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[Federal Register: September 17, 2010 (Volume 75, Number 180)]
[Rules and Regulations]               
[Page 56873-56875]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se10-7]                         

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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 380

[Docket No. 2005-1 CRB DTRA]

 
Digital Performance Right in Sound Recordings and Ephemeral 
Recordings

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Remand order.

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SUMMARY: The Copyright Royalty Judges are announcing their 
determination regarding the minimum fee to be paid by Noncommercial 
Webcasters under two statutory licenses, permitting certain digital 
performances of sound recordings and the making of ephemeral 
recordings, in response to an order of remand by the United States 
Court of Appeals for the District of Columbia Circuit.

DATES: Effective September 17, 2010.

ADDRESSES: The remand order also is published on the Copyright Royalty 
Board Web site at http://www.loc.gov/crb/orders/2010/amendment-remand-order-6-30-10.pdf.

FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or 
Gina Giuffreda, Attorney Advisor, by telephone at (202) 707-7658 or by 
e-mail at crb@loc.gov.

SUPPLEMENTARY INFORMATION: On May 1, 2007, the Copyright Royalty Judges 
(``Judges'') published in the Federal Register their determination of 
royalty rates and terms under the statutory licenses under Sections 
112(e) and 114 of the Copyright Act, title 17 of the United States 
Code, for the period 2006 through 2010 for the digital public 
performance of sound recordings by means of eligible nonsubscription 
transmission or a transmission by a new subscription service. 72 FR 
24084. In Intercollegiate Broadcast System, Inc. v. Copyright Royalty 
Board, 574 F.3d 748 (DC Cir. 2009), the United States Court of Appeals 
for the District of Columbia Circuit (``DC Circuit'') affirmed the 
Judges' determination in the main but remanded to the Judges the matter 
of setting the minimum fee to be paid by both Commercial Webcasters and 
Noncommercial Webcasters under Sections 112(e) and 114 of the Copyright 
Act. Id. at 762, 767. No rules or procedures applied to a proceeding 
that is remanded, and the Judges adopted an Interim Final Rule to 
govern. 37 CFR 351.15. Pursuant to this Rule, Intercollegiate 
Broadcasting System, Inc. (``IBS'') and SoundExchange, Inc. 
(``SoundExchange'') presented proposals for the conduct and schedule of 
the remand proceeding, including settlement negotiations, written 
direct statements with proposed rates, discovery and an evidentiary 
hearing. By order dated October 23, 2009, the Judges established a 
period commencing November 2, 2009, and concluding on December 2, 2009, 
for the parties to negotiate and submit a settlement of the minimum fee 
issue that is the subject of the remand. Absent settlement, the parties 
were directed to file written direct statements by January 11, 2010.
    On December 2, 2009, SoundExchange, Inc. and the Digital Media 
Association (``DiMA'') submitted a settlement regarding the statutory 
minimum fee to be paid by Commercial Webcasters. Subsequently, the 
Judges published for comment the proposed change in the rule necessary 
to implement that settlement pursuant to the order of remand from the 
DC Circuit. 74 FR 68214 (December 23, 2009). The Judges received one 
comment from IBS. The Final Rule for the minimum fee to be paid by 
Commercial Webcasters was published. 75 FR 6097 (February 8, 2010).
    Following the filing of Written Direct Statements by IBS and 
SoundExchange, on January 20, 2010, the Judges established the 
discovery schedule on the remaining issue of the minimum fee for 
Noncommercial Webcasters. Following discovery, the hearing was held May 
18, 2010. SoundExchange presented the testimony of W. Tucker McCrady, 
associate counsel, digital legal affairs, Warner Music Group (``WMG''), 
and Barrie Kessler, chief operating officer, SoundExchange. It also 
offered Webcaster Settlement Acts of 2008 and 2009 agreements between 
SoundExchange and College Broadcasters, Inc. (``CBI'') for 
noncommercial educational webcasters, National Association of 
Broadcasters (``NAB'') for broadcasters, Sirius XM Radio, Inc. 
(``Sirius XM'') for satellite services and DiMA for commercial 
webcasters. 5/18/10 Tr. at 13 (McCrady). IBS presented the testimony of 
Frederick J. Kass, Jr., John E. Murphy and Benjamin Shaiken. 5/18/10 
Tr. at 62 and 67 (Kass). The testimony of Mr. Kass was that IBS 
supported a different rate proposal than the one filed. When this 
different rate proposal was not timely filed, the Judges ordered that 
it be filed by June 1, 2010. 5/18/10 Tr. at 98 (Kass). The IBS' 
Restated Rate Proposal was filed June 1, 2010.
    Mr. McCrady testified that WMG enters voluntary licenses for 
commercial webcasters. A negotiated license for the full catalogue must 
generate at least payments of $25,000. 5/18/10 Tr. at 25 (McCrady). The 
lowest commercial minimum fee is 20% of revenue. A smaller revenue 
stream would not justify the time and resources WMG would need to 
devote to evaluating, negotiating, implementing and monitoring an 
agreement. 5/18/10 Tr. at 20 (McCrady). Noncommercial Webcasters use 
the statutory license, because they do not generate enough revenue to 
WMG to support negotiating a license. SX Remand Trial Ex. 1 at 6 
(McCrady).
    The CBI agreement has the rates and terms for noncommercial 
educational webcasters, the same group that IBS represents in this 
proceeding. 5/18/10 Tr. at 71 (Kass). It has a minimum fee of $500 per 
year per station or channel and a usage rate of $500 per channel for 
streaming a noncommercial educational service up to 159,400 aggregate 
tuning hours (``ATH''). 5/18/10 Tr. at 14 (McCrady). The SoundExchange 
proposed minimum fee is $500 per station or channel. 5/18/10 Tr. at 14 
(McCrady). The proposed minimum fee is fully recoupable against royalty 
fees owed and this feature reduces transaction costs for both parties. 
5/18/10 Tr. at 21, 22 (McCrady). IBS says the average annual revenue of 
its member stations is $9,000. 5/18/10 Tr. at 20 (McCrady) and 5/18/10 
Tr. at 71 (Kass). So, the proposed fee is 6% of revenue, a large 
discount for Noncommercial Webcasters off the negotiated license 
agreements for commercial webcasters. 5/18/10 Tr. at 20 (McCrady). All 
users of sound recordings should be licensed and pay something. It is 
an important educational message for students to learn the value of 
recorded music and to pay for it. 5/18/10 Tr. at 23 (McCrady). From the 
first webcasting proceeding, the standard minimum fee

