Federal Register / Vol. 77, No. 115 / Thursday, June 14, 2012 / Proposed Rules 35643 

190See supra note 53 and accompanying text for 

a discussion of the CFTC’s proposals to phase in 

compliance with the swap clearing, trading, trade 

documentation, and margining requirements arising 

under Subtitle A of Title VII of the Dodd-Frank Act 

by category of market participant. See also supra 

note 59 and accompanying text noting that, in the 

CFTC Clearing and Trade Execution 

Implementation Proposal, the CFTC stated that 

before the mandatory clearing of swaps begins, the 

product and entity definitions, the end-user 

exception from mandatory clearing, and the rules 

pertaining to the segregation of customer collateral 

must be adopted and that before swap market 

participants could be required to comply with a 

trade execution requirement, the CFTC must adopt 

final rules related to swap execution facilities and 

designated contract markets. 

• Should the Commission consider a 

delayed implementation schedule for 

any conflicts of interest rules that it may 

adopt for SB SEFs? Why or why not? 

How would such a delayed 

implementation schedule affect the 

goals of Title VII’s reforms of the SB 

swap market? Would there be potential 

advantages and disadvantages of doing 

so? If so, what would they be? If there 

are potential disadvantages, what steps 

could be taken to mitigate them? 

• Are there other rules or sets of rules 

with which compliance should be 

required, or which must be effective, 

before SB swaps subject to the 

mandatory trade execution requirement 

are required to be traded? If so, which 

ones, and why? 

• Should the Commission phase in 

compliance with the mandatory trade 

execution requirement by type of market 

participant? For example, should the 

Commission phase in this requirement 

by market participant type in the 

manner proposed by the CFTC in its 

Clearing and Trade Execution 

Implementation Proposal? 190 Why or 

why not? What would the advantages 

and disadvantages of doing so be? If 

there are potential disadvantages, what 

steps could be taken to mitigate them? 

• In determining when to require 

compliance with the mandatory trade 

execution requirement, should the 

Commission take into account the 

CFTC’s timing for its parallel 

requirement and/or the timing of other 

jurisdictions? Why or why not? If so, 

what is the most appropriate manner of 

sequencing in relation to those 

potentially differing timelines? What 

would the advantages and 

disadvantages of doing so be? If there 

are potential disadvantages, what steps 

could be taken to mitigate them? 

III. Solicitation of Comments 

The Commission intends to monitor 

closely the imposition of the new 

regulatory regime upon SB swaps and 

SB swap market participants to 

determine to what extent, if any, 

additional regulatory action may be 

necessary. The Commission is soliciting 

comment on all aspects of this 

Statement and the guidance it provides 

regarding compliance dates for the rules 

to be adopted under Subtitle B of Title 

VII. Comments received will be 

addressed in the relevant final 

rulemakings to which they pertain. 

By the Commission. 

Dated: June 11, 2012. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–14576 Filed 6–13–12; 8:45 am] 

BILLING CODE 8011–01–P 

LIBRARY OF CONGRESS 

Copyright Office 

37 CFR Part 201 

[Docket No. 2012–5] 

Verification of Statements of Account 

Submitted by Cable Operators and 

Satellite Carriers 

AGENCY: Copyright Office, Library of 

Congress. 

ACTION: Notice of proposed rulemaking 

and request for comments. 

SUMMARY: The Copyright Office is 

proposing a new regulation to 

implement provisions in the Satellite 

Television Extension and Localism Act 

of 2010 (‘‘STELA’’) that will allow 

copyright owners to audit certain 

Statements of Account filed with the 

Copyright Office. Cable operators and 

satellite carriers pay royalties to and file 

Statements of Account with the 

Copyright Office every six months as 

required by law for the use of the 

statutory licenses that allow for the 

retransmission of programming carried 

on over-the-air broadcast signals. 

However, until the passage of STELA 

the licenses did not authorize the 

copyright owners, who are the 

beneficiaries of the royalties collected, 

to audit the information on Statements 

of Account and the amounts paid for 

use of the statutory licenses. 

DATES: Comments on the proposed 

regulation must be received in the 

Office of the General Counsel of the 

Copyright Office no later than 5 p.m. 

Eastern Daylight Time (EDT) on August 

13, 2012. Reply comments must be 

received in the Office of the General 

Counsel no later than 5 p.m. EDT on 

September 12, 2012. 

ADDRESSES: The Copyright Office 

strongly prefers that comments be 

submitted electronically. A comment 

submission page is posted on the 

Copyright Office Web site at http:// 

www.copyright.gov/docs/soaaudit/. The 

Web site interface requires submitters to 

complete a form specifying name and 

other required information, and to 

upload comments as an attachment. To 

meet accessibility standards, all 

comments must be uploaded in a single 

file in either the Adobe Portable 

Document File (PDF) format that 

contains searchable, accessible text (not 

an image); Microsoft Word; 

WordPerfect; Rich Text Format (RTF); or 

ASCII text file format (not a scanned 

document). The maximum file size is 

6 megabytes (MB). The name of the 

submitter and organization should 

appear on both the form and the face of 

the comments. All comments will be 

posted publicly on the Copyright Office 

Web site exactly as they are received, 

along with names and organizations if 

provided. If electronic submission of 

comments is not feasible, please contact 

the Copyright Office at (202) 707–8380 

for special instructions. 

FOR FURTHER INFORMATION CONTACT: 

Tanya Sandros, Deputy General 

Counsel, or Erik Bertin, Attorney 

Advisor, Copyright GC/I&R, P.O. Box 

70400, Washington, DC 20024. 

Telephone: (202) 707–8380. Telefax: 

(202) 707–8366. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Every five years Congress considers 

legislation to reauthorize the statutory 

license that allows satellite carriers to 

retransmit television programs that are 

embodied in distant broadcast 

transmissions, provided that the 

satellite carrier files a Statement of 

Account and pays royalties to the 

Copyright Office. 17 U.S.C. 119. In May 

2010, Congress passed the Satellite 

Television Extension and Localism Act 

of 2010 (‘‘STELA’’), Public Law 111– 

175, 124 Stat. 1218, for this purpose. 

STELA reauthorized the Section 119 

statutory license for satellite carriers 

and, in addition, it made certain 

amendments to the Section 119 license 

and a second statutory license, set forth 

in Section 111 of title 17 of the United 

States Code, that allows cable systems to 

retransmit television and radio 

programs that are embodied in local and 

distant broadcast transmissions. 

A significant change to the law is the 

addition of new provisions directing the 

Register of Copyrights to develop 

procedures for the verification of the 

Statements of Account and royalty fees 

that cable operators and satellite carriers 

deposit with the Copyright Office under 

Sections 111 and 119. Specifically, 

Section 119(b)(2) directs the Register to 


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1Representatives of Program Suppliers 

(commercial entertainment programming); Joint 

Sports Claimants (professional and college sports 

programming); Commercial Television Claimants 

(local commercial television programming); Music 

Claimants (musical works included in television 

programming); Public Television Claimants 

(noncommercial television programming); Canadian 

Claimants (Canadian television programming); 

National Public Radio (noncommercial radio 

programming); Broadcaster Claimants Group (U.S. 

commercial television stations), and Devotional 

Claimants (religious television programming) filed 

the petition jointly. 

2As the proposed regulation applies to both cable 

operators and satellite carriers, they are collectively 

referred to as ‘‘statutory licensees.’’ 

‘‘issue regulations to permit interested 

parties to verify and audit the 

statements of account and royalty fees 

submitted by satellite carriers under 

[that] subsection.’’ 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.’’ 

These provisions authorize the 

implementation of a process by which 

copyright owners, whose works are 

retransmitted under the statutory 

licenses, can for the first time verify the 

accuracy of the royalty payments made 

by cable operators and satellite carriers. 

