Federal Register / Vol. 79, No. 222 / Tuesday, November 18, 2014 / Rules and Regulations 68623 

accurate identification and indexing of 

titles affected. See 17 U.S.C. 205(c)–(d). 

List of Subjects in 37 CFR Part 201 

Copyright. 

Final Regulations 

For the reasons set forth in the 

preamble, the Copyright Office amends 

37 CFR part 201 as follows: 

PART 201—GENERAL PROVISIONS 

■ 1. The authority citation for part 201 

continues to read as follows: 

Authority: 17 U.S.C. 702. 

■ 2. Amend § 201.3 by revising 

paragraph (c)(16) to read as follows: 

§ 201.3 Fees for registration, recordation, 

and related services, special services, and 

services performed by the Licensing 

Division. 

* * * * * 

(c) * * * 

Registration, recordation and related services Fees 

($) 

*******

(16) Recordation of document, including a notice of intention to enforce 

(single title) ........................................................................................................................................................................................... 105 

Additional titles (per group of 1 to 10 titles) ......................................................................................................................................... 35 

Correction of online Public Catalog data due to erroneous electronic title submission (per title) ....................................................... 7 

* * * * * * * 

* * * * * 

■ 3. Amend § 201.4 by revising the last 

sentence of paragraph (c)(4)(v) to read as 

follows: 

§ 201.4 Recordation of transfers and 

certain other documents. 

* * * * * 

(c) * * * 

(4) * * * 

(v) * * * Upon receipt of a corrected 

electronic list in proper form and the 

appropriate fee, the Office will proceed 

to correct the data in the online Public 

Catalog, and will make a note in the 

record indicating that the corrections 

were made and the date they were 

made. 

* * * * * 

Dated: October 30, 2014. 

Maria A. Pallante, 

Register of Copyrights. 

Approved by: 

James H. Billington, 

Librarian of Congress. 

[FR Doc. 2014–27274 Filed 11–17–14; 8:45 am] 

BILLING CODE 1410–30–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: U.S. Copyright Office, Library 

of Congress. 

ACTION: Final rule. 

SUMMARY: The U.S. Copyright Office is 

adopting a final rule that establishes a 

new regulation allowing copyright 

owners to audit the statements of 

account that cable operators and 

satellite carriers file with the Office 

reflecting royalty payments due for 

secondary transmissions of copyrighted 

broadcast programming made pursuant 

to statutory licenses. 

DATES: Effective on December 18, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Jacqueline C. Charlesworth, General 

Counsel and Associate Register of 

Copyrights, by email at jcharlesworth@

loc.gov, or by telephone at 202–707– 

8350; Erik Bertin, Assistant General 

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

by telephone at 202–707–8350; or Sy 

Damle, Special Advisor to the General 

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

by telephone at 202–707–8350. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Sections 111 and 119 of the Copyright 

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

States Code, allow cable operators and 

satellite carriers to retransmit 

programming that broadcast television 

stations transmit via over-the-air 

broadcast signals. To use these statutory 

licenses, cable operators and satellite 

carriers are required to file statements of 

account (‘‘SOAs’’) and deposit royalty 

fees with the U.S. Copyright Office 

(‘‘Office’’) on a semi-annual basis. The 

Office invests these royalties in United 

States Treasury securities pending 

distribution of the funds to copyright 

owners that are entitled to receive a 

share of the royalties. 

The Satellite Television Extension 

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

Pub. L. No. 111–175, amended the Act 

by directing the Register of Copyrights 

to issue regulations to allow copyright 

owners to audit the SOAs and royalty 

fees that cable operators and satellite 

carriers file with the Office. Section 

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

to ‘‘issue regulations to permit 

interested parties to verify and audit the 

statements of account and royalty fees 

submitted by satellite carriers under this 

subsection.’’ 17 U.S.C. 119(b)(2). 

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

Register to ‘‘issue regulations to provide 

for the confidential verification by 

copyright owners whose works were 

embodied in the secondary 

transmissions of primary transmissions 

pursuant to [section 111] of the 

information reported on the semiannual 

statements of account filed under this 

subsection for accounting periods 

beginning on or after January 1, 2010, in 

order that the auditor designated under 

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

confirm the correctness of the 

calculations and royalty payments 

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

On June 14, 2012, the Office issued a 

Notice of Proposed Rulemaking that set 

forth its initial proposal for the audit 

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

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

drafting this proposal the Office 

considered similar audit regulations that 

the Office developed for parties that 

make ephemeral recordings or transmit 

digital sound recordings under 17 

U.S.C. sections 112(e) and 114(f), 

respectively, or manufacture, import, 

and distribute digital audio recording 

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

Office also considered a joint proposal 

(‘‘the Petition for Rulemaking’’) that was 

submitted by the Motion Picture 

Association of America, Inc. (‘‘MPAA’’), 

its member companies, and other 


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1The groups that joined the Program Suppliers in 

submitting the Petition for Rulemaking included the 

Joint Sports Claimants (professional and college 

sports programming), National Association of 

Broadcasters (‘‘NAB’’) (commercial television 

programming), Commercial Television Claimants 

(local commercial television programming), 

Broadcaster Claimants Group (U.S. commercial 

television stations), American Society of 

Composers, Authors and Publishers (‘‘ASCAP’’) 

(musical works included in television 

programming), Broadcast Music, Inc. (‘‘BMI’’) 

(same), Public Television Claimants 

(noncommercial television programming), Public 

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

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

programming), Canadian Claimants Group 

(Canadian television programming), and Devotional 

Claimants (religious television programming). 

2The copyright owners that submitted comments 

on the First Proposed Rule included the Program 

Suppliers, Joint Sports Claimants, Commercial 

Television Claimants, Broadcaster Claimants Group, 

ASCAP, BMI, SESAC, Inc., Public Television 

Claimants, Canadian Claimants Group, Devotional 

Claimants, and NPR. Although the NAB and PBS 

joined their fellow copyright owners in submitting 

the Petition for Rulemaking, they did not submit 

any comments in this proceeding. 

3The National Cable & Telecommunications 

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

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

Proposed Rule on behalf of cable operators. 

4Citations to the comments submitted in 

response to the First Proposed Rule are abbreviated 

‘‘[Name of Party] First Comment.’’ 

5The copyright owners that joined the NCTA and 

DIRECTV in submitting the Joint Stakeholders’ 

proposal included the Program Suppliers, Joint 

Sports Claimants, ASCAP, BMI, SESAC, Public 

Television Claimants, Canadian Claimants Group, 

Devotional Claimants, and NPR. The Commercial 

Television Claimants, the Broadcaster Claimants 

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

copyright owners in submitting this proposal. 

6Citations to the proposals submitted by Joint 

Stakeholders are abbreviated ‘‘JS First Submission’’ 

and ‘‘JS Second Submission’’. 

7Citations to the comments submitted in 

response to the Second Proposed Rule are 

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

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

citations to the copyright owners’ reply comments 

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

included all the copyright owners listed in footnote 

five except for the Commercial Television 

Claimants, the Broadcaster Claimants Group, the 

NAB, and PBS. 

8 In its Federal Register document dated 

September 17, 2014 the Office erroneously referred 

to the Royalty Review Council by the name of its 

affiliated company, ‘‘Crunch Digital.’’ 79 FR at 

55696. 

9The parties that submitted these 

recommendations are identified in footnote five. 

10Citations to the comments submitted in 

response to the Third Proposed Rule are 

abbreviated ‘‘[Name of Party] Third Comment.’’ All 

of the comments submitted in this proceeding are 

posted on the Office’s Web site at http://

copyright.gov/docs/soaaudit/soa_audit.html. 

