55696 Federal Register / Vol. 79, No. 180 / Wednesday, September 17, 2014 / Proposed Rules 

1This group included the Program Suppliers 

(commercial entertainment programming), Joint 

Sports Claimants (professional and college sports 

programming), National Association of Broadcasters 

(‘‘NAB’’) (commercial television programming), 

Commercial Television Claimants (local 

commercial television programming), Broadcaster 

Claimants Group (U.S. commercial television 

stations), American Society of Composers, Authors 

and Publishers (‘‘ASCAP’’) (musical works included 

in television programming), Broadcast Music, Inc. 

(‘‘BMI’’) (same), Public Television Claimants 

(noncommercial television programming), Public 

Broadcasting Service (‘‘PBS’’) (same), National 

Public Radio (‘‘NPR’’) (noncommercial radio 

programming), Canadian Claimants (Canadian 

television programming), and Devotional Claimants 

(religious television programming). 

2This group included the Program Suppliers, 

Joint Sports Claimants, Commercial Television 

Claimants, Broadcaster Claimants Group, ASCAP, 

BMI, SESAC, Inc., Public Television Claimants, 

Canadian Claimants, NPR, and Devotional 

Claimants. The NAB and PBS did not submit 

comments in response to the First Proposed Rule. 

3The National Cable & Telecommunications 

Association (‘‘NCTA’’) and the American Cable 

Association (‘‘ACA’’) filed comments on the First 

Proposed Rule on behalf of cable operators. 

4Citations to the comments and reply comments 

submitted in response to the First Proposed Rule 

are abbreviated ‘‘[Name of Party] First Comment’’ 

and ‘‘[Name of Party] First Reply.’’ 

5The copyright owners that joined the NCTA and 

DIRECTV in submitting the Joint Stakeholders’ First 

Submission include the Program Suppliers, Joint 

Sports Claimants, ASCAP, BMI, SESAC, Public 

Television Claimants, Canadian Claimants Group, 

Devotional Claimants, and NPR. The Commercial 

Television Claimants, the Broadcaster Claimants 

Group, the NAB, and PBS did not join their fellow 

copyright owners in submitting this proposal. 

LIBRARY OF CONGRESS 

U.S. Copyright Office 

37 CFR Part 201 

[Docket No. 2012–5] 

Verification of Statements of Account 

Submitted by Cable Operators and 

Satellite Carriers 

AGENCY: U.S. Copyright Office, Library 

of Congress. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: On May 9, 2013 the U.S. 

Copyright Office issued a notice of 

proposed rulemaking and request for 

comments concerning a new regulation 

that will allow copyright owners to 

audit the statements of account and 

royalty fees that cable operators and 

satellite carriers deposit with the Office 

for secondary transmissions of broadcast 

programming made pursuant to 

statutory licenses. The Office has 

revised the proposed regulation to 

address certain logistical concerns and 

based on further input that it has 

received from copyright owners, cable 

operators, satellite carriers, and 

accounting professionals. The Office 

seeks comments on the revised proposal 

before it is adopted as a final rule. 

DATES: Comments must be made in 

writing and must be received in the U.S. 

Copyright Office no later than October 

17, 2014. 

ADDRESSES: The U.S. Copyright Office 

strongly prefers that comments be 

submitted electronically. A comment 

page containing a comment submission 

form is posted on the Office’s Web site 

at http://copyright.gov/docs/soaaudit/

soa_audit.html. The Web site interface 

requires submitters to complete a form 

specifying a name and organization, as 

applicable, and to upload comments as 

an attachment. To meet accessibility 

standards, all comments must be 

uploaded in a single file in either 

Portable Document Format (PDF) that 

contains searchable, accessible text (not 

an image); Word format (DOC or DOCX); 

WordPerfect format (WPD); Rich Text 

Format (RTF); or ASCII text file (not a 

scanned document). The maximum file 

size for comments is six megabytes 

(MB). The name of the commenter and 

organization should appear on both the 

form and on the comment itself. All 

comments will be posted publicly on 

the Office’s Web site exactly as they are 

received, along with names and 

organizations. If electronic submission 

of comments is not feasible, please 

contact the Office at 202–707–8350 for 

special instructions. 

FOR FURTHER INFORMATION CONTACT: 

Jacqueline C. Charlesworth, General 

Counsel and Associate Register of 

Copyrights, by email at jcharlesworth@

loc.gov, or by telephone at 202–707– 

8350; Erik Bertin, Assistant General 

Counsel, by email at ebertin@loc.gov, or 

by telephone at 202–707–8350; or Sy 

Damle, Special Advisor to the General 

Counsel, by email at sdam@loc.gov, or 

by telephone at 202–707–8350. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Sections 111 and 119 of the Copyright 

Act (the ‘‘Act’’), Title 17 of the United 

States Code, allow cable operators and 

satellite carriers to retransmit 

programming that broadcast stations 

transmit on over-the-air broadcast 

signals. To use these statutory licenses, 

cable operators and satellite carriers are 

required to file statements of account 

(‘‘SOAs’’) and deposit royalty fees with 

the U.S. Copyright Office (‘‘Office’’) on 

a semi-annual basis. The Office invests 

these royalties in United States Treasury 

securities pending distribution of the 

funds to copyright owners that are 

entitled to receive a share of the 

royalties. 

The Satellite Television Extension 

and Localism Act of 2010 (‘‘STELA’’), 

Public Law 111–175, amended the Act 

by directing the Register of Copyrights 

to issue regulations to allow copyright 

owners to audit the SOAs and royalty 

fees that cable operators and satellite 

carriers file with the Office. Section 

119(b)(2) of the Act directs the Register 

to ‘‘issue regulations to permit 

interested parties to verify and audit the 

statements of account and royalty fees 

submitted by satellite carriers under this 

subsection.’’ 17 U.S.C. 119(b)(2). 

Similarly, section 111(d)(6) directs the 

Register to ‘‘issue regulations to provide 

for the confidential verification by 

copyright owners whose works were 

embodied in the secondary 

transmissions of primary transmissions 

pursuant to [section 111] of the 

information reported on the semiannual 

statements of account filed under this 

subsection for accounting periods 

beginning on or after January 1, 2010, in 

order that the auditor designated under 

subparagraph [111(d)(6)(A)] is able to 

confirm the correctness of the 

calculations and royalty payments 

reported therein.’’ 17 U.S.C. 111(d)(6). 

The Office began working on its 

initial draft for this procedure in 2011. 

The initial draft was based on similar 

audit regulations that the Office 

developed for parties that make 

ephemeral recordings or transmit digital 

sound recordings under 17 U.S.C. 

sections 112(e) and 114(f), respectively, 

or manufacture, import, and distribute 

digital audio recording devices under 17 

U.S.C. chapter 10. 

On January 31, 2012 the Office 

received a Petition for Rulemaking, 

which was filed by a group of copyright 

owners.1 The copyright owners urged 

the Office to adopt regulations that 

would allow them to audit the SOAs 

filed by cable operators and satellite 

carriers, and they provided the Office 

with proposed language for each 

regulation. See Petition at 1–4. 

On June 14, 2012, the Office issued a 

Notice of Proposed Rulemaking that set 

forth its initial proposal for the audit 

procedure (the ‘‘First Proposed Rule’’). 

See 77 FR 35643 (June 14, 2012). The 

Office received extensive comments 

from groups representing copyright 

owners,2 cable operators,3 and 

individual companies that retransmit 

broadcast programming under sections 

111 or 119 of the Act, namely, AT&T, 

Inc., DIRECTV, LLC, and DISH Network 

L.L.C.4

In lieu of reply comments, DIRECTV, 

the NCTA, and a group representing 

certain copyright owners 5 submitted a 

joint proposal for revising the First 

Proposed Rule. This group referred to 

themselves collectively as the ‘‘Joint 

Stakeholders,’’ and they urged the 

Office to incorporate their suggestions 


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6Citations to the proposals submitted by the Joint 

Stakeholders ae abbreviated ‘‘JS First Submission’’ 

and ‘‘JS Second Submission.’’ 

7Citations to the comments and reply comments 

submitted in response to the Second Proposed Rule 

are abbreviated ‘‘[Name of Party] Second Comment’’ 

and ‘‘[Name of Party] Second Reply.’’ For example, 

citations to the Copyright Owners’ reply comments 

are abbreviated ‘‘CO Second Reply.’’ This group 

includes all the copyright owners listed in footnote 

five, but as mentioned in that footnote, the 

Commercial Television Claimants, the Broadcaster 

Claimants Group, the NAB, and PBS did not join 

their fellow copyright owners in submitting the 

Joint Stakeholders’ First Submission. 

8Under the Second Proposed Rule a satellite 

carrier or a particular cable system would be subject 

to no more than one audit per calendar year and 

each audit would involve no more than two SOAs 

filed by that licensee. For multiple system operators 

(‘‘MSOs’’), the audit would be limited to a sample 

of no more than ten percent of the MSO’s systems, 

and the audit of each system would involve no 

more than two SOAs filed by each system. The 

Second Proposed Rule also provided that if a single 

audit required multiple years to complete, the 

licensee would not be subject to any other audits 

during those years. See 78 FR at 27143; 79 FR at 

31993. 

9The parties that submitted these 

recommendations are identified in footnote five. 

10For the convenience of the parties, the Office 

created a document that illustrates the differences 

between the Second Proposed Rule (as it was 

modified by the Interim Rule) and the Third 

Proposed Rule. This document is available on the 

Office’s Web site at http://copyright.gov/docs/

soaaudit/soa_audit.html. 

11The Office has reached a final decision 

concerning the topics discussed in sections III.C, 

III.D, IV, V, VII.C, VIII.A, VIII.B, or IX. Therefore, 

the Office does not invite further comment on these 

topics. 

‘‘as promptly as possible after receiving 

any further public comment.’’ JS First 

Submission at 1.6 The Office also 

received reply comments from AT&T. 

AT&T explained that it was aware of the 

Joint Stakeholders’ negotiations and the 

‘‘potential areas of agreement’’ among 

the parties, but stated that it did not 

have a sufficient amount of time for 

‘‘meaningful engagement’’ with the 

group. AT&T First Reply at 1. Therefore, 

AT&T urged the Office to publish the 

Joint Stakeholders’ proposal ‘‘for further 

comment by other interested parties 

who were not parties to the agreement.’’ 

Id. 

The Office carefully studied the Joint 

Stakeholders’ proposal and the other 

comments and reply comments 

submitted in response to the First 

Proposed Rule. The Joint Stakeholders’ 

proposal addressed many of the 

concerns that the parties raised in their 

initial comments. The Office therefore 

incorporated most of the Joint 

Stakeholders’ suggestions into a revised 

proposed regulation (the ‘‘Second 

Proposed Rule’’). 

On May 9, 2013, the Office published 

the Second Proposed Rule in the 

Federal Register and invited AT&T, 

DISH, the ACA, the Broadcaster 

Claimants Group, the Commercial 

Television Claimants, and other 

interested parties to comment on the 

proposed regulation. The Office also 

invited reply comments from the Joint 

Stakeholders and other interested 

parties. See 78 FR 27137, 27138 (May 9, 

2013). The Office received comments 

from AT&T and the ACA, and it 

received reply comments from the ACA, 

the NCTA, and a group representing the 

copyright owners (‘‘Copyright Owners’’) 

that negotiated the Joint Stakeholders’ 

Proposal with the NCTA and DIRECTV.7

The parties raised a number of complex 

issues, including issues of first 

impression that were not addressed in 

the comments or reply comments 

submitted in response to the First 

Proposed Rule. 

On December 26, 2013, the Office 

issued an interim rule that addresses a 

procedural issue that was not contested 

by the parties (the ‘‘Interim Rule’’). 

Specifically, the Interim Rule allows 

copyright owners to identify any SOAs 

from accounting periods beginning on 

or after January 1, 2010 that they intend 

to audit. At the same time, it provides 

licensees with advance notice of the 

SOAs that will be subject to audit when 

the final rule goes into effect. See 78 FR 

28257 (Dec. 26, 2013). 

After analyzing the latest round of 

comments, the Office identified a 

number of issues that were not 

addressed in the First or Second 

Proposed Rules or in the comments 

submitted in response to those 

proposals. Because the Office believed 

these issues might be narrowed through 

group discussion, it decided to convene 

a public roundtable before issuing 

another notice of proposed rulemaking. 

See 79 FR 31992 (June 3, 2014). During 

the roundtable the Office received 

valuable input from parties that 

previously submitted comments in this 

proceeding, including the Motion 

Picture Association of America 

(‘‘MPAA’’), the Commissioner of 

Baseball, the NCTA, the ACA, and 

DIRECTV. The Office also received 

guidance from Crunch Digital, a 

company that conducts audits on behalf 

of content owners and licensees in the 

music industry. 

The issues discussed at the 

roundtable are summarized in the 

Office’s Federal Register notice dated 

June 3, 2014 (the ‘‘Roundtable Notice’’). 

The most significant concern was the 

potential for backlogs to develop as a 

result of the limit on the number of 

SOAs that could be audited at any one 

time under the existing proposal.8 The 

Office also expressed concern about the 

accounting standards that should be 

applied during the audit, the limitation 

on ex parte communications between 

the auditor and the copyright owners, 

the amount of time allocated for 

consultations between the auditor and 

the licensee, and the procedure for 

allocating the costs of the audit between 

the copyright owners and the licensee. 

See 79 FR at 31994–95. 

Following the roundtable, the Joint 

Stakeholders consulted with each other 

regarding three of these issues, namely: 

(i) Requiring an initial consultation 

between the auditor and a 

representative of the licensee and the 

participating copyright owners prior to 

the commencement of an audit; (ii) the 

accounting standard that should govern 

the audit; and (iii) the procedure for 

allocating the cost of an audit between 

the participating copyright owners and 

the licensee. On July 31, 2014, the Joint 

Stakeholders informed the Office that 

they had reached a consensus on two of 

these issues and they offered specific 

recommendations for modifying certain 

aspects of the proposed rule.9 JS Second 

Submission at 1–2. 

