account is delivered to the Receiving Agent.

(iii) The Designated Agents shall agree between themselves concerning responsibility for distributing royalty payments to Copyright Owners and Performers that have not themselves authorized either Designated Agent. The Designated Agents also shall agree to a corresponding methodology for allocating royalty payments between them using the information provided by the Licensee pursuant to the regulations governing records of use of performances for the period for which the royalty payment was made. Such methodology shall value all performances equally. Within 30 days after their agreement concerning such responsibility and methodology, the Designated Agents shall inform the Register of Copyrights thereof.

(iv) With respect to any royalty payment received by the Receiving Agent from a Licensee, a designation by a Copyright Owner or Performer of a Designated Agent must be made no later than 30 days prior to the receipt by the Receiving Agent of that royalty payment.

(v) The Receiving Agent shall promptly allocate the royalty payments it receives between the two Designated Agents in accordance with the agreed methodology. A final adjustment, if necessary, shall be agreed and paid or refunded, as the case may be, between the Receiving Agent and the collectives named under paragraph (b)(2) of this section for each calendar year no later than 180 days following the end of each calendar year. The Designated Agents shall agree on a reasonable basis for the sharing on a pro-rata basis of any costs associated with the allocations set forth in paragraph (b)(3)(iii) of this section.

(vi) If a Designated Agent is unable to locate a Copyright Owner or Performer that the Designated Agent otherwise would be required to pay under this paragraph (b) within 3 years from the date of payment by Licensee, such Copyright Owner's or Performer's share of the payments made by Licensees may first be applied to the costs directly attributable to the administration of the royalty payments due such Copyright Owners and Performers by that Designated Agent and shall thereafter be allocated between the Designated Agents on a pro rata basis (based on distributions to entitled parties) to offset any costs permitted to be deducted by a designated agent under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding the common law or statutes of any State.

                                (c)                                 *Monthly payments.*                                 A Licensee shall make any payments due under § 262.3(a) by the 45th day after the end of each month for that month, except that payments due under § 262.3(a) for the period from the beginning of the License Period through the last day of the month in which these rates and terms are adopted by the Librarian of Congress and published in the                                 **Federal Register**                                 shall be due 45 days after the end of such period. All monthly payments shall be rounded to the nearest cent.                            

                                (d)                                 *Minimum payments.*                                 A Licensee shall make any payment due under § 262.3(d) by January 31 of the applicable calendar year, except that:                            

                                (1) Payment due under § 262.3(d) for 2003, and in the case of a Subscription Service any earlier year, shall be due 45 days after the last day of the month in which these rates and terms are adopted by the Librarian of Congress and published in the                                 **Federal Register**                                ; and                            

                                (2) Payment for a Licensee that has not previously made eligible nonsubscription transmissions, noninteractive digital audio transmissions as part of a new subscription service or Ephemeral Recordings pursuant to licenses under 17 U.S.C. 114(f) and/or 17 U.S.C. 112(e) shall be due by the 45th day after the                                       ( print page 5700)                                    end of the month in which the Licensee commences to do so.                            

                                (e)                                 *Late payments.*                                 A Licensee shall pay a late fee of 0.75% per month, or the highest lawful rate, whichever is lower, for any payment received by the Designated Agent after the due date. Late fees shall accrue from the due date until payment is received by the Designated Agent.                            

                                (f)                                 *Statements of account.*                                 For any part of the period beginning on the date these rates and terms are adopted by the Librarian of Congress and published in the                                 **Federal Register**                                 and ending on December 31, 2004, during which a Licensee operates a service, by 45 days after the end of each month during the period, the Licensee shall deliver to the Designated Agent a statement of account containing the information set forth in this paragraph (f) on a form prepared, and made available to Licensees, by the Designated Agent. If a payment is owed for such month, the statement of account shall accompany the payment. A statement of account shall include only the following information:                            

(1) Such information as is necessary to calculate the accompanying royalty payment, or if no payment is owed for the month, to calculate any portion of the minimum fee recouped during the month, including, as applicable, the Performances, Aggregate Tuning Hours (to the nearest minute) or Subscription Service Revenues for the month;

(2) The name, address, business title, telephone number, facsimile number, electronic mail address and other contact information of the individual or individuals to be contacted for information or questions concerning the content of the statement of account;

(3) The handwritten signature of:

(i) The owner of the Licensee or a duly authorized agent of the owner, if the Licensee is not a partnership or a corporation;

(ii) A partner or delegee, if the Licensee is a partnership; or

(iii) An officer of the corporation, if the Licensee is a corporation;

(4) The printed or typewritten name of the person signing the statement of account;

(5) The date of signature;

(6) If the Licensee is a partnership or a corporation, the title or official position held in the partnership or corporation by the person signing the statement of account;

(7) A certification of the capacity of the person signing; and

(8) A statement to the following effect:

I, the undersigned owner or agent of the Licensee, or officer or partner, if the Licensee is a corporation or partnership, have examined this statement of account and hereby state that it is true, accurate and complete to my knowledge after reasonable due diligence.