They also make clear that the Register 

should consider the interests of the 

parties who will be subject to this 

verification procedure. For example, 

Section 111(d)(6) directs the Register to 

give cable operators an opportunity to 

review the auditor’s conclusions, to 

remedy any errors identified in the 

auditor’s report, and to correct any 

underpayments that the auditor may 

discover. Congress indicated that a 

single auditor should conduct the 

verification procedure on behalf of all 

copyright owners and that the Register 

should limit the number of times that a 

party may be subjected to an audit. 

Congress also directed the Register to 

establish procedures for protecting the 

confidentiality of non-public financial 

and business information that may be 

provided to the auditor during the 

course of his or her investigation. 

Generally speaking, the proposed 

regulation is based on similar 

regulations that the Office has adopted 

for the verification of Statements of 

Account and royalty payments that are 

made under the statutory licenses for 

the use of ephemeral recordings and the 

digital performance of sound recordings 

under 17 U.S.C. sections 112(e) and 

114(f), and for the importation and 

distribution of or the manufacture and 

distribution of digital audio recording 

devices under 17 U.S.C. chapter 10. See 

generally 37 CFR 201.30, 260.5, 260.6, 

261.6, 261.7, 262.6, and 262.7. The 

Office also considered a Petition for 

Rulemaking [http://www.copyright.gov/ 

docs/soaaudit/soa-audit-petition.pdf] 

which was filed on behalf of the 

copyright owners who are the 

beneficiaries of the royalties that are 

paid under the Section 111 and 119 

statutory licenses.1 The copyright 

owners asked the Office to adopt 

separate regulations for Statements of 

Account that are filed by cable operators 

and satellite carriers and provided the 

Office with proposed language for each 

regulation. Separate regulations, 

however, do not appear to be necessary 

because the basic elements for verifying 

and auditing Statements of Account 

filed under Section 111 and 119 should 

be the same. Therefore, the Office is 

proposing a single regulation setting 

forth a process for verifying Statements 

of Account that would apply to cable 

operators and to satellite carriers. In 

formulating this regulation, the Office 

has adopted some of the suggestions 

included in the Petition for Rulemaking 

and welcomes comments on the 

proposed regulation from copyright 

owners, cable operators, satellite 

carriers, accounting professionals, and 

other interested parties. 

II. Verification Procedures 

A. Cable Operators and Satellite 

Carriers Would Be Subject to the Same 

Verification Procedure 

As discussed above, Section 119(b)(2) 

directs the Register to issue regulations 

to allow ‘‘interested parties’’ to verify 

the Statements of Account and royalty 

fees that are filed with the Copyright 

Office under Section 119. The term 

‘‘interested parties’’ was not defined, 

and the statute does not provide any 

guidance on the nature and extent of 

this verification procedure. For 

example, Section 119(b)(2) does not 

indicate whether satellite carriers 

should be allowed to review the 

auditor’s conclusions or to correct any 

underpayments that the auditor may 

discover. Nor does it provide for the 

confidential treatment of information 

that the satellite carrier may provide to 

the auditor. Section 111(d)(6), on the 

other hand, contains detailed 

instructions regarding the verification of 

Statements of Account and royalty 

payments filed by cable operators, 

including the number of times that a 

cable system may be audited, the 

qualifications of the auditor, and the 

deadline for initiating an audit, among 

other requirements. 

However, the differences between the 

two provisions do not preclude the 

Register from adopting a single 

regulation for verification procedures 

conducted under Section 111(d)(6) and 

119(b)(2). Nor is there anything in 

Section 111(d)(6) that directly 

contradicts the requirements of 

119(b)(2) (or vice versa). Section 

119(b)(2) allows ‘‘interested parties’’ to 

verify and audit Statements of Account 

and royalty payments filed by a satellite 

carrier. By contrast, Section 111(d)(6) 

only allows ‘‘copyright owners whose 

works were embodied in the secondary 

transmission of primary transmissions’’ 

to audit Statements of Account and 

royalty payments filed by a cable 

operator. While the statutory language 

in Section 111(d)(6) is more precise and 

identifies who may request an audit, it 

is nonetheless reasonable to assume that 

the only parties who would have an 

interest in verifying Statements of 

Account and royalty payments filed 

under Section 119 would be copyright 

owners whose works were embodied in 

a secondary transmission made by the 

party that filed that Statement. 

Moreover, virtually the same set of 

copyright owners participates in 

proceedings before the Copyright 

Royalty Board concerning the 

distribution of royalties under the cable 

and satellite licenses. 

Consequently, because Congress 

provided a blueprint for the verification 

of Statements of Account in Section 

111(d)(6) and because those 

requirements are similar to verification 

procedures that the Office has adopted 

in the past, the Office is inclined to use 

this provision as the framework for the 

regulations governing the verification of 

Statements of Account and royalty fees 

filed by both cable operators and 

satellite carriers.2 Adoption of the same 

procedures for both statutory licenses 

has advantages. It will reduce regulatory 

complexity for copyright owners, it will 

promote fairness among statutory 

licensees, and it will encourage auditors 

to develop best practices that could be 

used regardless of whether an audit 

involves Statements of Account filed by 

a cable operator or a satellite carrier. 

The copyright owners apparently agree 

with this approach. Although they 

proposed separate regulations for cable 

operators and satellite carriers their 

drafts are essentially identical, except 


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3However, if a copyright owner filed a notice of 

intent to audit a particular Statement of Account or 

a particular statutory licensee in calendar year 2013 

and if that audit was still ongoing as of January 1, 

2014, the Office would accept a notice of intent to 

audit filed in calendar year 2014 concerning other 

Statements filed by that same licensee. 

for one difference which is discussed in 

more detail in the next section. 

The Office invites comments on 

whether Section 111(d)(6) should be 

used as the framework for the 

verification of Statements of Account 

filed under Sections 119(b)(2) or 

whether there are policy or 

administrative reasons for adopting a 

different approach for the verification of 

Statements and royalties filed by cable 

operators and satellite carriers. 

B. Retroactivity 

As discussed above, the copyright 

owners have asked the Office to adopt 

separate regulations for cable operators 

and satellite carriers and they have 

provided the Office with a proposed 

draft for each regulation. The primary 

difference between the two suggested 

regulations is that the copyright owners’ 

draft regulation for satellite carriers 

would apply retroactively, while their 

draft regulation for cable operators 

would apply on a prospective basis 

only. Specifically, the copyright owners’ 

draft regulation for cable operators 

would apply to Statements of Account 

for accounting periods beginning on or 

after January 1, 2010 (i.e., the 

semiannual accounting period that was 

in effect when the President signed 

STELA into law on May 27, 2010). By 

contrast, the copyright owners’ draft for 

satellite carriers would apply to any 

Statement of Account, even if the 

Statement was filed with the Office 

before STELA was enacted. 

In support of this distinction, 

copyright owners argue that Section 

119(b)(2) of ‘‘STELA permits 

verification of Statements of Account 

filed by satellite carriers prior to the 

2010–1 accounting period.’’ Petition for 

Rulemaking at 4. However, Section 

119(b)(2) does not contain any language 

that expressly permits copyright owners 

to audit a Statement of Account for an 

accounting period that predated the 

enactment of STELA. Nor does it 

contain any language that expressly 

permits the Office to adopt regulations 

providing for the verification of 

Statements of Account on a retroactive 

basis. On the contrary, when STELA 

does address this issue, it clearly states 

that copyright owners may audit a cable 

operator’s Statements of Account, but 

only with respect to ‘‘accounting 

periods beginning on or after January 1, 

2010 * * *.’’ Section 111(b)(6). The fact 

that the verification procedure for cable 

operators only applies to the accounting 

period that was in effect when STELA 

was enacted and any subsequent 

accounting period is clear evidence that 

Congress did not intend to impose a 

retroactive verification requirement on 

cable operators. On the other hand, the 

lack of similar language in Section 119 

is not an indication that Congress 

intended to allow retroactive 

verification of Statements of Account 

filed by satellite carriers. 