After reviewing the comments and 

reply comments submitted in response 

to the Second Proposed Rule, the input 

provided during the roundtable, and the 

Joint Stakeholders’ Second Submission, 

the Office made several changes to the 

proposed rule (the ‘‘Third Proposed 

Rule’’).10 The Office invites public 

comment from copyright owners, cable 

operators, satellite carriers, accounting 

professionals, and other interested 

parties concerning the proposed 

modifications that are discussed below 

in sections II, III.A, III.B, VI.A, VI.B, 

VII.A, VII.B, and VIII.C.11

II. Audit Notice, Timetable, and 

Transitional Provisions 

A. Initial Audits 

Under the Second Proposed Rule, a 

copyright owner could initiate an audit 

by filing a written notice with the Office 

that identified the statutory licensee, the 

SOAs, and the accounting periods that 

would be subject to the audit. The 

Office would publish a notice in the 

Federal Register announcing the receipt 

of the notice of intent to audit, and 

within thirty days thereafter, any other 

copyright owner that wished to 

participate in the audit would be 

required to notify both the copyright 

owner that filed the notice and the 

licensee that would be subject to the 

audit. Copyright owners that failed to 

comply with this requirement would 

not be permitted to participate in the 

audit process and would not be 


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12As discussed in sections II.B and VII, the Third 

Proposed Rule limits the number of SOAs and the 

number of cable systems that may be included in 

an initial audit, but if the auditor discovers an 

underpayment that exceeds a certain threshold, the 

copyright owners may expand the scope of the 

initial audit to include other SOAs and other cable 

systems that have not been audited before. 

13Under the Third Proposed Rule, a statutory 

licensee will be subject to no more than one initial 

audit per calendar year, and an initial audit 

involving a particular satellite carrier or a particular 

cable system will be limited to no more than two 

of the SOAs filed by that licensee. But, as discussed 

in section VII.B, these limits will not apply to an 

expanded audit, which could be conducted 

concurrently with an initial audit involving the 

same licensee. 

permitted to audit the same SOAs in a 

subsequent proceeding. 

The Third Proposed Rule modifies 

this portion of the audit procedure in 

several respects. It provides that the 

notice should include the copyright 

owner’s name, address, telephone 

number, and email address (but need 

not include a fax number). To facilitate 

the submission of notices, the Third 

Proposed Rule provides that notices 

should be addressed to the ‘‘U.S. 

Copyright Office, Office of the General 

Counsel,’’ and specifies the mailing 

address for time-sensitive materials 

where notices should be sent. It also 

establishes similar—but separate— 

procedures for submitting a notice of 

intent to conduct an initial audit and a 

notice of intent to conduct an expanded 

audit.12

Under the Third Proposed Rule a 

notice of intent to conduct an initial 

audit must be received in the Office 

between December 1st and December 

31st. The Office will publish a notice in 

the Federal Register announcing the 

receipt of that notice between January 

1st and January 31st of the next calendar 

year. By contrast, a notice of intent to 

conduct an expanded audit may be filed 

at any point during the calendar year, 

provided that the notice is received 

within three years after the last day of 

the year in which any statement to be 

reviewed was filed with the Office. 

When the Office receives a notice of 

intent to conduct an expanded audit, it 

will publish a notice in the Federal 

Register within thirty days thereafter 

announcing the receipt of the notice. As 

the Office noted in its Federal Register 

document dated May 9, 2013, this step 

is intended to give copyright owners 

that did not join the initial audit an 

opportunity to participate in the 

expanded audit. See 78 FR at 27143. 

The Office decided to modify the 

timing of the receipt and publication of 

the initial notice to prevent the 

development of backlogs in pending 

audits. This concern stemmed from the 

fact that—under the Second Proposed 

Rule—a licensee could be subject to 

only one audit during a calendar year, 

but there was no assurance that any 

given audit would be started and 

finished within a single calendar year. 

See 79 FR at 31993. Indeed, the Second 

Proposed Rule made clear that if a 

single audit spanned multiple years, the 

licensee would not be subject to any 

other audits during those years. See 78 

FR at 27153. 

At the roundtable, several participants 

suggested that the Office’s concerns 

were unwarranted, because they 

expected audits to be completed within 

relatively short periods of time. The 

MPAA explained that it has audited 

SOAs on an informal basis for many 

years. According to the MPAA, before 

an audit begins, copyright owners often 

have a sense of what the problems may 

be based on the information already 

provided in the licensee’s SOAs, and 

thus will be able to give the auditor a 

sense of what he or she should focus on 

from the outset. The MPAA stated that 

the most difficult part of the audit 

process is identifying the stations and 

signals carried by the provider. Under 

the proposed rule, the licensee would be 

required to provide this information at 

the outset. Therefore, the MPAA is of 

the view that the audit as a whole 

would be expected to proceed smoothly. 

The MPAA predicted that an audit 

involving a small cable system could be 

completed within a few weeks, while an 

audit of a large cable system might 

require three months. In response to the 

Office’s concerns that some licensees 

may not be diligent in responding to the 

auditor’s requests for information, the 

MPAA indicated that in its experience 

this was not a problem. According to the 

MPAA, copyright owners and licensees 

traditionally have been cooperative 

during the audit process, with disputes 

typically resolved through settlement 

and voluntary adoption of corrective 

practices. 

While the Office appreciates the 

MPAA’s experience, it is concerned that 

the level of cooperation experienced by 

the MPAA during these voluntary 

informal audits might not be universal. 

Indeed, as the NCTA observed in its 

written comments, ‘‘no one can predict 

at this point how smoothly the audit 

process will be for the cable and 

satellite industries.’’ NCTA Second 

Reply at 6. 

As discussed in section IV.C, the 

Third Proposed Rule will allow 

licensees to suspend the audit for 

several months during each year. The 

Office is concerned that the audit 

process may be delayed even further if 

the licensee fails to respond to the 

auditor’s requests in a timely manner. 

The Office believes that this is a real 

possibility given that—under the Joint 

Stakeholders’ first proposal and the 

Second Proposed Rule—prolonging an 

audit into the next calendar year would 

preclude the copyright owners from 

commencing another audit involving 

that same licensee, thus creating an 

incentive for delay. See JS First 

Submission at 9–10; 78 FR at 27143; 79 

FR at 31993. The roundtable revealed 

that, apart from the MPAA, none of the 

cable or satellite industry 

representatives in attendance has had 

any meaningful experience with audits 

involving SOAs. At the same time, the 

Office is aware that royalty audits of 

other types of content licensees may 

well take longer than a year to complete. 

The Third Proposed Rule addresses 

this concern by establishing a schedule 

that is intended to ensure that the initial 

audit will be completed within a single 

calendar year. Specifically, it will 

require the copyright owners to file a 

notice of intent to conduct an initial 

audit during the month of December in 

the year before the audit is to begin, will 

require the Office to publish a notice in 

the Federal Register during January of 

the following year, and will require the 

auditor to deliver his or her final report 

to the participating copyright owners by 

November 1st of that same year.13

This approach provides advantages 

over the Second Proposed Rule, which 

would have allowed the copyright 

owners to commence an initial audit at 

any time during the year. For instance, 

the Third Proposed Rule will 

substantially alleviate administrative 

burdens on the Office related to initial 

audits since notices will arrive in the 

Office within a set period of time, which 

in turn will allow the Office to publish 

them in the Federal Register as a group 

instead of publishing them on a 

piecemeal basis. In addition, this 

approach will improve certainty for 

both the copyright owners and statutory 

licensees. Copyright owners will be able 

to better coordinate their collective 

auditing activities, since notices of 

intent to conduct an initial audit will be 

submitted to the Office and published in 

the Federal Register at the same time 

each year. Likewise, a routine schedule 

for the submission and publication of 

notices will allow licensees to organize 

their affairs, because each December 

they will know whether they will be 

subject to an initial audit in the 

following calendar year. 

In order to comply with the time 

limits set forth in section 111(d)(6)(E) of 

the Act, the copyright owners must file 

a notice of intent to audit a particular 

SOA within three years after the last day 


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14 In this context, the word ‘‘previous’’ means an 

SOA filed prior to the date that the copyright 

owners filed a notice of intent to audit with the 

Office. 

15The Second Proposed Rule defined ‘‘net 

aggregate underpayment’’ as the aggregate amount 

of underpayments found by the auditor less the 

aggregate amount of any overpayments found by the 

auditor, as measured against the total amount of 

royalties reflected on the Statements of Account 

examined by the auditor. See 78 FR at 27150. The 

same definition also appears in the Third Proposed 

Rule. 

16 In this context, the word ‘‘previous’’ means 

SOAs filed before the SOAs that were reviewed 

during the initial audit. See 78 FR at 27143. 

17The deadline for filing a notice of intent to 

audit a statement for the 2010–1 accounting period 

expired on December 31, 2013, and as discussed in 

the Federal Register document dated June 14, 2012, 

statements covering accounting periods that began 

before January 1, 2010 are not subject to audit under 

this procedure. See 77 FR at 35645. 

18To date, the Office has not received any notices 

filed pursuant to the Interim Rule. 

of the year in which the SOA was filed 

with the Office (regardless of whether 

they intend to conduct an initial audit 

or an expanded audit). The Third 

Proposed Rule recognizes that in any 

given year the copyright owners may 

file a notice of intent to conduct an 

initial audit involving any two of the 

SOAs that the licensee filed with the 

Office during that year or the three 

previous 14 calendar years. Once the 

Office receives a notice of intent to 

conduct an initial audit involving two 

SOAs filed by a particular satellite 

carrier or a particular cable system, the 

Office will not accept a notice of intent 

to conduct an initial audit involving 

that same carrier or that same system 

until the following calendar year. 

B. Expanded Audits 

Under the Third Proposed Rule, if the 

auditor discovers a net aggregate 

underpayment 15 of five percent or more 

during an initial audit of a satellite 

carrier or a single cable system, the 

copyright owners may expand the scope 

of the audit to include previous 16 SOAs 

filed by that licensee. If the auditor 

makes such a finding during an initial 

audit involving a sample of cable 

systems that are owned by a multiple 

system operator (‘‘MSO’’), the copyright 

owners may expand the scope of that 

audit to include previous SOAs filed by 

those cable systems, and in the 

following calendar year, the copyright 

owners may conduct an initial audit 

involving a larger sample of the cable 

systems owned by that MSO. 

During an expanded audit the 

copyright owners would be able to audit 

any of the previous statements filed by 

the licensee, as long as they file a notice 

of intent to audit those statements 

within three years after the last day of 

the year in which those statements were 

filed with the Office. 17 U.S.C. 

111(d)(6)(E). Although a notice of intent 

to conduct an initial audit must be filed 

in December and although the initial 

audit must be completed by November 

1st of the following year, these 

requirements will not apply to 

expanded audits. Under the Third 

Proposed Rule a notice of intent to 

conduct an expanded audit may be filed 

during any month, and the auditor does 

not need to deliver his or her final 

report by November 1st of any given 

year. 

C. Notices Filed Under the Interim Rule 

Assuming the Third Proposed Rule is 

adopted as a final rule, it will supersede 

the Interim Rule in its entirety. Until 

then, copyright owners may use the 

Interim Rule to preserve their right to 

audit any SOA that was filed with the 

Office for accounting periods 2010–2 

through 2014–1,17 so long as the notice 

is received in a timely manner.18

If a copyright owner does file a notice 

of intent to audit before the Third 

Proposed Rule goes into effect, then, as 

stated in the Interim Rule, the Office 

will publish that notice in the Federal 

Register within thirty days after it is 

received in the Office. See 37 CFR 

201.16(c)(1). In such cases, the Third 

Proposed Rule provides that the audit 

shall be conducted using the procedures 

set forth in the proposed rule, except 

that regardless of the timing of the 

notice and its publication pursuant to 

the Interim Rule, the copyright owners 

must provide the licensee with a list of 

proposed auditors by March 16, 2015, 

and the auditor must deliver his or her 

final report to the copyright owners and 

the licensee by November 1, 2015. 

III. Commencement of the Audit 

A. Designation of the Auditor 

The Second Proposed Rule provided 

that the copyright owners must deliver 

a list of three independent and qualified 

auditors to the licensee, along with 

information that is reasonably sufficient 

for the licensee to evaluate the 

independence and qualifications of each 

individual. Within five business days 

thereafter, the licensee would be 

required to select one of these 

individuals to conduct the audit. See 78 

FR at 27139–40. None of the parties 

objected to this aspect of the Second 

Proposed Rule. 

The Interim Rule allows a copyright 

owner to preserve the right to audit a 

particular SOA so long as it files a 

notice of intent within three years after 

the last day of the year in which that 

statement was filed. 37 CFR 

201.16(c)(1). However, the Interim Rule 

does not specify a precise deadline by 

which a copyright owner must 

commence the actual audit. As the 

Office observed in the Roundtable 

Notice, copyright owners may feel 

obligated to file notices of intent to 

audit on a routine basis in order to 

preserve the option of auditing a 

particular statement, even if they do not 

expect to proceed with the audit in the 

foreseeable future. 79 FR 31993. In such 

cases, the licensee might be required to 

maintain records related to SOAs for 

many years before an audit got 

underway, which would create 

administrative burdens and increase the 

risk that records would be lost or 

damaged in the interim. 

The Third Proposed Rule addresses 

this concern by establishing a deadline 

for commencing the audit. Specifically, 

it provides that the participating 

copyright owners must deliver the list of 

prospective auditors to the licensee 

within forty-five days after the date that 

the Office publishes a notice in the 

Federal Register announcing the receipt 

of the notice of intent to audit. Once the 

licensee has made its selection, the 

Third Proposed Rule provides that the 

licensee must notify the participating 

copyright owners and the participating 

copyright owners must retain the 

auditor that the licensee selected. It also 

provides that if the copyright owners 

fail to deliver a list of prospective 

auditors to the licensee within the time 

allowed or fail to retain the auditor that 

the licensee selected, the SOAs 

identified in the notice of intent to audit 

shall not be subject to audit. 

B. Initial Consultation With the Auditor 

At the roundtable, the audit firm 

Crunch Digital explained that it 

typically schedules a ‘‘kick-off call’’ at 

the start of each of its audits. During this 

call, the auditor and the party that is 

subject to the audit identify the types of 

books and records that the auditor 

intends to examine and the parties set 

a mutually agreeable schedule for the 

production of those items. In addition, 

each party designates a contact person 

who will be responsible for receiving 

and responding to communications 

regarding the audit. Crunch Digital 

explained that this improves the 

efficiency of the examination process, 

thus reducing the overall cost of the 

audit. The Joint Stakeholders made a 

similar recommendation in their Second 

Submission and the Office has 

incorporated that suggestion into the 

proposed rule. JS Second Submission at 

1. Specifically, the Third Proposed Rule 

provides that the auditor shall meet 

with designated representatives of the 

licensee and the participating copyright 


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19As noted in section I, the Joint Stakeholders’ 

proposal was submitted by the NCTA, DIRECTV, 

and the Copyright Owners identified in footnote 

five. 