                                (g)                                 *Distribution of payments.*                                —(1) The Designated Agent shall distribute royalty payments directly to Copyright Owners and Performers, according to 17 U.S.C. 114(g)(2); Provided that the Designated Agent shall only be responsible for making distributions to those Copyright Owners and Performers who provide the Designated Agent with such information as is necessary to identify and pay the correct recipient of such payments. The agent shall distribute royalty payments on a basis that values all performances by a Licensee equally based upon the information provided by the Licensee pursuant to the regulations governing records of use of sound recordings by Licensees; Provided, however, Performers and Copyright Owners that authorize the Designated Agent may agree with the Designated Agent to allocate their shares of the royalty payments made by any Licensee among themselves on an alternative basis. Parties entitled to receive payments under 17 U.S.C. 114(g)(2) may agree with the Designated Agent upon payment protocols to be used by the Designated Agent that provide for alternative arrangements for the payment of royalties consistent with the percentages in 17 U.S.C. 114(g)(2).                            

(2) The Designated Agent shall inform the Register of Copyrights of:

(i) Its methodology for distributing royalty payments to Copyright Owners and Performers who have not themselves authorized the Designated Agent (hereinafter “nonmembers”), and any amendments thereto, within 60 days of adoption and no later than 30 days prior to the first distribution to Copyright Owners and Performers of any royalties distributed pursuant to that methodology;

(ii) Any written complaint that the Designated Agent receives from a nonmember concerning the distribution of royalty payments, within 60 days of receiving such written complaint; and

(iii) The final disposition by the Designated Agent of any complaint specified by paragraph (g)(2)(ii) of this section, within 60 days of such disposition.

(3) A Designated Agent may request that the Register of Copyrights provide a written opinion stating whether the Designated Agent's methodology for distributing royalty payments to nonmembers meets the requirements of this section.

                                (h)                                 *Permitted deductions.*                                 The Designated Agent may deduct from the payments made by Licensees under § 262.3, prior to the distribution of such payments to any person or entity entitled thereto, all incurred costs permitted to be deducted under 17 U.S.C. 114(g)(3); Provided, however, that any party entitled to receive royalty payments under 17 U.S.C. 112(e) or 114(g) may agree to permit the Designated Agent to make any other deductions.                            

                                (i)                                 *Retention of records.*                                 Books and records of a Licensee and of the Designated Agent relating to the payment, collection, and distribution of royalty payments shall be kept for a period of not less than 3 years.                            

§ 262.5 

                                (a)                                 *Definition.*                                 For purposes of this part, “Confidential Information” shall include the statements of account, any information contained therein, including the amount of royalty payments, and any information pertaining to the statements of account reasonably designated as confidential by the Licensee submitting the statement.                            

                                (b)                                 *Exclusion.*                                 Confidential Information shall not include documents or information that at the time of delivery to the Receiving Agent or a Designated Agent are public knowledge. The Designated Agent that claims the benefit of this provision shall have the burden of proving that the disclosed information was public knowledge.                            

                                (c)                                 *Use of Confidential Information.*                                 In no event shall the Designated Agent use any Confidential Information for any purpose other than royalty collection and distribution and activities directly related thereto; Provided, however, that the Designated Agent may disclose to Copyright Owners and Performers Confidential Information provided on statements of account under this part in aggregated form, so long as Confidential Information pertaining to any individual Licensee cannot readily be identified, and the Designated Agent may disclose the identities of services that have obtained licenses under 17 U.S.C. 112(e) or 114 and whether or not such services are current in their obligations to pay minimum fees and submit statements of account (so long as the Designated Agent does not disclose the amounts paid by the Licensee).                            

                                (d)                                 *Disclosure of Confidential Information.*                                 Except as provided in paragraph (c) of this section and as required by law, access to Confidential Information shall be limited to:                            

                                (1) Those employees, agents, attorneys, consultants and independent contractors of the Designated Agent, subject to an appropriate confidentiality agreement, who are engaged in the                                       ( print page 5701)                                    collection and distribution of royalty payments hereunder and activities related thereto, who are not also employees or officers of a Copyright Owner or Performer, and who, for the purpose of performing such duties during the ordinary course of their work, require access to the records;                            

(2) An independent and qualified auditor, subject to an appropriate confidentiality agreement, who is authorized to act on behalf of the Designated Agent with respect to the verification of a Licensee's statement of account pursuant to § 262.6 or on behalf of a Copyright Owner or Performer with respect to the verification of royalty payments pursuant to § 262.7;

(3) The Copyright Office, in response to inquiries concerning the operation of the Designated Agent;

(4) In connection with future Copyright Arbitration Royalty Panel proceedings under 17 U.S.C. 114(f)(2) and 112(e), and under an appropriate protective order, attorneys, consultants and other authorized agents of the parties to the proceedings, Copyright Arbitration Royalty Panels, the Copyright Office or the courts; and

(5) In connection with bona fide royalty disputes or claims that are the subject of the procedures under § 262.6 or § 262.7, and under an appropriate confidentiality agreement or protective order, the specific parties to such disputes or claims, their attorneys, consultants or other authorized agents, and/or arbitration panels or the courts to which disputes or claims may be submitted.