11The Final Rule will supersede the Interim Rule 

in its entirety. Until the Final Rule becomes 

effective, copyright owners may use the Interim 

companies that produce and distribute 

movies, series, and specials that are 

broadcast on television (the ‘‘Program 

Suppliers’’), as well as other groups that 

represent copyright owners that share in 

the royalties paid by the cable and 

satellite industries.1

The Office received extensive 

comments on the First Proposed Rule 

from groups representing copyright 

owners,2 cable operators,3 and 

individual companies that retransmit 

broadcast programming under sections 

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

Inc., DIRECTV, LLC, and DISH Network 

L.L.C.4 In lieu of reply comments, 

DIRECTV, the NCTA, and a group 

representing certain copyright owners 5

submitted a joint proposal for revising 

the First Proposed Rule. This group 

referred to themselves collectively as 

the ‘‘Joint Stakeholders,’’ and they urged 

the Office to incorporate their 

suggestions ‘‘as promptly as possible 

after receiving any further public 

comment.’’ JS First Submission at 1.6

The Office carefully studied the Joint 

Stakeholders’ proposal and the other 

comments submitted in response to the 

First Proposed Rule. The Joint 

Stakeholders’ proposal addressed many 

of the concerns that the parties raised in 

their initial comments. The Office 

therefore incorporated most of the Joint 

Stakeholders’ suggestions into a revised 

proposed regulation (the ‘‘Second 

Proposed Rule’’). 

On May 9, 2013, the Office published 

the Second Proposed Rule in the 

Federal Register and invited AT&T, 

DISH, the ACA, the Broadcaster 

Claimants Group, the Commercial 

Television Claimants, and other 

interested parties to comment on the 

proposed regulation. The Office also 

invited reply comments from the Joint 

Stakeholders and other interested 

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

2013). The Office received comments 

from AT&T and the ACA, and it 

received reply comments from the ACA, 

the NCTA, and a group representing the 

copyright owners that negotiated the 

Joint Stakeholders’ Proposal with the 

NCTA and DIRECTV.7 The parties 

raised a number of complex issues, 

including issues of first impression that 

were not addressed in the comments or 

reply comments submitted in response 

to the First Proposed Rule. 

On December 26, 2013, the Office 

issued an interim rule that addresses a 

procedural issue that was not contested 

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

Specifically, the Interim Rule allows 

copyright owners to identify any SOAs 

from accounting periods beginning on 

or after January 1, 2010 that they intend 

to audit. At the same time, it provides 

licensees with advance notice of the 

SOAs that will be subject to audit when 

this final rule goes into effect. See 78 FR 

28257 (Dec. 26, 2013). 

After analyzing the comments 

submitted in response to the Second 

Proposed Rule, the Office identified a 

number of issues that were not 

addressed in the prior proposals. 

Because the Office believed these issues 

might be narrowed through group 

discussion, it decided to convene a 

public roundtable before issuing another 

notice of proposed rulemaking. See 79 

FR 31992 (June 3, 2014). During the 

roundtable the Office received valuable 

input from parties that previously 

submitted comments in this proceeding, 

including the MPAA, the Commissioner 

of Baseball, the NCTA, the ACA, and 

DIRECTV. The Office also received 

guidance from the Royalty Review 

Council (‘‘RRC’’),8 a company that 

conducts audits on behalf of content 

owners and licensees in the music 

industry. 

The issues discussed at the 

roundtable are summarized in the 

Office’s Federal Register document 

dated June 3, 2014 (the ‘‘Roundtable 

Notice’’). 79 FR 31992. Following the 

roundtable, the Joint Stakeholders 

consulted with each other regarding 

three of these issues, namely: (i) 

Whether there should be an initial 

consultation between the auditor and a 

representative of the licensee and the 

participating copyright owners prior to 

the commencement of an audit; (ii) the 

accounting standard that should govern 

the audit; and (iii) the procedure for 

allocating the cost of an audit between 

the participating copyright owners and 

the licensee. On July 31, 2014, the Joint 

Stakeholders informed the Office that 

they had reached a consensus on two of 

these issues and they offered specific 

recommendations for modifying certain 

aspects of the proposed rule.9 JS Second 

Submission at 1–2. 

After reviewing the comments and 

reply comments submitted in response 

to the Second Proposed Rule, the input 

provided during the roundtable, and the 

Joint Stakeholders’ Second Submission, 

the Office made several changes to the 

proposed rule (the ‘‘Third Proposed 

Rule’’). On September 17, 2014, the 

Office published the Third Proposed 

Rule in the Federal Register and invited 

interested parties to comment on the 

revised proposal. 79 FR 55696. The 

Office received comments from the 

Program Suppliers and the NCTA on 

four aspects of the proposed rule, which 

are discussed in section II below.10 After 

reviewing these comments the Office 

has made modest changes to the 

proposal (discussed below) that are 

incorporated into the final rule (the 

‘‘Final Rule’’). In addition, the Office 

has made minor technical amendments 

to the Final Rule that are summarized in 

footnotes 11, 13–15, and 17–21.11


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Federal Register / Vol. 79, No. 222 / Tuesday, November 18, 2014 / Rules and Regulations 68625 

Rule to preserve their right to audit any SOA that 

was filed with the Office for accounting periods 

2010–2 through 2014–1. (As of November 7, 2014 

the Office has not received any notices filed 

pursuant to the Interim Rule.) The Final Rule 

clarifies that ‘‘[i]f the Office has received a notice 

of intent to audit prior to the effective date of this 

[rule],’’ it will publish a notice in the Federal 

Register within thirty days thereafter as 

contemplated by the Interim Rule, although the 

audit itself will be conducted in accordance with 

the Final Rule. 

12Specifically, the Program Suppliers contend 

that the availability of negotiated settlements will 

encourage copyright owners to conduct a costbenefit analysis when deciding whether to opt in 

or opt out of an audit. PS Third Comment at 3–4. 

If the possibility of obtaining a share of the 

additional royalties from the licensee outweighs the 

cost of participating in the audit, a copyright owner 

might decide to opt in; but if the certainty of 

avoiding those costs outweighs the risk of not 

receiving a share of the additional royalties, that 

party might decide to opt out. See id. 

13The auditor will review the statements that the 

licensee filed with the Office and the royalty 

payments reported therein, but the auditor will not 

audit the actual payments that the licensee 

deposited with the Office. To clarify this point, the 

Office removed the term ‘‘royalty fee payments’’ 

from the heading and paragraph (a) of the Final 

Rule. 

14 In addition, the statute directs the Office to 

issue regulations that ‘‘require a consultation period 

for the independent auditor to review its 

conclusions with a designee of the [licensee].’’ 17 

U.S.C. 111(d)(6)(C)(i). Under the Third Proposed 

Rule the auditor would be required to consult with 

Continued 

II. Discussion 

A. Accounting Standard 

In the Second Proposed Rule the 

Office proposed that audits be 

conducted according to generally 

accepted auditing standards (‘‘GAAS’’), 

but in the Roundtable Notice the Office 

questioned whether this would be an 

appropriate standard. 78 FR at 27151; 79 

FR at 31994. At the roundtable RRC 

confirmed that accountants apply GAAS 

when auditing corporate financial 

statements, but indicated that those 

standards are not directly relevant to the 

type of audit contemplated by this rule. 

In RRC’s view, the auditor should not be 

required to apply a particular standard 

under the proposed rule; instead the 

parties should be encouraged to discuss 

this issue during an initial consultation 

about the conduct of the audit. 79 FR at 

55701. For their part, the Joint 

Stakeholders were unable to reach 

agreement (either at the roundtable or in 

their written submissions) on what 

standard, if any, should be specified in 

lieu of GAAS. JS Second Submission at 

1. 

Given the lack of consensus on this 

issue, the Office decided to eliminate 

the provision that would require the 

auditor to apply a particular audit 

standard; instead, the Third Proposed 

Rule would allow the parties to review 

the ‘‘methodology’’ for the audit during 

the initial consultation. 79 FR at 55701. 

The Office also indicated that it had 

reached a final decision on this issue. 

Id. at 55697 n.11. 

The NCTA urges the Office to 

reconsider its decision. NCTA Third 

Comment at 2. It notes that other 

regulations adopted by the Office 

contain express provisions directing 

auditors and accountants to apply 

GAAS or the attestation standards 

established by the American Institute of 

Certified Public Accountants 

(‘‘AICPA’’). Id. at 2 & n.5 (citing 37 CFR 

210.17(f)(2)(i)(A) (attestation), 201.30(e) 

(GAAS); 260.6(e) (GAAS), 261.7(e) 

(GAAS), 262.7(e) (GAAS)). The NCTA 

worries that the failure to designate an 

appropriate standard for audits 

involving cable operators and satellite 

carriers could complicate and delay the 

verification process. See id. at 2–3. 