‘‘Retroactivity is not favored in the 

law. Thus, congressional enactments 

and administrative rules will not be 

construed to have retroactive effect 

unless their language requires this 

result. By the same principle, a statutory 

grant of legislative rulemaking authority 

will not, as a general matter, be 

understood to encompass the power to 

promulgate retroactive rules unless that 

power is conveyed by Congress in 

express terms.’’ Bowen v. Georgetown 

University Hospital, 488 U.S. 204, 208 

(1988) (citations omitted). See also 

Motion Picture Association of America, 

Inc. v. Oman, 969 F.2d 1154, 1156 (D.C. 

Cir. 1992) (explaining that the Register 

of Copyrights does ‘‘not have authority 

to promulgate retroactive rules unless 

Congress gives [her] that authority in 

express terms’’). 

Because the copyright owners are 

asking ‘‘for something the Office could 

not give as a matter of law,’’ Motion 

Picture Association of America, 969 

F.2d at 1156, i.e., allowing copyright 

owners to audit Statements of Account 

for accounting periods that preceded the 

2010/1 accounting period, the Office has 

not adopted the draft language that they 

proposed for the verification of 

Statements of Account filed by satellite 

carriers. 

C. Initiation of an Audit 

The proposed regulation follows the 

same approach that is used to initiate 

audit and verification procedures for 

examining Statements of Account filed 

under the Section 112 and 114 licenses 

and under Chapter 10. In keeping with 

this approach, a copyright owner would 

have to notify the Copyright Office in 

writing in order to initiate an audit 

procedure, and at the same time, it 

would have to serve a copy of that 

notice on the statutory licensee that 

would be subject to the audit. The 

Office does not intend to create a form 

for this notice, but at a minimum, the 

proposed regulation requires the 

copyright owner to identify the 

Statement(s) of Account and accounting 

period(s) that would be included in the 

audit and the statutory licensee that 

filed those Statement(s) with the Office. 

In addition, the notice of intent to audit 

would have to provide specific 

information about the copyright owner 

filing the notice, including its name, 

address, telephone number, facsimile 

number, and email address (if any), and 

the copyright owner would have to 

provide a brief statement establishing 

that it owns at least one work that was 

embodied in a secondary transmission 

made by that licensee. 

Under the proposed regulation a 

notice of intent to audit filed by one 

copyright owner would preserve the 

right of all interested copyright owners 

to participate in the audit procedure. 

This would mean that once the Office 

has received a notice of intent to audit 

a particular semiannual Statement of 

Account, it would not accept another 

notice of intent to audit that same 

Statement. As discussed in Section G 

below, a satellite carrier or cable 

operator that owns one cable system 

would be subject to no more than one 

audit per year, while a cable operator 

that owns multiple cable systems would 

be subject to no more than three audits 

per year. This would mean that once the 

Office has received a notice of intent to 

audit a particular satellite carrier or a 

particular cable system that owns a 

single cable system, the Office would 

not accept another notice of intent to 

audit that licensee until January 1st of 

the following year. Likewise, once the 

Office has received three notices of 

intent to audit a particular multiple 

cable system operator within a specific 

calendar year, it would not accept 

another notice of intent to audit that 

same licensee until January 1st of the 

following year.3

The filing of the notice would then 

require the Office to publish a notice in 

the Federal Register within 30 days 

after receiving the notice of intent to 

audit. The Federal Register notice 

would identify the Statement(s) of 

Account and statutory licensee that 

would be subject to audit, it would 

identify the copyright owner that filed 

the notice of intent to audit, and it 

would provide appropriate contact 

information for that party. Any other 

copyright owner that wishes to 

participate in the audit of the 

Statement(s) of Account identified in 

the Federal Register notice would have 

to contact the copyright owner that filed 

the notice of intent to audit. Copyright 

owners that join in the audit would be 

entitled to participate in the selection of 

the auditor, and they would be entitled 

to participate in the selection of 

additional cable systems that may be 

included in an expanded audit, if the 

audit involves a multiple cable system 

operator which has been shown to have 


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4The copyright owners’ proposal states that the 

copyright owners that join in the audit ‘‘shall pay 

the costs of the Qualified Independent Auditor.’’ 

However, they did not indicate whether those costs 

should be split evenly among the copyright owners 

or whether those costs should be divided in some 

other manner. 

underpaid its royalties during the initial 

examination. In addition, copyright 

owners that join in the audit would be 

entitled to receive a copy of the 

auditor’s report and they would be 

required to pay for the auditor for his or 

her work in connection with the audit. 

Conversely, a copyright owner that 

failed to join the audit within 30 days 

would not be permitted to participate in 

the selection of the auditor or the 

selection of cable systems that would be 

included in an audit of a multiple 

system operator. Nor would they be 

entitled to receive a copy of the 

auditor’s report. Moreover, a copyright 

owner that failed to join the audit 

within the time allowed would not be 

permitted to conduct its own audit of 

the semiannual Statement(s) of Account 

identified in the Federal Register notice 

at a later time. If the licensee identified 

in the Federal Register notice is a 

satellite carrier or a single cable system 

operator, a copyright owner that failed 

to join the audit within 30 days would 

not be permitted to conduct another 

audit of that same licensee until the 

following year because under the 

proposed regulations these systems 

shall be subject only to a single audit 

during a given calendar year. See 

Section G, Frequency of the Audit 

Procedure. Likewise, if the Office 

already published three Federal 

Register notices involving a multiple 

cable system operator, a copyright 

owner that failed to join any of these 

audits within the time allowed would 

not be permitted to conduct another 

audit of Statements filed by that same 

licensee for additional accounting 

periods until the following year. 

D. Designation of the Auditor 

Under the copyright owners’ 

proposal, the Office would be 

responsible for selecting a qualified and 

independent person to conduct the 

audit, and copyright owners and 

statutory licensees would be given an 

opportunity to comment on the 

proposed auditor before the final 

selection is made. Copyright owners 

who wished to participate in the audit 

and to receive a copy of the auditor’s 

final report would have 15 days after the 

selection of the auditor to notify the 

Office of their intention to join the audit 

process, and the Office would be 

responsible for posting the names of 

these copyright owners on its Web site. 

The Office has considered the 

copyright owners’ approach but can see 

little justification for this degree of 

involvement by the Copyright Office. 

Section 111(d)(6)(A) directs the Office to 

‘‘establish procedures for the 

designation of a qualified independent 

auditor,’’ but it does not require the 

Office to make this designation. The 

Office does not have the knowledge, 

experience, or resources needed to 

select an appropriate auditor or to 

manage the selection process beyond 

the initial notification step, and doing 

so would be a dramatic departure from 

the audit regulations that the Office has 

adopted in the past. See 37 CFR 

201.30(d)(2), 260.5(c), 260.6(c), 261.6(c), 

261.7(c). Therefore, the Office is not 

inclined to adopt the copyright owners’ 

proposal. Moreover, the Office is 

unaware of any problems with this 

initiation practice as used in the 

verification process for auditing 

statements of account filed under the 

Section 112 and 114 licenses or under 

Chapter 10. 

The Office believes that the copyright 

owners should be responsible for 

designating an auditor who will verify 

the Statement(s) of Account and royalty 

payments on their behalf and for 

resolving any disputes amongst 

themselves over the selection of the 

auditor. Likewise, the Office believes 

that the copyright owners who join in 

the audit should be responsible for 

paying the auditor for his or her work 

in connection with the audit, and for 

resolving any disputes amongst 

themselves concerning the allocation of 

those costs.4 The Office can establish 

regulatory guidelines for the verification 

process, but it strongly believes that the 

copyright owners are better situated to 

assume the costs and the responsibility 

for selecting the auditor and 

coordinating the verification procedure, 

including the identification of those 

copyright owners who wish to 

participate in the verification process. 

