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[Federal Register Volume 78, Number 150 (Monday, August 5, 2013)]
[Notices]
[Pages 47421-47424]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18672]

[[Page 47421]]

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LIBRARY OF CONGRESS

U.S. Copyright Office

[Docket No. 2011-3 CRB]

Scope of the Copyright Royalty Judges Authority to Adopt 
Confidentiality Requirements upon Copyright Owners within a Voluntarily 
Negotiated License Agreement

AGENCY: U.S. Copyright Office, Library of Congress.

ACTION: Final Order.

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SUMMARY: The Copyright Royalty Judges, acting pursuant to 17 U.S.C. 
802(f)(1)(B), referred a novel material question of substantive law to 
the Register of Copyrights concerning the Copyright Royalty Judges' 
authority to adopt regulations imposing a duty of confidentiality upon 
copyright owners, whether or not that duty is included in a voluntarily 
negotiated license agreement between copyright owners and licensees in 
a proceeding under section 115 of the Act. The Register of Copyrights 
responded in a timely fashion by delivering a Memorandum Opinion to the 
Copyright Royalty Board on July 25, 2013.

DATES: Effective Date: July 25, 2013.

FOR FURTHER INFORMATION CONTACT: Stephen Ruwe, Attorney Advisor, 
Copyright GC/I&R, P.O. Box 70400, Washington, DC 20024. Telephone: 
(202) 707-8380. Telefax: (202) 707-8366.

SUPPLEMENTARY INFORMATION: In the Copyright Royalty and Distribution 
Reform Act of 2004, Congress amended Title 17 to replace the Copyright 
Arbitration Royalty Panel (``CARP'') with the Copyright Royalty Judges 
(``CRJs''). One of the functions of the CRJs is to make determinations 
and adjustments of reasonable terms and rates of royalty payments as 
provided in sections 112(e), 114, 115, 116, 118, 119, and 1004 of the 
Copyright Act. The CRJs have the authority to request from the Register 
of Copyrights (``Register'') an interpretation of any novel material 
question of substantive law that relates to the construction of 
provisions of Title 17 and arises out the course of the proceeding 
before the CRJs. See 17 U.S.C. 802(f)(1)(B).
    On June 25, 2013, the CRJs delivered to the Register: (1) an Order 
referring a novel material question of substantive law; and (2) a brief 
filed with the CRJs by Settling Participants (identified below in the 
Register's Memorandum Opinion). The CRJs' delivery of the request for 
an interpretation triggered the 30-day response period prescribed in 
section 802 of the Copyright Act. This statutory provision states that 
the Register ``shall transmit his or her decision to the Copyright 
Royalty Judges a written response within 30 days after the Register 
receives of all briefs or comments from the participants.'' See 17 
U.S.C. 802(f)(1)(B). The statute also states that ``[i]f such a 
decision is timely delivered to the Copyright Royalty Judges, the 
Copyright Royalty Judges shall apply the legal determinations embodied 
in the decision of the Register of Copyrights in resolving material 
questions of substantive law.'' Id. On July 25, 2013 the Register 
responded in a Memorandum Opinion to the CRJs that addressed the novel 
questions of law. To provide the public with notice of the decision 
rendered by the Register, the Memorandum Opinion is reproduced in its 
entirety, below.

    Dated: July 29, 2013.
Maria A. Pallante,
Register of Copyrights.

Before the U.S. Copyright Office Library of Congress Washington, DC 
20559

    In the Matter of Mechanical and Digital Phonorecord Delivery 
Rate Adjustment Proceeding
Docket No. 2011-3 CRB (Phonorecords II)

Memorandum Opinion on a Novel Question of Law

I. Procedural Background

    On May 17, 2012, the Copyright Royalty Judges (``CRJs'') published 
for comment in the Federal Register proposed regulations for the 
section 115 compulsory license, which were the result of a settlement 
submitted to the CRJs on April 11, 2012. Notice of Proposed Rulemaking, 
Mechanical and Digital Phonorecord Delivery Compulsory License, Docket 
No. 2011-3 CRB Phonorecords II, 77 FR 29259 (May 17, 2012). The 
proposed regulations included ``confidentiality requirements'' in 37 
CFR 385.12(f) and 385.22(e), which would require copyright owners to 
maintain in confidence statements of account that they receive under 
the license. Id.
    The ``confidentiality requirements'' proposed for sections 
385.12(f) and 385.22(e) state:

Confidentiality. A licensee's statements of account, including any 
and all information provided by a licensee with respect to the 
computation of a subminimum, shall be maintained in confidence by 
any copyright owner, authorized representative or agent that 
receives it, and shall solely be used by the copyright owner, 
authorized representative or agent for purposes of reviewing the 
amounts paid by the licensee and verifying the accuracy of any such 
payments, and only those employees of the copyright owner, 
authorized representative or agent who need to have access to such 
information for such purposes will be given access to such 
information; provided that in no event shall access be granted to 
any individual who, on behalf of a record company, is directly 
involved in negotiating or approving royalty rates in transactions 
authorizing third party services to undertake licensed activity with 
respect to sound recordings. A licensee's statements of account, 
including any and all information provided by a licensee with 
respect to the computation of a subminimum, shall not be used for 
any other purpose, and shall not be disclosed to or used by or for 
any record company affiliate or any third party, including any 
third-party record company.

Id. at 29262.
    After considering both the Proposed Settlement regulations and the 
public comments received in response to them, on March 27, 2013, Chief 
Copyright Royalty Judge Suzanne Barnett proposed two material questions 
of substantive law for referral to the Register and invited 
participants to submit briefs to accompany the referral of questions to 
the Register of Copyrights, pursuant to 17 U.S.C. 802(f)(1)(A)(ii). The 
referral asked whether the confidentiality requirements proposed for 
Sec. Sec.  385.12(f) and 385.22(e) encroach upon the exclusive 
statutory domain of the Register under section 115 of the Act. CRJ 
Order Referring Material Question of Substantive Law, Docket No. 2011-3 
CRB (Mar. 27, 2013).\1\ After receiving a single brief filed jointly by 
the Settling Participants \2\ regarding whether proposed terms encroach 
upon the exclusive statutory domain of the Register, the Chief 
Copyright Royalty Judge delivered the referred questions and the 
Settling Participants brief to the Register on April 17, 2013.
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    \1\ The CRJ Order Referring Material Question of Substantive Law 
also referred a question and participants' views regarding detail 
requirements, which are not at issue in this referral of a novel 
question of law.
    \2\ The National Music Publishers' Association, Inc., the 
Songwriters Guild of America, the Nashville Songwriters Association 
International, the Church Music Publishers Association, the 
Recording Industry Association of America, Inc., the Digital Media 
Association, CTIA--The Wireless Association, Google, Inc., 
RealNetworks, Inc., Rhapsody International Inc., Cricket 
Communications, Inc., and Rdio, Inc.
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    Pursuant to 17 U.S.C. 802(f)(1)(A)(ii), the Register issued a 
timely reply clarifying that the proposed terms do not encroach upon 
the Register's authority with respect to statements of account as 
provided in 17 U.S.C. 115(c)(5). Memorandum Opinion on Material 
Questions of Substantive Law, Docket No. 2011-3 CRB (May 1, 2013). 
However, the Register also noted that it is unclear whether the CRJs 
have any

[[Page 47422]]

independent authority to issue regulations such as the proposed 
``confidentiality requirement'' which would impose obligations on a 
copyright owner with regard to what he or she is able to do with a 
statement of account received by a licensee. The Register suggested 
that the question of whether the CRJs have authority to issue 
regulations imposing requirements on what a copyright owner (as opposed 
to a nonexclusive licensee) may do or not do with information in a 
statement of account after that statement has been prepared and served 
in accordance with the Office's regulations represents a novel question 
of law that may be separately referred to the Register. Id.
    Pursuant to 17 U.S.C. 802(f)(l)(B), on May 17, 2013 the Chief 
Copyright Royalty Judge issued an order to the proceeding participants 
regarding referral of a novel material question and set forth a 
schedule governing receipt of comments by the participants in the 
proceeding. On June 7, 2013, the Settling Participants filed the only 
comment in response to the order. On June 25, 2013, Chief Judge Barnett 
delivered the following novel material question to the Register, along 
with the sole comment filed by the Settling Participants:

Do the Judges have the statutory authority to adopt regulations 
imposing a duty of confidentiality upon copyright owners, whether or 
not that duty is included in a voluntarily negotiated license 
agreement between copyright owners and licensees in a proceeding 
under section 115 of the Act?