20The Office included this suggested revision in 

both the Second Proposed Rule and the Third 

Proposed Rule. See 78 FR at 27151. 

owners (either in person or by 

telephone) within ten days after he or 

she has been selected. During the 

consultation, the parties are to review 

the scope of the audit, the methodology 

that the auditor will use during his or 

her review, and the schedule for 

conducting and completing the audit. 

The objective of this consultation is to 

establish the schedule and procedures 

for the production and review of 

information so that the audit will be 

completed in a timely fashion. 

C. Limitation on Ex Parte 

Communications 

The Second Proposed Rule contained 

a provision that banned ex parte 

communications between the auditor 

and the participating copyright owners, 

except in certain narrow circumstances. 

For example, the auditor may 

communicate directly with the 

copyright owners if he or she has a 

reasonable basis to suspect fraud, and if 

the auditor reasonably believes that 

involving the licensee in the 

communication would prejudice the 

investigation of that fraud. In the 

Roundtable Notice the Office questioned 

whether this restriction is necessary and 

whether it might create inefficiencies. 

See 79 FR at 31994. At the roundtable 

the NCTA explained that this provision 

will promote transparency in the audit 

process. Specifically, the NCTA opined 

that it will ensure that copyright owners 

do not exercise undue influence over 

the auditor’s deliberations, and that 

licensees are made aware of potential 

issues at the same time as the copyright 

owners, thus helping to eliminate the 

possibility of unfair surprise when the 

auditor delivers the initial draft of his or 

her report. Crunch Digital noted that 

this could be accomplished in most 

cases simply by copying the licensee on 

email communications between the 

auditor and the copyright owners or 

their representatives. The Office found 

the foregoing observations persuasive. 

Therefore, the Office has retained the 

prohibition against ex parte 

communications in the Third Proposed 

Rule. 

D. Certified List of Broadcast Signals 

1. Comments 

The Second Proposed Rule provided 

that the licensee must deliver a 

document to the auditor and the 

copyright owners containing a certified 

list of the broadcast signals 

retransmitted during each accounting 

period that is subject to the audit, 

including the call sign for each 

broadcast signal and each multicast 

signal. In addition, cable operators must 

identify the classification of each signal 

on a community-by-community basis 

pursuant to sections 201.17(e)(9)(iv)–(v) 

and 201.17(h) of the regulations. See 78 

FR at 27141. 

The Office added this requirement to 

the Second Proposed Rule at the request 

of the Joint Stakeholders. As the Office 

noted in the Federal Register document 

dated May 9, 2013, licensees are 

supposed to report this information in 

their SOAs and the person signing each 

SOA must certify that this information 

is true, correct, and complete. The 

Office sought comment on whether 

there is any benefit in requiring 

licensees to provide information that 

should be apparent from the face of an 

SOA. See 78 FR at 27141. 

AT&T stated that ‘‘there is no need to 

include this ‘make-work’ step in the 

audit process,’’ because ‘‘it does not 

provide the auditor or the copyright 

owners with any information that is not 

readily available from the SOA.’’ AT&T 

Second Comment at 3. The ACA stated 

that ‘‘whatever benefit is derived, it is 

far outweighed by the administrative 

and financial burdens of compiling and 

submitting this information, especially 

for smaller cable operators.’’ ACA 

Second Comment at 3. 

The Copyright Owners responded that 

this provision ‘‘provides tangible 

benefits that will promote the efficiency 

and effectiveness’’ of the audit 

procedure. CO Second Reply at 10. They 

noted that licensees that use Form SA 

1–2, or the previous version of Form 

SA–3, are not required to identify 

‘‘different channel line-ups linked to 

different subscriber groups.’’ Id. at 7. 

Therefore, ‘‘it is impossible to link 

communities with reported local 

stations’’ when reviewing these types of 

SOAs. Id. at 8. 

Licensees that use the current version 

of Form SA–3 are supposed to identify 

the communities they serve, along with 

the relevant channel line-ups and 

subscriber groups. The Copyright 

Owners acknowledged that this 

information ‘‘might be sufficient to 

match communities and stations for 

systems having one or two subscriber 

groups and one or two separate channel 

line-ups.’’ Id. at 8. But identifying the 

signals that are retransmitted in each 

community can be ‘‘difficult, if not 

impossible’’ for larger cable systems 

‘‘that cover large geographic areas’’ with 

‘‘multiple channel line-ups and 

numerous subscriber groups.’’ Id. at 7, 

10. For example, the Copyright Owners 

noted that Comcast of Southeast PA LLC 

recently reported 589 communities, 30 

channel line-ups with 7 to 49 stations 

each, and 46 subscriber groups, while 

Time Warner Northeast LLC recently 

reported 257 communities, 17 channel 

line-ups with 9 to 21 stations each, and 

51 subscriber groups. Id. at 8. The 

Copyright Owners contended that it 

would be ‘‘cumbersome and costly’’ for 

the auditor to identify the distant and 

local signals that are retransmitted in 

each community, given the complexity 

of information reported in these types of 

SOAs. Id. at 10. By contrast, they 

contended that it would be easy for the 

licensee to compile this information, 

because ‘‘the cable system is more likely 

to know what stations that it carries in 

each community.’’ Id. at 10. 

Requiring the licensee to provide this 

information at the beginning of the audit 

was ‘‘an important component of the 

Joint [Stakeholders’] Proposal’’ from the 

Copyright Owners’ point of view.19 Id. 

at 7. The Joint Stakeholders agreed that 

the auditor should verify the 

information reported on the SOAs in 

order to confirm the correctness of the 

calculations and royalty payments 

reported therein, but the auditor should 

not determine whether a cable operator 

properly classified the broadcast signals 

reported on its SOAs, or whether a 

satellite carrier properly determined if 

any subscriber or group of subscribers is 

eligible to receive any broadcast signals 

under the Act.20 See 78 FR at 27151. 

In their reply comments, the 

Copyright Owners explained that they 

agreed to narrow the scope of the 

auditor’s inquiry on the condition that 

the licensee produces a certified list of 

broadcast signals that were 

retransmitted during the accounting 

period that is subject to the audit. CO 

Reply at 7–8. They contended that the 

auditor needs this information to 

confirm the correctness of the 

calculations and royalty payments 

reported in the licensee’s SOAs. Id. at 7, 

9. They also contended that the certified 

list will avoid the need for ‘‘costly, timeconsuming litigation’’ over signal 

classification issues. Id. at 9–10. The 

Copyright Owners explained that the 

list will help them determine whether 

the licensee correctly classified the 

carriage of each signal. If they disagree 

with the licensee’s classification, the 

Copyright Owners will be able to raise 

their concerns during the audit, which 

in turn will give the licensee an 

opportunity to amend its SOAs if it 

agrees that a mistake has been made. Id. 

at 9. 


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21The Office issued the current version of Form 

SA–3 in April 2011. It may be used to prepare SOAs 

for accounting periods beginning on or after January 

1, 2011. 

22The fact that the Office does not communicate 

with the licensee does not necessarily mean that an 

SOA is clear or correct. The Office generally accepts 

the licensee’s representations unless they are 

contradicted by information provided elsewhere in 

the SOA or in the Office’s records or by information 

that is known to the Licensing Division. 

2. Discussion 

The Office has noted AT&T’s and the 

ACA’s concerns, but has concluded that 

the Copyright Owners have the better 

argument. Requiring the licensee to 

identify the broadcast signals that the 

licensee retransmitted and the 

communities that the licensee served 

provides the auditor with information 

he or she needs to interpret an SOA and 

to verify the calculations and royalty 

payments reported therein. It is also a 

fair trade-off for excluding the 

classification of signals as local/distant 

or permitted/non-permitted from the 

scope of the auditor’s inquiry. 

The Copyright Owners correctly noted 

that the previous version of Form SA– 

3 did not require licensees to report 

specific channel line-ups for each 

subscriber group. The current version of 

Form SA–3 instructs the licensee to 

identify each community served by the 

cable system and each television station 

carried by the cable system during the 

accounting period.21 In the Office’s 

experience, this information is clearly 

stated in the SOA in some cases, but in 

other cases it is not. When the 

information is deficient, the Office may 

write the licensee to request a 

clarification.22

Requiring the licensee to provide this 

information at the outset of the audit 

should not impose an undue burden on 

the licensee. The licensee should be 

familiar with the stations that it carries 

and the communities that it serves and 

thus should be able to prepare a list of 

stations and communities without 

difficulty. Moreover, the Third Proposed 

Rule provides that the licensee must 

retain any records needed to confirm the 

correctness of the calculations and 

royalty payments reported in its SOAs 

for at least three and a half years after 

the last day of the year that the SOA is 

filed with the Office, and if an SOA has 

been audited under this procedure, 

must continue to maintain those records 

until three years after the auditor 

delivers his or her final report. By 

definition, this would include records 

that identify the stations that the 

licensee carries and the communities it 

serves. Thus, even if the required 

information is not apparent from the 

face of the SOA, the licensee should be 

able to compile a list of stations and 

communities from its own records. 

The Office made one minor change to 

the Third Proposed Rule to make it 

consistent with the rules governing 

statements of account. Rather than 

employing the somewhat vague term 

‘‘certified list,’’ the Third Proposed Rule 

clarifies that the list of broadcast signals 

must be signed by a duly authorized 

agent of the licensee, and that person 

must confirm that the facts contained in 

the document are true, complete, and 

correct to the best of his or her 

knowledge, information, and belief. See 

37 CFR 201.11(e)(9)(iii)(E), 

201.17(e)(14)(iii)(E). 

IV. Scope of the Audit 

A. Accounting Standard 

The Second Proposed Rule provided 

that audits must be conducted 

‘‘according to generally accepted 

auditing standards.’’ 78 FR at 27151. In 

the Roundtable Notice, the Office 

questioned whether this is the 

appropriate standard, noting that 

guidance from the American Institute of 

Certified Public Accountants (‘‘AICPA’’) 

indicates that ‘‘generally accepted 

auditing standards’’ are those used by 

accountants to audit corporate financial 

statements. See 79 FR at 31994. At the 

roundtable and in their Second 

Submission, the Joint Stakeholders were 

unable to reach agreement on what 

standard, if any, should be specified in 

lieu of ‘‘generally accepted auditing 

standards.’’ For its part, Crunch Digital 

confirmed at the roundtable that 

‘‘generally accepted auditing standards’’ 

are not directly relevant to the type of 

audit contemplated by this rule. It also 

suggested that it is generally 

unnecessary to specify in advance the 

standard that will be applied during the 

audit, and that the auditor’s approach 

can be considered by the parties during 

the initial consultation. 

Given the lack of consensus on this 

issue, and that none of the parties could 

explain why any particular auditing 

standard should apply to these 

proceedings, the Office believes it is 

unnecessary to specify the professional 

standard to be employed under the rule. 

Instead, the Office believes that it is 

appropriate to rely on the auditors 

themselves to adopt an appropriate 

audit methodology based on their 

professional judgment, and to review 

that methodology with the participating 

copyright owners and the licensee 

during the initial consultation described 

in section III.B. 

B. Subscriber Information 

1. Comments 

Under the Second Proposed Rule the 

statutory licensee would be required to 

provide reasonable access to its books, 

records, or any other information that 

the auditor needs to conduct the audit. 

It also provided that the licensee should 

produce any other information that the 

auditor reasonably requests. See 78 FR 

at 27141–42. 

AT&T asserted that a cable operator 

should not be required to produce 

information regarding individual 

subscribers, because this would impose 

an undue burden on the licensee. AT&T 

Second Comment at 4. Instead, AT&T 

argued that the licensee should be 

allowed to provide ‘‘reports that include 

the number of subscribers, the amount 

of revenue and the numbers of 

subscribers and revenues applicable to 

specific service offerings at the system 

level.’’ Id. 

The Copyright Owners contended that 

AT&T is seeking ‘‘a special set of 

accounting standards’’ for cable 

operators. CO Second Reply at 6. In 

their view, ‘‘[a]uditors should be free to 

request whatever information they need 

to fulfill their responsibility,’’ and they 

stated that ‘‘ill-defined subscriber and 

revenue ‘information in the form of 

reports’ ’’ would not provide the 

participating copyright owners with the 

level of certainty that an audit should 

provide. Id. at 6–7. 

2. Discussion 

The Office believes that it would be 

inappropriate to place categorical limits 

on the type of information that the 

auditor may request during an audit 

procedure. On the contrary, the auditor 

should be allowed to request any 

information he or she reasonably needs 

to conduct an audit. The Office is in no 

position to determine whether the 

auditor does or does not need 

individual subscriber information to 

satisfy applicable professional 

standards, and the Copyright Owners 

correctly note that the Office lacks the 

expertise that would be required to craft 

particularized exceptions to the 

information that reasonably could be 

called for in an audit. 

The Office has considered AT&T’s 

comments, but has concluded that the 

proposed rule adequately addresses 

AT&T’s concerns. The Third Proposed 

Rule limits the number of SOAs and the 

number of cable systems that may be 

included in an initial audit or an 

expanded audit, which in turn limits 

the amount of information that the 

auditor may request. It provides that the 

auditor should be given ‘‘reasonable 


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23Cable companies must file SOAs covering the 

second half of the preceding calendar year by 

March 1st. 37 CFR 201.17(c)(1). Satellite companies 

must file SOAs for this period by January 30th. 37 

CFR 201.11(c)(1)). 

access’’ to the licensee’s books, records, 

and any other information that the 

auditor needs to conduct an audit 

(emphasis added). It provides that the 

licensee is only required to produce 

information that the auditor ‘‘reasonably 

requests’’ (emphasis added). It also 

provides that the audit must be 

conducted during regular business 

hours at a location designated by the 

licensee, that consideration should be 

‘‘given to minimizing the costs and 

burdens associated with the audit,’’ and, 

if the parties agree, that the audit may 

be conducted in whole or in part by 

means of electronic communication. 

As the Office stated in the Federal 

Register document dated May 9, 2013, 

cable operators receive a substantial 

benefit from the statutory licensing 

system, insofar as it provides a 

mechanism for licensing broadcast 

content without having to negotiate 

with the individual owners of that 

content. During the legislative process 

that led to the enactment of STELA, the 

Congressional Budget Office estimated 

that the cost of responding to an audit 

would be minimal, because the auditor 

would verify information that the 

licensee already collected and 

maintained as a condition for using the 

statutory license. See H.R. Rep. No. 