To this end, the proposed regulation 

would establish clear guidelines for the 

process, such as defining what 

constitutes a ‘‘qualified’’ and 

‘‘independent’’ auditor. Specifically, an 

auditor would be considered 

‘‘qualified’’ if he or she is a certified 

public accountant. Consistent with 

Section 111(d)(6)(A)(ii), an auditor 

would be considered ‘‘independent’’ if 

he or she is not an officer, employee, or 

agent of a copyright owner for any 

purpose other than the audit. In 

addition, an auditor would be 

considered ‘‘independent’’ for purposes 

of this procedure if that person is 

considered to be ‘‘independent’’ as that 

term is used in the Code of Professional 

Conduct of the American Institute of 

Certified Public Accountants 

(‘‘AICPA’’), in the Statements on 

Auditing Standards promulgated by the 

Auditing Standards Board of the AICPA, 

and in the Interpretations thereof issued 

by the Auditing Standards Division of 

the AICPA. See, e.g., AICPA Code of 

Professional Conduct, ET Section 101 

(Independence), 102 (Integrity and 

Objectivity), 191 (Ethics Rulings on 

Independence, Integrity, and 

Objectivity), available at http:// 

www.aicpa.org/interestareas/ 

professionalethics/resources/ 

codeofconduct/pages/default.aspx. 

However, the Office does agree with the 

copyright owners that an auditor should 

be disqualified if there is any conflict of 

interest that would prevent him or her 

from participating in the verification 

procedure, and notes that conflicts of 

interest are prohibited under AICPA 

Code of Professional Conduct Section 

102–2. 

The standard for evaluating an 

auditor’s independence is based on the 

Office’s audit regulation for digital 

audio recording technology, which has 

been in effect since 1996. See 37 CFR 

201.30(j)(3). The Office welcomes 

comments from accounting 

professionals and other interested 

parties as to whether accountants 

currently use this standard to evaluate 

their independence or whether the 

standard has changed over the past 16 

years. 

If a statutory licensee has reason to 

believe that an auditor is not qualified 

or independent, it would have to raise 

those concerns with the copyright 

owner(s) who selected the auditor 

before the audit begins. If the parties are 

unable to resolve the matter, the cable 

operator or satellite carrier could raise 

its concerns with AICPA’s Professional 

Ethics Division or with the State Board 

of Accountancy that licensed the 

auditor. Consistent with the verification 

procedures that the Office has adopted 

for other statutory licenses, the auditor 

would be allowed to proceed with the 

audit while his or her qualifications 

were under review. See 37 CFR 

201.30(j)(1). 

E. Time Period for Conducting an Audit 

Section 111(d)(6) allows copyright 

owners to audit Statements of Account 

and royalty payments filed with the 

Copyright Office for any accounting 

period beginning on or after January 1, 

2010. In order to provide cable operators 

with a measure of certainty and to 

encourage copyright owners to exercise 

their audit rights in a prompt manner, 

Congress directed the Register to set a 

deadline for initiating an audit 


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procedure. Specifically, Section 

111(d)(6)(D) states that the Register shall 

‘‘permit requests for verification of a 

statement of account to be made only 

within 3 years after the last day of the 

year in which the statement of account 

is filed.’’ 

Taking its cue from the statutory text, 

the proposed regulation would provide 

that the deadline for initiating a 

verification procedure would be 

calculated from the last day of the year 

in which the Statement of Account was 

filed. Thus, the final date for filing a 

notice of intent to audit a particular 

Statement would be December 31, 

regardless of whether the Statement was 

filed by a cable operator or a satellite 

carrier, whether the Statement covers 

the first or second half of the year, or 

whether the Statement was filed before 

or after the filing deadline. If the 

copyright owner intends to audit more 

than one Statement of Account, the 

notice of intent to audit would have to 

be filed within three years after the last 

day of the year that the earliest 

Statement was filed with the Office. For 

example, a notice of intent to audit three 

Statements of Account filed by a 

satellite carrier on July 30, 2010, January 

30, 2011, and July 30, 2011 would have 

to be received in the Office on or before 

December 31, 2013. 

The copyright owners’ draft 

regulation would require the Office to 

designate an auditor within 60 days 

after the notice of intent to audit was 

published in the Federal Register. The 

auditor would be required to contact the 

statutory licensee within 30 days 

thereafter, and the statutory licensee 

would be required to make its records 

available to the auditor 30 days later. 

The Office assumes that the amount of 

time required for an audit will vary 

depending on the number and 

complexity of the Statements of 

Account that will be subject to review. 

The only statutory requirement is that 

the request for verification must be 

made ‘‘within 3 years after the last day 

of the year in which the statement of 

account is filed.’’ 17 U.S.C. 111(d)(6)(E). 

Therefore, the Office is not inclined to 

set a precise deadline for when the 

auditor should be selected, when the 

audit should begin, or when the audit 

should be completed. Nor is it aware 

that failure to establish a regulatory 

timeline for completing these tasks has 

been a problem with the verification of 

Statements of Accounts filed under 

other statutory licenses. 

F. Retention of Records 

The copyright owners’ draft 

regulation would require statutory 

licensees to keep records that may be 

necessary to confirm the correctness of 

the calculations and royalty payments 

reported in a Statement of Account for 

at least five years after the Statement has 

been filed. While the Office agrees that 

statutory licensees should be required to 

retain their records until the deadline 

for auditing a Statement of Account has 

passed, it is not clear that such records 

need to be maintained for five years. 

See, e.g., 37 CFR 260.4(f) and 261.5(f) 

(requiring books and records relating to 

the payment of statutory licensing fees 

to be kept for three years). 

Under the proposed regulation, a 

statutory licensee would be required to 

retain such records for a minimum of 

three and a half years (e.g., 42 months) 

after the last day of the year in which 

the Statement of Account was filed with 

the Office. Should the Office announce 

the receipt of a notice of intent to audit 

a particular Statement, the statutory 

licensee would be required to retain its 

records concerning the calculations and 

royalty payments reported in that 

Statement for at least three years after 

the date that the auditor delivers his or 

her final report to the copyright 

owner(s). This will preserve the records 

for the benefit of all parties in the event 

that the copyright owner(s) decide to 

take legal action based on the facts and 

conclusions set forth in the auditor’s 

report. Conversely, if the Office does not 

announce the receipt of a notice of 

intent to audit within three and a half 

years (e.g., 42 months) after the last day 

of the year in which a particular 

Statement of Account was filed, the 

statutory licensee would no longer be 

required to retain its records concerning 

that Statement, at least for the purpose 

of verifying the Statement of Account 

under this regulation. 

G. Frequency of the Audit Procedure 

Section 111(d)(6)(A)(i) appears to 

provide copyright owners with a single 

opportunity to verify a particular 

Statement of Account. This provision 

directs the Register to ‘‘establish 

procedures for the designation of a 

qualified independent auditor with 

exclusive authority to request 

verification of such a statement of 

account on behalf of all copyright 

owners. * * *’’ Once an auditor has 

been selected, he or she would conduct 

that audit on behalf of ‘‘all’’ copyright 

owners, regardless of whether they 

decide to join the audit or not. Once the 

auditor has completed his or her review 

of that Statement, there is no apparent 

need for additional audits, because all 

copyright owners would have been 

given an opportunity to audit that 

Statement already. In light of this 

reading, the proposed regulation 

explains that a Statement of Account 

may be audited no more than once. 

However, this basic limitation to a 

single audit for each Statement of 

Account does not address Congress’s 

directive to ‘‘limit the frequency of 

requests for verification for a particular 

cable system and the number of audits 

that a multiple system operator can be 

required to undergo in a single year.’’ 17 

U.S.C. 111(d)(6)(D). The statute does not 

indicate what those limits should be 

and there is no legislative history for 

STELA. It is clear that Congress did not 

intend to overburden cable operators 

that own and operate multiple systems, 

but striking an appropriate balance is 

not an easy question. 

Under the copyright owners’ 

proposal, it appears that a satellite 

carrier or a cable operator that owns one 

cable system would be subject to no 

more than one audit per year. However, 

a cable operator that owns more than 

one system would be subject to as many 

as three audits per year. 

The Office included the copyright 

owners’ proposal in the initial draft of 

the regulation, because the statute does 

not provide any meaningful guidance 

concerning the phrase ‘‘limit the 

frequency of requests for verification.’’ 