CRJ Order Referring Novel Question of Law and Setting Briefing 
Schedule, Docket No. 2011-3 CRB (May 17, 2013).

II. Summary of Parties' Arguments

    In the sole brief submitted in relation to the referred novel 
material question to the Register, the Settling Participants assert 
that it is clear that the CRJs have the authority to issue the 
confidentiality provisions. In support of this position, the Settling 
Participants point to three distinct but overlapping statutory grants 
to the CRJs, namely the authority to: (i) Adopt settlements; (ii) 
determine terms; and (iii) establish notice and recordkeeping 
requirements. The Settling Participants claim that each of these grants 
of authority provides an independent basis for adoption of the 
confidentiality provisions by the Judges. Brief of Settling 
Participants, Docket No. 2011-3 CRB Phonorecords II (June 7, 2013) at 
6-17.
    The Settling Participants point out that analogous statutory 
provisions grant authority relative to the section 114 statutory 
license, and that based on such grants the Register, the Librarian of 
Congress and the CRJs have routinely adopted section 114 
confidentiality provisions that are equivalent to the instant 
confidentiality provisions. The Settling Participants posit that the 
confidentiality provisions at issue here are like confidentiality 
provisions adopted pursuant to the section 114 license and that the 
only thing that distinguishes section 115 from section 114 in this 
regard is the grant of certain exclusive authority to the Register with 
respect to statements of account under section 115. They assert that 
because the Register has determined that the CRJs' adoption of the 
confidentiality provisions does not encroach on the Register's power 
with respect to statements of account as provided in section 115(c)(5), 
there is no question that the statutory language granting authority to 
the CRJs is sufficient to empower them to adopt the confidentiality 
provisions. Id. at 6-7.
    The Settling Participants assert that the CRJs have both the 
authority and the obligation to adopt settlements among some or all of 
the participants in a proceeding unless the agreement is contrary to 
law or a participant in the proceeding objects and the CRJs conclude 
that the settlement ``does not provide a reasonable basis for setting 
statutory terms or rates.'' Id. at 7, citing 17 U.S.C. 801(b)(7)(A). 
They state that Congress' clear goal was to streamline the adoption of 
settlements. They point to legislative history as support for the 
proposition that Congress intended the CRJs to facilitate and encourage 
settlement agreements. Id. at 7-8, citing H.R. Rep. No. 108-408, at 24 
and 30 (2002). They add that in adopting previous settlements the CRJs 
have acknowledged this obligation, stating ``we are mandated to adopt 
the determination of the settling parties to a distribution and rate 
proceeding'' Id. at 8, citing 74 FR 4510, 4514 (Jan. 26, 2009). The 
Settling Participants also note that the Register has confirmed that 
section 801(b)(7)(A) generally directs the CRJs to adopt settlements, 
except to the extent that a participant in the proceeding objects to 
the settlement or where the settlement agreement includes provisions 
that are contrary to the provisions of the applicable license(s) or 
otherwise contrary to statutory law. Id. at 8-9, citing 74 FR 4537, 
4540 (Jan. 26, 2009).
    The Settling Participants point out that the only suggestion that 
anyone has made that the settlement is contrary to law concerned the 
question of whether there was an encroachment of the Register's 
authority with respect to statements of account, and, in that case, the 
Register determined that there was no such encroachment. Id., citing 78 
FR 28,773 (May 16, 2013). The Settling Participants assert that nothing 
in the statutory text, its legislative history, or any binding 
precedent, suggests that the CRJs' authority--and duty--to adopt 
settlements has any exception for provisions that impose obligations on 
copyright owners. They also point toward settlements under the section 
114 license that impose confidentiality requirements, which have never 
been challenged by the Register. Id. at 9-10.
    The Settling Participants state that the grant of authority to 
determine reasonable terms of royalty payments permits the CRJs to 
adopt the confidentiality provisions as terms and make them binding on 
copyright owners. They point out that the statute expressly states that 
``[t]he schedule of reasonable rates and terms determined by the 
Copyright Royalty Judges shall . . . be binding on all copyright owners 
of nondramatic musical works and persons entitled to obtain a 
compulsory license.'' 17 U.S.C. 115(c)(3)(D) (emphasis added).
    The Settling Participants point to the DC Circuit's finding that 
analogous language in section 114 was sufficient to justify imposing 
audit terms on agents of copyright owners. Id. at 11, citing Recording 
Indus. Ass'n of Am., Inc. v. Librarian of Congress, 176 F.3d 528, 535 
(DC Cir. 1999). They also refer to the legislative history as support 
for the CRJs' authority to impose confidentiality provision 
requirements on copyright owners. Id. at 11-12, citing S. Rep. No. 104-
128, at 40 (1995). The Settling Participants then refer to the 
Register's prior description of the CRJs' power to determine terms 
under section 115, which included a conclusion by the Register that the 
CRJs may issue terms that are necessary to effectively implement the 
statutory license and that the authority to set reasonable terms 
extends only so far as those terms ensured the smooth administration of 
the license. Id. at 12, citing 73 FR at 48,398 (Aug. 19, 2008). They 
point out that when making such findings regarding the scope of the 
CRJs authority to issue terms under section 115, the Register properly 
relied on authority construing analogous section 114 provisions 
regarding the CRJs authority to issue terms. Id. at 13.
    The Settling Participants point to the long history of agents of 
copyright owners being required to maintain the confidentiality of 
statements of account as a section 114 term, and that the Register has 
endorsed such terms under the CARP system and has never taken exception 
to such terms issued by the CRJs. Id. at 13-15. The Settling

