[Federal Register Volume 89, Number 4 (Friday, January 5, 2024)]
[Notices]
[Pages 810-812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28515]


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LIBRARY OF CONGRESS

Copyright Royalty Board

[Docket No. 23-CRB-0013-NSR (2026-2030)]


Determination of Rates and Terms for Digital Performance of Sound 
Recordings by New Subscription Services and Making of Ephemeral Copies 
To Facilitate Those Performances (NSS V)

AGENCY: Copyright Royalty Board (CRB), Library of Congress.

ACTION: Notice announcing commencement of proceeding with request for 
petitions to participate.

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SUMMARY: The Copyright Royalty Judges (Judges) announce commencement of 
a proceeding to determine reasonable rates and terms for digital 
performance of sound recordings by new subscription services and the 
making of ephemeral recordings to facilitate those performances for the 
period beginning January 1, 2026, and ending December 31, 2030. The 
Judges also announce the date by which a party wishing to participate 
in the rate determination proceeding must file its Petition to 
Participate and the accompanying $150 filing fee.

DATES: Petitions to Participate and the filing fee are due no later 
than February 5, 2024.

ADDRESSES: The petition to participate form is available online in 
eCRB, the Copyright Royalty Board's online electronic filing 
application, at https://app.crb.gov/.
    Instructions: The petition to participate process has been 
simplified. Interested parties file a petition to participate by 
completing and filing the petition to participate form in eCRB and 
paying the fee in eCRB. Do not upload a petition to participate 
document.
    Docket: For access to the docket, go to eCRB, the Copyright Royalty 
Board's electronic filing and case management system, at https://app.crb.gov/ and search for docket number 23-CRB-00013-NSR (2026-2030).

FOR FURTHER INFORMATION CONTACT: Anita Brown, CRB Program Specialist, 
(202) 707-7658, <a href="/cdn-cgi/l/email-protection#bbd8c9d9fbd7d4d895dcd4cd"><span class="__cf_email__" data-cfemail="b0d3c2d2f0dcdfd39ed7dfc6">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Background

    Under the Copyright Act, the Copyright Royalty Judges (Judges) must 
commence a proceeding every five years to determine reasonable rates 
and terms to license the digital transmission of sound recordings by 
new subscription services and the making of ephemeral recordings to 
facilitate those transmissions. See 17 U.S.C. 112(e), 114(d)(2), 
803(b)(1)(A)(i)(III), 804(b)(3)(A), 37 CFR 383. This notice commences 
the rate determination proceeding for the license period 2026-2030.

Scope of Proceeding

    In addition to all other submissions and arguments required by the 
Act and the applicable regulations, and in addition to any other 
submissions or arguments that the Participants choose to make, there is 
an interest among certain Judges in receiving evidence, testimony, and 
argument relating to the allocation of the royalty payments required by 
the Judges' determination in this proceeding between the section 112 
ephemeral recordings royalties and the section 114 sound recording 
royalties.\1\
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    \1\ Nothing set forth in this section of the Notice of 
Commencement should be construed as a statement by the Judges as to 
how they will ultimately rule as to any evidence or testimony 
proffered with regard to, inter alia, admissibility, competency, 
relevancy, probative value or weight or dispositive effect, as to 
any issue, or whether they will or will not ultimately consider, 
accept, or adopt any argument made in response to this section. 
Additionally, nothing in this section should be construed as an 
indication that the Judges will or will not ultimately consider any 
of the issues set forth herein or addressed by the Participants in 
response to this invitation in any determination rendered by them. 
Further, by soliciting information regarding these issues, the 
Judges are not indicating that they have reached any preliminary 
decisions as to any of these issues.
    Further, to avoid doubt, the interest among the Judges as 
expressed herein does not necessarily relate to any other statutory 
licenses.
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    Accordingly, the Judges invite Participants, within their written 
direct statements, written rebuttal statements, proposed findings of 
fact, conclusions of law and briefing, through their witnesses and 
attorneys, as appropriate, to consider addressing the following 
questions.