However, this is merely a starting point 

for further discussion on this issue. The 

Office welcomes comment from 

interested parties concerning the limit 

on the total number of audits that a 

satellite carrier, a cable system operator 

that owns a single cable system, or a 

multiple system operator can be 

required to undergo in a single year, and 

in particular, whether there is a 

legitimate reason for treating cable 

operators differently depending on 

whether they own one cable system or 

more than one system (i.e., whether the 

multiple system operator should be 

subject to a single audit or up to three 

audits per year). 

By contrast, the proposed regulation 

does not fully embrace the copyright 

owners’ proposal concerning multiple 

system cable operators, because it does 

not appear to place any meaningful 

limit on the number of cable systems 

that can be included within each audit. 

Allowing the auditor to evaluate all of 

the cable systems owned by a multiple 

system operator may be unduly 

burdensome for the operator— 

depending on the number of systems 

within its portfolio. In order to protect 

the interests of a multiple system 

operator, the proposed regulation 

directs the auditor to study a sampling 

of the cable systems owned by that 

operator. At the same time, the 

regulation protects the interests of 

copyright owners by allowing them to 


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maximize their opportunity by 

including more than one Statement of 

Account in each audit. 

According to the AICPA, ‘‘the basic 

concept of sampling is well established 

in auditing practice.’’ American 

Institute of CPAs, Statement on 

Auditing Standards § 350.06 at 516, 

available at http://www.aicpa.org/ 

Research/Standards/AuditAttest/ 

DownloadableDocuments/AU00350.pdf. It involves ‘‘the application 

of an audit procedure to less than 100 

percent of the items within * * * [a] 

class of transactions for the purposes of 

evaluating some characteristic of the 

* * * class.’’ Id. at 515. ‘‘The size of a 

sample necessary to provide sufficient 

audit evidence depends on both the 

objectives and the efficiency of the 

sample.’’ Id. 

The proposed regulation does not 

require the auditor to review a specific 

number of cable systems, because the 

number of systems owned by each 

multiple system operator will vary. On 

the one hand, an audit involving five or 

six cable systems may impose an undue 

burden on the operator if it owns only 

a half dozen systems. On the other 

hand, if a multiple system operator 

owns dozens of cable systems, e.g., 

Time Warner, an audit involving only 

five of those systems may not be 

statistically significant given the size of 

the company. 

To address this conundrum, the 

Office believes that the interests of 

multiple system cable operators, 

copyright owners, and the auditor 

would be better served by allowing the 

auditor to study a percentage of the 

cable systems owned by a multiple 

system operator. The proposed 

regulation states that, in the case where 

there are two or more systems under 

common ownership, audits should 

involve no more than fifty percent of 

those systems. However, if the auditor 

discovers an underpayment of five 

percent or more in any Statement of 

Account filed by that operator, the size 

of the sample could be expanded to 

include any and all of the systems 

owned by that operator. The specific 

cable systems that would be included 

within the sample of the expanded audit 

would be selected by the copyright 

owner(s) who elected to participate in 

the audit. Setting the trigger at five 

percent would be generally consistent 

with the copyright owners’ proposal for 

allocating the cost of the audit, which 

would require the auditor’s fee to be 

paid by the statutory licensee if the 

auditor concludes that there was an 

underpayment of five percent or more 

reported in any Statement of Account 

that was included in the audit. 

However, this is merely a preliminary 

suggestion, and the Office solicits 

comments from all interested parties. 

The Office invites comments on 

whether a sampling approach should be 

used for audits involving a multiple 

system operator, and if so, whether an 

audit involving up to fifty percent of the 

systems owned by a particular operator 

is likely to produce a statistically 

significant result or whether this 

threshold would be unduly burdensome 

for the operator and, if so, what 

percentage would be appropriate. The 

Office also invites comments on 

whether copyright owners should be 

allowed to increase the number of 

systems subject to audit if the auditor 

discovers an underpayment of royalties, 

and if so, whether the underpayment 

should be higher or lower than five 

percent in order to trigger this 

requirement. 

H. Proposed Remedies for Cable 

Operators and Satellite Carriers 

STELA directed the Register to 

‘‘require a consultation period for the 

independent auditor to review its 

conclusions with a designee of the cable 

system.’’ In addition, Congress directed 

the Register to ‘‘establish a mechanism 

for the cable system to remedy any 

errors identified in the auditor’s report 

and to cure any underpayment 

identified,’’ and to ‘‘provide an 

opportunity to remedy any disputed 

facts or conclusions.’’ See 17 U.S.C. 

111(d)(6)(C)(i)–(ii). Congress did not 

indicate whether the regulation should 

provide these remedies to satellite 

carriers, but as discussed above there is 

nothing in Sections 111(d)(6)(C)(i)–(ii) 

or 119(b)(2) that prevents the Office 

from taking this approach and the Office 

can think of no good reason to adopt 

different approaches for the two 

licenses. Therefore, the Office is 

proposing a single regulation for both 

cable operators and satellite carriers 

which would allow any statutory 

licensee to review the auditor’s 

conclusions before the auditor delivers 

his or her report to the copyright 

owner(s), to correct errors and 

underpayments identified in the 

auditor’s report, and to dispute any of 

the facts and conclusions set forth in 

that report. Each of these remedies is 

discussed below. 

1. Consultation With the Statutory 

Licensee 

Once the auditor has completed his or 

her review of the Statements of 

Account, the proposed regulation 

directs the auditor to prepare a written 

report setting forth his or her 

conclusions. The proposed regulation 

explains that the auditor should deliver 

a copy of that report to the statutory 

licensee before it is delivered to any of 

the copyright owner(s) that are 

participating in the audit. However, 

there is one exception to this rule. The 

auditor may deliver a copy of his or her 

report directly to the copyright owner(s) 

without sharing it with the statutory 

licensee if the auditor has reason to 

suspect that the statutory licensee has 

committed fraud and that disclosing his 

or her conclusions to the statutory 

licensee would prejudice further 

investigation of that fraud. The Office 

has taken a similar approach in other 

audit regulations. See 37 CFR 261.6(g), 

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

Consistent with Section 

111(d)(6)(C)(i), the auditor would be 

required to review his or her report with 

a designee of the statutory licensee 

before it is delivered to the copyright 

owner(s). Specifically, the auditor 

would be required to consult with a 

designee of the statutory licensee within 

30 days after the auditor has delivered 

his or her report to the licensee. The 

Office assumes that the consultation 

would take place at a time and place 

that is mutually convenient for both 

parties, and that it would be conducted 

in person, by telephone, or video 

conference as the parties may agree. 

Because the issues presented in each 

audit will be unique, the regulation does 

not provide specific topics that the 

parties should review. But as discussed 

in Section H.3 below, if the statutory 

licensee discovers any factual errors or 

erroneous conclusions in the auditor’s 

report, the designee must bring those 

issues to the auditor’s attention during 

the consultation. 

The Office invites comment on 

whether the regulation should provide a 

precise amount of time for the auditor 

to meet and confer with the statutory 

licensee’s designee, and if so, whether 

30 days would be a sufficient amount of 

time for the consultation period. 

2. Correcting Errors and Curing 

Underpayments Identified in the 

Auditor’s Report 

STELA directed the Register to 

‘‘establish a mechanism for the cable 

system to remedy any errors identified 

in the auditor’s report and to cure any 

underpayment identified.’’ The Office 

already has a process that allows cable 

operators and satellite carriers to amend 

their Statements of Account and to 

make additional royalty payments that 

may be due. See 37 CFR 201.11(h) and 

201.17(m). The Office is inclined to use 

the same approach here. 

If the auditor concludes that any of 

the information in a Statement of 


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5There is no legislative history for STELA, 

although a prior iteration of the legislation 

contained language concerning the verification of 

Statements of Account. The House Report for the 

earlier bill stated that ‘‘[t]he rules adopted by the 

Office shall include procedures allocating 

responsibility for the cost of audits consistent with 

such procedures in other audit provisions in its 

rules.’’ See Satellite Home Viewer Update and 

Reauthorization Act of 2009, H. Rep. No. 111–319, 

111th Cong., 1st Sess., at 10 (2009). 