111–319, at 20 (2009). While the cost of 

producing information needed to verify 

the calculations and royalty payments 

reported in an SOA may be a new 

obligation, it is a reasonable cost of 

doing business under the statutory 

licensing system. See 78 FR at 27148. 

C. Suspension of the Audit 

1. Comments 

The Second Proposed Rule provided 

that statutory licensees could suspend 

an audit for up to thirty days before the 

semi-annual deadlines for filing an 

SOA, although licensees could not 

exercise this option after the auditor 

issues the initial draft of his or her 

report. See 78 FR at 27141. The NCTA 

strongly disagreed with this aspect of 

the Second Proposed Rule. NCTA 

Second Reply at 6. It contended that a 

licensee should be allowed to suspend 

an audit for up to sixty days before the 

filing deadlines, because ‘‘the same 

individuals that will be involved in 

responding to an audit . . . typically 

will be responsible for preparing new 

statements of account for that licensee.’’ 

Id. at 5. AT&T expressed similar 

concerns in its comments on the First 

Proposed Rule, explaining that the staff 

members who would be responsible for 

responding to an audit would be the 

same individuals who are responsible 

for preparing AT&T’s SOAs. AT&T First 

Comment at 1. AT&T explained that 

preparing these SOAs ‘‘essentially 

occupies the full time of the staff from 

two weeks before the close of each semiannual period through the due date for 

the [SOA], two months after the close of 

the period.’’ Id. 

2. Discussion 

The Office believes it would be 

unduly restrictive to prevent the auditor 

from working for up to four months out 

of the year, given the limit on the 

number of audits that may be conducted 

each year. However, the Office 

recognizes that the same individuals 

may be responsible for preparing the 

licensee’s SOAs, responding to the 

auditor’s requests for information, and 

reviewing the conclusions set forth in 

the auditor’s report, and that it is 

difficult to predict how much time or 

effort this may require. 

The Third Proposed Rule balances 

these interests by allowing the licensee 

to suspend its participation in the audit 

for up to sixty days before the semiannual deadlines for filing an SOA 

(regardless of whether the licensee is 

subject to an initial audit or an 

expanded audit, and regardless of 

whether the auditor has issued the 

initial draft of his or her report). 

However, there are two exceptions to 

this rule. If the participating copyright 

owners provide the licensee with a list 

of prospective auditors, then, as 

discussed in section III.A, the licensee 

will be required to select one of those 

individuals within five business days 

thereafter, even if the licensee has 

suspended its participation in the audit. 

Likewise, the licensee will be required 

to provide the participating copyright 

owners with the list of broadcast signals 

discussed in section III.D, and a 

representative of the licensee will be 

required to participate in the initial 

consultation discussed in section III.B. 

These pre-examination activities should 

not impose an undue burden on the 

licensee. Moreover, under the proposed 

schedule for conducting an initial audit 

involving a cable operator, these 

preliminary activities may need to take 

place at the same time that the licensee 

is preparing its statement of account for 

the second accounting period of the 

previous year.23 If the licensee could 

postpone these initial activities until 

after the filing of its SOA, it could 

prevent the auditor from completing his 

or her review in a timely manner. 

While the Third Proposed rule allows 

the licensee to suspend its participation 

in the audit, it does not prevent the 

auditor from continuing to work on the 

audit during the suspension. For 

example, the auditor could review 

information he or she has received from 

the licensee and formulate requests for 

additional information, but the licensee 

would not be required to respond to 

those follow-up requests until the 

suspension ended. Since the SOA 

deadlines are known in advance, the 

parties are strongly encouraged to 

discuss these issues during the initial 

consultation that is contemplated under 

the Third Proposed Rule. If the licensee 

intends to suspend its obligations under 

this provision, the auditor should 

schedule the delivery of critical 

information that might otherwise 

threaten the audit deadline well in 

advance of the suspension period. 

V. Draft Audit Report and Final Audit 

Reports 

A. Thirty Day Consultation Period 

The Second Proposed Rule provided 

that the auditor should prepare a 

written report setting forth his or her 

initial conclusions and should deliver 

the initial findings to the licensee (but 

not the copyright owners). It provided 

that the auditor should then consult 

with the licensee for a period of thirty 

days, and if the auditor agreed that there 

were errors in the report, the auditor 

should correct those errors before 

delivering a final report to the 

participating copyright owners. If the 

auditor and the licensee were unable to 

resolve their differences, then under the 

Second Proposed Rule, the licensee 

could prepare a written rebuttal within 

fourteen days after the thirty-day 

consultation period, which would be 

attached as an exhibit to the final report. 

In the Roundtable Notice, the Office 

asked the parties to consider whether 

the auditor and the licensee should be 

given more flexibility with respect to 

the consultation phase of the audit. In 

particular, the Office wanted to know 

whether the licensee should be given an 

opportunity to review the auditor’s 

initial findings before the consultation 

period begins, whether a thirty-day 

consultation period would be a 

sufficient amount of time to resolve 

potential differences between the 

auditor and the licensee, whether the 

auditor should provide the licensee 

with a revised version of the report at 

the end of the consultation period (i.e., 

before the licensee submits its written 

rebuttal), whether the licensee should 

be given more than fourteen days to 

prepare a rebuttal, or whether the 


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24See 37 CFR 261.6(f), 261.7(f), 262.6(f), 262.7(f) 

(SOAs for ephemeral recordings and digital 

performance of sound recordings). 

auditor should be given more than five 

days to prepare the final report after 

receiving the licensee’s rebuttal. See 79 

FR at 31994. 

At the roundtable, the NCTA stated 

that thirty days is a sufficient amount of 

time for the consultation period and that 

licensees do not need to receive an 

initial draft of the auditor’s report in 

advance of the consultation period or an 

updated draft at the conclusion of that 

period. In the NCTA’s view, adding any 

additional time to the calendar would 

merely delay the audit process. The 

NCTA stated that the written rebuttal 

will focus solely on the issues that the 

auditor and the licensee were unable to 

resolve during the consultation period 

(if any), and that fourteen days is a 

sufficient amount of time to prepare that 

response. If the licensee cannot 

convince the auditor to change his or 

her conclusions during the consultation 

period, then, in the NCTA’s view, it is 

unlikely that the auditor will be 

persuaded by anything that the licensee 

says in its rebuttal and unlikely that the 

auditor will make any changes or 

revisions to the final version of that 

report before it is delivered to the 

participating copyright owners. The 

NCTA suggested that the rebuttal 

essentially would be a ‘‘minority report’’ 

and the act of attaching the rebuttal to 

the final report would be a ministerial 

task without any immediate practical 

significance. Thus, the auditor should 

not need any additional time to review 

the rebuttal or prepare the final report 

for the participating copyright owners. 

In adjusting the proposed rule, the 

Office has largely relied upon the 

NCTA’s understanding of how the 

consultation process would operate. 

Under the Third Proposed Rule, the 

auditor will deliver an initial draft of his 

or her report to the licensee (but, absent 

a suspicion of fraud, not to the 

participating copyright owners). The 

delivery of the initial draft will mark the 

beginning of the thirty-day consultation 

period. If, after consulting with the 

licensee, the auditor agrees that there 

are errors in the initial draft, the auditor 

is required to correct those errors. The 

auditor will then prepare a written 

report setting forth his or her ultimate 

conclusions, and on the last day of the 

consultation period will deliver the 

final version of that report to the 

licensee (but not to the participating 

copyright owners, again absent a 

suspicion of fraud). 

Although the Office accepted most of 

the NCTA’s suggestions, the Office 

believes it would be helpful if the 

auditor provides the licensee with the 

final version of the audit report at the 

end of the consultation period. This will 

create a clear record of any changes that 

the auditor made based on his or her 

discussions with the licensee, and if the 

licensee decides to prepare a written 

rebuttal, it will make it easier for the 

licensee to identify and respond to any 

issues that remain in dispute. 

Upon receiving the final version of 

the report, the licensee may provide a 

written rebuttal within fourteen days 

after the conclusion of the thirty-day 

consultation period, but is not required 

to do so. Consistent with the NCTA’s 

recommendation, the auditor will 

simply attach any rebuttal received from 

the licensee to the final version of his 

or her report, which together will 

constitute the final report. The auditor 

will not otherwise address the issues 

raised in the rebuttal; the rebuttal will 

serve merely to capture the ultimate 

areas of disagreement between the 

auditor and the licensee for the benefit 

of the participating copyright owners— 

since they may not be privy to the issues 

discussed during the consultation 

period—and to memorialize the 

licensee’s position in the event that the 

licensee and the participating copyright 

owners revisit these issues in follow-on 

negotiations or litigation. 

Within five business days after the 

written rebuttal has been delivered to 

the auditor or, if no rebuttal is provided, 

after the fourteen-day deadline for 

providing a rebuttal has passed, the 

auditor will deliver a complete copy of 

the final report to the participating 

copyright owners, with a copy to the 

licensee. As discussed in section II, the 

Third Proposed Rule further provides 

that the final report must be delivered 

by November 1st of the year in which 

the notice of intent to audit was 

published in the Federal Register 

(except that, as noted above, this 

requirement would not apply in the case 

of an expanded audit). 

B. Suspicion of Fraud 

1. Comments 

As discussed in section V.A, the 

Second Proposed Rule provided that the 

auditor must deliver the initial draft of 

his or her report to the licensee (but not 

the participating copyright owners) at 

the beginning of the consultation 

period. However, the Second Proposed 

Rule provided that the auditor could 

also send the initial draft to the 

participating copyright owners if the 

auditor reasonably suspected that the 

licensee had committed fraud. In such 

a case, the Second Proposed Rule 

provided that the auditor could send the 

licensee an abridged version of the 

initial draft containing all of the 

auditor’s initial findings except for the 

auditor’s suspicion of fraud. Consistent 

with certain other regulatory audit 

provisions,24 the Office wanted to 

address the possibility that if an auditor 

discloses his or her suspicions to a 

licensee, the licensee may be tempted to 

conceal or destroy incriminating 

evidence before copyright owners are 

able to take action. See 78 FR at 27145. 

The NCTA objected to this approach. 

It contended (incorrectly) that there is 

‘‘no precedent in the Office’s other audit 

rules’’ for withholding a suspicion of 

fraud from the licensee. NCTA Second 

Reply at 3. The NCTA predicted that the 

auditor ‘‘likely will lack formal legal 

training’’ and contended that ‘‘the 

Office’s rules or precedent’’ do not 

provide ‘‘any guidance as to what types 

of actions might be considered ‘fraud’ in 

this context.’’ Id. at 3. Instead, the 

NCTA stated that the auditor should be 

allowed to discuss his or her suspicions 

with the copyright owners ‘‘while still 

giving licensees an opportunity to 

respond to those allegations prior to the 

issuance of a final report.’’ Id. at 3. 

2. Discussion 

As referenced above, the fraud 

exception set forth in the Second 

Proposed Rule was based, in part, on 

similar regulations that the Office has 

adopted in the past. See 37 CFR 261.6(f), 

261.7(f), 262.6(f), 262.7(f). However, the 

NCTA is correct that the statutory 

provisions governing cable audits 

expressly state that the Register ‘‘shall 

issue regulations’’ that ‘‘shall . . . 

require’’ the ‘‘auditor to review [his or 

her] conclusions’’ with the licensee and 

‘‘shall . . . provide an opportunity to 

remedy any disputed facts or 

conclusions.’’ 17 U.S.C. 111(d)(6)(C)(i), 

(iii). 

After weighing the NCTA’s concerns, 

the Office has concluded that the 

licensee should be given an opportunity 

to review and respond to the auditor’s 

entire report, even in cases where the 

auditor suspects fraud. As noted in 

Section IX, licensees will be required to 

retain any records needed to confirm the 

correctness of the calculations and 

royalty payments reported in their SOAs 

for three and a half years after the last 

day of the year in which the SOA is 

filed with the Office, and if an SOA is 

audited under this procedure, to 

continue to maintain those records until 

three years after the auditor delivers his 

or her final report to the copyright 

owners. The risk that the licensee may 

conceal or destroy incriminating 

evidence should be minimized if the 


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25None of the parties objected to these deadlines. 

auditor preserves copies of that 

evidence before disclosing his or her 

suspicions to the licensee. If the auditor 

has a reasonable basis for suspecting 

fraud during the initial phase of the 

audit (i.e., before the auditor prepares 

the initial draft of his or her report and 

before the consultation period begins), 

then, as discussed in section III.C, the 

auditor may communicate privately 

with the participating copyright owners, 

provided that the auditor reasonably 

believes that involving the licensee in 

the communication could prejudice 

further investigation of the fraud. As an 

additional protective measure, the Third 

Proposed Rule provides that the auditor 

may share the initial draft of his or her 

report with both the participating 

copyright owners and the licensee 

during the consultation period in cases 

where the auditor suspects fraud. 

VI. Corrections, Supplemental Royalty 

Payments, and Refunds 

Congress directed the Office to 

‘‘establish a mechanism for the 

[licensee] to remedy any errors 

identified in the auditor’s report and to 

cure any underpayment identified.’’ 17 

U.S.C. 111(d)(6)C)(ii). If the information 

in an SOA is incorrect or incomplete, if 

the calculation of the royalty fee is 

incorrect, or if the licensee has failed to 

deposit the correct amount of royalties, 

the Second Proposed Rule provided that 

the licensee may correct those errors by 

following the procedures set forth in 37 

CFR 201.11(h)(1) or 201.17(m)(3). See 78 

FR at 27145. 

The Third Proposed Rule modifies 

this aspect of the audit procedure in 

three respects. First, it clarifies that the 

licensee may cure an underpayment by 

depositing additional royalties with the 

Office, but may not deliver those 

payments directly to the participating 

copyright owners or their 

representatives. Second, it provides that 

the licensee may cure deficiencies 

identified in the auditor’s report only if 

the licensee represents that it has 

reimbursed the participating copyright 

owners for its share of the audit costs if 

reimbursement is owed. Third, it allows 

the licensee to request a refund from the 

Office if the auditor discovers an 

overpayment on any of the SOAs at 

issue in the audit. 