Instead, the NCTA suggests that the 

auditor should be required to apply the 

AICPA’s attestation standard as the 

‘‘default’’ rule, but the parties should be 

allowed to modify that standard by 

mutual agreement. Id. at 2. The NCTA 

states that this ‘‘will provide the 

participants in the audit with helpful 

certainty’’ while giving them ‘‘the 

flexibility to adjust the standard if that 

would better serve the[ir] mutual 

interests.’’ Id. at 3. 

The Office has considered the NCTA’s 

concerns, but concludes that it is 

unnecessary to specify a particular 

standard that should be applied in 

conducting audits under this Final Rule. 

Neither the NCTA nor any of the other 

parties provides any basis on which the 

Office can select a particular auditing 

standard that should govern these 

proceedings. Therefore, the Office is in 

no position to determine whether GAAS 

or attestation standards should be 

specified in the Final Rule (either as a 

mandatory requirement or as a default 

rule that would be subject to 

modification by the parties if they so 

agree). Instead, consistent with the 

recommendation of RRC (an 

experienced auditor) the Final Rule 

gives the auditor the flexibility to apply 

a standard of review that—in his or her 

professional judgment—would be most 

appropriate for this type of audit. To 

ensure that the standard is made clear 

to the licensee, the Final Rule requires 

the parties to address the applicable 

auditing standard during the initial 

consultation. 

B. Supplementary Royalty Payments 

The Third Proposed Rule specified 

that a licensee could cure 

underpayments identified in the 

auditor’s final report by depositing 

additional royalties with the Office. 

Paying additional royalties directly to 

the participating copyright owners 

pursuant to a negotiated settlement 

would not satisfy this requirement 

because, as the Office explained, this 

would unfairly prevent nonparticipating copyright owners from 

claiming an appropriate share of those 

payments. 79 FR at 55704. 

The Program Suppliers object to the 

requirement that additional royalties be 

paid to the Office, contending that it 

will discourage negotiated settlements. 

PS Third Comment at 3. The Program 

Suppliers urge that such settlements 

offer ‘‘a fair and valuable means’’ for 

copyright owners and licensees to 

resolve their differences, and that the 

Third Proposed Rule will discourage 

such settlements from taking place. Id. 

at 1–3. They also contend that the Third 

Proposed Rule will create a free rider 

problem. See id. at 3. Copyright owners 

that decline to participate in the audit 

process will be entitled to claim a share 

of any additional royalties that are 

deposited with the Office as a result of 

the audit, but will not be required to pay 

for the auditor’s services. The Program 

Suppliers assert that this is unfair, 

because the participating copyright 

owners will be forced to pay for the 

audit but will receive only some of the 

resulting benefits. The Program 

Suppliers contend that negotiated 

settlements (i.e., allowing a licensee to 

make supplemental royalty payments 

directly to the participating copyright 

owners instead of depositing them with 

the Office) ‘‘would substantially reduce 

the free rider problem.’’ 12 Id. 

The Office has considered the 

Program Suppliers’ comments but 

declines to incorporate their suggestion 

into the Final Rule. The statute states 

that the auditor should be given the 

‘‘exclusive authority’’ to audit an SOA 

and that the auditor should review that 

statement ‘‘on behalf of all copyright 

owners whose works were subject of 

secondary transmissions of primary 

transmissions by the [licensee] (that 

deposited the statement) during the 

accounting period covered by the 

statement.’’ 17 U.S.C. 111(d)(6)(A)(i). 

That is, the auditor should conduct the 

audit on behalf of any party that owns 

a copyrighted work that was embodied 

in a secondary transmission made by 

the licensee, regardless of whether that 

party decides to participate in the audit 

or not.13 See 77 FR at 35647. 

The statute also provides that the 

Office ‘‘shall issue regulations’’ that 

‘‘shall . . . establish a mechanism for 

the [licensee] to remedy any errors 

identified in the auditor’s report and to 

cure any underpayment identified.’’ 14


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68626 Federal Register / Vol. 79, No. 222 / Tuesday, November 18, 2014 / Rules and Regulations 

the licensee ‘‘for no more than thirty days.’’ 79 FR 

at 55710. The Final Rule retains this requirement 

but clarifies that the auditor should consult with 

the licensee ‘‘for up to thirty days’’ since the auditor 

and the licensee may not need this much time in 

some cases. 

15The Third Proposed Rule provided that other 

copyright owners may participate in the audit if 

they provide a written notice to the licensee and the 

party that filed the initial notice with the Office. It 

also provided that this notice should be sent to the 

Office at the address designated for time-sensitive 

requests. The Final Rule corrects this discrepancy 

by clarifying that the written notice should be sent 

to the Office, the licensee, and the party that filed 

the initial notice with the Office, and that notices 

submitted to the Office should be sent to the 

address specified in § 201.1(c)(1) of the regulations. 

16See 77 FR at 35648–49; CO First Comment at 

8–9 (if the ‘‘auditor concludes that a licensee has 

not paid the appropriate royalties for the use of the 

license, the Office should require that a licensee 

who wishes to take advantage of STELA’s safe 

harbor . . . must file a supplemental SOA and 

accompanying payment. . . .’’). 

17The Third Proposed Rule provided that the 

licensee may exercise its right to cure the 

deficiencies identified in the auditor’s report 

provided that the licensee ‘‘reimburses’’ the 

participating copyright owners for any audit costs 

that the licensee is required to pay. See 79 FR at 

55704. The Final Rule retains this requirement, but 

clarifies that the license must have ‘‘reimbursed’’ 

the participating copyright owners. While the 

additional royalties must be deposited with the 

Office, the Final Rule also clarifies that the audit 

costs should be paid to a representative of the 

participating copyright owners. 

18The Third Proposed Rule provided that the 

copyright owners must prepare a written notice 

identifying both the licensee and the statements 

that they intend to audit, and they must file that 

notice with the Office in the month of December. 

The Final Rule retains this requirement but clarifies 

that the notice must be filed ‘‘on or after December 

1st and no later than December 31st.’’ 

17 U.S.C. 111(d)(6)(C)(ii). In other 

words, Congress envisioned a regulatory 

procedure for curing underpayments 

that would be administered by the 

Office. Indeed, remedying an error in an 

SOA and curing any associated 

underpayment necessarily requires 

submission of a corrected statement and 

royalty payment to the Office; a private 

settlement with a specific copyright 

owner could not accomplish that 

objective. Accordingly, in response to 

Congress’s directive, the Office decided 

to use an existing administrative 

procedure that allows a licensee to cure 

underpayments by depositing additional 

royalties with the Office. See 77 FR at 

35648. The Program Suppliers correctly 

note that any copyright owner would be 

allowed to claim an appropriate share of 

any additional royalties that are 

deposited with the Office as a result of 

this process, even if that party did not 

participate in the audit or pay for the 

auditor’s services.15 See id. at 35649; PS 

Third Comment at 2 (noting that section 

111(d)(4) of the Copyright Act ‘‘entitles 

eligible [copyright] owners to share in 

all royalties contained in any year’s 

fund, no matter how [those funds were] 

collected (e.g., additional royalties 

collected due to the Licensing Division’s 

SOA examination)’’). 

Although there is no legislative 

history for STELA, the approach that the 

Office adopted in the Final Rule is 

supported by the House Report for a 

prior version of the legislation. In that 

report, Congress indicated that 

following an audit, the licensee could 

cure any shortfall in royalty payments 

by using the ordinary method for 

correcting statements of account under 

the Office’s regulations, i.e., filing 

amended statements of account and 

supplemental royalty fees with the 

Office: ‘‘The regulations should permit 

a cable operator . . . to amend its 

statement of account and to supplement 

its royalty payments (subject to the 

filing fee and interest requirements 

generally applicable to late, corrected, 

or supplemental statements of account 

and royalty fees) to conform with the 

auditor’s findings.’’ H.R. Rep. No. 111– 

319, at 10 (2009). 

The Program Suppliers consistently 

supported this approach throughout this 

proceeding. In their Petition for 

Rulemaking, the Program Suppliers and 

their fellow copyright owners 

encouraged the Office to establish a 

procedure that would allow a licensee 

to ‘‘cure any underpayment identified 

[in the auditor’s report] (subject to the 

filing fee and interest requirements 

generally applicable to late, corrected, 

or supplemental Statements of Account 

and royalty fees).’’ Petition for 

Rulemaking, Ex. A, ¶ 9(iii), Ex. B. 

