[Federal Register Volume 62, Number 230 (Monday, December 1, 1997)]
[Proposed Rules]
[Pages 63506-63509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31293]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 255

[Docket No. 96-4 CARP DPRA]


Mechanical and Digital Phonorecord Delivery Rate Adjustment 
Proceeding

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Copyright Office of the Library of Congress is submitting 
for public comment a joint petition concerning the adjustment of the 
physical phonorecord and digital phonorecord delivery royalty rates and 
proposed regulations implementing these rates.

DATES: Comments and notices of intent to participate are due by 
December 29, 1997. If comments and Notices of Intent to Participate are 
not received by this date, the proposed terms and rates shall become 
effective on January 1, 1998.

ADDRESSES: If sent by mail, an original and five copies of comments, 
and Notices of Intent to Participate, should be addressed to: Copyright 
Arbitration Royalty Panel (CARP), P.O. Box 70977, Southwest Station, 
Washington, DC 20024. If hand delivered, an original and five copies of 
comments, and Notices of Intent to Participate, should be brought to: 
Office of the Copyright General Counsel, James Madison Memorial 
Building, Room LM-407, First and Independence Avenue, SE., Washington, 
DC 20540.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel; 
William J. Roberts, Senior Attorney, or Tanya Sandros, Attorney 
Advisor, Copyright Arbitration Royalty Panel (CARP), P.O. Box 70977, 
Southwest Station, Washington, DC 20024. Telephone (202) 707-8380. 
Telefax: (202) 707-8366.

SUPPLEMENTARY INFORMATION:

How Were the Current Royalty Rates and Terms Established for the 
Making and Distribution of a Physical Phonorecord and a Digital 
Phonorecord Delivery?

    The mechanical compulsory license, 17 U.S.C. 115, requires a 
copyright owner of a nondramatic musical work to grant a license to any 
person who wants to make and distribute phonorecords of that work, 
provided that the copyright owner has allowed phonorecords of the work 
to be produced and distributed, and that the licensee pays the 
statutory rate. Until its demise in 1993, the Copyright Royalty 
Tribunal had authority to adjust the statutory rates for the making and 
distribution of physical phonorecords, and did so in 1987, see 52 FR 
22637 (June 15, 1987), setting the rates and terms for the mechanical 
compulsory license for at least the next ten years.
    The Copyright Act provides that, during the tenth calendar year, 
any copyright owner or user whose royalty rates are specified by the 
statutory license may file a petition requesting an adjustment to the 
rates and terms. 17 U.S.C. 803(a) (1) and (3). This ten-year cycle 
makes 1997 a window year for commencing a proceeding to further adjust 
the mechanical phonorecord compulsory license royalty rates.
    On November 1, 1995, Congress passed the Digital Performance Right 
in Sound Recording Act of 1995 (Digital Performance Act), Pub. L. 104-
39, 109 Stat. 336, which extended the mechanical license to digital 
phonorecord deliveries. Congress passed this Act to maintain and 
reaffirm the mechanical rights of songwriters and music publishers in 
an era of emerging technology which makes delivery of digital 
phonorecords possible. Among other things, the Digital Performance Act 
confirms and clarifies that the scope of the compulsory license to make 
and distribute phonorecords of nondramatic musical compositions 
includes digital transmissions which constitute ``digital phonorecord 
deliveries.'' 17 U.S.C. 115(c)(3).
    The Digitial Performance Act sets the royalty rate for all digital 
phonorecord deliveries made or authorized under the section 115 
compulsory license on or before December 31, 1997, at the current

[[Page 63507]]

rate for the making and distribution of physical phonorecords: 6.95 
cents for each work embodied in a phonorecord, or 1.3 cents per minute 
of playing time, or fraction thereof, whichever amount is larger. 37 
CFR 255.5.

When Does the Current Digital Phonorecord Delivery Royalty Rate 
Expire and How is a New Rate Set?

    The rate for the digital phonorecord deliveries expires on December 
31, 1997. Accordingly, in the Digital Performance Act, Congress 
established a two-step process for adjusting the royalty rate, a 
negotiation period wherein the owners and the users attempt to reach 
their own voluntary licenses, and then if necessary, and upon the 
filing of a petition in 1997, the convening of a copyright arbitration 
royalty panel (CARP) to establish rates and terms for those persons who 
are not covered by voluntary licenses. 17 U.S.C. 115(c)(3)(C) and (D).
    If interested parties reach a negotiated settlement, they may 
submit their proposals for adjusting the rates and terms for digital 
phonorecord deliveries directly to the Librarian of Congress. 37 CFR 
251.63. This rule further provides that:

    The Librarian may, upon the request of the parties, submit the 
agreed upon rate to the public in a notice-and-comment proceeding. 
The Librarian may adopt the rate embodied in the proposed settlement 
without convening an arbitration panel, provided that no opposing 
comment is received by the Librarian from a party with an intent to 
participate in a CARP proceeding.