A. Supplemental Royalty Payments 

Must Be Deposited With the Office 

The statute clearly indicates that 

copyright owners should be given a 

single opportunity to audit a particular 

SOA, and that the auditor should review 

that statement on behalf of all copyright 

owners, regardless of whether they 

participate in the audit or not. See 77 FR 

at 35647. The statute also indicates that 

any copyright owner should be allowed 

to claim an appropriate share of 

additional royalty fees that result from 

the audit, even if that copyright owner 

did not join the audit or pay for the 

auditor’s services. Id. at 35649. 

Consistent with these principles, the 

Third Proposed Rule provides that a 

licensee may cure the underpayments 

identified in the auditor’s final report 

only by depositing the additional 

royalties due under the statutory license 

with the Office. Paying additional 

royalties directly to the participating 

copyright owners pursuant to a 

negotiated settlement agreement would 

not satisfy this requirement, because 

that would unfairly prevent nonparticipating copyright owners from 

claiming an appropriate share of those 

payments. In the interests of 

transparency, the Third Proposed Rule 

provides that a representative of the 

participating copyright owners is to 

promptly notify the Office if the auditor 

discovered an underpayment or 

overpayment on any of the statements 

that were reviewed during the audit 

(although the copyright owners do not 

need to disclose the specific amounts). 

This will create a public record for the 

benefit of copyright owners that did not 

participate in the audit process, and will 

inform the Office that supplemental 

royalty payments, amended statements, 

and/or refund requests may be 

forthcoming from the licensee. 

B. Reimbursement of Costs 

The Office previously determined that 

it has the authority to include a costshifting provision in the regulation, and 

the Second Proposed Rule expressly 

provided that the licensee ‘‘shall pay’’ 

for a portion of the audit costs if the 

auditor discovers a net aggregate 

underpayment that exceeds certain 

thresholds. See 78 FR at 27152. But as 

the ACA noted at the roundtable, some 

licensees may refuse to reimburse the 

participating copyright owners if they 

believe that the auditor’s conclusions 

are unjustified. And as discussed in 

section VIII.C.2, Congress did not create 

a specific cause of action for licensees 

that fail to reimburse the copyright 

owners for their share of the audit costs. 

The Third Proposed Rule addresses 

this issue by providing that a licensee 

may exercise its right to address 

deficiencies identified in an auditor’s 

report only if the licensee confirms that 

it has reimbursed the participating 

copyright owners for any audit costs 

that the licensee is required to pay. In 

other words, the Office will not accept 

an amended SOA seeking to cure 

deficiencies discovered in an audit 

unless the licensee confirms in writing 

that it has reimbursed the participating 

copyright owners for its share of the 

audit costs or that it has no obligation 

to do so under the cost-shifting or costsplitting rule. 

The Second Proposed Rule provided 

that an amended SOA and/or additional 

royalty payments must be received 

within sixty days after the delivery of 

the final report to the participating 

copyright owners and the licensee, or 

within ninety days in the case of an 

audit involving an MSO.25 In their 

Second Submission, the Joint 

Stakeholders stated that the licensee 

should reimburse the participating 

copyright owners for its share of the 

audit costs (if any) within thirty days 

after these deadlines. The Office agrees 

that the licensee should be given a 

precise deadline for reimbursing the 

participating copyright owners, but 

because a licensee’s ability to cure its 

SOAs may be contingent upon paying 

its share of the audit costs, the Third 

Proposed Rule provides that the 

deadline for reimbursing the 

participating copyright owners and the 

deadline for filing an amended SOA 

and/or depositing additional royalties 

will be the same. 

C. Refunds 

If the auditor discovers an 

overpayment on a particular SOA, the 

statutory licensee may request a refund 

by following the procedures set forth in 

sections 201.17(m) or 201.11(h) of the 

Office’s existing regulations. The 

Second Proposed Rule provided that the 

refund request must be received in the 

Office within thirty days after the 

auditor delivers his or her final report 

to the licensee. The NCTA suggested 

that a licensee should be given sixty 

days to submit a refund request. NCTA 

Second Reply at 5. The Office has 

accepted the NCTA’s suggestion, 

because it would be consistent with the 

sixty-day deadline for submitting 

supplementary royalty payments under 

the Third Proposed Rule, and consistent 

with the sixty-day deadline for 

requesting refunds under section 

201.17(m) of the Office’s existing 

regulations. In addition, the Third 

Proposed Rule corrects certain 

numbering errors in section 201.17(m) 

that were inadvertently created when 

the Office added a new paragraph to 

that section of the regulations. See 78 

FR 1755 (Jan. 11, 2013). 

VII. Expanded Audits 

Under the Second Proposed Rule, 

copyright owners would be allowed to 


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26The Joint Stakeholders made a similar 

suggestion in their First Submission. The NCTA 

correctly notes that the Office did not include this 

suggestion in the Second Proposed Rule because it 

‘‘fail[ed] to see the justification for this limitation.’’ 

See 78 FR 27143 n.19; NCTA Second Reply at 

7–8. 

conduct an initial audit of no more than 

two SOAs in a proceeding involving a 

satellite carrier or a single cable system. 

In a proceeding involving an MSO, 

copyright owners would be allowed to 

audit no more than ten percent of the 

Form 2 and Form 3 systems owned by 

that MSO. See 78 FR at 27143. To 

protect the interests of copyright 

owners, the Second Proposed Rule also 

created an exception to these rules. If 

the auditor discovered a net aggregate 

underpayment in his or her review of a 

satellite carrier or a single cable system, 

the copyright owners would be allowed 

to audit previous SOAs filed by that 

cable system or satellite carrier, so long 

as they filed a notice of intent to audit 

those statements in a timely manner. 

Likewise, if the auditor discovered a net 

aggregate underpayment in his or her 

review of an MSO, the copyright owners 

would be allowed to audit previous 

statements filed by each of the systems 

subject to the initial audit, and in the 

following calendar year they would also 

be allowed to audit a larger sample of 

the cable systems owned by that MSO. 

See id. The Third Proposed Rule 

modifies this portion of the audit 

procedure in several respects. 

A. Procedure for Conducting an 

Expanded Audit 

As discussed in section II, the Third 

Proposed Rule provides that the 

copyright owners must file a notice of 

intent to conduct an expanded audit, 

the notice must specify the statements 

that will be included in the expanded 

audit, and the notice must be received 

within three years after the last day of 

the year in which those statements were 

filed. It further provides that the 

expanded audit should be conducted 

using the same procedures that applied 

to the initial audit, although there are 

two exceptions to this rule. First, a 

notice of intent to conduct an expanded 

audit may be filed during any month of 

the year, as long as the copyright owners 

comply with the time limits set forth in 

section 111(d)(6)(E) of the Act; and 

second, the auditor does not need to 

deliver his or her final report by 

November 1st of the year in which the 

notice was published in the Federal 

Register. 

B. An Expanded Audit May Be 

Conducted Concurrently With an Initial 

Audit 

Under the Third Proposed Rule, an 

expanded audit of a single cable system, 

multiple cable systems owned by the 

same MSO, or a satellite carrier may be 

conducted concurrently with another 

audit involving that same licensee. 

Since the initial audit may not be 

completed until late in the year and 

since the expanded audit may involve 

multiple SOAs and/or multiple cable 

systems, it seems unlikely—if not 

impossible—that the auditor would be 

able to complete the initial audit and 

the expanded audit within the same 

calendar year. 

If the auditor discovers an 

underpayment of five percent or more 

during an initial audit, the Office 

believes that the copyright owners 

should be allowed to review previous 

statements filed by that licensee and to 

promptly initiate a new audit of the 

licensee’s more recent statements. 

Likewise, if the auditor discovers an 

underpayment in the case of an MSO, 

then, as contemplated by the Second 

Proposed Rule, the copyright owners 

should be allowed to audit a larger 

sample of the MSO’s cable systems in 

the following calendar year, even if an 

expanded audit remains pending. 

Copyright owners are entitled to know 

if the same problems appear in the 

licensee’s earlier or later filings, or more 

broadly throughout an MSO’s systems. 

If the expanded audit displaced the 

copyright owners’ ability to initiate a 

new audit, it could impede the 

copyright owners’ ability to audit the 

licensee’s more recent filings, 

particularly because an expanded audit 

may be noticed at any time and has no 

deadline for completion. It would seem 

unwarranted to constrain the copyright 

owners’ ongoing audit right vis-a`-vis a 

particular licensee where that licensee 

has been found to have underpaid 

royalty fees in the past. 

C. The Initial Audit and the Expanded 

Audit May Be Conducted by the Same 

Auditor 

The Third Proposed Rule provides 

that the expanded audit may be 

conducted by the same auditor that 

conducted the initial audit of that 

licensee. The NCTA contended that the 

Second Proposed Rule created a 

procedure for selecting an auditor for an 

expanded audit involving a satellite 

carrier or a single cable system, but 

‘‘[t]here is no provision made for the 

selection of an auditor for an expanded 

MSO audit.’’ NCTA Second Reply at 7. 

That is incorrect. The Second Proposed 

Rule provided that if the auditor 

discovered a net aggregate 

underpayment on the statements at 

issue in an audit involving an MSO, 

‘‘[t]he number of Statements of Account 

of a particular cable system subject to 

audit in a calendar year may be 

expanded in accordance with paragraph 

(k)(3) of this section’’ (emphasis added). 

78 FR at 27153. In other words, the 

procedure for selecting an auditor for an 

expanded audit involving a cable 

operator that owns multiple cable 

systems would be the same as the 

procedure for an expanded audit 

involving a cable operator that owns a 

single cable system. 

To eliminate further confusion, the 

Third Proposed Rule clarifies that if the 

auditor discovers a net aggregate 

underpayment on the statements at 

issue in an initial audit involving an 

MSO, the cable systems that were 

included within that initial audit may 

be subject to an expanded audit. It also 

clarifies that the MSO may be subject to 

an initial audit involving a larger 

sample of its cable systems in the 

following calendar year, provided that 

the copyright owners file a notice of 

intent to audit those systems in a timely 

manner (i.e., in the month of December 

of the year in which the auditor 

delivered the final report that triggered 

the option of auditing a larger sample). 

The NCTA also contended that 

copyright owners should not be allowed 

to unilaterally use the same auditor in 

two consecutive expanded audits 

involving an MSO.26 NCTA Second 

Reply at 8. Instead, the MSO should 

select the auditor ‘‘from a slate of names 

supplied by the [copyright] owners that 

could include the same auditor that 

conducted the initial audit.’’ Id. at 7. 

As noted in section III.A, the Second 

Proposed Rule provided that the 

licensee could select the auditor from a 

list of names provided by the copyright 

owners. Because an expanded audit is 

simply an extension of the initial audit, 

it is appropriate and efficient for the 

same individual to conduct the audit 

from start to finish. Under the Second 

Proposed Rule, the same auditor who 

conducted the initial audit could 

conduct the expanded audit, provided 

that the copyright owners supply the 

licensee with information sufficient to 

show that there has been no material 

change in the auditor’s independence 

and qualifications. If the auditor is no 

longer qualified or independent, or if 

the copyright owners prefer to use a 

different individual, a new auditor 

could be selected using the procedure 

discussed in section III.A. 

In its comments, the NCTA 

recognized that there are benefits to 

using the same auditor to conduct an 

initial audit and an expanded audit. The 

auditor will be familiar with the 

licensee’s accounting systems and 


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27 If the licensee failed to provide a written 

rebuttal in this situation, then as discussed in the 

preceding paragraph, the licensee would be 

required to reimburse the copyright owners for the 

cost of the audit procedure. 

methodologies, which should improve 

the efficiency of the expanded audit and 

reduce the potential burden on the 

licensee. The NCTA contended that 

these benefits should be balanced 

against the ‘‘benefits of giving the [MSO] 

a new opportunity to have a say in the 

selection of the auditor.’’ Id. at 8. 

However, the NCTA failed to explain 

what these purported benefits might be, 

why they should be bestowed upon 

MSOs (but denied to satellite carriers or 

cable operators that own a single cable 

system), or why they outweigh the 

benefits of using the same individual to 

conduct the initial audit and the 

expanded audit. 

VIII. Cost of the Audit Procedure 

A. Allocation of Costs 

1. Comments 

Building off a proposal made by the 

Joint Stakeholders, the Second Proposed 

Rule provided that the participating 

copyright owners would be required to 

pay the auditor for his or her services 

if the auditor discovered an 

overpayment on the SOAs at issue in 

the audit, or if the auditor discovered a 

net aggregate underpayment of ten 

percent or less of the amount reported 

on those statements. If the auditor 

discovered a net aggregate 

underpayment of more than ten percent 

on the SOAs at issue in the audit, the 

statutory licensee would be required to 

reimburse the copyright owners for 

those costs. 

In addition, the Second Proposed 

Rule included a provision for splitting 

these fees in certain circumstances. If 

the auditor concluded in his or her final 

report that there was a net aggregate 

underpayment of more than ten percent, 

the cost of the audit would be split 

evenly between the copyright owners 

and the licensee if the licensee prepared 

a written rebuttal explaining the basis 

for its good faith belief that the net 

aggregate underpayment was between 

five percent and ten percent of the 

amount reported on the SOAs.27 See 78 

FR at 27152. 

In all cases, there would be an overall 

limit on the costs that the licensee 

would be expected to pay. Specifically, 

the licensee would not be required to 

pay for any costs that exceeded the 

amount of the net aggregate 

underpayment that the auditor 

identified in his or her final report. See 

78 FR at 27148. 

In comments received in response to 

the Second Proposed Rule, the ACA 

asked the Office to go a step further by 

making it clear that if the auditor 

discovers a net aggregate underpayment 

of ten percent or more the licensee 

should not have to pay for any portion 

of the audit costs if the licensee 

prepares a written rebuttal stating that 

the underpayment was five percent or 

less and explaining the basis for its 

belief. ACA Second Comment at 4. 

In the Roundtable Notice, the Office 

questioned whether the costs should be 

split between the parties based merely 

on the views expressed in the licensee’s 

rebuttal. As the NCTA indicated during 

the roundtable, it is unlikely that the 

auditor will change his or her mind 

based on anything said in the rebuttal. 

If that is the case, it is unclear why a 

licensee’s objections should gain 

renewed significance for the purpose of 

allocating costs, when those objections 

presumably were considered and 

rejected by the auditor during the 

consultation period. See 79 FR at 31995. 