                                (e)                                 *Safeguarding of Confidential Information.*                                 The Designated Agent and any person identified in paragraph (d) of this section shall implement procedures to safeguard all Confidential Information using a reasonable standard of care, but no less than the same degree of security used to protect Confidential Information or similarly sensitive information belonging to such Designated Agent or person.                            

§ 262.6 

                                (a)                                 *General.*                                 This section prescribes procedures by which the Designated Agent may verify the royalty payments made by a Licensee.                            

                                (b)                                 *Frequency of verification.*                                 The Designated Agent may conduct a single audit of a Licensee, upon reasonable notice and during reasonable business hours, during any given calendar year, for any or all of the prior 3 calendar years, but no calendar year shall be subject to audit more than once.                            

                                (c)                                 *Notice of intent to audit.*                                 The Designated Agent must file with the Copyright Office a notice of intent to audit a particular Licensee, which shall, within 30 days of the filing of the notice, publish in the                                 **Federal Register**                                 a notice announcing such filing. The notification of intent to audit shall be served at the same time on the Licensee to be audited. Any such audit shall be conducted by an independent and qualified auditor identified in the notice, and shall be binding on all parties.                            

                                (d)                                 *Acquisition and retention of records.*                                 The Licensee shall use commercially reasonable efforts to obtain or to provide access to any relevant books and records maintained by third parties for the purpose of the audit and retain such records for a period of not less than 3 years. The Designated Agent shall retain the report of the verification for a period of not less than 3 years.                            

                                (e)                                 *Acceptable verification procedure.*                                 An audit, including underlying paperwork, which was performed in the ordinary course of business according to generally accepted auditing standards by an independent and qualified auditor, shall serve as an acceptable verification procedure for all parties with respect to the information that is within the scope of the audit.                            

                                (f)                                 *Consultation.*                                 Before rendering a written report to the Designated Agent, except where the auditor has a reasonable basis to suspect fraud and disclosure would, in the reasonable opinion of the auditor, prejudice the investigation of such suspected fraud, the auditor shall review the tentative written findings of the audit with the appropriate agent or employee of the Licensee being audited in order to remedy any factual errors and clarify any issues relating to the audit; Provided that the appropriate agent or employee of the Licensee reasonably cooperates with the auditor to remedy promptly any factual errors or clarify any issues raised by the audit.                            

                                (g)                                 *Costs of the verification procedure.*                                 The Designated Agent shall pay the cost of the verification procedure, unless it is finally determined that there was an underpayment of 10% or more, in which case the Licensee shall, in addition to paying the amount of any underpayment, bear the reasonable costs of the verification procedure.                            

§ 262.7 

                                (a)                                 *General.*                                 This section prescribes procedures by which any Copyright Owner or Performer may verify the royalty payments made by the Designated Agent; Provided, however, that nothing contained in this section shall apply to situations where a Copyright Owner or a Performer and the Designated Agent have agreed as to proper verification methods.                            

                                (b)                                 *Frequency of verification.*                                 A Copyright Owner or a Performer may conduct a single audit of the Designated Agent upon reasonable notice and during reasonable business hours, during any given calendar year, for any or all of the prior 3 calendar years, but no calendar year shall be subject to audit more than once.                            

                                (c)                                 *Notice of intent to audit.*                                 A Copyright Owner or Performer must file with the Copyright Office a notice of intent to audit the Designated Agent, which shall, within 30 days of the filing of the notice, publish in the                                 **Federal Register**                                 a notice announcing such filing. The notification of intent to audit shall be served at the same time on the Designated Agent. Any such audit shall be conducted by an independent and qualified auditor identified in the notice, and shall be binding on all Copyright Owners and Performers.                            

                                (d)                                 *Acquisition and retention of records.*                                 The Designated Agent shall use commercially reasonable efforts to obtain or to provide access to any relevant books and records maintained by third parties for the purpose of the audit and retain such records for a period of not less than 3 years. The Copyright Owner or Performer requesting the verification procedure shall retain the report of the verification for a period of not less than 3 years.                            