Question #1

    Does the ephemeral license created by section 112 have economic 
value independent of any economic value in

[[Page 811]]

the digital public performance of sound recording license (``sound 
recording license'') created by section 114 and, reciprocally, does the 
sound recording license created by section 114 have economic value 
independent of any economic value in the ephemeral license created by 
section 112?
    Regarding this Question #1, the Judges note the following language 
in the Web V Determination:

    SoundExchange and the Services are generally on the same page 
regarding ephemeral recordings, except as to the question whether 
the right to make ephemeral recordings has independent economic 
value. Compare SX PFFCL ] 1570 (and sources cited therein) 
(``ephemeral copies have economic value to services that publicly 
perform sound recordings because these services cannot, as a 
practical matter, properly function without those copies'') with 
Services RPFFCL ] 1570 (and sources cited therein) (``While the 
Services do not dispute that ephemeral recording right is frequently 
needed, it does not have independent economic value.'').

Web V Final Determination, 86 FR 59542, 59584 n. 351 (Oct. 27, 2021), 
aff'd. National Religious Broadcasters Noncommercial License Committee 
v. Copyright Royalty Bd., 77 F.4th 949 (D.C. Cir. 2023) (emphasis 
added).
    Among the Judges, there is an interest in obtaining the 
Participants' positions on this Question #1 in the context of the 
economic characterization of the relationship between the section 112 
ephemeral license and the section 114 sound recording license. In 
particular, the Judges inquire whether the parties identify these two 
licenses as perfect complements.\2\
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    \2\ ``Perfect complements'' are goods that are always consumed 
together in fixed proportions. H. Varian, Intermediate 
Microeconomics at 40 (8th ed. 2010). Thus, a purchaser of perfectly 
complementary goods ``wants to consume the goods in the same ratio 
regardless of their relative price.'' P. Krugman & R. Wells, 
Microeconomics at 306 (3d ed. 2013) (emphasis added). (Each 
noninteractive service or New Subscription Service (``NSS'') 
requires both the section 112 ephemeral license and the section 112 
sound recording license in order to transmit any sound recording, 
thus making the fixed proportion (ratio) equal to 1:1 for these 
licenses.) The irrelevancy of ``relative price'' between these 
perfect complements referenced by Krugman & Wells underscores the 
indeterminacy of the royalties attributable to each license which 
underlies the Judges' present inquiries.
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    The Web V Determination indicates that participants in that 
proceeding were cognizant of the irrelevancy of the ``relative price'' 
(i.e., the royalty) for these two licenses, and thus their perfect 
complementarity:

    As to the specific allocation of royalties between the 
performance and ephemeral recording rights, SoundExchange notes that 
this allocation has no effect on the Services. See SX PFFCL ] 1574. 
. . . ``[T]he willing buyer'' (i.e., the music service) ``is 
disinterested with respect to that allocation . . . .''

Web V Determination, 86 FR 59584 (emphasis added).
    Accordingly, the Judges invite the Participants to address this 
Question #1 in their proffered evidence, testimony, and/or arguments.

Question #2

    Are agreements in the interactive marketplace or other unregulated 
markets informative (and, if so, to what extent) as to the allocation 
of royalties between the section 112 ephemeral license and the section 
114 sound recording license?
    Regarding this Question #2, the Judges are mindful of the absence 
of any statutory requirement in unregulated markets that specifies 
percentages of the sound recording royalties to be distributed to sound 
recording artists, non-featured vocalists and musicians, and (if 
Letters of Direction are issued) to producers, mixers and sound 
engineers.
    In prior proceedings, evidence was proffered regarding such 
agreements. The Judges take note of the following portion of the Web V 
Determination:

    ``Most of these agreements do not set a distinct rate for those 
ephemeral copies, incorporating them instead into the overall rate 
that the [music services] pay[ ] for the combined ephemeral copy 
rights and performance rights.'' Id. at 11-12. Dr. Ford also 
testified that to the extent marketplace agreements do set a royalty 
rate for ephemeral recordings they generally express that rate as a 
percentage of an overall bundled rate for both performances and 
ephemerals. See Ford Des. WDT at 12-14.
    SoundExchange also offers several direct licenses in the record 
of this proceeding as evidence that marketplace agreements do not 
set distinct rates (as distinguished from bundled rates) for 
ephemeral recordings. See, e.g., Trial Ex. 4035 at 11-12, 16-19 
(2015 Agreement . . .); Trial Ex. 5037 at 3-4, 5-9 (2017 Agreement . 
. .)

Web V Determination, 86 FR 59584.
    Accordingly, the Judges invite the Participants to address this 
Question #2 in their proffered evidence, testimony, and/or arguments.