Following the roundtable, the Joint 

Stakeholders provided a substitute 

recommendation in their Second 

Submission. Under that proposal, the 

copyright owners would bear the costs 

of the audit if the auditor concluded in 

the final report that there was an 

overpayment or a net aggregate 

underpayment of five percent or less, 

and that the licensee would bear the 

costs if the auditor concluded that there 

was a net aggregate underpayment of ten 

percent or more. In cases falling in 

between, where the auditor found a net 

aggregate payment of more than five 

percent but less than ten percent, the 

audit costs would be split evenly 

between the licensee on the one hand 

and the participating copyright owners 

on the other. 

2. Discussion 

The Office concurs with the costshifting and cost-splitting proposals set 

forth in the Joint Stakeholders’ Second 

Submission. The Office does not accept 

the ACA’s proposal, which would allow 

a licensee to avoid paying any portion 

of the audit costs simply by offering its 

views as to why an underpayment was 

five percent or less (even if the auditor 

determined that the underpayment was 

ten percent or more). ACA Second 

Comment at 4. As the Office noted in its 

Roundtable Notice, it is unclear why the 

licensee’s rebuttal should be given 

greater weight than the auditor’s 

conclusions, particularly given the 

NCTA’s observation that the auditor 

would not be expected to make any 

changes to the final report based on the 

views expressed in the rebuttal. 

The ACA contended that the 

proposed rule ‘‘may impose an unfair 

burden on small cable operators’’ by 

requiring them to pay for the cost of the 

audit ‘‘if the auditor finds a net 

aggregate underpayment of less than 

five percent.’’ Id. at 3. But as discussed 

above, the licensee would not be 

required to pay for any portion of the 

audit costs in this situation. The ACA 

does not contend that it would be 

unfairly burdensome for small cable 

operators to pay for the cost of an audit 

when the underpayment exceeds ten 

percent. Indeed, the ACA acknowledged 

that small cable operators will largely be 

protected by the provision stating that 

licensees will not be required to pay for 

any costs that exceed the amount of the 

underpayment that the auditor 

identifies in his or her final report. Id. 

at 2. The Office’s existing regulations 

provide additional limitations for small 

cable operators that use Form SA 1–2. 

There is an upper limit on the gross 

receipts that may be reported on this 

form, which limits the amount of any 

underpayment that could be discovered 

during the course of an audit, which in 

turn limits the amount of any costshifting or cost-splitting that could be 

required. See 37 CFR 201.17(d)(2)(i). As 

the MPAA observed at the roundtable, 

it seems unlikely that copyright owners 

will be inclined to audit small cable 

operators, because even if the auditor 

discovers an underpayment, the cost of 

conducting the audit may exceed any 

amount that could conceivably be 

recovered from the licensee. 

B. Monthly Invoices 

1. Comments 

The Second Proposed Rule provided 

that the copyright owners should 

deliver an itemized statement to the 

licensee at the conclusion of the audit 

specifying the total cost of the audit 

procedure. See 78 FR at 27149. The 

Joint Stakeholders disagreed with this 

aspect of the Second Proposed Rule. In 

both their first and second proposals, 

they suggested that the auditor should 

be required to provide the licensee with 

itemized invoices during the course of 

the audit and that these invoices should 

be delivered by the fifteenth of each 

month. 78 FR at 27149; JS Second 

Submission at 2. The NCTA explained 

that this would minimize surprises for 

the licensee, and noted that monthly 

statements are a common feature of 

audits involving private sector program 

carriage agreements. NCTA Second 

Reply at 6–7. 


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28AT&T also contended that the Office does not 

have the authority to include a cost-shifting 

provision in this audit regulation. AT&T Second 

Comment at 1–2. AT&T made the same argument 

in the initial phase of this rulemaking. AT&T First 

Comment at 5–8. The Office addressed that 

argument in its Federal Register document dated 

May 9, 2013, concluding that it does have such 

authority. See 78 FR at 27146–48. 

29The Office addressed this argument in its 

Federal Register document dated May 9, 2013. See 

78 FR at 27149. 

2. Discussion 

After further analysis, the Office has 

included the Joint Stakeholders’ 

suggestion in the Third Proposed Rule. 

The House Committee stated that the 

Office ‘‘may consider . . . audit 

provisions in private agreements to 

which cable operators or content owners 

may be parties.’’ H.R. Rep. No. 111–319 

at 9 (2009). A monthly reporting 

requirement would promote 

transparency by requiring the auditor to 

disclose the ongoing cost of the audit 

procedure. And this would provide 

copyright owners and licensees with 

advance notice in the event that the 

auditor discovers an underpayment that 

triggers the cost-shifting or cost-splitting 

mechanisms discussed in section VIII.A 

above. 

C. Enforcement of Cost-Shifting 

Provision 

1. Comments 

Under the Second Proposed Rule, if 

the auditor discovered a net aggregate 

underpayment that triggered the 

licensee’s obligation to pay all or part of 

the cost of the audit, the licensee would 

be required to make such a 

reimbursement within a specified 

period of time. If the licensee disagreed 

with the auditor’s conclusions, 

however, the rule provided the licensee 

with a mechanism for recouping those 

costs from the participating copyright 

owners, so long as a court issued a final 

judgment finding that the net aggregate 

underpayment was ten percent or less. 

See 78 FR at 27149. In proposing that 

provision, the Office assumed that the 

licensee might seek a declaratory 

judgment of non-infringement, and as 

part of that proceeding, obtain a 

judgment from a court evaluating the 

correctness of the conclusions set forth 

in the audit report. Id. 

In response to the Second Proposed 

Rule, AT&T objected to any provision 

that would affirmatively obligate 

licensees to pay the costs of the audit.28

It stated that ‘‘the enforcement 

mechanism built into the statutory 

license’’ allows copyright owners to 

seek ‘‘recourse through the courts if they 

believe that the licensee has failed to 

fulfill its obligations under the statute 

and the rules.’’ AT&T Second Comment 

at 2. AT&T contended that the Second 

Proposed Rule stands this ‘‘fundamental 

premise’’ on its head, because it ‘‘shifts 

the enforcement obligation from the 

copyright owners to the licensee’’ to 

seek reimbursement of costs. Id. at 2. It 

also contended that this would be ‘‘an 

unwieldy and potentially costly 

process,’’ because ‘‘the licensee would 

be forced to seek reimbursement from 

numerous sources’’ if the copyright 

owners divide the payment among 

themselves. Id. at 2. 

The ACA expressed the same view in 

its reply comments. It contended that it 

would be ‘‘burdensome and unfair’’ to 

expect small cable operators to pay for 

the audit and then take legal action to 

recover those costs from the copyright 

owners. The ACA explained that small 

cable operators have fewer financial and 

legal resources than the copyright 

owners, and stated that the cost of 

bringing a declaratory judgment action 

may exceed the amount that the licensee 

could expect to recover. ACA Second 

Reply at 2–4. 

The Copyright Owners noted that 

AT&T made a similar argument during 

an earlier phase of this rulemaking,29

and that AT&T’s latest argument is 

simply a variation on the same theme. 

CO Second Reply at 2–3. They also 

stated that the licensee ‘‘will have no 

trouble’’ identifying the relevant 

copyright owners if there is a dispute 

between the parties. Id. at 5. They noted 

that the copyright owners will be 

required to identify themselves at the 

beginning of the audit by filing a notice 

with the Office. In the event that the 

court rules in the licensee’s favor, they 

stated that the copyright owners will 

‘‘likely’’ be subject to an order directing 

them to reimburse the licensee. Id. at 5. 

The Office expressed several concerns 

about this provision in the Roundtable 

Notice and during the roundtable 

discussion. See 79 FR at 31995. In 

particular, the Office questioned 

whether the parties expect to engage in 

the sort of litigation contemplated by 

the Second Proposed Rule, the 

gravamen of which would seemingly be 

an infringement action or a declaratory 

judgment action for non-infringement; 

whether the court would review the 

auditor’s report to determine the exact 

amount of underpayment in any such 

litigation; and whether the issue of audit 

costs might be better understood as a 

potential element of actual damages in 

such an infringement suit. The Office 

expressed reservations about its 

authority to essentially dictate the 

issues that a federal district court would 

be required to address in a suit initiated 

after the completion of the audit. In 

addition, the Office questioned whether 

the rule should affirmatively require the 

licensee to pay for the audit costs. 

In their Second Submission, the Joint 

Stakeholders reiterated their belief that 

the proposed rule should provide a 

method for licensees to recover the costs 

of the audit from the participating 

copyright owners in a judicial 

proceeding. Specifically, they urged the 

Office to include the following 

provision in the proposed rule: 

In the event the statutory licensee disputes 

the amount of the net aggregate 

underpayment identified by the auditor, and 

an action is brought in a court of competent 

jurisdiction to determine the royalties due for 

the period(s) covered by the auditor’s final 

report, there shall be a final true-up of the 

amount of the auditor’s costs borne by either 

party based on the final outcome of that 

action relative to the cost responsibilities set 

forth herein. 

JS Second Submission at 2. 

2. Discussion 

As AT&T and the ACA correctly 

observed, under the Second Proposed 

Rule, the licensee would have had an 

absolute obligation to reimburse the 

copyright owners for the cost of the 

audit, even if the licensee disagreed 

with the auditors’ conclusions and 

declined to submit any additional 

royalty payments to the Office. AT&T 

Second Comment at 2; ACA Second 

Reply at 2–3. The Third Proposed Rule 

modifies the Second Proposed Rule so 

that licensees are required to pay the 

costs of the audit if they wish to cure 

a deficiency, as explained in section 

VI.B above. This revised approach has 

several advantages. Although the 

Second Proposed Rule directed the 

licensee to pay for the audit costs, it 

provided no obvious mechanism for the 

Office or any other party to enforce that 

mandate. Tying the payment of audit 

costs to the cure provisions, by contrast, 

will give the licensee an incentive to 

make these payments. If the licensee 

disagrees with the auditor’s conclusion 

regarding the royalty underpayment, the 

licensee may choose not to deposit 

additional royalties with the Office or 

pay the attendant audit costs. In the case 

where a licensee opts not to cure, the 

licensee will run the risk of being 

subject to an infringement action, or in 

the alternative, could bring its own 

action against one or more of the 

copyright owners seeking a declaratory 

judgment of non-infringement. 

The Office believes it is unnecessary 

for the rule to require a ‘‘true-up’’ of the 

auditor’s costs after the close of any 

follow-on litigation, as the Joint 

Commenters urged in their Second 


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Submission. To begin with, it is unclear 

what the term ‘‘true-up’’ is intended to 

mean or how the Joint Stakeholders 

propose to enforce this regulatory 

obligation. Moreover, the Joint 

Stakeholders’ proposal raises issues that 

can and should be resolved by a court 

in the exercise of its remedial discretion 

as part of the contemplated judicial 

proceeding. In this regard, the Office 

notes that the audit costs might be 

characterized as an element of actual 

damages incurred by the copyright 

owners, or as an element of the relief to 

be awarded in a declaratory judgment 

action. See 28 U.S.C. 2202 (authorizing 

courts to grant ‘‘[f]urther necessary or 

proper relief based on a declaratory 

judgment or decree . . . against any 

adverse party whose rights have been 

determined by such judgment’’). 

IX. Retention of Records 

A. Comments 

The Second Proposed Rule provided 

that a statutory licensee should retain 

any records needed to confirm the 

correctness of the calculations and 

royalty payments reported in an SOA or 

amended SOA for three and a half years 

after the last day of the year that the 

SOA or amendment was filed with the 

Office, or in the event that an SOA or 

amended SOA was the subject of an 

audit, for three years after the auditor 

delivered his or her final report to the 

parties. As the Office explained in its 

earlier Federal Register document dated 

June 14, 2012, it is important to ensure 

that licensees ‘‘retain their records until 

the deadline for auditing [an SOA] has 

passed.’’ 77 FR at 35647. The Office is 

also concerned that copyright owners 

have the benefit of the three-year statute 

of limitations provided in the Act when 

an audit takes place. See 17 U.S.C. 

507(b). 

The NCTA contended that the Second 

Proposed Rule contemplates ‘‘a very 

lengthy, and burdensome, record 

retention period’’ following the 

completion of the audit and that it 

‘‘imposes a significant burden’’ on small 

cable operators as well as MSOs that file 

multiple SOAs in each accounting 

period. NCTA Second Reply at 4. The 

NCTA instead suggested that a licensee 

be required to retain the required 

records for no more than one year after 

the auditor issues his or her final report. 

B. Discussion 

The Office has considered the NCTA’s 

concerns but has concluded that a 

licensee should be required to retain 

relevant records during the pendency of 

an audit and for three years after the 

auditor issues his or her final report, as 

provided in the Third Proposed Rule. 

This will ensure that the licensee does 

not discard its records before the threeyear statute of limitations may expire. 

Moreover, the burden of retaining such 

records should be minimal. Many 

licensees collect, report, and maintain 

their records in electronic form, which 

should limit the cost of complying with 

the proposed rule. The Third Proposed 

Rule limits the number of SOAs that 

may be included in each audit, which 

in turn limits the number of records that 

must be retained when the auditor 

issues his or her final report. 

Furthermore, the licensee is only 

required to keep records that are 

‘‘necessary to confirm the correctness of 

the calculations and royalty payments 

reported’’ in those SOAs. 

List of Subjects in 37 CFR Part 201 

Copyright, General Provisions. 

Proposed Regulations 

In consideration of the foregoing, the 

U.S. Copyright Office proposes to 

amend part 201 of 37 CFR, Chapter II, 

as follows: 

PART 201—GENERAL PROVISIONS 

■ 1. Amend the authority citation for 

part 201 to read as follows: 

Authority: 17 U.S.C. 702. 

Section 201.10 also issued under 17 U.S.C. 

304. 

Section 201.16 also issued under 17 U.S.C. 

111(d)(6) and 17 U.S.C. 119(b)(2). 

■ 2. Revise § 201.16 to read as follows: 

§ 201.16 Verification of a Statement of 

Account and royalty fee payments for 

secondary transmissions made by cable 

systems and satellite carriers. 

(a) General. This section prescribes 

procedures pertaining to the verification 

of a Statement of Account and royalty 

fees filed with the Copyright Office 

pursuant to sections 111(d)(1) or 

119(b)(1) of title 17 of the United States 

Code. 

(b) Definitions. As used in this 

section: 

(1) The term cable system has the 

meaning set forth in § 201.17(b)(2). 

(2) Copyright owner means any person 

or entity that owns the copyright in a 

work embodied in a secondary 

transmission made by a statutory 

licensee that filed a Statement of 

Account with the Copyright Office for 

an accounting period beginning on or 

after January 1, 2010, or a designated 

agent or representative of such person or 

entity. 