[[Page 47423]]

Participants state that in the context of the percentage rate structure 
for section 115 rates, the statements of account contain sensitive 
financial information and that the confidentiality provisions avoid the 
risk of competitive injury to users of copyrighted works while ensuring 
the smooth administration of the license and effectively implement the 
statutory license. Id. at 15.
    The Settling Participants point to the CRJs' notice and 
recordkeeping authority as support for the confidentiality provisions. 
Id., citing 17 U.S.C. 115(c)(3)(D), 17 U.S.C. 801(b)(7)(C), and 17 
U.S.C. 803(c)(3). They point out that similar provisions authorize the 
CRJs to issue notice and recordkeeping requirements under the section 
114 license. They assert that if section 114 notice and recordkeeping 
authority permits imposing a requirement of confidential treatment for 
a report of use, section 115 notice and recordkeeping authority must 
also permit imposing a requirement of confidential treatment for a 
section 115 statement of account. Id., at 16-17

III. Register's Determination

    Pursuant to 17 U.S.C. 802(f)(l)(B), the Register issues this timely 
response to the referred novel material question and determines that 
the CRJs do not have the authority to adopt the provisions imposing a 
duty of confidentiality upon copyright owners, regardless of whether 
the provisions are included in a voluntarily negotiated license 
agreement between copyright owners and licensees.

A. CRJs' Authority To Determine Reasonable Terms of Payment

    Under section 115(c)(3)(C), the CRJs are authorized to ``determine 
reasonable rates and terms of royalty payments.'' 17 U.S.C. 
115(c)(3)(C). However, the confidentiality provisions at issue here 
would function as an obligation on copyright owners who have already 
received royalty payments. This kind of restriction is distinct in its 
nature and potential impact than the terms of royalty payments offered 
as precedent by the Settling Participants.
    It is true that section 115(c)(3)(D) states ``[t]he schedule of 
reasonable rates and terms determined by the Copyright Royalty Judges 
shall * * * be binding on all copyright owners of nondramatic musical 
works and persons entitled to obtain a compulsory license.'' 17 U.S.C. 
115(c)(3)(D). It is also true that the DC Circuit, in Recording Indus. 
Ass'n of Am., Inc., 176 F.3d at 535, found that analogous provisions 
governing the section 114 license authorize binding copyright owners 
and their agents with regard to terms concerning the audit of royalty 
payments. However, the audit provisions at issue before the DC Circuit 
were terms that applied to the method by which accurate royalty 
payments make their way to copyright owners, and served as an 
obligation on intermediaries to allow copyright owners to ensure the 
accuracy of such royalty payments. Similarly, the confidentiality 
provisions that have been repeatedly established under section 114 are 
terms that address the method by which accurate royalty payments make 
their way to copyright owners in accordance with the statute. The 
confidentiality provisions currently at issue are very different and 
are not ``terms of royalty payments.'' They do not address the method 
by which accurate royalty payments make their way to copyright owners. 
Indeed, the Settling Participants assert that the confidentiality 
provisions are intended to prevent the risk of competitive injury to 
licensees by disclosure of the licensees' financial information.
    While the confidentiality provisions may avoid a risk of 
competitive injury for licensees, such provisions are not necessary to 
effectively implement the statutory license or to insure the smooth 
administration of the license. The Register notes that the previous 
determination of rates and terms for the section 115 license, which 
also included a percentage rate structure, did not include such 
provisions and the Settling Participants do not identify any apparent 
detrimental effect on administration of the license.
    Having found that the confidentiality provisions are not the sort 
of terms of payment that the CRJs are authorized to issue, the Register 
also notes a policy concern that, in the context of statutory licenses, 
government actors should err on the side of transparency. Transparency, 
serves to provide maximum confidence in the law for all who rely upon 
it, including those who require access to the details of license 
records.