[[Page 56874]]

for statutory licenses has been $500, on the theory that the minimum 
fee should be sufficient to cover at least the costs of administering 
the license. SX Remand Trial Ex. 1 at 7 (McCrady).
    Ms. Kessler testified about administering the royalties paid under 
the statutory license. Of the approximately 730 webcasting services 
paying royalties in 2009, 363 are noncommercial. The noncommercial 
royalties are less than 1% of the total webcasting royalties paid for 
2009. 5/18/10 Tr. at 34 (Kessler). Of the noncommercial services, 305 
paid only the minimum fee of $500, and the remaining 58 paid more for 
exceeding the ATH cap or streaming multiple channels or stations. These 
payments are pursuant to the royalty minimum fee that is the subject of 
this remand proceeding, 5/18/10 Tr. at 42 (Kessler), and they 
demonstrate that noncommercial services are able and willing to pay the 
minimum fee. 5/18/10 Tr. at 33 (Kessler). SoundExchange does not 
regularly track the administrative costs on a licensee, station or 
channel basis. Such costs vary widely based on the quality of the data 
provided by the service. For this proceeding, SoundExchange estimated 
its administrative costs. The average per channel or station cost for 
webcasters for 2008 is $803. 5/18/10 Tr. at 36 (Kessler). The cost of 
administering the statutory license is greater than the revenue from 
noncommercial webcasters. 5/18/10 Tr. at 34 (Kessler). The CBI 
agreement for noncommercial educational webcasters, together with the 
NAB agreement, the Sirius XM agreement and the DiMA agreement all 
provide a similar minimum fee of $500, as SoundExchange proposes in 
this proceeding. All of these agreements were filed under the Webcaster 
Settlement Acts of 2008 and 2009, which permit agreements on the 
royalty rates under the statutory licenses. 5/18/10 Tr. at 13 
(McCrady).
    On June 1, 2010, IBS filed the restated rate proposal that Mr. Kass 
had supported in his testimony. The general principle of the proposal 
is that small noncommercial webcasters should pay only for the 
performances of music subject to the statutory license that they 
actually webcast. This principle is the same as the Judges used in the 
Final Determination to support the per performance metric for royalty 
rates, being more directly tied to the nature of the right being 
licensed. See Intercollegiate Broadcast System, Inc. v. Copyright 
Royalty Board, 574 F.3d 748, 760-61 (DC Cir. 2009). But contrary to 
this principle, the proposal then provides for a flat royalty rate and 
an exemption from recordkeeping and reporting requirements. Both the 
flat rate and the exemptions are inconsistent with a per performance 
royalty, which is based on the number of performances times the rate 
for each performance. The proposal was for the royalty rates to be paid 
by Noncommercial Webcasters (set by 37 CFR 380.3(a)(2)(i)) and not for 
the minimum fee, which is the subject of this remand proceeding. The 
proposed rate is $20 to $50 per annum, based on the number of aggregate 
tuning hours. The proposal did not include a minimum fee. 5/18/10 Tr. 
at 76, 83-85 (Kass). Mr. Kass said no minimum fee should be paid. He 
said this discount is justified, because the small noncommercial 
educational webcasters are teaching students. IBS Remand Trial Ex. 1 at 
2. The CBI agreement is available for use by IBS members and some of 
those members have joined the CBI agreement. 5/18/10 Tr. at 104, 105 
(Kass). It proposes the $500 minimum fee per channel or station. 5/18/
10 Tr. at 14 (McCrady).