    37 CFR 251.63. This procedure applies to the adjustment of the 
compulsory license rates concerning both digital phonorecord and 
physical phonorecord deliveries.

Chronology--Current Rate Adjustment Proceeding

    On July 17, 1996, the Copyright Office published a notice 
designating July 17, 1996, to December 31, 1996, as the period for the 
copyright owners and users to negotiate reasonable terms and rates for 
the delivery of a digital phonorecord. 61 FR 37312 (July 17, 1996). The 
notice also established a schedule for convening a CARP which would 
have established new rates for digital phonorecord deliveries before 
the current rate expired. In addition, the Office noted that 1997 was a 
window year for adjusting the royalty rates concerning the making and 
distribution of physical phonorecords, and requested comment from 
interested parties on the possibility of conducting a single CARP 
proceeding to adjust both the physical phonorecord and the digital 
phonorecord delivery rates, even though the physical phonorecord rates 
would not expire on December 31, 1997. 61 FR 37215.
    According to the interested parties,<SUP>1</SUP> however, the 
proposed schedule did not allot sufficient time for negotiating a 
comprehensive joint proposal. Therefore, they filed a motion with the 
Office on November 8, 1996, requesting that the Office vacate the 
proposed schedule to allow them more time to continue their 
negotiations. The Office granted the moving Parties' motion and 
rescheduled the proceeding. 61 FR 65243 (December 11, 1996).
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    \1\ The interested parties are the Recording Industry 
Association of America, the National Music Publishers' Association, 
Inc., and The Harry Fox Agency, Inc. (collectively, ``the 
Parties'').
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    Although the new schedule extended the negotiation period by three 
months, the Parties thought the time still insufficient for conducting 
the necessary negotiations, and so, requested a meeting with the Office 
to discuss the difficulties associated with negotiating rates and terms 
for use of a new technology in a marketplace with little definition or 
clear direction. The Office granted their request and met with the 
Parties on January 9, 1997. At that meeting, the Parties again 
requested more time for conducting the negotiations on setting the 
rates and terms for the section 115 license, having acknowledged the 
need to establish the mechanical rate before they attempted to 
negotiate the rates for the digital delivery of phonorecords. After 
considering the difficulties confronting the Parties, the Office agreed 
to vacate the schedule. 62 FR 5057 (February 3, 1997).
    The additional time for further negotiations proved to be 
beneficial, and on November 7, 1997, the National Music Publishers' 
Association, Inc. (NMPA), The Songwriters Guild of America (SGA), and 
the Recording Industry Association of America (RIAA) filed a joint 
petition with the Copyright Office outlining a proposal to adjust the 
physical phonorecord and digital phonorecord delivery royalty rates. 
NMPA, SGA, and RIAA, the organizations that represent the interests of 
copyright owners and copyright users in the current proceeding, were 
also the principal participants representing these interests in the 
1980 and the 1987 mechanical rate adjustment proceedings. 46 FR 55276 
(November 9, 1981) and 52 FR 22637 (June 15, 1987).
    The Parties to the joint petition, having duly filed a proposal 
concerning the 1997 physical phonorecord and digital phonorecord 
delivery royalty rate adjustments, asked the Copyright Office to submit 
their proposal to a notice and comment proceeding to promulgate 
regulations to adjust the proposed rates and terms. Accordingly, 
pursuant to 17 U.S.C. 803(c) and 37 CFR 251.63(b), the Copyright Office 
invites public comment on the proposed rates and terms for adjusting 
the physical phonorecord and digital phonorecord delivery royalty 
rates, and on the regulatory language implementing the proposal.

Comments and Notices of Intent to Participate

    Any party who wishes to challenge the proposed rates and terms must 
submit his or her written comments to the Librarian of Congress no 
later than close of business on December 31, 1997. The content of the 
written challenge should describe the party's interest in this 
proceeding, the proposed rule that the party finds objectionable, and 
the reasons for the challenge.
    In addition, any party submitting written challenges must also 
submit an accompanying Notice of Intent to Participate. Failure to 
submit a Notice of Intent to Participate will preclude the interested 
party from participating in a CARP proceeding to adjust the rates and 
terms, and will preclude consideration of his or her challenge. If no 
comments or Notices of Intent to Participate are received by close of 
business on the date for filing such comments, the proposed terms and 
rates shall become effective on January 1, 1998.