¶ 9(iii). In other words, the Program 

Suppliers believed that licensees should 

be given an opportunity to cure an 

underpayment by submitting additional 

royalties to the Office (as opposed to 

paying them directly to the participating 

copyright owners). The Office included 

similar language in its First Proposed 

Rule and the Program Suppliers and 

their fellow copyright owners supported 

that proposal in their first round of 

comments.16

Likewise, in the Joint Stakeholders’ 

First Submission, the Program Suppliers 

and their fellow copyright owners urged 

the Office to adopt a procedure that 

would allow a licensee to cure an 

‘‘underpayment by filing with the Office 

an amendment to the Statement of 

Account and supplemental royalty fee 

payments utilizing the procedures set 

forth in sections 201.11(h) or 

201.17(m)’’ of the Office’s regulations. 

JS First Submission at 8. Once again, the 

Office incorporated that suggestion in 

both the Second and Third Proposed 

Rules. See 78 FR at 27144–45; 79 FR at 

55704. 

Contrary to the Program Suppliers’ 

contention, the approach that the Office 

adopted in the Third Proposed Rule and 

the Final Rule does not ‘‘discourage’’ or 

‘‘preclude negotiated settlements’’ 

between the participating copyright 

owners and the licensee. PS Third 

Comment at 1. The parties would still 

be able to discuss and agree to the 

amount of any additional royalties due 

from the licensee—presumably using 

the auditor’s conclusions and the 

licensee’s written rebuttal as reference 

points. If the parties reached a mutually 

acceptable agreement, the Final Rule 

would then require the licensee to 

deposit any additional payments with 

the Office for the benefit of all copyright 

owners.17 Notably, the Program 

Suppliers acknowledge that ‘‘direct 

deposit with the Copyright Office, [will] 

provide a valuable mechanism for 

avoiding infringement litigation related 

to royalty underpayment, thus 

furthering the object of the audit rights 

process.’’ Id. at 4. 

Even if the Final Rule might benefit 

some ‘‘free riders,’’ the Program 

Suppliers do not suggest that this would 

dissuade all copyright owners from 

using the audit procedure. In fact, the 

participating copyright owners enjoy a 

number of benefits that are not available 

to copyright owners that do not elect to 

join the proceeding. As the Program 

Suppliers note, copyright owners that 

decline to participate ‘‘have no control 

over or interaction with the auditor.’’ 

See id. at 2. Nor are they entitled to 

receive a copy of the audit report, which 

could make it more difficult to take 

action if the licensee fails to cure any 

underpayments. 

By contrast, the participating 

copyright owners can direct the audit 

process by selecting the licensee and the 

statements that are subject to audit,18

nominating the auditor who will review 

the licensee’s records, and identifying 

issues or irregularities that the auditor 

should consider in his or her review. At 

the beginning of the audit, the 

participating copyright owners will 

receive a list of the broadcast signals 

that the licensee transmitted during the 

accounting periods that are subject to 

the audit, including the call sign for 

each broadcast signal and each 

multicast signal (as well as the 

classification of each signal on a 

community-by-community basis in an 

audit involving a cable system). See 79 

FR at 55700. As the Program Suppliers 

and their fellow copyright owners noted 

in their second round of comments, this 

‘‘provides tangible benefits’’ for the 

participating copyright owners by 

helping them to determine whether the 


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19For example, if the auditor discovered a net 

aggregate underpayment of more than 5% in an 

audit involving a multiple system operator 

(‘‘MSO’’), the copyright owners would be entitled 

to audit a larger sample of the cable systems owned 

by that entity. The Final Rule preserves this option 

but clarifies that the copyright owners must 

conduct a ‘‘new’’ initial audit and must notify the 

Office their intent to conduct ‘‘such’’ an audit. 

20To protect the licensee’s interests both during 

the audit and after it has been completed, the Final 

Rule clarifies that the parties shall protect the 

confidentiality of any non-public financial or 

business information pertaining to an SOA that ‘‘is 

the subject of an audit.’’ 

licensee has correctly classified the 

carriage of each signal. See CO Second 

Reply at 9, 10. 

At the conclusion of the audit, the 

participating copyright owners will 

receive a copy of the auditor’s final 

report. Thus, they will have the benefit 

of the auditor’s findings and analysis, as 

well as the information that the auditor 

cites in support of his or her 

conclusions. Presumably, the 

participating copyright owners could 

use this information to identify similar 

irregularities in the licensee’s other 

statements that may warrant further 

review—either through an audit 

process, a negotiated settlement, or 

appropriate legal action.19 By contrast, 

the non-participating copyright owners 

would not be privy to this information, 

and would be foreclosed from initiating 

a separate audit with respect to the 

SOAs analyzed in the final report. See 

77 FR at 35649; PS Third Comment at 

3. 

C. Conclusion of the Audit 

Under the Third Proposed Rule, a 

representative of the participating 

copyright owners would be required to 

notify the Office if the auditor 

discovered an underpayment or 

overpayment on any of the statements 

that were reviewed during the audit 

(although the amounts specified in the 

auditor’s report would not have to be 

disclosed). The NCTA suggests that it 

would be more efficient for the auditor 

to inform the Office that the audit has 

been completed. NCTA Third Comment 

at 4. The Office agrees with the NCTA’s 

suggestion and has incorporated it into 

the Final Rule. 

The NCTA also states that there is no 

need for the auditor to share his 

findings with the Office. It contends that 

the auditor should file ‘‘a simple 

declaration’’ confirming that the audit 

‘‘has been timely completed,’’ but the 

auditor should not disclose whether he 

or she discovered an underpayment or 

overpayment on any of the statements 

that were reviewed. Id. The NCTA 

correctly notes that any document filed 

with the Office would become a public 

record, which means that the 

notification would be available to other 

copyright owners even if they declined 

to participate in the audit. See id. The 

NCTA states that there is no need to 

share this information with nonparticipating copyright owners, because 

the auditor would provide a final report 

to the participating copyright owner 

(including the specific amount of any 

overpayment or underpayment that the 

auditor discovered). Id. 

The Office did not include this 

suggestion in the Final Rule, because 

there are legitimate reasons for notifying 

the Office when the auditor discovers an 

overpayment or an underpayment and 

for making that information available to 

the public. Providing this information to 

the Office will alert both the Office and 

the copyright owners that did not 

participate in the audit of the possibility 

that additional royalty payments or 

refunds may be forthcoming, thus 

serving the interests of administrative 

efficiency. When the Office receives a 

notice of intent to audit a particular 

SOA, the Office can hold certain 

royalties to ensure that funds are 

available in the event that the licensee 

subsequently requests a refund. See 78 

FR at 27146. If the auditor informs the 

Office that he or she found an 

overpayment on a particular statement, 

the Office can anticipate a potential 

refund request from the licensee. If the 

licensee fails to request a refund within 

the time allowed, the Office can release 

those funds. Conversely, if the auditor 

informs the Office that he or she found 

an underpayment on a particular 

statement, the Office will know that it 

may receive additional royalty deposits 

from the licensee. 

The NCTA did not explain why this 

type of information should be withheld 

from the non-participating copyright 

owners and the Office can see no 

legitimate reason for keeping this 

information from the public. As 

discussed in section II.B, any party that 

owns the copyright in a work that was 

embodied in a secondary transmission 

made by a licensee that was subject to 

an audit is entitled to an appropriate 

share of additional royalties paid to the 

Office by that licensee—regardless of 

whether that party decided to 

participate in the audit. Thus, nonparticipating copyright owners have a 

legitimate reason to know if a licensee 

overpaid or underpaid royalties (or paid 

the correct amount due). 

Moreover, if the auditor discovers an 

underpayment and the licensee fails to 

deposit additional royalties with the 

Office, the non-participating copyright 

owners should be given an opportunity 

to consider how to protect their 

interests. The fact that the auditor 

discovered an underpayment may 

suggest that there could be similar 

problems with the licensee’s other 

statements. In such cases, nonparticipating copyright owners may be 

inclined to conduct their own review of 

additional statements (although as 

discussed in section II.B they would not 

have the benefit of the information and 

analysis set forth in the auditor’s final 

report). They also may be inclined to 

participate in future audits involving 

that licensee. Conversely, if the auditor 

determines that the licensee overpaid or 

paid the correct amount, the nonparticipating copyright owners may be 

inclined to focus their attention 

elsewhere. 