Account is incorrect or incomplete, that 

the calculation of the royalty fee was 

incorrect, or that the statutory licensee 

failed to deposit the royalties owed with 

the Office, the statutory licensee may 

correct those errors by filing an 

amended Statement of Account or by 

submitting supplemental royalty 

payments to the Office. To do so, the 

licensee must comply with the 

procedures set forth in 37 CFR 

201.11(h)(1) and 201.17(m)(3), including 

the obligation to pay interest on any 

underpayment that may be due and the 

requisite filing fee set forth in 37 CFR 

201.3. 

The copyright owners apparently 

agree with this approach. Their 

proposed regulation states that the 

statutory licensee ‘‘may * * * remedy 

any errors identified in the [auditor’s] 

report * * * and cure any 

underpayment identified (subject to the 

filing fee and interest requirements 

generally applicable to late, corrected, 

or supplemental Statements of Account 

and royalty fees).’’ Petition for 

Rulemaking at 10. However, the 

copyright owners’ proposal would give 

licensees only a brief opportunity to 

correct errors or underpayments 

identified in the auditor’s report. 

Specifically, corrections and 

underpayments would have to be made 

during a 30-day consultation period 

when the auditor would be required to 

discuss his or her tentative findings 

with a representative of the licensee. 

The statute directs the Office to 

establish a mechanism for correcting 

errors identified in the auditor’s report 

and for curing underpayments, but it 

does not specify a deadline for making 

these adjustments. The proposed 

regulation would allow the Office to 

accept corrected Statements of Account 

and supplemental royalty payments 

before, during, or after a verification 

procedure. Certainly, it would be in the 

best interest of the licensee to file an 

amended Statement of Account and any 

royalties fees owed as soon as possible 

to avoid accruing additional interest 

payments and possible exposure to an 

infringement suit. 

The Office welcomes comment on 

whether the proposed regulation 

provides statutory licensees with an 

adequate opportunity to ‘‘remedy any 

errors identified in the auditor’s report 

and to cure any underpayments 

identified,’’ as required by Section 

111(d)(6)(C)(ii). The Office also 

welcomes comment on whether it 

would be beneficial to give statutory 

licensees a specific deadline for 

correcting errors in their Statements of 

Account and for making supplemental 

royalty payments. If so, would 30 days 

be a sufficient amount of time, and 

should the deadline be based on the 

date that the auditor delivers his or her 

preliminary report to the statutory 

licensee or the date that the auditor 

delivers his or her final report to the 

copyright owner(s)? 

3. Disputing the Facts and Conclusions 

Set Forth in the Auditor’s Report 

If the statutory licensee disagrees with 

any of the facts or conclusions set forth 

in the auditor’s report, the licensee’s 

designee must raise those issues during 

the initial consultation with the auditor. 

If the auditor agrees that a mistake has 

been made, he or she should correct 

those errors before the report is 

delivered to the copyright owner(s). If 

facts or conclusions set forth in the 

report remain in dispute after the 

consultation, the licensee may provide 

the auditor with a written response 

setting forth its views. The licensee’s 

deadline for providing this response 

would be two weeks (e.g., 14 calendar 

days) after the date of the initial 

consultation between the auditor and 

the licensee’s representative. 

Within 60 days after the auditor 

delivers his or her report to the statutory 

licensee, the auditor would be required 

to prepare a final report setting forth his 

or her conclusions and would be 

required to deliver that report to the 

copyright owner(s) that participated in 

the audit process. At the same time, the 

auditor would be required to provide 

the statutory licensee with a copy of the 

final report. (The copyright owners 

made a similar suggestion in their draft 

regulation, but they did not specify a 

deadline for the delivery of the final 

report nor did they offer to share the 

final report with the statutory licensee.) 

If the statutory licensee prepared a 

written response contesting the facts or 

conclusions set forth in the auditor’s 

report, the auditor would be required to 

include that response as an attachment 

to his or her final report to the copyright 

owner(s). 

The Office invites comment on 

whether the proposed regulation 

provides statutory licensees with an 

adequate ‘‘opportunity to remedy any 

disputed facts or conclusions’’ as 

required by Section 111(d)(6)(C)(iii). 

The Office also welcomes comment on 

whether two weeks would be a 

sufficient amount of time for the 

statutory licensee to prepare a written 

response to the auditor’s report (if any), 

and whether 60 days would be a 

sufficient amount of time for the auditor 

to prepare his or her final report for the 

copyright owners. 

I. Cost of the Audit Procedure 

The statute does not indicate whether 

the costs of the audit should be paid by 

the copyright owners or by the statutory 

licensee. The Office has, however, 

considered this same issue in its 

regulations concerning the audit of 

Statements of Account and royalty 

payments made under Section 112, 

Section 114, and Chapter 10, and it is 

inclined to use the same approach in 

this regulation. See 37 CFR 201.30(i), 

260.5(f), 260.6(f), 261.6(g), 261.7(g), 

262.6(g), 262.7(g).5

As a general rule, the copyright 

owner(s) who selected the auditor 

would be expected to pay for the 

auditor’s work in connection with the 

audit. Copyright owner(s) who do not 

participate in the verification procedure 

would not be required to pay for the 

auditor’s services, and consequently 

they would not be entitled to receive a 

copy of the auditor’s report, although 

they would benefit from the payment of 

any additional royalty fees made as a 

result of the audit. However, if the 

auditor concludes that there was an 

underpayment of five percent or more 

reported in any Statement of Account 

that was included in the audit, the 

proposed regulation would require the 

auditor’s fee to be paid by the statutory 

licensee that filed that Statement with 

the Office with the proviso that if a 

court, in a final judgment (i.e., after all 

appeals have been exhausted) rejects 

that determination, the copyright 

owners would have to reimburse the 

licensee for its payment of the auditor’s 

services. The copyright owners included 

a similar proposal in their draft 

regulation. 

The Office invites comment on 

whether the regulation should include a 

cost-shifting provision, and if so, 

whether the percentage of 

underpayment needed to trigger a cost 

shifting to the statutory licensee should 

be more or less than five percent. 

J. Confidentiality 

STELA directed the Register to issue 

regulations ‘‘to provide for the 

confidential verification’’ of Statements 

of Account and royalty payments, and 

to ‘‘establish procedures for 

safeguarding all non-public financial 


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and business information’’ that may be 

provided during the course of the 

investigation. The proposed regulation 

explains that confidential information 

should be made available for use in the 

audit procedure, and that access to that 

information should be limited to the 

auditor who conducts the procedure. 

The auditor may share confidential 

information with his or her employees, 

agents, consultants, and independent 

contractors who need access to the 

information in order to perform their 

duties in connection with the audit. 

However, the auditor’s employees, 

agents, consultants, and independent 

contractors would be required to enter 

into an appropriate confidentiality 

agreement governing the use of the 

confidential information and they could 

not be employees, officers, or agents of 

a copyright owner for any purpose other 

than the audit. In addition, the auditor 

and any other person that receives 

confidential information would have to 

implement procedures to safeguard that 

information, using at least the same 

level of security that they would use to 

protect his or her own confidential 

information. 