                                (e)                                 *Acceptable verification procedure.*                                 An audit, including underlying paperwork, which was performed in the ordinary course of business according to generally accepted auditing standards by an independent and qualified auditor, shall serve as an acceptable verification procedure for all parties with respect to the information that is within the scope of the audit.                            

                                (f)                                 *Consultation.*                                 Before rendering a written report to a Copyright Owner or Performer, except where the auditor has a reasonable basis to suspect fraud and disclosure would, in the reasonable opinion of the auditor, prejudice the investigation of such suspected fraud, the auditor shall review the tentative written findings of the audit with the appropriate agent or employee of the Designated Agent in order to remedy any factual errors and clarify any issues relating to the audit; Provided that the appropriate agent or employee of the Designated Agent reasonably cooperates with the auditor to remedy promptly any factual errors or clarify any issues raised by the audit.                            

                                (g)                                 *Costs of the verification procedure.*                                 The Copyright Owner or Performer requesting the verification procedure                                       ( print page 5702)                                    shall pay the cost of the procedure, unless it is finally determined that there was an underpayment of 10% or more, in which case the Designated Agent shall, in addition to paying the amount of any underpayment, bear the reasonable costs of the verification procedure.                            

§ 262.8 

If a Designated Agent is unable to identify or locate a Copyright Owner or Performer who is entitled to receive a royalty payment under this part, the Designated Agent shall retain the required payment in a segregated trust account for a period of 3 years from the date of payment. No claim to such payment shall be valid after the expiration of the 3-year period. After the expiration of this period, the Designated Agent may apply the unclaimed funds to offset any costs deductible under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding the common law or statutes of any State.

# PART 263—RATES AND TERMS FOR CERTAIN TRANSMISSIONS AND THE MAKING OF EPHEMERAL REPRODUCTIONS BY NONCOMMERCIAL LICENSEES

        - 263.1 
        - General.
        - 263.2 
        - Definitions.
        - 263.3 
        - Royalty rates and terms.

Authority:17 U.S.C. 112(e), 114, 801(b)(1).

§ 263.1 

This part 263 establishes rates and terms of royalty payments for the public performance of sound recordings in certain digital transmissions by certain Noncommercial Licensees in accordance with the provisions of 17 U.S.C. 114, and the making of ephemeral recordings by certain Noncommercial Licensees in accordance with the provisions of 17 U.S.C. 112(e), during the period 2003-2004.

§ 263.2 

For purposes of this part, the following definition shall apply:

                                A                                 *Noncommercial Licensee*                                 is a person or entity that has obtained a compulsory license under 17 U.S.C. 114 and the implementing regulations therefor, or that has obtained a compulsory license under 17 U.S.C. 112(e) and the implementing regulations therefor to make ephemeral recordings for use in facilitating such transmissions, and—                            

(a) Is exempt from taxation under section 501 of the Internal Revenue Code of 1986 (26 U.S.C. 501);

(b) Has applied in good faith to the Internal Revenue Service for exemption from taxation under section 501 of the Internal Revenue Code and has a commercially reasonable expectation that such exemption shall be granted; or

(c) Is a State or possession or any governmental entity or subordinate thereof, or the United States or District of Columbia, making transmissions for exclusively public purposes.

§ 263.3 

A Noncommercial Licensee shall in every respect be treated as a “Licensee” under part 262 of this chapter, and all terms applicable to Licensees and their payments under part 262 of this chapter shall apply to Noncommercial Licensees and their payment, except that a Noncommercial Licensee shall pay royalties at the rates applicable to such a “Licensee,” as currently provided in § 261.3(a), (c), (d) and (e) of this chapter, rather than at the rates set forth in § 262.3(a) through (d) of this chapter.

Dated: January 22, 2004.

Marybeth Peters,

Register of Copyrights.

Approved by:

James H. Billington,

The Librarian of Congress.

# Footnotes

1.                             For purposes of the section 114 license, an “eligible nonsubscription transmission” is a noninteractive digital audio transmission which, as the name implies, does not require a subscription for receiving the transmission. The transmission must also be made as part of a service that provides audio programming consisting in whole or in part of performances of sound recordings the purpose of which is to provide audio or entertainment programming, but not to sell, advertise, or promote particular goods or services.                         *See*17 U.S.C. 114(j)(6). A “new subscription service” is “a service that performs sound recordings by means of noninteractive subscription digital audio transmissions and that is not a preexisting subscription or a preexisting satellite digital audio radio service.” 17 U.S.C. 114(j)(8).                    
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2.                             Those entities who negotiated on behalf of the broadcasters include Bonneville International Corporation, Clear Channel Communications, Inc., the National Religious Broadcasters Music License Committee, Salem Communications Corporation, and Susquehanna Radio Corporation.                    
        Back to Citation      

[FR Doc. 04-2535 Filed 2-5-04; 8:45 am]

BILLING CODE 1410-33-P