The Final Rule also provides 

safeguards for licensees by protecting 

their confidential information.20 The 

auditor must inform the Office if he or 

she discovers an overpayment or 

underpayment on a particular 

statement, but the auditor is not 

required to submit a copy of the final 

report or disclose the specific amounts 

reported therein. The auditor must also 

notify the Office if the licensee contests 

the auditor’s findings but need not 

submit a copy of the licensee’s rebuttal. 

This additional information will put 

non-participating copyright owners on 

notice that a licensee disputes the 

auditor’s findings and may decline to 

pay the full amount (or any amount) of 

what the auditor found to be due. But 

because the auditor will not be 

submitting non-public financial or 

business information, such information 

will not be made public. 

D. Retention of Records 

Under the Second Proposed Rule a 

statutory licensee would be required to 

retain any records needed to confirm the 

correctness of the calculations and 

royalty payments reported in an SOA or 

amended SOA for three and a half years 

after the last day of the year that the 

SOA or amendment was filed with the 

Office. None of the parties objected to 

this aspect of the proposal. 

If an SOA or amended SOA is subject 

to an audit, then under the Second 

Proposed Rule, the licensee would be 

required to retain its records concerning 

that statement for another three years 

after the auditor delivered the final 

report to the parties. In an earlier round 

of comments, the NCTA contended that 

this would impose a burden on small 

cable operators as well as MSOs that file 

multiple SOAs in each accounting 

period. NCTA Second Reply at 4. 

Instead, the NCTA suggested that a 

licensee should be required to retain its 


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21The Third Proposed Rule provided that an 

audit of a particular cable system or satellite carrier 

could include no more than two of the statements 

filed by that licensee during ‘‘the previous eight 

accounting periods.’’ 79 FR at 55711. If the auditor 

discovered a net aggregate underpayment of more 

than 5%, the rule provided that the copyright 

owners may expand the audit to include ‘‘all 

previous Statements filed by that [licensee] that 

may be timely noticed for audit.’’ Id. The Final Rule 

maintains this approach, but in the interest of 

consistency it employs similar language in 

paragraphs (m)(2) and (n)(1). 

records for no more than one year after 

the auditor issues his or her final report. 

Id. 

The Office weighed the NCTA’s 

concerns when it drafted the Third 

Proposed Rule, but concluded that a 

three-year retention period would be 

more appropriate, because it would 

ensure that the licensee does not discard 

its records before the three-year statute 

of limitations may expire. 79 FR at 

55708. The Office also stated that it had 

reached a final decision on this issue. 

Id. at 55697 n.11. 

In this third round of comments, the 

NCTA again urges the Office to 

reconsider its decision. NCTA Third 

Comment at 3. The NCTA notes that the 

Third Proposed Rule would require the 

auditor to complete his or her review 

within less than a year, and notes that 

the Office cited the ‘‘administrative 

burdens associated with retaining 

records for extended periods’’ as one of 

the reasons for this requirement. Id.; see 

also 79 FR at 55699. To reduce these 

burdens even further, the NCTA 

reiterates that licensees should be 

required to retain their records for no 

more than one year after the completion 

of the audit. NCTA Third Comment at 

3. It also contends that the Office should 

give more weight to the fact that the 

Joint Stakeholders mutually agreed that 

a one-year retention period would be 

sufficient to protect their respective 

interests. Id. at 4. 

The Office has considered the NCTA’s 

renewed concerns, and has again 

concluded that a licensee should retain 

its records for three years after the 

auditor issues his or her final report. 

There is a significant difference between 

the burdens associated with maintaining 

records relating to all of the statements 

that a licensee has filed with the Office, 

and the burdens associated with 

maintaining records relating to a 

statement that has been subject to an 

audit. The Final Rule limits the number 

of statements that may be reviewed in 

an audit (ordinarily two SOAs 21), which 

in turn limits the number of records that 

a particular licensee must retain when 

the auditor issues his or her final report. 

Many licensees collect, report, and 

maintain their records in electronic 

form, which also mitigates the burden. 

Moreover, the licensee is only required 

to keep such records as are ‘‘necessary 

to confirm the correctness of the 

calculations and royalty payments 

reported’’ in those SOAs (emphasis 

added). 

List of Subjects in 37 CFR Part 201 

Copyright, General provisions. 

Final Regulations 

For the reasons set forth in the 

preamble, the U.S. Copyright Office 

amends 37 CFR part 201, as follows: 

PART 201—GENERAL PROVISIONS 

■ 1. Revise the authority citation for part 

201 to read as follows: 

Authority: 17 U.S.C. 702. 

■ 2. Revise § 201.16 to read as follows: 

§ 201.16 Verification of a Statement of 

Account for secondary transmissions made 

by cable systems and satellite carriers. 

(a) General. This section prescribes 

procedures pertaining to the verification 

of a Statement of Account filed with the 

Copyright Office pursuant to sections 

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

United States Code. 

(b) Definitions. As used in this 

section: 

(1) The term cable system has the 

meaning set forth in § 201.17(b)(2). 

(2) Copyright owner means any person 

or entity that owns the copyright in a 

work embodied in a secondary 

transmission made by a statutory 

licensee that filed a Statement of 

Account with the Copyright Office for 

an accounting period beginning on or 

after January 1, 2010, or a designated 

agent or representative of such person or 

entity. 

(3) Multiple system operator or MSO 

means an entity that owns, controls, or 

operates more than one cable system. 

(4) Net aggregate underpayment 

means the aggregate amount of 

underpayments found by the auditor 

less the aggregate amount of any 

overpayments found by the auditor, as 

measured against the total amount of 

royalties reflected on the Statements of 

Account examined by the auditor. 

(5) Participating copyright owner 

means a copyright owner that filed a 

notice of intent to audit a Statement of 

Account pursuant to paragraph (c)(1) or 

(2) of this section and any other 

copyright owner that has given notice of 

its intent to participate in such audit 

pursuant to paragraph (c)(3) of this 

section. 

(6) The term satellite carrier has the 

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

(7) The term secondary transmission 

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

111(f)(2). 

(8) Statement of Account or Statement 

means a semiannual Statement of 

Account filed with the Copyright Office 

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

an amended Statement of Account filed 

with the Office pursuant to §§ 201.11(h) 

or 201.17(m). 

(9) Statutory licensee or licensee 

means a cable system or satellite carrier 

that filed a Statement of Account with 

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

119(b)(1). 

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

copyright owner that intends to audit a 

Statement of Account for an accounting 

period beginning on or after January 1, 

2010 must provide written notice to the 

Register of Copyrights no later than 

three years after the last day of the year 

in which the Statement was filed with 

the Office. The notice must be received 

in the Office on or after December 1st 

and no later than December 31st, and a 

copy of the notice must be provided to 

the statutory licensee on the same day 

that it is filed with the Office. Between 

January 1st and January 31st of the next 

calendar year the Office will publish a 

notice in the Federal Register 

announcing the receipt of the notice of 

intent to audit. A notice of intent to 

audit may be filed by an individual 

copyright owner or a designated agent 

that represents a group or multiple 

groups of copyright owners. The notice 

shall include a statement indicating that 

it is a ‘‘notice of intent to audit’’ and it 

shall contain the following information: 

(i) It shall identify the licensee that 

filed the Statement(s) with the Office, 

and the Statement(s) and accounting 

period(s) that will be subject to the 

audit. 

(ii) It shall identify the party that filed 

the notice, including its name, address, 

telephone number, and email address, 

and it shall include a statement that the 

party owns or represents one or more 

copyright owners that own a work that 

was embodied in a secondary 

transmission made by the statutory 

licensee during one or more of the 

accounting period(s) specified in the 

Statement(s) that will be subject to the 

audit. 