(3) Multiple system operator or MSO 

means an entity that owns, controls, or 

operates more than one cable system. 

(4) Net aggregate underpayment 

means the aggregate amount of 

underpayments found by the auditor 

less the aggregate amount of any 

overpayments found by the auditor, as 

measured against the total amount of 

royalties reflected on the Statements of 

Account examined by the auditor. 

(5) Participating copyright owner 

means a copyright owner that filed a 

notice of intent to audit a Statement of 

Account pursuant to paragraph (c)(1) or 

(2) of this section and any other 

copyright owner that has given notice of 

its intent to participate in such audit 

pursuant to paragraph (c)(3) of this 

section. 

(6) The term satellite carrier has the 

meaning set forth in 17 U.S.C. 119(d)(6). 

(7) The term secondary transmission 

has the meaning set forth in 17 U.S.C. 

111(f)(2). 

(8) Statement of Account or Statement 

means a semiannual Statement of 

Account filed with the Copyright Office 

under 17 U.S.C. 111(d)(1) or 119(b)(1) or 

an amended Statement of Account filed 

with the Office pursuant to §§ 201.11(h) 

or 201.17(m). 

(9) Statutory licensee or licensee 

means a cable system or satellite carrier 

that filed a Statement of Account with 

the Office under 17 U.S.C. 111(d)(1) or 

119(b)(1). 

(c) Notice of intent to audit. (1) Any 

copyright owner that intends to audit a 

Statement of Account for an accounting 

period beginning on or after January 1, 

2010 must provide written notice to the 

Register of Copyrights no later than 

three years after the last day of the year 

in which the Statement was filed with 

the Office. The notice must be received 

in the Office between December 1st and 

December 31st, and a copy of the notice 

must be provided to the statutory 

licensee on the same day that it is filed 

with the Office. Between January 1st 

and January 31st of the next calendar 

year the Office will publish a notice in 

the Federal Register announcing the 

receipt of the notice of intent to audit. 

A notice of intent to audit may be filed 

by an individual copyright owner or a 

designated agent that represents a group 

or multiple groups of copyright owners. 

The notice shall include a statement 

indicating that it is a ‘‘notice of intent 

to audit’’ and it shall contain the 

following information: 

(i) It shall identify the licensee that 

filed the Statement(s) with the Office, 

and the Statement(s) and accounting 

period(s) that will be subject to the 

audit. 

(ii) It shall identify the party that filed 

the notice, including its name, address, 

telephone number, and email address, 

and it shall include a statement that the 


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party owns, or represents one or more 

copyright owners that own, a work that 

was embodied in a secondary 

transmission made by the statutory 

licensee during one or more of the 

accounting period(s) specified in the 

statement(s) that will be subject to the 

audit. 

(2) Notwithstanding the schedule set 

forth in paragraph (c)(1) of this section, 

any copyright owner that intends to 

audit a Statement of Account pursuant 

to an expanded audit under paragraph 

(n) of this section may provide written 

notice to the Register of Copyrights 

during any month, but no later than 

three years after the last day of the year 

in which the Statement was filed with 

the Office. A copy of the notice must be 

provided to the licensee on the same 

day that the notice is filed with the 

Office. Within thirty days after the 

notice has been received, the Office will 

publish a notice in the Federal Register 

announcing the receipt of the notice of 

intent to conduct an expanded audit. A 

notice given pursuant to this paragraph 

may be provided by an individual 

copyright owner or a designated agent 

that represents a group or multiple 

groups of copyright owners. The notice 

shall include a statement indicating that 

it is a ‘‘notice of intent to conduct an 

expanded audit’’ and it shall contain the 

information specified in paragraphs 

(c)(1)(i) and (ii) of this section. 

(3) Within thirty days after a notice is 

published in the Federal Register 

pursuant to paragraphs (c)(1) or (2) of 

this section, any other copyright owner 

that owns a work that was embodied in 

a secondary transmission made by that 

statutory licensee during an accounting 

period covered by the Statement(s) of 

Account referenced in the Federal 

Register notice and that wishes to 

participate in the audit of such 

Statement(s) must provide written 

notice of such participation to the 

licensee and to the party that filed the 

notice of intent to audit. A notice given 

pursuant to this paragraph may be 

provided by an individual copyright 

owner or a designated agent that 

represents a group or multiple groups of 

copyright owners, and shall include the 

information specified in paragraphs 

(c)(1)(i) and (ii) of this section. 

(4) Notices submitted under 

paragraphs (c)(1) through (3) of this 

section should be addressed to the ‘‘U.S. 

Copyright Office, Office of the General 

Counsel’’ and should be sent to the 

address for time-sensitive requests set 

forth in § 201.1(c)(1). 

(5) Once the Office has received a 

notice of intent to audit a Statement of 

Account under paragraphs (c)(1) or (2) 

of this section, a notice of intent to audit 

that same Statement will not be 

accepted for publication in the Federal 

Register. 

(6) Once the Office has received a 

notice of intent to audit two Statements 

of Account filed by a particular satellite 

carrier or a particular cable system, a 

notice of intent to audit that same 

carrier or that same system under 

paragraph (c)(1) of this section will not 

be accepted for publication in the 

Federal Register until the following 

calendar year. 

(7) If the Office has received or 

receives a notice of intent to audit prior 

to the effective date of this section, the 

Office will publish a notice in the 

Federal Register within thirty days 

thereafter announcing the receipt of the 

notice of intent to audit. In such a case, 

the audit shall be conducted using the 

procedures set forth in paragraphs (d) 

through (l) of this section, with the 

following exceptions: 

(i) The participating copyright owners 

shall provide the statutory licensee with 

a list of three independent and qualified 

auditors pursuant to paragraph (d)(1) by 

March 16, 2015. 

(ii) The auditor shall deliver his or her 

final report to the participating 

copyright owners and the licensee 

pursuant to paragraph (i)(3) of this 

section by November 1, 2015. 

(d) Selection of the auditor. (1) Within 

forty-five days after a notice is 

published in the Federal Register 

pursuant to paragraph (c)(1) of this 

section, the participating copyright 

owners shall provide the statutory 

licensee with a list of three independent 

and qualified auditors, along with 

information reasonably sufficient for the 

licensee to evaluate the proposed 

auditors’ independence and 

qualifications, including: 

(i) The auditor’s curriculum vitae and 

a list of audits that the auditor has 

conducted pursuant to 17 U.S.C. 

111(d)(6) or 119(b)(2); 

(ii) A list and, subject to any 

confidentiality or other legal 

restrictions, a brief description of any 

other work the auditor has performed 

for any of the participating copyright 

owners during the prior two calendar 

years; 

(iii) A list identifying the participating 

copyright owners for whom the 

auditor’s firm has been engaged during 

the prior two calendar years; and, 

(iv) A copy of the engagement letter 

that would govern the auditor’s 

performance of the audit and that 

provides for the auditor to be 

compensated on a non-contingent flat 

fee or hourly basis that does not take 

into account the results of the audit. 

(2) Within five business days after 

receiving the list of auditors from the 

participating copyright owners, the 

licensee shall select one of the proposed 

auditors and shall notify the 

participating copyright owners of its 

selection. That auditor shall be retained 

by the participating copyright owners 

and shall conduct the audit on behalf of 

all copyright owners who own a work 

that was embodied in a secondary 

transmission made by the licensee 

during the accounting period(s) 

specified in the Statement(s) of Account 

identified in the notice of intent to 

audit. 

(3) The auditor shall be independent 

and qualified as defined in this section. 

An auditor shall be considered 

independent and qualified if: 

(i) He or she is a certified public 

accountant and a member in good 

standing with the American Institute of 

Certified Public Accountants (‘‘AICPA’’) 

and the licensing authority for the 

jurisdiction(s) where the auditor is 

licensed to practice; 

(ii) He or she is not, for any purpose 

other than the audit, an officer, 

employee, or agent of any participating 

copyright owner; 

(iii) He or she is independent as that 

term is used in the Code of Professional 

Conduct of the AICPA, including the 

Principles, Rules, and Interpretations of 

such Code; and 

(iv) He or she is independent as that 

term is used in the Statements on 

Auditing Standards promulgated by the 

Auditing Standards Board of the AICPA 

and Interpretations thereof issued by the 

Auditing Standards Division of the 

AICPA. 

(e) Commencement of the audit. (1) 

Within ten days after the selection of the 

auditor, the auditor shall meet by 

telephone or in person with designated 

representatives of the participating 

copyright owners and the statutory 

licensee to review the scope of the 

audit, audit methodology, and schedule 

for conducting and completing the 

audit. 

(2) Within thirty days after the 

selection of the auditor, the licensee 

shall provide the auditor and a 

representative of the participating 

copyright owners with a list of all 

broadcast signals retransmitted pursuant 

to the statutory license in each 

community covered by each of the 

Statements of Account subject to the 

audit, including the call sign for each 

broadcast signal and each multicast 

signal. In the case of an audit involving 

a cable system or MSO, the list must 

include the classification of each signal 

on a community-by-community basis 

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(v) and 201.17(h). The list shall be 

signed by a duly authorized agent of the 

licensee and the signature shall be 

accompanied by the following 

statement: I, the undersigned agent of 

the statutory licensee, hereby declare 

under penalty of law that all statements 

of fact contained herein are true, 

complete, and correct to the best of my 

knowledge, information, and belief, and 

are made in good faith. 

(f) Failure to proceed with a noticed 

audit. If the participating copyright 

owners fail to provide the statutory 

licensee with a list of auditors or fail to 

retain the auditor selected by the 

licensee pursuant to paragraph (d)(2) of 

this section, the Statement(s) of Account 

identified in the notice of intent to audit 

shall not be subject to audit under this 

section. 

(g) Ex parte communications. 

Following the initial consultation 

pursuant to paragraph (e)(1) of this 

section and until the distribution of the 

auditor’s final report to the participating 

copyright owners pursuant to paragraph 

(i)(3) of this section, there shall be no ex 

parte communications regarding the 

audit between the auditor and the 

participating copyright owners or their 

representatives; provided, however, that 

the auditor may engage in such ex parte 

communications where either: 

(1) Subject to paragraph (i)(4) of this 

section, the auditor has a reasonable 

basis to suspect fraud and that 

participation by the licensee in 

communications regarding the 

suspected fraud would, in the 

reasonable opinion of the auditor, 

prejudice the investigation of such 

suspected fraud; or 

(2) The auditor provides the licensee 

with a reasonable opportunity to 

participate in communications with the 

participating copyright owners or their 

representatives and the licensee 

declines to do so. 

(h) Auditor’s authority and access. (1) 

The auditor shall have exclusive 

authority to verify all of the information 

reported on the Statement(s) of Account 

subject to the audit in order to confirm 

the correctness of the calculations and 

royalty payments reported therein; 

provided, however, that the auditor 

shall not determine whether any cable 

system properly classified any broadcast 

signal as required by §§ 201.17(e)(9)(iv) 

through (v) and 201.17(h) or whether a 

satellite carrier properly determined 

that any subscriber or group of 

subscribers is eligible to receive any 

broadcast signals under 17 U.S.C. 

119(a). 

(2) The statutory licensee shall 

provide the auditor with reasonable 

access to the licensee’s books and 

records and any other information that 

the auditor needs in order to conduct 

the audit. The licensee shall provide the 

auditor with any information the 

auditor reasonably requests promptly 

after receiving such a request. 

(3) The audit shall be conducted 

during regular business hours at a 

location designated by the licensee with 

consideration given to minimizing the 

costs and burdens associated with the 

audit. If the auditor and the licensee 

agree, the audit may be conducted in 

whole or in part by means of electronic 

communication. 

(4) With the exception of its 

obligations under paragraphs (d) and (e) 

of this section, a licensee may suspend 

its participation in an audit for no more 

than sixty days before the semi-annual 

due dates for filing Statements of 

Account by providing advance written 

notice to the auditor and a 

representative of the participating 

copyright owners, provided however, 

that if the participating copyright 

owners notify the licensee within ten 

days of receiving such notice of their 

good faith belief that the suspension 

could prevent the auditor from 

delivering his or her final report to the 

participating copyright owners before 

the statute of limitations may expire on 

any claims under the Copyright Act 

related to a Statement of Account 

covered by that audit, the licensee may 

not suspend its participation in the 

audit unless it first executes a tolling 

agreement to extend the statute of 

limitations by a period of time equal to 

the period of the suspension. 

(i) Audit report. (1) After reviewing 

the books, records, and any other 

information received from the statutory 

licensee, the auditor shall prepare a 

draft written report setting forth his or 

her initial conclusions and shall deliver 

a copy of that draft report to the 

licensee. The auditor shall then consult 

with a representative of the licensee 

regarding the conclusions set forth in 

the draft report for no more than thirty 

days. If, upon consulting with the 

licensee, the auditor concludes that 

there are errors in the facts or 

conclusions set forth in the draft report, 

the auditor shall correct those errors. 

(2) Within thirty days after the date 

that the auditor delivered the draft 

report to the licensee pursuant to 

paragraph (i)(1) of this section, the 

auditor shall prepare a final version of 

the written report setting forth his or her 

ultimate conclusions and shall deliver a 

copy of that final version to the licensee. 

Within fourteen days thereafter, the 

licensee may provide the auditor with a 

written rebuttal setting forth its good 

faith objections to the facts or 

conclusions set forth in the final version 

of the report. 

(3) Subject to the confidentiality 

provisions set forth in paragraph (l) of 

this section, the auditor shall attach a 

copy of any written rebuttal timely 

received from the licensee to the final 

version of the report and shall deliver a 

copy of the complete final report to the 

participating copyright owners and the 

licensee. The final report must be 

delivered by November 1st of the year 

in which the notice was published in 

the Federal Register pursuant to 

paragraph (c)(1) of this section and 

within five business days after the last 

day on which the licensee may provide 

the auditor with a written rebuttal 

pursuant to paragraph (i)(2) of this 

section. A representative of the 

participating copyright owners shall 

promptly notify the Office that the audit 

has been completed and shall state 

whether the auditor discovered an 

underpayment or overpayment on any 

Statement(s) examined in the audit, as 

applicable. The notice should be 

addressed to the ‘‘U.S. Copyright Office, 

Office of the General Counsel’’ and 

should be sent to the address for timesensitive requests specified in 

§ 201.1(c)(1). 