B. CRJs' Authority To Establish Notice and Recordkeeping Requirements

    The relevant notice and recordkeeping provisions authorize the CRJs 
to ``establish requirements by which copyright owners may receive 
reasonable notice of the use of their works under this section, and 
under which records of such use shall be kept and made available by 
persons making digital phonorecord deliveries.'' 17 U.S.C. 115(c)(3)(D) 
(emphasis added).\3\ By the clear language of the statute, the CRJs are 
authorized to issue notice and recordkeeping requirements under which 
records of such use shall be kept and made available by licensees. 
Section 115(c)(3)(D) does not provide authority for the CRJs to issue 
notice and recordkeeping requirements under which records of such use 
shall be kept and made available by copyright owners. The Settling 
Participants have not pointed to any other authority by which the CRJs' 
notice and recordkeeping authority authorizes the imposition of 
obligations on the copyright owners who are subject to the section 115 
license.
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    \3\ See also, 17 U.S.C. 803(c)(3) (``the Copyright Royalty 
Judges may specify notice and recordkeeping requirements of users of 
the copyrights at issue'') (emphasis added).
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C. CRJs' Authority To Adopt Settlements

    The Register acknowledges that Congress' clear goal was to 
streamline the adoption of settlements. However, the provisions of 
section 801(b)(7)(A) under which the CRJs are able to adopt aspects of 
an agreement are limited. The CRJs are not compelled to adopt a 
privately negotiated agreement to the extent that it includes 
provisions that are inconsistent with the statutory license. As the 
Register has stated previously, section 801(b)(7)(A) ``does not 
foreclose the CRJs from ascertaining whether specific provisions are 
contrary to law.'' See 74 FR 4537, 4540 (Jan. 26, 2009). The Settling 
Participants acknowledge that section 801(b)(7)(A) generally directs 
the CRJs to adopt settlements, except to the extent that a participant 
in the proceeding objects to the settlement or where the settlement 
agreement includes provisions that are contrary to the provisions of 
the applicable statute or otherwise contrary to statutory law. Brief of 
Settling Participants, Docket No. 2011-3 CRB Phonorecords II (June 7, 
2013) at 8-9, citing 74 FR 4537, 4540 (Jan. 26, 2009). Moreover, courts 
have consistently held that agencies cannot adopt regulations that are 
contrary to law. See, e.g., Cal. Cosmetology Coalition v. Riley, 110 
F.3d 1454, 1460-61 (9th Cir. 1997) (``The power of an administrative 
officer or board to administer a federal statute and to prescribe rules 
and regulations to that end is not the power to make law, for no such 
power can be delegated by Congress, but the power to adopt regulations 
to carry into effect the will of Congress as expressed by the statute. 
A regulation which does not do this, but operates to create a rule out 
of harmony with the statute, is a mere nullity.'').
    As set forth above, the Register determines that the CRJs do not 
have the statutory authority to adopt

[[Page 47424]]

confidentiality provisions that would impose obligations on a copyright 
owner with regard to what he or she is able to do with a statement of 
account received by a licensee. The Register's finding of the lack of 
CRJs' authority to impose such confidentiality requirements is 
consistent with court findings that statutory licenses must ``be 
construed narrowly,'' especially as they apply against the rights of 
copyright owners. See, e.g., Fame Publ'g Co. v. Alabama Custom Tape, 
Inc., 507 F.2d 667, 670 (5th Cir. 1975). Accordingly, the Register 
reads the statute as precluding the CRJs from adopting the 
confidentiality provisions, including in the context of a negotiated 
license agreement.

    Dated: July 25, 2013.
Maria A. Pallante,
Register of Copyrights.
[FR Doc. 2013-18672 Filed 8-2-13; 8:45 am]
BILLING CODE P
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