(2) Notwithstanding the schedule set 

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

any copyright owner that intends to 

audit a Statement of Account pursuant 

to an expanded audit under paragraph 

(n) of this section may provide written 

notice of such to the Register of 

Copyrights during any month, but no 

later than three years after the last day 

of the year in which the Statement was 

filed with the Office. A copy of the 


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notice must be provided to the licensee 

on the same day that the notice is filed 

with the Office. Within thirty days after 

the notice has been received, the Office 

will publish a notice in the Federal 

Register announcing the receipt of the 

notice of intent to conduct an expanded 

audit. A notice given pursuant to this 

paragraph may be provided by an 

individual copyright owner or a 

designated agent that represents a group 

or multiple groups of copyright owners. 

The notice shall include a statement 

indicating that it is a ‘‘notice of intent 

to conduct an expanded audit’’ and it 

shall contain the information specified 

in paragraphs (c)(1)(i) and (ii) of this 

section. 

(3) Within thirty days after a notice is 

published in the Federal Register 

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

this section, any other copyright owner 

that owns a work that was embodied in 

a secondary transmission made by that 

statutory licensee during an accounting 

period covered by the Statement(s) of 

Account referenced in the Federal 

Register notice and that wishes to 

participate in the audit of such 

Statement(s) must provide written 

notice of such participation to the 

Copyright Office as well as to the 

licensee and party that filed the notice 

of intent to audit. A notice given 

pursuant to this paragraph may be 

provided by an individual copyright 

owner or a designated agent that 

represents a group or multiple groups of 

copyright owners, and shall include the 

information specified in paragraphs 

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

(4) Notices submitted to the Office 

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

this section should be addressed to the 

‘‘U.S. Copyright Office, Office of the 

General Counsel’’ and should be sent to 

the address for time-sensitive requests 

set forth in § 201.1(c)(1). 

(5) Once the Office has received a 

notice of intent to audit a Statement of 

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

of this section, a notice of intent to audit 

that same Statement will not be 

accepted for publication in the Federal 

Register. 

(6) Once the Office has received a 

notice of intent to audit two Statements 

of Account filed by a particular satellite 

carrier or a particular cable system, a 

notice of intent to audit that same 

carrier or that same system under 

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

be accepted for publication in the 

Federal Register until the following 

calendar year. 

(7) If the Office has received a notice 

of intent to audit prior to the effective 

date of this section, the Office will 

publish a notice in the Federal Register 

within thirty days thereafter announcing 

the receipt of the notice of intent to 

audit. In such a case, the audit shall be 

conducted using the procedures set 

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

section, with the following exceptions: 

(i) The participating copyright owners 

shall provide the statutory licensee with 

a list of three independent and qualified 

auditors pursuant to paragraph (d)(1) by 

March 16, 2015. 

(ii) The auditor shall deliver his or her 

final report to the participating 

copyright owners and the licensee 

pursuant to paragraph (i)(3) of this 

section by November 1, 2015. 

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

forty-five days after a notice is 

published in the Federal Register 

pursuant to paragraph (c)(1) of this 

section, the participating copyright 

owners shall provide the statutory 

licensee with a list of three independent 

and qualified auditors, along with 

information reasonably sufficient for the 

licensee to evaluate the proposed 

auditors’ independence and 

qualifications, including: 

(i) The auditor’s curriculum vitae and 

a list of audits that the auditor has 

conducted pursuant to 17 U.S.C. 

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

(ii) A list and, subject to any 

confidentiality or other legal 

restrictions, a brief description of any 

other work the auditor has performed 

for any of the participating copyright 

owners during the prior two calendar 

years; 

(iii) A list identifying the participating 

copyright owners for whom the 

auditor’s firm has been engaged during 

the prior two calendar years; and, 

(iv) A copy of the engagement letter 

that would govern the auditor’s 

performance of the audit and that 

provides for the auditor to be 

compensated on a non-contingent flat 

fee or hourly basis that does not take 

into account the results of the audit. 

(2) Within five business days after 

receiving the list of auditors from the 

participating copyright owners, the 

licensee shall select one of the proposed 

auditors and shall notify the 

participating copyright owners of its 

selection. That auditor shall be retained 

by the participating copyright owners 

and shall conduct the audit on behalf of 

all copyright owners who own a work 

that was embodied in a secondary 

transmission made by the licensee 

during the accounting period(s) 

specified in the Statement(s) of Account 

identified in the notice of intent to 

audit. 

(3) The auditor shall be independent 

and qualified as defined in this section. 

An auditor shall be considered 

independent and qualified if: 

(i) He or she is a certified public 

accountant and a member in good 

standing with the American Institute of 

Certified Public Accountants (‘‘AICPA’’) 

and the licensing authority for the 

jurisdiction(s) where the auditor is 

licensed to practice; 

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

other than the audit, an officer, 

employee, or agent of any participating 

copyright owner; 

(iii) He or she is independent as that 

term is used in the Code of Professional 

Conduct of the AICPA, including the 

Principles, Rules, and Interpretations of 

such Code; and 

(iv) He or she is independent as that 

term is used in the Statements on 

Auditing Standards promulgated by the 

Auditing Standards Board of the AICPA 

and Interpretations thereof issued by the 

Auditing Standards Division of the 

AICPA. 

(e) Commencement of the audit. (1) 

Within ten days after the selection of the 

auditor, the auditor shall meet by 

telephone or in person with designated 

representatives of the participating 

copyright owners and the statutory 

licensee to review the scope of the 

audit, audit methodology, applicable 

auditing standard, and schedule for 

conducting and completing the audit. 

(2) Within thirty days after the 

selection of the auditor, the licensee 

shall provide the auditor and a 

representative of the participating 

copyright owners with a list of all 

broadcast signals retransmitted pursuant 

to the statutory license in each 

community covered by each of the 

Statements of Account subject to the 

audit, including the call sign for each 

broadcast signal and each multicast 

signal. In the case of an audit involving 

a cable system or MSO, the list must 

include the classification of each signal 

on a community-by-community basis 

pursuant to § 201.17(e)(9)(iv) through (v) 

and 201.17(h). The list shall be signed 

by a duly authorized agent of the 

licensee and the signature shall be 

accompanied by the following statement 

‘‘I, the undersigned agent of the 

statutory licensee, hereby declare under 

penalty of law that all statements of fact 

contained herein are true, complete, and 

correct to the best of my knowledge, 

information, and belief, and are made in 

good faith.’’ 

(f) Failure to proceed with a noticed 

audit. If the participating copyright 

owners fail to provide the statutory 

licensee with a list of auditors or fail to 

retain the auditor selected by the 

licensee pursuant to paragraph (d)(2) of 

this section, the Statement(s) of Account 


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68630 Federal Register / Vol. 79, No. 222 / Tuesday, November 18, 2014 / Rules and Regulations 

identified in the notice of intent to audit 

shall not be subject to audit under this 

section. 

(g) Ex parte communications. 

Following the initial consultation 

pursuant to paragraph (e)(1) of this 

section and until the distribution of the 

auditor’s final report to the participating 

copyright owners pursuant to paragraph 

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

parte communications regarding the 

audit between the auditor and the 

participating copyright owners or their 

representatives; provided, however, that 

the auditor may engage in such ex parte 

communications where either: 

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

section, the auditor has a reasonable 

basis to suspect fraud and that 

participation by the licensee in 

communications regarding the 

suspected fraud would, in the 

reasonable opinion of the auditor, 

prejudice the investigation of such 

suspected fraud; or 

(2) The auditor provides the licensee 

with a reasonable opportunity to 

participate in communications with the 

participating copyright owners or their 

representatives and the licensee 

declines to do so. 

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

The auditor shall have exclusive 

authority to verify all of the information 

reported on the Statement(s) of Account 

subject to the audit in order to confirm 

the correctness of the calculations and 

royalty payments reported therein; 

provided, however, that the auditor 

shall not determine whether any cable 

system properly classified any broadcast 

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

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

satellite carrier properly determined 

that any subscriber or group of 

subscribers is eligible to receive any 

broadcast signals under 17 U.S.C. 

119(a). 

(2) The statutory licensee shall 

provide the auditor with reasonable 

access to the licensee’s books and 

records and any other information that 

the auditor needs in order to conduct 

the audit. The licensee shall provide the 

auditor with any information the 

auditor reasonably requests promptly 

after receiving such a request. 

(3) The audit shall be conducted 

during regular business hours at a 

location designated by the licensee with 

consideration given to minimizing the 

costs and burdens associated with the 

audit. If the auditor and the licensee 

agree, the audit may be conducted in 

whole or in part by means of electronic 

communication. 