Noncommercial Minimum Fee

    The Final Determination discussed in Section IV.C.2 that most 
Noncommercial Webcasters qualified for a distinct segment of the 
marketplace that justified royalties lower than those paid by 
Commercial Webcasters. However, the Judges found that:

the bare minimum that such services should have to pay is the 
administrative cost of administering the license. There is no 
evidence in the record to suggest that the submarket in which a 
Noncommercial Webcaster may reside would yield a different 
administrative cost for SoundExchange as compared to the 
administrative costs associated with Commercial Webcasters and 
SoundExchange, notably, makes no distinction between webcasters with 
respect to the $500 minimum fee. Webcaster I affirmed the notion 
that all webcasters-all Noncommercial Webcasters as well as all 
Commercial Webcasters-should pay the same minimum fee for the same 
license. 67 FR 45259 (July 8, 2002). We also find no basis in the 
record for distinguishing between Commercial Webcasters and 
Noncommercial Webcasters with respect to the administrative cost of 
administering the license. Therefore, we determine that a minimum 
fee of an annual non-refundable, but recoupable $500 minimum per 
channel or station payable in advance is reasonable over the term of 
this license.

72 FR 24084, 24099 (May 1, 2007) (footnotes omitted).

    Ms. Kessler testified that the rough estimate of the average 
administrative cost for 2008 to SoundExchange per station or channel 
for webcasters is $803. All of the agreements filed pursuant to the 
Webcaster Settlement Acts of 2008 and 2009 have similar minimum fees as 
the proposed rate of $500 per station or channel. One includes the 
agreement for noncommercial educational webcasters (the CBI agreement), 
the same type of services as IBS, which seeks to pay no minimum fee. As 
found in the above quote from the Final Determination, a zero minimum 
fee is not supported by the evidence. IBS also asserts that 
administrative costs should be proportionately tied to the number of 
performances on a channel in a given year, but fails to establish any 
credible nexus. On the contrary, there are certain basic processes that 
must be utilized in administering the use of sound recordings by any 
Commercial or Noncommercial Webcaster of any size. Not surprisingly, at 
lesser levels of sound recording usage, the establishment and conduct 
of such administrative processes cannot simply be dispensed with. 
Indeed, smaller users may even result in larger proportionate 
administrative processing time than larger users. SoundExchange Remand 
Trial Ex. 1 at 3-4 (Kessler). See also Order, 72 FR 24084, 24096 n.37 
(May 1, 2007).
    The evidence presented in the remand proceeding supports a minimum 
fee of at least the same fee as adopted in the Final Determination. 
SoundExchange has now presented evidence on administrative costs that 
exceed this minimum. The agreements entered pursuant to the Webcaster 
Settlement Acts of 2008 and 2009 support that the industry accepts this 
minimum fee, which has substantially been in place since the first 
webcasting proceeding. IBS' position seeks to pay no minimum fee and 
indeed seeks to pay no or an extremely small royalty for use of 
copyrighted content. The Judges adopt the same minimum fee for 
Noncommercial Webcasters as stated in the Final Determination of an 
annual non-refundable, but recoupable $500 minimum per annum per 
channel or station payable in advance. 37 CFR 380.3(b)(2).

June 30, 2010.

So ordered.

James Scott Sledge,
Chief United States Copyright Royalty Judge.

William J. Roberts, Jr.,
United States Copyright Royalty Judge.

Stanley C. Wisniewski,
United States Copyright Royalty Judge.

[[Page 56875]]

    Dated: July 21, 2010.
James Scott Sledge,
Chief, U.S. Copyright Royalty Judge.
James H. Billington,
Librarian of Congress.
[FR Doc. 2010-23264 Filed 9-16-10; 8:45 am]
BILLING CODE 1410-72-P
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