The Office also seeks comment on 

whether there are situations where 

copyright owner(s) would have a 

legitimate need to review the 

confidential information that may be 

provided by the licensee and, if so, 

whether the licensee’s legitimate 

interest in safeguarding that information 

would be adequately protected by 

adopting a regulation requiring the 

copyright owner(s) to enter into an 

appropriate non-disclosure agreement 

with the statutory license. Under most 

of the audit regulations adopted by the 

Office, access to confidential 

information has been limited to the 

auditor and his or her employees and 

agents. See 37 CFR 260.4(d)(2), 

261.5(d)(2), 262.5(d)(2). The Office’s 

regulations concerning digital audio 

recording technology allow copyright 

owners to access confidential 

information ‘‘for verification purposes,’’ 

but only if the copyright owner is 

neither owned nor controlled by another 

manufacturing or importing party that is 

subject to royalty obligations under 

Chapter 10. See 37 CFR 201.29(d)(1), 

201.29(f)(2). By contrast, the regulations 

concerning ephemeral recordings allow 

the copyright owners and their 

attorneys, consultants, and other 

authorized agents to access confidential 

information ‘‘[i]n connection with bona 

fide royalty disputes or claims * * * 

and under an appropriate 

confidentiality agreement or protective 

order * * *’’. 37 CFR 262.5(d)(e). The 

statute provides no guidance on the 

issue and the copyright owners did not 

address this issue in their draft 

regulation. Therefore, the Office seeks 

comment on whether and, if so, the 

circumstances under which access to 

confidential information by copyright 

owner(s) is appropriate and the best 

approach for protecting the information 

from unauthorized disclosure in such 

situations. 

III. Conclusion 

The Office seeks comment from the 

public on the subjects discussed above 

related to the implementation of the 

audit provisions adopted by Congress 

with the passage of the Satellite 

Television Extension and Localism Act 

of 2010. 

List of Subjects in 37 CFR Part 201 

Copyright, General provisions. 

Proposed Regulations 

In consideration of the foregoing, the 

Copyright Office proposes to amend part 

201 of 37 CFR Chapter II, as follows: 

PART 201—GENERAL PROVISIONS 

1. The authority citation for part 201 

reads as follows: 

Authority: 17 U.S.C. 702, 17 U.S.C. 

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

2. Add new § 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 

general rules pertaining to the 

verification of a Statement of Account 

and royalty fees filed with the Copyright 

Office pursuant to sections 111(d)(1) 

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

States Code, as amended by Public Law 

111–175. 

(b) Definitions. (1) Auditor means a 

qualified and independent accountant 

who is not an officer, employee or agent 

of a copyright owner, but has been 

selected to audit a Statement of Account 

on behalf of copyright owners under 

sections 111(d)(6) and 119(b)(2) of title 

17 of the United States Code, as 

amended by Public Law 111–175. 

(2) The term cable system has the 

meaning set forth in § 201.17(b)(2) of 

this chapter. 

(3) Copyright owner means the 

copyright owner of 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. 

(4) Generally accepted auditing 

standards (GAAS) means the auditing 

standards promulgated by the American 

Institute of Certified Public 

Accountants. 

(5) The term satellite carrier has the 

meaning set forth in section 119(d)(6) of 

title 17 of the United States Code. 

(6) The term secondary transmission 

has the meaning set forth in section 

111(f)(2) of title 17 of the United States 

Code, as amended by Public Law 111– 

175. 

(7) Statement of Account or Statement 

means a semiannual Statement of 

Account filed with the Copyright Office 

for an accounting period beginning on 

or after January 1, 2010 under sections 

111(d)(1) or 119(b)(1) of title 17 of the 

United States Code, as amended by 

Public Law 111–175. 

(8) Statutory licensee or licensee 

means a cable system or satellite carrier 

that filed a Statement of Account with 

the Office under sections 111(d)(1) or 

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

Code, as amended by Public Law 111– 

175. 

(c) Notice of intent to audit. Any 

copyright owner that intends to audit a 

semiannual Statement of Account must 

notify 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 shall 

identify the statutory licensee that filed 

the Statement(s) with the Copyright 

Office, the Statement(s) and accounting 

period(s) that will be subject to the 

audit, and the copyright owner that filed 

the notice, including its name, address, 

telephone number, facsimile number, 

and email address, if any. In addition, 

the notice shall include a statement 

establishing that the copyright owner 

owns a work that was embodied in a 

secondary transmission made by the 

statutory licensee during the accounting 

period(s) specified in the Statement(s) of 

Account that will be subject to the 

audit. The copyright owner shall serve 

the notice of intent to audit on the 

statutory licensee at the same time that 

the notice is filed with the Copyright 

Office. Within 30 days after the notice 

has been received in the Office, the 

Office will publish a notice in the 

Federal Register announcing the receipt 

of the notice of intent to audit. 

(d) Selection of the auditor. Any other 

copyright owner who wishes to 

participate in the audit of the 

Statement(s) of Account identified in a 

notice of intent to audit must notify the 

copyright owner that filed the notice of 

intent to audit within 30 days of the 

publication of the notice in the Federal 

Register. Those copyright owner(s) who 

have agreed to participate in the audit 


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shall designate an independent and 

qualified auditor to audit the 

Statement(s) on behalf of all copyright 

owners who own a work that was 

embodied in a secondary transmission 

made by the statutory licensee during 

the accounting period(s) specified in 

those Statement(s). Any dispute about 

the selection of the auditor shall be 

resolved by these copyright owner(s). 

Promptly after the auditor has been 

selected, these copyright owner(s) shall 

provide the statutory licensee with the 

auditor’s name, address, telephone 

number, facsimile number, and email 

address, if any. 

(e) Independence and qualifications 

of the auditor. (1) The auditor shall be 

qualified and independent as defined in 

this subsection. If the statutory licensee 

has reason to believe that the auditor is 

not qualified or independent, it shall 

raise the matter with the copyright 

owner(s) who selected the auditor 

before the commencement of the audit. 

If the matter is not resolved, the 

statutory licensee may raise the issue 

with the American Institute of Certified 

Public Accountants’ Professional Ethics 

Division and/or the auditor’s State 

Board of Accountancy while the audit is 

being performed. 

(2) An auditor shall be considered 

qualified if: 

(i) He or she is a certified public 

accountant, 

(ii) He or she is not an officer, 

employee, or agent of a copyright owner 

for any purpose other than the audit; 

(iii) He or she is independent as that 

term is used in the Code of Professional 

Conduct of the American Institute of 

Certified Public Accountants, including 

the Principles, Rules, and 

Interpretations of such Code applicable 

generally to attest engagements; 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. 

(f) Scope of the audit. The audit shall 

be performed in accordance with 

generally accepted auditing standards 

(GAAS). 

(g) Consultation. Before delivering a 

report to any copyright owner(s), except 

where the auditor has a reasonable basis 

to suspect fraud and that disclosure 

would, in the reasonable opinion of the 

auditor, prejudice the investigation of 

such suspected fraud, the auditor shall 

deliver a copy of that report to the 

statutory licensee and shall review his 

or her conclusions with a designee of 

the licensee within 30 days thereafter. If 

the statutory licensee disagrees with any 

of the facts or conclusions set forth in 

the report, the licensee may provide the 

auditor with a written response setting 

forth its views within two weeks after 

the date of the initial consultation 

between the auditor and the licensee’s 

designee. If the auditor agrees that there 

are errors in the report, he or she shall 

correct those errors before the report is 

delivered to the copyright owner(s). The 

auditor shall include the licensee’s 

written response, if any, as an 

attachment to his or her report before it 

is delivered to any copyright owner(s). 

(h) Corrections and supplemental 

payments. Where the auditor has 

concluded that any of the information 

given in 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 Copyright Office for that period 

was too low, a licensee may file a 

correction to the Statement of Account 

and supplemental royalty fee payments 

with the Office in accordance with the 

procedures set forth in §§ 201.11(h) or 

201.17(m). 

(i) Distribution of the auditor’s report. 

No less than 60 days after the date that 

the auditor delivered his or her report 

to the statutory licensee and subject to 

the confidentiality provisions set forth 

in paragraph (m) of this section, the 

auditor shall deliver a written report to 

the copyright owner(s) who retained the 

auditor’s services setting forth his or her 

conclusions. At the same time the 

auditor shall deliver a copy of that 

report to the statutory licensee. The 

copyright owner(s) shall retain this 

report for a period of not less than three 

years. 