(4) With the exception of its 

obligations under paragraphs (d) and (e) 

of this section, a licensee may suspend 

its participation in an audit for no more 

than sixty days before the semi-annual 

due dates for filing Statements of 

Account by providing advance written 

notice to the auditor and a 

representative of the participating 

copyright owners, provided however, 

that if the participating copyright 

owners notify the licensee within ten 

days of receiving such notice of their 

good-faith belief that the suspension 

could prevent the auditor from 

delivering his or her final report to the 

participating copyright owners before 

the statute of limitations may expire on 

any claims under the Copyright Act 

related to a Statement of Account 

covered by that audit, the licensee may 

not suspend its participation in the 

audit unless it first executes a tolling 

agreement to extend the statute of 

limitations by a period of time equal to 

the period of the suspension. 

(i) Audit report. (1) After reviewing 

the books, records, and any other 

information received from the statutory 

licensee, the auditor shall prepare a 

draft written report setting forth his or 

her initial conclusions and shall deliver 

a copy of that draft report to the 

licensee. The auditor shall then consult 

with a representative of the licensee 

regarding the conclusions set forth in 

the draft report for up to thirty days. If, 

upon consulting with the licensee, the 

auditor concludes that there are errors 

in the facts or conclusions set forth in 

the draft report, the auditor shall correct 

those errors. 

(2) Within thirty days after the date 

that the auditor delivered the draft 

report to the licensee pursuant to 

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

auditor shall prepare a final version of 

the written report setting forth his or her 

ultimate conclusions and shall deliver a 

copy of that final version to the licensee. 

Within fourteen days thereafter, the 

licensee may provide the auditor with a 

written rebuttal setting forth its good 

faith objections to the facts or 

conclusions set forth in the final version 

of the report. 

(3) Subject to the confidentiality 

provisions set forth in paragraph (l) of 

this section, the auditor shall attach a 

copy of any written rebuttal timely 

received from the licensee to the final 

version of the report and shall deliver a 

copy of the complete final report to the 

participating copyright owners and the 

licensee. The final report must be 

delivered by November 1st of the year 

in which the notice was published in 

the Federal Register pursuant to 

paragraph (c)(1) of this section and 

within five business days after the last 

day on which the licensee may provide 

the auditor with a written rebuttal 

pursuant to paragraph (i)(2) of this 

section. Upon delivery of the complete 

and final report, the auditor shall notify 

the Office that the audit has been 

completed. The notice to the Office 

shall specify the date that the auditor 

delivered the final report to the parties; 

whether, with respect to each statement 

examined, the auditor has discovered 

any underpayment or overpayment; and 

whether the auditor has received a 

written rebuttal from the licensee. The 

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

Copyright Office, Office of the General 

Counsel’’ and should be sent to the 

address for time-sensitive requests 

specified in § 201.1(c)(1). 

(4) Prior to the delivery of the final 

report pursuant to paragraph (i)(3) of 

this section the auditor shall not 

provide any draft of his or her report to 

the participating copyright owners or 

their representatives; provided, 

however, that the auditor may deliver a 

draft report simultaneously to the 

licensee and the participating copyright 

owners if the auditor has a reasonable 

basis to suspect fraud. 

(j) Corrections, supplemental 

payments, and refunds. (1) If the auditor 

concludes in his or her final report that 

any of the information reported on a 

Statement of Account is incorrect or 

incomplete, that the calculation of the 

royalty fee payable for a particular 

accounting period was incorrect, or that 

the amount deposited in the Office for 

that period was too low, a statutory 

licensee may cure such incorrect or 

incomplete information or 

underpayment by filing an amendment 

to the Statement and, in case of a 

deficiency in payment, by depositing 

supplemental royalty fee payments with 

the Office using the procedures set forth 

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

however, that the amendment and/or 

payments are received within sixty days 

after the delivery of the final report to 

the participating copyright owners and 

the licensee or in the case of an audit 

of an MSO, within ninety days after the 

delivery of such report; and further 

provided that the licensee has 

reimbursed the participating copyright 

owners for the licensee’s share of the 

audit costs, if any, determined to be 

owing pursuant to paragraph (k)(3) of 

this section. While reimbursement of 

audit costs shall be paid to a 

representative of the participating 

copyright owners, supplemental royalty 

fee payments made pursuant to this 

paragraph shall be delivered to the 

Office and not to the participating 

copyright owners or their 

representatives. 

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

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


tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 79, No. 222 / Tuesday, November 18, 2014 / Rules and Regulations 68631 

concludes in his or her final report that 

there was an overpayment on a 

particular Statement, the licensee may 

request a refund from the Office using 

the procedures set forth in 

§§ 201.11(h)(3) or 201.17(m)(4), 

provided that the request is received 

within sixty days after the delivery of 

the final report to the participating 

copyright owners and the licensee or 

within ninety days after the delivery of 

the final report in the case of an audit 

of an MSO. 

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

the fifteenth day of each month during 

the course of the audit, the auditor shall 

provide the participating copyright 

owners with an itemized statement of 

the costs incurred by the auditor during 

the previous month, and shall provide 

a copy to the licensee that is the subject 

of the audit. 

(2) If the auditor concludes in his or 

her final report that there was no net 

aggregate underpayment or a net 

aggregate underpayment of five percent 

or less, the participating copyright 

owners shall pay for the full costs of the 

auditor. If the auditor concludes in his 

or her final report that there was a net 

aggregate underpayment of more than 

five percent but less than ten percent, 

the costs of the auditor are to be split 

evenly between the participating 

copyright owners and the licensee that 

is the subject of the audit. If the auditor 

concludes in his or her final report that 

there was a net aggregate underpayment 

of ten percent or more, the licensee will 

be responsible for the full costs of the 

auditor. 

(3) If a licensee is responsible for any 

portion of the costs of the auditor, a 

representative of the participating 

copyright owners shall provide the 

licensee with an itemized accounting of 

the auditor’s total costs, the appropriate 

share of which should be paid by the 

licensee to such representative no later 

than sixty days after the delivery of the 

final report to the participating 

copyright owners and licensee or within 

ninety days after the delivery of such 

report in the case of an audit of an MSO. 

(4) Notwithstanding anything to the 

contrary in paragraph (k) of this section, 

no portion of the auditor’s costs that 

exceed the amount of the net aggregate 

underpayment may be recovered from 

the licensee. 

(l) Confidentiality. (1) For purposes of 

this section, confidential information 

shall include any non-public financial 

or business information pertaining to a 

Statement of Account that is the subject 

of an audit under 17 U.S.C. 111(d)(6) or 

119(b)(2). 

(2) Access to confidential information 

under this section shall be limited to: 

(i) The auditor; and 

(ii) Subject to the execution of a 

reasonable confidentiality agreement, 

outside counsel for the participating 

copyright owners and any third party 

consultants retained by outside counsel, 

and any employees, agents, consultants, 

or independent contractors of the 

auditor who are not employees, officers, 

or agents of a participating copyright 

owner for any purpose other than the 

audit, who are engaged in the audit of 

a Statement or activities directly related 

hereto, and who require access to the 

confidential information for the purpose 

of performing such duties during the 

ordinary course of their employment. 

(3) The auditor and any person 

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

section shall implement procedures to 

safeguard all confidential information 

received from any third party in 

connection with an audit, using a 

reasonable standard of care, but no less 

than the same degree of security used to 

protect confidential financial and 

business information or similarly 

sensitive information belonging to the 

auditor or such person. 

(m) Frequency and scope of the audit. 

(1) Except as provided in paragraph 

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

expanded audits, a cable system, MSO, 

or satellite carrier shall be subject to no 

more than one audit per calendar year. 

(2) Except as provided in paragraph 

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

particular cable system or satellite 

carrier shall include no more than two 

of the Statements of Account filed by 

that cable system or satellite carrier that 

may be timely noticed for audit under 

paragraph (c)(1) of this section. 

(3) Except as provided in paragraph 

(n)(3)(ii) of this section, an audit of an 

MSO shall be limited to a sample of no 

more than ten percent of the MSO’s 

Form 3 cable systems and no more than 

ten percent of the MSO’s Form 2 

systems. 