(4) Prior to the delivery of the final 

report pursuant to paragraph (i)(3) of 

this section the auditor shall not 

provide any draft of his or her report to 

the participating copyright owners or 

their representatives; provided, 

however, that the auditor may deliver a 

draft report simultaneously to the 

licensee and the participating copyright 

owners if the auditor has a reasonable 

basis to suspect fraud. 

(j) Corrections, supplemental 

payments, and refunds. (1) If the auditor 

concludes in his or her final report that 

any of the information reported on a 

Statement of Account is incorrect or 

incomplete, that the calculation of the 

royalty fee payable for a particular 

accounting period was incorrect, or that 

the amount deposited in the Office for 

that period was too low, a statutory 

licensee may cure such incorrect or 

incomplete information or 

underpayment by filing an amendment 

to the Statement and, in case of a 

deficiency in payment, by depositing 

supplemental royalty fee payments with 

the Office using the procedures set forth 

in §§ 201.11(h) or 201.17(m), provided 

that the amendment and/or payments 

are received within sixty days after the 

delivery of the final report to the 

participating copyright owners and the 

licensee or within ninety days after the 

delivery of such report in the case of an 

audit of an MSO, and further provided 

that the licensee reimburses the 


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participating copyright owners for the 

licensee’s share of the audit costs, if 

any, determined to be owing pursuant to 

paragraph (k)(3) of this section. 

Supplemental royalty fee payments 

made pursuant to this paragraph shall 

be delivered to the Office and not to 

participating copyright owners or their 

representatives. 

(2) Notwithstanding §§ 201.11(h)(3)(i) 

and 201.17(m)(4)(i), if the auditor 

concludes in his or her final report that 

there was an overpayment on a 

particular Statement, the licensee may 

request a refund from the Office using 

the procedures set forth in 

§§ 201.11(h)(3) or 201.17(m)(4), 

provided that the request is received 

within sixty days after the delivery of 

the final report to the participating 

copyright owners and the licensee or 

within ninety days after the delivery of 

the final report in the case of an audit 

of an MSO. 

(k) Costs of the audit. (1) No later than 

the fifteenth day of each month during 

the course of the audit, the auditor shall 

provide the participating copyright 

owners with an itemized statement of 

the costs incurred by the auditor during 

the previous month, and shall provide 

a copy to the licensee that is the subject 

of the audit. 

(2) If the auditor concludes in his or 

her final report that there was no net 

aggregate underpayment or a net 

aggregate underpayment of five percent 

or less, the participating copyright 

owners shall pay for the full costs of the 

auditor. If the auditor concludes in his 

or her final report that there was a net 

aggregate underpayment of more than 

five percent but less than ten percent, 

the costs of the auditor are to be split 

evenly between the participating 

copyright owners and the licensee that 

is the subject of the audit. If the auditor 

concludes in his or her final report that 

there was a net aggregate underpayment 

of ten percent or more, the licensee will 

be responsible for the full costs of the 

auditor. 

(3) If a licensee is responsible for any 

portion of the costs of the auditor, a 

representative of the participating 

copyright owners shall provide the 

licensee with an itemized accounting of 

the auditor’s total costs, the appropriate 

share of which should be paid by the 

licensee to such representative no later 

than sixty days after the delivery of the 

final report to the participating 

copyright owners and licensee or within 

ninety days after the delivery of such 

report in the case of an audit of an MSO. 

(4) Notwithstanding anything to the 

contrary in paragraph (k) of this section, 

no portion of the auditor’s costs that 

exceed the amount of the net aggregate 

underpayment may be recovered from 

the licensee. 

(l) Confidentiality. (1) For purposes of 

this section, confidential information 

shall include any non-public financial 

or business information pertaining to a 

Statement of Account that has been 

subjected to an audit under 17 U.S.C. 

111(d)(6) or 119(b)(2). 

(2) Access to confidential information 

under this section shall be limited to: 

(i) The auditor; and 

(ii) Subject to the execution of a 

reasonable confidentiality agreement, 

outside counsel for the participating 

copyright owners and any third party 

consultants retained by outside counsel, 

and any employees, agents, consultants, 

or independent contractors of the 

auditor who are not employees, officers, 

or agents of a participating copyright 

owner for any purpose other than the 

audit, who are engaged in the audit of 

a Statement or activities directly related 

hereto, and who require access to the 

confidential information for the purpose 

of performing such duties during the 

ordinary course of their employment. 

(3) The auditor and any person 

identified in paragraph (l)(2)(ii) of this 

section shall implement procedures to 

safeguard all confidential information 

received from any third party in 

connection with an audit, using a 

reasonable standard of care, but no less 

than the same degree of security used to 

protect confidential financial and 

business information or similarly 

sensitive information belonging to the 

auditor or such person. 

(m) Frequency and scope of the audit. 

(1) Except as provided in paragraph 

(n)(2) of this section with respect to 

expanded audits, a cable system, MSO, 

or satellite carrier shall be subject to no 

more than one audit per calendar year. 

(2) Except as provided in paragraph 

(n)(1) of this section, the audit of a 

particular cable system or satellite 

carrier shall include no more than two 

of the Statements of Account from the 

previous eight accounting periods 

submitted by that cable system or 

satellite carrier. 

(3) Except as provided in paragraph 

(n)(3)(ii), an audit of an MSO shall be 

limited to a sample of no more than ten 

percent of the MSO’s Form 3 cable 

systems and no more than ten percent 

of the MSO’s Form 2 systems. 

(n) Expanded audits. (1) If the auditor 

concludes in his or her final report that 

there was a net aggregate underpayment 

of five percent or more on the 

Statements of Account examined in an 

initial audit involving a cable system or 

satellite carrier, a copyright owner may 

expand the audit to include all previous 

Statements filed by that cable system or 

satellite carrier that may be timely 

noticed for audit under paragraph (c)(2) 

of this section. The expanded audit 

shall be conducted using the procedures 

set forth in paragraphs (d) through (l) of 

this section, with the following 

exceptions: 

(i) The expanded audit may be 

conducted by the same auditor that 

performed the initial audit, provided 

that the participating copyright owners 

provide the licensee with updated 

information reasonably sufficient to 

allow the licensee to determine that 

there has been no material change in the 

auditor’s independence and 

qualifications. In the alternative, the 

expanded audit may be conducted by an 

auditor selected by the licensee using 

the procedure set forth in paragraph (d) 

of this section. 

(ii) The auditor shall deliver his or her 

final report to the participating 

copyright owners and the licensee 

within five business days following the 

last day on which the licensee may 

provide the auditor with a written 

rebuttal pursuant to paragraph (i)(2) of 

this section, but shall not be required to 

deliver the report by November 1st of 

the year in which the notice was 

published in the Federal Register 

pursuant to paragraph (c) of this section. 

(2) An expanded audit of a cable 

system or a satellite carrier that is 

conducted pursuant to paragraph (n)(1) 

of this section may be conducted 

concurrently with another audit 

involving that same licensee. 

(3) If the auditor concludes in his or 

her final report that there was a net 

aggregate underpayment of five percent 

or more on the Statements of Account 

examined in an initial audit involving 

an MSO: 

(i) The cable systems included in the 

initial audit of that MSO shall be subject 

to an expanded audit in accordance 

with paragraph (n)(1) of this section; 

and 

(ii) The MSO shall be subject to an 

initial audit involving a sample of no 

more than thirty percent of its Form 3 

cable systems and no more than thirty 

percent of its Form 2 cable systems, 

provided that the notice of intent to 

conduct that audit is filed in the same 

calendar year as the delivery of such 

final report. 

(o) Retention of records. For each 

Statement of Account or amended 

Statement that a statutory licensee files 

with the Office for accounting periods 

beginning on or after January 1, 2010, 

the licensee shall maintain all records 

necessary to confirm the correctness of 

the calculations and royalty payments 

reported in each Statement or amended 

Statement for at least three and one-half 


asabaliauskas on DSK5VPTVN1PROD with PROPOSALS
55712 Federal Register / Vol. 79, No. 180 / Wednesday, September 17, 2014 / Proposed Rules 

years after the last day of the year in 

which that Statement or amended 

Statement was filed with the Office and, 

in the event that such Statement or 

amended Statement is the subject of an 

audit conducted pursuant to this 

section, shall continue to maintain those 

records until three years after the 

auditor delivers the final report to the 

participating copyright owners and the 

licensee pursuant to paragraph (i)(3) of 

this section. 

§ 201.17 [Amended] 

■ 3. Amend § 201.17 as follows: 

■ a. In paragraphs (m)(2) and (m)(4)(i) 

by removing ‘‘(m)(3)’’ and adding in its 

place ‘‘(m)(4)’’. 

■ b. In paragraphs (m)(2)(ii), 

(m)(4)(iii)(C), and (m)(4)(iv)(A) by 

removing ‘‘(m)(1)(iii)’’ and adding in its 

place ‘‘(m)(2)(iii)’’. 

■ c. In paragraph (m)(4) by removing 

‘‘(m)(1)’’ and adding in its place 

‘‘(m)(2)’’. 

■ d. In paragraph (m)(4)(iii)(A) by 

removing ‘‘(m)(1)(i)’’ and adding in its 

place ‘‘(m)(2)(i)’’. 

■ e. In paragraph (m)(4)(iii)(B) by 

removing ‘‘(m)(1)(ii)’’ and adding in its 

place ‘‘(m)(2)(ii)’’. 

■ f. In paragraph (m)(4)(vi) by removing 

‘‘(m)(3)(i)’’ and adding in its place 

‘‘(m)(4)(i)’’. 

Dated: September 10, 2014. 

Jacqueline C. Charlesworth, 

General Counsel and Associate Register of 

Copyrights. 

[FR Doc. 2014–21944 Filed 9–16–14; 8:45 am] 

BILLING CODE 1410–30–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R05–OAR–2011–0968; FRL–9916–46– 

Region 5] 

Approval and Promulgation of Air 

Quality Implementation Plans; Indiana; 

Open Burning Rule 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing to approve a 

November 14, 2011, request by Indiana 

to revise the state implementation plan 

open burning provisions in Title 326 of 

the Indiana Administrative Code (IAC), 

Article 4, Rule 1 (326 IAC 4–1), Open 

Burning Rule. EPA is proposing to 

approve this rule for attainment 

counties and take no action on the rule 

for Clark, Floyd, Lake and Porter 

counties which are nonattainment or 

maintenance areas for ozone or 

particulate matter. 

DATES: Comments must be received on 

or before October 17, 2014. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R05– 

OAR–2011–0968 by one of the following 

methods: 

1. www.regulations.gov: Follow the 

on-line instructions for submitting 

comments. 

2. Email: blakley.pamela@epa.gov. 

3. Fax: (312) 692–2450. 

4. Mail: Pamela Blakley, Chief, 

Control Strategies Section (AR–18J), 

U.S. Environmental Protection Agency, 

77 West Jackson Boulevard, Chicago, 

Illinois 60604. 

5. Hand Delivery: Pamela Blakley, 

Chief, Control Strategies Section (AR– 

18J), U.S. Environmental Protection 

Agency, 77 West Jackson Boulevard, 

Chicago, Illinois 60604. Such deliveries 

are only accepted during the Regional 

Office normal hours of operation, and 

special arrangements should be made 

for deliveries of boxed information. The 

Regional Office official hours of 

business are Monday through Friday, 

8:30 a.m. to 4:30 p.m., excluding 

Federal holidays. 

Please see the direct final rule which 

is located in the Rules section of this 

Federal Register for detailed 

instructions on how to submit 

comments. 

FOR FURTHER INFORMATION CONTACT: 

Charles Hatten, Environmental 

Engineer, Control Strategies Section, Air 

Programs Branch (AR–18J), 

Environmental Protection Agency, 

Region 5, 77 West Jackson Boulevard, 

Chicago, Illinois 60604, (312) 886–6031, 

hatten.charles@epa.gov. 

SUPPLEMENTARY INFORMATION: In the 

Final Rules section of this Federal 

Register, EPA is approving the State’s 

SIP submittal as a direct final rule 

without prior proposal because the 

Agency views this as a noncontroversial 

submittal and anticipates no adverse 

comments. A detailed rationale for the 

approval is set forth in the direct final 

rule. If no adverse comments are 

received in response to this rule, no 

further activity is contemplated. If EPA 

receives adverse comments, the direct 

final rule will be withdrawn and all 

public comments received will be 

addressed in a subsequent final rule 

based on this proposed rule. EPA will 

not institute a second comment period. 

Any parties interested in commenting 

on this action should do so at this time. 

Please note that if EPA receives adverse 

comment on an amendment, paragraph, 

or section of this rule, and if that 

provision may be severed from the 

remainder of the rule, EPA may adopt 

as final those provisions of the rule that 

are not the subject of an adverse 

comment. For additional information, 

see the direct final rule which is located 

in the Rules section of this Federal 

Register. 

Dated: September 2, 2014. 

Susan Hedman, 

Regional Administrator, Region 5. 

[FR Doc. 2014–22047 Filed 9–16–14; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF LABOR 

Office of Federal Contract Compliance 

Programs 

41 CFR Part 60–1 

RIN 1250–AA06 

Government Contractors, Prohibitions 

Against Pay Secrecy Policies and 

Actions 

AGENCY: Office of Federal Contract 

Compliance Programs (OFCCP), Labor. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Office of Federal Contract 

Compliance Programs (OFCCP) 

proposes amending the regulations 

implementing Executive Order 11246 

that set forth the basic equal 

employment opportunity requirements 

that apply to Federal contractors and 

subcontractors. This Notice of Proposed 

Rulemaking (NPRM) proposes including 

definitions for key words or terms used 

in Executive Order 13665. The NPRM 

also proposes amending the mandatory 

equal opportunity clauses that are 

included in Federal contracts and 

subcontracts and federally assisted 

construction contracts. The NPRM 

would delete the outdated reference to 

the ‘‘Deputy Assistant Secretary’’ and 

replace it with the ‘‘Director of OFCCP.’’ 

The NPRM also proposes to change the 

title of a section regarding the inclusion 

of the equal opportunity clause by 

reference and making conforming 

changes in the text. In addition, the 

NPRM would establish contractor 

defenses to allegations of violations of 

the nondiscrimination provision. The 

proposed rule also adds a section 

requiring Federal contractors to notify 

employees and job applicants of the 

nondiscrimination protection created by 

Executive Order 13665 using existing 

methods of communicating to 

applicants and employees. 

DATES: To be assured of consideration, 

comments must be received on or before 

December 16, 2014. 


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