Question #3

    Can and should the Judges rely on agreements containing provisions 
regarding splits of royalties between the section 112 ephemeral license 
and the section 114 sound recording license if the agreements described 
by witnesses or referenced in other documents are not proffered as 
evidence in this proceeding?
    This question is of interest because, in Web V, the Judges received 
evidence and testimony that such an agreement existed as between the 
sound recording companies and the performing artists' representatives, 
but that agreement was not proffered and thus not record evidence. 
Specifically on this issue, the Web V Determination describes the 
testimony of a SoundExchange witness:

    [T]he SoundExchange board of directors, which is comprised of 
record company and performing artist representatives ``adopted a 
resolution reflecting agreement that 5% of the royalties for the 
bundle of rights should be attributable to the Section 112(e) 
ephemeral royalties, with the rest being allocated to the Section 
114 performance royalties.'' Bender WDT ] 56. SoundExchange avers 
that ``[a]s a result, a 95%-5% split `credibly represents the result 
that would in fact obtain in a hypothetical marketplace negotiation 
between a willing buyer and the interested willing sellers under the 
relevant constraints.' ''

Web V Determination, 86 FR 59584.
    However, the Judges noted in the Web V Determination that ``[t]he 
SoundExchange Board resolution reflecting the agreement between artists 
and copyright owners is not in the record [and] testimony concerning 
the agreement, therefore, is hearsay, but the Judges exercise their 
discretion under 37 CFR 351.10(a) to admit and consider this hearsay 
testimony.'' Web V Determination, 86 FR 59584 n.352.

    This Question #3 raises the following subsidiary questions:
    Is an internal resolution by SoundExchange an ``agreement''?
    If the resolution references an agreement, should both the 
resolution and the agreement, if memorialized in writing, be 
proffered as evidence?
    Is an agreement made by members of the SoundExchange Board of 
Directors a marketplace agreement between willing parties?
    Is such an agreement reflective of a process in which the 
parties to the agreement have bargaining power sufficient to 
generate an agreement reflective of effective competition?
    Do the Board members voting on the agreement and resolution on 
behalf of the sound recording companies have a sufficient number of 
votes to approve or defeat the agreement and resolution if they all 
voted identically?
    Do the Board members voting on the agreement and resolution on 
behalf of the artists and others entitled to a share of the section 
114 royalties have a sufficient number of votes to approve or defeat 
the resolution if they all voted identically?
    Should the Judges exercise their discretion to admit hearsay 
testimony regarding such agreements and resolutions, or should the 
Judges require production of the agreements and resolutions?
    Does the Best Evidence Rule require production of the actual 
agreements and resolutions described above?

    Accordingly, the Judges invite the Participants to address this 
Question #3

[[Page 812]]

in their proffered evidence, testimony, and/or arguments.

Question #4

    Does the marketplace evidence indicate how the Judges should 
consider allocation of royalties as between the section 112 ephemeral 
license and the section 114 sound recording license, including 
allocations to sound recording artists, non-featured vocalists and 
musicians, or to producers, mixers and sound engineers, pursuant to 
section 114? Among the Judges, there is a concern whether--with section 
114, unlike section 112, providing for an allocation of 50% of the 
section 114 royalties to artists (and others, in certain 
circumstances), as described above--evidence and the law may lead the 
Judges to apportion royalties as between the section 112 and 114 
licenses in a manner that effectuates the section 114-mandated split of 
royalties in a manner that is legally and economically appropriate.
    Accordingly, the Judges invite the Participants to address this 
Question #4 in their proffered evidence, testimony, and/or arguments.

Petitions To Participate

    Parties with a significant interest in the outcome of the rate 
proceeding and wish to participate in the proceeding must provide the 
information required by Sec.  351.1(b) of the Judges' regulations by 
completing and filing the Petition to Participate form in eCRB. Parties 
must pay the $150 filing fee when filing each Petition to Participate 
form. Parties must use the form in eCRB instead of uploading a document 
and must comply with the requirements of Sec.  351.1(b)(1) of the 
Copyright Royalty Board's regulations. 37 CFR 351.1(b)(1).
    Only attorneys admitted to the bar in one or more states or the 
District of Columbia and members in good standing will be allowed to 
represent parties before the Judges. Only individuals may represent 
themselves and appear without legal counsel. 37 CFR 303.2.
    The Judges will address scheduling and further procedural matters 
after receiving petitions to participate.

    Dated: December 20, 2023.
David P. Shaw,
Chief Copyright Royalty Judge.
[FR Doc. 2023-28515 Filed 1-4-24; 8:45 am]
BILLING CODE 1410-72-P


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