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

concludes in his or her final report that 

there was a net aggregate underpayment 

of five percent or more on the 

Statements of Account examined in an 

initial audit involving a cable system or 

satellite carrier, a copyright owner may 

expand the audit to include all previous 

Statements filed by that cable system or 

satellite carrier that may be timely 

noticed for audit under paragraph (c)(2) 

of this section. The expanded audit 

shall be conducted using the procedures 

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

this section, with the following 

exceptions: 

(i) The expanded audit may be 

conducted by the same auditor that 

performed the initial audit, provided 

that the participating copyright owners 

provide the licensee with updated 

information reasonably sufficient to 

allow the licensee to determine that 

there has been no material change in the 

auditor’s independence and 

qualifications. In the alternative, the 

expanded audit may be conducted by an 

auditor selected by the licensee using 

the procedure set forth in paragraph (d) 

of this section. 

(ii) The auditor shall deliver his or her 

final report to the participating 

copyright owners and the licensee 

within five business days following the 

last day on which the licensee may 

provide the auditor with a written 

rebuttal pursuant to paragraph (i)(2) of 

this section, but shall not be required to 

deliver the report by November 1st of 

the year in which the notice was 

published in the Federal Register 

pursuant to paragraph (c) of this section. 

(2) An expanded audit of a cable 

system or a satellite carrier that is 

conducted pursuant to paragraph (n)(1) 

of this section may be conducted 

concurrently with another audit 

involving that same licensee. 

(3) If the auditor concludes in his or 

her final report that there was a net 

aggregate underpayment of five percent 

or more on the Statements of Account 

examined in an initial audit involving 

an MSO: 

(i) The cable systems included in the 

initial audit of that MSO shall be subject 

to an expanded audit in accordance 

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

and 

(ii) The MSO shall be subject to a new 

initial audit involving a sample of no 

more than thirty percent of its Form 3 

cable systems and no more than thirty 

percent of its Form 2 cable systems, 

provided that the notice of intent to 

conduct that audit is filed in the same 

calendar year as the delivery of such 

final report. 

(o) Retention of records. For each 

Statement of Account or amended 

Statement that a statutory licensee files 

with the Office for accounting periods 

beginning on or after January 1, 2010, 

the licensee shall maintain all records 

necessary to confirm the correctness of 

the calculations and royalty payments 

reported in each Statement or amended 

Statement for at least three and one-half 

years after the last day of the year in 

which that Statement or amended 

Statement was filed with the Office and, 

in the event that such Statement or 

amended Statement is the subject of an 

audit conducted pursuant to this 

section, shall continue to maintain those 

records until three years after the 

auditor delivers the final report to the 

participating copyright owners and the 


tkelley on DSK3SPTVN1PROD with RULES
68632 Federal Register / Vol. 79, No. 222 / Tuesday, November 18, 2014 / Rules and Regulations 

licensee pursuant to paragraph (i)(3) of 

this section. 

§ 201.17 [Amended] 

■ 3. Amend § 201.17 as follows: 

■ a. In paragraphs (m)(2) introductory 

text and (m)(4)(i) by removing ‘‘(m)(3)’’ 

and adding in its place ‘‘(m)(4)’’. 

■ b. In paragraphs (m)(2)(ii), 

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

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

place ‘‘(m)(2)(iii)’’. 

■ c. In paragraph (m)(4) introductory 

text by removing ‘‘(m)(1)’’ and adding in 

its place ‘‘(m)(2)’’. 

■ d. In paragraph (m)(4)(iii)(A) by 

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

place ‘‘(m)(2)(i)’’. 

■ e. In paragraph (m)(4)(iii)(B) by 

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

place ‘‘(m)(2)(ii)’’. 

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

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

‘‘(m)(4)(i)’’. 

Dated: November 10, 2014. 

Maria A. Pallante, 

Register of Copyrights and Director of the 

U.S. Copyright Office. 

James H. Billington, 

Librarian of Congress. 

[FR Doc. 2014–27277 Filed 11–17–14; 8:45 am] 

BILLING CODE 1410–30–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 54 

[WC Docket No. 13–184; FCC 14–99] 

Modernization of the Schools and 

Libraries ‘‘E-Rate’’ Program 

AGENCY: Federal Communications 

Commission. 

ACTION: Final rule; correction; correcting 

amendments. 

SUMMARY: This document corrects errors 

in the dates section, the supplementary 

information portion, and Final Rules 

section of a Federal Register document 

regarding the Commission taking major 

steps to modernize the E-rate program 

(more formally known as the schools 

and libraries universal service support 

mechanism). Building on the comments 

the Commission received in response to 

the E-rate Modernization NPRM, and 

the E-rate Modernization Public Notice, 

as well as recommendations from the 

Government Accountability Office 

(GAO), the program improvements the 

Commission adopts as part of this 

document begin the process of 

reorienting the E-rate program to focus 

on high-speed broadband for our 

nation’s schools and libraries. The 

document was published in the Federal 

Register on August 19, 2014. 

DATES: The corrections and correcting 

amendments in this rule are effective 

November 18, 2014, except that 

correcting amendments 3 and 5 are 

effective July 1, 2015. 

FOR FURTHER INFORMATION CONTACT: 

James Bachtell or Kate Dumouchel, 

Wireline Competition Bureau, 

Telecommunications Access Policy 

Division, at (202) 418–7400 or TTY: 

(202) 418–0484. 

SUPPLEMENTARY INFORMATION: This 

summary contains corrections to the 

DATES section, the SUPPLEMENTARY

INFORMATION portion, and the Final 

Rules section of a Federal Register 

summary, 79 FR 49160 (August 19, 

2014). The full text of the Commission’s 

Report and Order in WC Docket No. 13– 

184, FCC 14–99 released on July 23, 

2014 is available for public inspection 

during regular business hours in the 

FCC Reference Center, Room CY–A257, 

445 Twelfth Street SW., Washington, DC 

20554. 

Corrections to Final Rule 

In rule FR Doc. 2014–18937 published 

August 19, 2014 (79 FR 49160) make the 

following corrections. 

1. On page 49160, in the first column, 

correct the effective dates in the DATES

section as follows: 

Section Correct . . . To read . . . 

54.503(c) ............................................ Upon announcement of OMB approval of information collection requirements.December 18, 2014. 

54.504(f) ............................................. Upon announcement of OMB approval of information collection requirements.54.504(f)(4)–(5) will become effective July 1, 

2016. 

54.507(d) ............................................ Upon announcement of OMB approval of information collection requirements.December 18, 2014. 

54.507(f) ............................................. July 1, 2015 ................................................................................................... December 18, 2014. 

54.514(a) ............................................ Upon announcement of OMB approval of information collection requirements.December 18, 2014. 

54.516(a)–(c), (d) ............................... July 1, 2015 ................................................................................................... 54.516 is effective on July 

1, 2015, with the exception of paragraphs (a)–(c) 

which are effective upon 

announcement of OMB 

approval of information 

collection requirements. 

54.720(a) ............................................ Upon announcement of OMB approval of information collection requirements.December 18, 2014. 

2. On page 49161, in the second 

column, in paragraph 7, in the last 

sentence add the words ‘‘, we continue 

the Commission’s commitment to 

meeting schools’ and libraries’ 

connectivity needs’’ after the word 

‘‘connections’’. 

3. On page 49168, in the second 

column, in paragraph 66, eleventh line, 

remove the comma after the word 

‘‘services.’’ 

4. On page 49168, in the third 

column, in paragraph 71, twentyseventh line, remove the word 

‘‘supports’’ and add in its place the 

word ‘‘supported.’’ 

5. On page 49169, in the second 

column, in paragraph 74, twenty-third 

line, remove the words ‘‘subsequent five 

funding years’’ and add in their place 

the words ‘‘subsequent four funding 

years.’’ 

6. On page 49169, in the second 

column, in paragraph 76, fifth line, add 

the word ‘‘do’’ after the words ‘‘five-year 

budgets.’’ 

7. On page 49171, in the third 

column, in paragraph 95, third line, 

remove the word ‘‘and’’ and add it its 

place the words ‘‘and/or.’’ 

8. On page 49172, in the first column, 

in paragraph 95, second line, correct the 

first full sentence to read ‘‘In other 


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