(j) Costs of the audit. The copyright 

owner(s) who selected the auditor shall 

pay the auditor for his or her work in 

connection with the audit, unless the 

auditor concludes that there was an 

underpayment of five percent or more 

reported in any Statement of Account 

that is subject to the audit, in which 

case, the auditor’s fee shall be paid by 

the statutory licensee that deposited that 

Statement with the Copyright Office 

with the proviso that if a court, in a final 

judgment (i.e., after all appeals have 

been exhausted) rejects that 

determination, the copyright owners 

will reimburse the licensee for its 

payment of the auditor’s services. 

(k) Frequency of verification. (1) 

Subject to the limitations in paragraph 

(k)(3) of this section, a copyright owner 

may include more than one Statement of 

Account in its notice of intent to audit, 

but each Statement of Account shall be 

subject to audit only once. Once a notice 

of intent to audit a particular 

semiannual Statement of Account has 

been received in the Office, a notice of 

intent to audit the same Statement of 

Account will not be accepted for 

publication in the Federal Register. 

(2) A satellite carrier or a cable 

operator that owns a single cable system 

shall be subject to no more than one 

audit per calendar year. 

(3) A cable operator that owns 

multiple cable systems shall be subject 

to no more than three audits per 

calendar year. Each audit shall be 

limited to a sampling of no more than 

fifty percent of the cable systems owned 

by that operator, unless the auditor 

concludes that there was an 

underpayment of five percent or more 

reported in any Statement of Account 

filed by that operator, in which case, the 

audit may be expanded to include any 

and all of the cable systems owned by 

that operator. The specific cable systems 

to be included within each sampling 

shall be selected by the copyright 

owner(s) who retained the auditor’s 

services. The limitation on the number 

of systems under common ownership 

that can be audited in a calendar year 

does not limit in any way the number 

of Statements of Account submitted by 

the selected systems that may be 

audited in a calendar year. 

(l) Retention of records. For each 

semiannual Statement of Account that a 

statutory licensee files with the 

Copyright 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 for at least 

three and a half years after the last day 

of the year in which that Statement was 

filed with the Office. If the Office 

publishes a Federal Register notice 

announcing the receipt of a notice of 

intent to audit a specific Statement of 

Account, the statutory licensee shall 

maintain all records necessary to 

confirm the correctness of the 

calculations and royalty payments 

reported in that Statement for at least 

three years after the date that the auditor 

delivers a written report setting forth his 

or her conclusions to the copyright 

owner(s) who retained the auditor’s 

services. 

(m) 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 sections 

111(d)(6) or 119(b)(2) of title 17 of the 

United States Code, as amended by 

Public Law 111–175. Confidential 

information also shall include any 

information so designated in a 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
35652 Federal Register / Vol. 77, No. 115 / Thursday, June 14, 2012 / Proposed Rules 

confidentiality agreement which has 

been duly executed between a statutory 

licensee and any other interested party, 

or between one or more interested 

parties; provided that all such 

information shall be made available for 

the audit procedure provided for in this 

section. 

(2) Access to confidential information 

under this section shall be limited to: 

(i) The auditor; and 

(ii) Subject to an appropriate 

confidentiality agreement, those 

employees, agents, consultants and 

independent contractors of the auditor 

who are not employees, officers, or 

agents of a copyright owner for any 

purpose other than the audit, who are 

engaged in the audit of a Statement of 

Account 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 (m)(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. 

Dated: June 8, 2012. 

David O. Carson, 

General Counsel. 

[FR Doc. 2012–14454 Filed 6–13–12; 8:45 am] 

BILLING CODE 1410–30–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R04–OAR–2012–0323; FRL–9686–7] 

Approval and Promulgation of 

Implementation Plans and 

Designations of Areas for Air Quality 

Planning Purposes; Tennessee: 

Bristol; Determination of Attainment 

for the 2008 Lead Standards 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: On April 4, 2012, the State of 

Tennessee, through the Tennessee 

Department of Environment and 

Conservation (TDEC), submitted a 

request to EPA to make a determination 

that the Bristol nonattainment area for 

the 2008 lead national ambient air 

quality standards (NAAQS or standard) 

has attained the 2008 lead NAAQS. In 

this action, EPA is proposing to 

determine that the Bristol 

nonattainment area (hereafter also 

referred to as the ‘‘Bristol Area’’ or 

‘‘Area’’) has attained the 2008 lead 

NAAQS. This proposed determination 

of attainment is based upon complete, 

quality-assured and certified ambient air 

monitoring data for the 2009—2011 

period showing that the Area has 

monitored attainment of the 2008 lead 

NAAQS. EPA is further proposing that, 

if EPA finalizes this proposed 

determination of attainment, the 

requirements for the Area to submit an 

attainment demonstration, together with 

reasonably available control measures 

(RACM), a reasonable further progress 

(RFP) plan, and contingency measures 

for failure to meet RFP and attainment 

deadlines shall be suspended for so long 

as the Area continues to attain the 2008 

lead NAAQS. 

DATES: Comments must be received on 

or before July 16, 2012. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R04– 

OAR–2012–0323, by one of the 

following methods: 

1. www.regulations.gov: Follow the 

on-line instructions for submitting 

comments. 

2. Email: R4–RDS@epa.gov. 

3. Fax: (404) 562–9040. 

4. Mail: EPA–R04–OAR–2012–023, 

Regulatory Development Section, Air 

Planning Branch, Air, Pesticides and 

Toxics Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street SW., 

Atlanta, Georgia 30303–8960. 

5. Hand Delivery: Lynorae Benjamin, 

Chief, Regulatory Development Section, 

Air Planning Branch, Air, Pesticides and 

Toxics Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street SW., 

Atlanta, Georgia 30303–8960. 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. 

Instructions: Direct your comments to 

Docket ID No. EPA–R04–OAR–2012– 

0323. EPA’s policy is that all comments 

received will be included in the public 

docket without change and may be 

made available online at 

www.regulations.gov, including any 

personal information provided, unless 

the comment includes information 

claimed to be Confidential Business 

Information (CBI) or other information 

whose disclosure is restricted by statute. 

Do not submit through 

www.regulations.gov or email, 

information that you consider to be CBI 

or otherwise protected. The 

www.regulations.gov Web site is an 

‘‘anonymous access’’ system, which 

means EPA will not know your identity 

or contact information unless you 

provide it in the body of your comment. 

If you send an email comment directly 

to EPA without going through 

www.regulations.gov, your email 

address will be automatically captured 

and included as part of the comment 

that is placed in the public docket and 

made available on the Internet. If you 

submit an electronic comment, EPA 

recommends that you include your 

name and other contact information in 

the body of your comment and with any 

disk or CD–ROM you submit. If EPA 

cannot read your comment due to 

technical difficulties and cannot contact 

you for clarification, EPA may not be 

able to consider your comment. 

Electronic files should avoid the use of 

special characters, any form of 

encryption, and be free of any defects or 

viruses. For additional information 

about EPA’s public docket visit the EPA 

Docket Center homepage at http:// 

www.epa.gov/epahome/dockets.htm. 

Docket: All documents in the 

electronic docket are listed in the 

www.regulations.gov index. Although 

listed in the index, some information is 

not publicly available, i.e., CBI or other 

information whose disclosure is 

restricted by statute. Certain other 

material, such as copyrighted material, 

is not placed on the Internet and will be 

publicly available only in hard copy 

form. Publicly available docket 

materials are available either 

electronically in www.regulations.gov or 

in hard copy at the Regulatory 

Development Section, Air Planning 

Branch, Air, Pesticides and Toxics 

Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street SW., 

Atlanta, Georgia 30303–8960. EPA 

requests that if at all possible, you 

contact the person listed in the FOR

FURTHER INFORMATION CONTACT section to 

schedule your inspection. The Regional 

Office’s official hours of business are 

Monday through Friday, 8:30 a.m. to 

4:30 p.m., excluding Federal holidays. 

FOR FURTHER INFORMATION CONTACT: 

Steve Scofield or Richard Wong, 

Regulatory Development Section, Air 

Planning Branch, Air, Pesticides and 

Toxics Management Division, U.S. 

Environmental Protection Agency, 

Region 4, 61 Forsyth Street SW., 

Atlanta, Georgia 30303–8960. 


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