List of Subjects in 37 CFR Part 255

    Copyright, Recordings.

    For the reasons set forth in the preamble, the Library proposes to 
amend 37 CFR part 255 as follows:

PART 255--ADJUSTMENT OF ROYALTY PAYABLE UNDER COMPULSORY LICENSE 
FOR MAKING AND DISTRIBUTING PHONORECORDS

    1. The authority citation for part 255 continues to read as 
follows:

    Authority: 17 U.S.C. 801(b)(1) and 803.

    2. In Sec. 255.3(a), the phrase ``(b), (c), (d), (e), (f), (g), and 
(h)'' is removed and the phrase ``(b) through (m)'' is added after the 
word ``paragraphs''.
    3. In Sec. 255.3(b), the phrase ``(c), (d), (e), (f), (g), and 
(h)'' is removed and the phrase ``(c) through (m)'' is added after the 
word ``paragraphs''.
    4. In Sec. 255.3(c), the phrase ``(d), (e), (f), (g), and (h)'' is 
removed and the phrase ``(d) through (m)'' is added after the word 
``paragraphs''.
    5. In Sec. 255.3(d), the phrase ``(e), (f), (g), and (h)'' is 
removed and the phrase

[[Page 63508]]

``(e) through (m)'' is added after the word ``paragraphs''.
    6. In Sec. 255.3(e), the phrase ``(f), (g), and (h)'' is removed 
and the phrase ``(f) through (m)'' is added after the word 
``paragraphs''.
    7. In Sec. 255.3(f), the phrase ``(g), and (h)'' is removed and the 
phrase ``(g) through (m)'' is added after the word ``paragraphs''.
    8. In Sec. 255.3(g), the phrase ``paragraph (h)'' is removed and 
the phrase ``paragraphs (h) through (m)'' is added after the phrase 
``pursuant to''.
    9. In Sec. 255.3(h), the phrase ``, subject to further adjustment 
pursuant to paragraphs (i) through (m) of this section'' is added after 
the word ``larger''.
    10. Add new paragraphs (i), (j), (k), (l), and (m) to Sec. 255.3 to 
read as follows:


Sec. 255.3  Adjustment of royalty rate.

* * * * *
    (i) For every phonorecord made and distributed on or after January 
1, 1998, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 7.1 cents, or 1.35 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraphs (j) through (m) of this 
section.
    (j) For every phonorecord made and distributed on or after January 
1, 2000, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 7.55 cents, or 1.45 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraphs (k) through (m) of this 
section.
    (k) For every phonorecord made and distributed on or after January 
1, 2002, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 8.0 cents, or 1.55 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraphs (l) through (m) of this 
section.
    (l) For every phonorecord made and distributed on or after January 
1, 2004, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 8.5 cents, or 1.65 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraph (m) of this section.
    (m) For every phonorecord made and distributed on or after January 
1, 2006, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 9.1 cents, or 1.75 cents per minute of 
playing time or fraction thereof, whichever amount is larger.
    11. Revise Sec. 255.5 to read as follows:


Sec. 255.5  Royalty rate for digital phonorecord deliveries in general.

    (a) For every digital phonorecord delivery made on or before 
December 31, 1997, the royalty rate payable with respect to each work 
embodied in the phonorecord shall be either 6.95 cents, or 1.3 cents 
per minute of playing time or fraction thereof, whichever amount is 
larger.
    (b) Except as provided in Sec. 255.6, for every digital phonorecord 
delivery made on or after January 1, 1998, the royalty rate payable 
with respect to each work embodied in the phonorecord shall be the 
royalty rate prescribed in Sec. 255.3 for the making and distribution 
of a phonorecord made and distributed on the date of the digital 
phonorecord delivery (the ``Physical Rate''). In any future proceeding 
under 17 U.S.C. 115(c)(3)(C) or (D), the royalty rates payable for a 
compulsory license for digital phonorecord deliveries in general shall 
be established de novo, and no precedential effect shall be given to 
the royalty rate payable under this paragraph for any period prior to 
the period as to which the royalty rates are to be established in such 
future proceeding.
    12. Add Sec. 255.6 to read as follows:


Sec. 255.6  Royalty rate for incidental digital phonorecord deliveries.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
for every digital phonorecord delivery made on or after January 1, 
1998, where the reproduction or distribution of the phonorecord is 
incidental to the transmission which constitutes the digital 
phonorecord delivery (an ``Incidental DPD''), the royalty rate payable 
with respect to each work embodied in the phonorecord shall be the 
Physical Rate. In any future proceeding under 17 U.S.C. 115(c)(3)(C) or 
(D), the characterization of a digital phonorecord delivery as 
``incidental'' and the royalty rates payable for a compulsory license 
for Incidental DPDs shall be established de novo, and no precedential 
effect shall be given to the characterization of a digital phonorecord 
delivery as ``incidental'' under this section or to the royalty rate 
payable under this section for any period prior to the period as to 
which the characterization of a digital phonorecord delivery as 
``incidental'' or the royalty rates are to be established in such 
future proceeding.
    (b) No royalty shall be payable for any ``Transient Phonorecord'' 
made in the course of any digital phonorecord delivery made on or after 
January 1, 1998: provided that a royalty shall be payable with respect 
to each work embodied in the phonorecord ultimately reproduced by or 
for the ultimate transmission recipient of such digital phonorecord 
delivery at the royalty rate prescribed under Sec. 255.5 or the other 
paragraphs of this section, as applicable. Nothing in this paragraph 
shall limit or impair any rights or remedies of the copyright owner of 
a work against any person who makes reproductions from a Transient 
Phonorecord for any purpose other than to facilitate the transmission 
to the ultimate transmission recipient. For the purpose of this 
paragraph, a ``Transient Phonorecord'' is a transient phonorecord 
reproduced in temporary computer memory or digital storage intermediate 
to the communications system through which a digital phonorecord 
delivery is made, where such transient phonorecord is made in the 
ordinary operation of such system solely to facilitate the transmission 
to the ultimate transmission recipient. An example of a Transient 
Phonorecord is a phonorecord reproduced temporarily in a router 
intermediate to the Internet.
    (c)(1) For every digital phonorecord delivery made on or after 
January 1, 1998, no royalty shall be payable where:
    (i) The reproduction or distribution of the phonorecord is 
incidental to the promotion of a sound recording embodying a work,
    (ii) The phonorecord is of no more than 30 seconds of playing time 
of the sound recording of such work, or in the case of sound recordings 
of a work with a playing time of more than 5 minutes, the phonorecord 
is of no more than the lesser of 10% or 60 seconds of playing time of 
the sound recording of such work, and
    (iii) The digital phonorecord delivery is made or authorized by the 
copyright owner of such sound recording.
    (2) The copyright owner of any work embodied in a sound recording 
may, without payment of any royalty to the copyright owner of the sound 
recording, make or authorize a digital phonorecord delivery where:
    (i) The reproduction or distribution of the phonorecord is 
incidental to the promotion of the work embodied in the sound 
recording,
    (ii) The phonorecord is of no more than 30 seconds of playing time 
of the sound recording of such work, or in the case of sound recordings 
of a work with a playing time of more than 5 minutes, the phonorecord 
is of no more than the lesser of 10% or 60 seconds of playing time of 
the sound recording of such work, and

[[Page 63509]]

    (iii) The digital phonorecord delivery is made by the copyright 
owner of such work, either individually or collectively with other 
copyright owners of such works, or by an organization of copyright 
owners designated by such copyright owners as their common agent.
    13. Add Sec. 255.7 to read as follows:


Sec. 255.7  Future proceedings.

    The procedures specified in 17 U.S.C. 115(c)(3)(C) shall be 
repeated in 1998 and every second year thereafter until 2006 so as to 
determine the applicable rates and terms for the making of digital 
phonorecord deliveries during the periods beginning January 1, 2000, 
2002, 2004, 2006 and 2008. The procedures specified in 17 U.S.C. 
115(c)(3)(D) shall be repeated, in the absence of license agreements 
negotiated under 17 U.S.C. 115(c)(3)(B) and (C), upon the filing of a 
petition in accordance with 17 U.S.C. 803(a)(1), in 1999 and every 
second year thereafter until 2007 so as to determine new rates and 
terms for the making of digital phonorecord deliveries during the 
periods beginning January 1, 2000, 2002, 2004, 2006 and 2008. 
Thereafter, the procedures specified in 17 U.S.C. 115(c)(3)(C) and (D) 
shall be repeated in each fifth calendar year. Notwithstanding the 
provisions of this section, different years for the repeating of such 
proceedings may be determined in accordance with 17 U.S.C. 115(c)(3)(C) 
and (D).

    Dated: November 18, 1997.
Marybeth Peters,
Register of Copyrights.

    Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 97-31293 Filed 11-26-97; 9:39 am]
BILLING CODE 1410-33-P