67938 Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 

§ 151.13 and any other Departmental 

requirements. 

(d) A decision made by a Bureau of 

Indian Affairs official pursuant to 

delegated authority is not a final agency 

action of the Department under 5 U.S.C. 

704 until administrative remedies are 

exhausted under part 2 of this chapter 

or until the time for filing a notice of 

appeal has expired and no 

administrative appeal has been filed. 

(1) If the official denies the request, 

the official shall promptly provide the 

applicant with the decision and 

notification of any right to file an 

administrative appeal under part 2 of 

this chapter. 

(2) If the official approves the request, 

the official shall: 

(i) Promptly provide the applicant 

with the decision; 

(ii) Promptly provide written notice of 

the decision and the right, if any, to file 

an administrative appeal of such 

decision pursuant to part 2 of this 

chapter, by mail or personal delivery to: 

(A) Interested parties who have made 

themselves known, in writing, to the 

official prior to the decision being made; 

and 

(B) The State and local governments 

having regulatory jurisdiction over the 

land to be acquired; 

(iii) Promptly publish a notice in a 

newspaper of general circulation serving 

the affected area of the decision and the 

right, if any, of interested parties who 

did not make themselves known, in 

writing, to the official to file an 

administrative appeal of the decision 

under part 2 of this chapter; and 

(iv) Immediately acquire the land in 

trust under § 151.14 upon expiration of 

the time for filing a notice of appeal or 

upon exhaustion of administrative 

remedies under part 2 of this title, and 

upon the fulfillment of the requirements 

of § 151.13 and any other Departmental 

requirements. 

(3) The administrative appeal period 

under part 2 of this chapter begins on: 

(i) The date of receipt of written 

notice by the applicant or interested 

parties entitled to notice under 

paragraphs (d)(1) and (d)(2)(ii) of this 

section; 

(ii) The date of first publication of the 

notice for unknown interested parties 

under paragraph (d)(2)(iii) of this 

section. 

(4) Any party who wishes to seek 

judicial review of an official’s decision 

must first exhaust administrative 

remedies under 25 CFR part 2. 

Dated: November 4, 2013. 

Kevin K. Washburn, 

Assistant Secretary—Indian Affairs. 

[FR Doc. 2013–26844 Filed 11–12–13; 8:45 am] 

BILLING CODE 4310–6W–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[Docket No. USCG–2013–0919] 

Drawbridge Operation Regulation; 

Atlantic Intracoastal Waterway, 

Albemarle and Chesapeake Canal, 

Chesapeake, VA 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of deviation from 

drawbridge regulation. 

SUMMARY: The Coast Guard has issued a 

temporary deviation from the operating 

schedule that governs the S168 Bridge 

(Battlefield Boulevard) across the 

Atlantic Intracoastal Waterway, 

Albemarle and Chesapeake Canal, mile 

12.0, at Chesapeake (Great Bridge), VA. 

The deviation is necessary to 

accommodate the annual Christmas 

parade. This deviation allows the bridge 

to remain in the closed-to-navigation 

position for the set up of the event and 

the duration of the Christmas parade. 

DATES: This deviation is effective from 

4 p.m. on December 7, 2013 to 10 p.m. 

on December 8, 2013. 

ADDRESSES: The docket for this 

deviation, [USCG–2013–0919] is 

available at http://www.regulations.gov. 

Type the docket number in the 

‘‘SEARCH’’ box and click ‘‘SEARCH.’’ 

Click on Open Docket Folder on the line 

associated with this deviation. You may 

also visit the Docket Management 

Facility in Room W12–140 on the 

ground floor of the Department of 

Transportation West Building, 1200 

New Jersey Avenue SE., Washington, 

DC 20590, between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this temporary 

deviation, call or email Mrs. Jessica 

Shea, Coast Guard; telephone (757) 398– 

6422, email jessica.c.shea2@uscg.mil. If 

you have questions on viewing the 

docket, call Barbara Hairston, Program 

Manager, Docket Operations, telephone 

202–366–9826. 

SUPPLEMENTARY INFORMATION: The City 

of Chesapeake, who owns and operates 

the S168 Bridge across the Atlantic 

Intracoastal Waterway, Albemarle and 

Chesapeake Canal, mile 12.0 at 

Chesapeake (Great Bridge), VA has 

requested a temporary deviation from 

the current operating regulations set out 

in 33 CFR 117.997(g), to accommodate 

their annual Christmas parade. 

Normally, the bridge opens on signal; 

except that, from 6 a.m. to 7 p.m., the 

draw need be opened only on the hour 

or, if the vessel cannot reach the draw 

exactly on the hour, the draw tender 

may delay the hourly opening up to ten 

minutes past the hour. 

In the closed-to-navigation position, 

this lift-type drawbridge provides a 

vertical clearance of 8.5 feet above mean 

high water. 

The Chesapeake annual Christmas 

parade event is scheduled for December 

7, 2013. Under this temporary deviation, 

the drawbridge will remain in the 

closed position to vessels requiring an 

opening from 4 p.m. to 6 p.m. and from 

8 p.m. to 10 p.m. on December 7; with 

an inclement weather date of December 

8 from 4 p.m. to 6 p.m. and from 8 p.m. 

to 10 p.m. 

Vessels that may safely transit under 

the drawbridge while it is in the closed 

position may do so at any time. The 

Atlantic Intracoastal Waterway caters to 

a variety of vessels from tug and barge 

traffic to recreational vessels traveling 

from Florida to Maine. The Atlantic 

Ocean is the alternate route for vessels 

and the bridge will be able to open in 

the event of an emergency. The Coast 

Guard will also inform the users of the 

waterways through our Local and 

Broadcast Notices to Mariners of the 

change in operating schedule for the 

bridge so that vessels can arrange their 

transits to minimize any impact caused 

by the temporary deviation. 

In accordance with 33 CFR 117.35(e), 

the drawbridge must return to its regular 

operating schedule immediately at the 

end of the effective period of this 

temporary deviation. This deviation 

from the operating regulations is 

authorized under 33 CFR 117.35. 

Dated: October 30, 2013. 

Waverly W. Gregory, Jr., 

Bridge Program Manager, Fifth Coast Guard 

District. 

[FR Doc. 2013–27068 Filed 11–12–13; 8:45 am] 

BILLING CODE 9110–04–P 

LIBRARY OF CONGRESS 

Copyright Royalty Board 

37 CFR Part 385 

[Docket No. 2011–3 CRB Phonorecords II] 

Adjustment of Determination of 

Compulsory License Rates for 

Mechanical and Digital Phonorecords 

AGENCY: Copyright Royalty Board, 

Library of Congress. 

ACTION: Final rule. 

SUMMARY: The Copyright Royalty Judges 

are publishing final regulations setting 


emcdonald on DSK67QTVN1PROD with RULES
Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 67939 

1The Digital Performance Right in Sound 

Recordings Act, Public Law 104–39, 109 Stat. 336 

(1995), extended the mechanical license to digital 

phonorecord deliveries. Consequently, the license 

covers digital transmissions of phonorecords in 

addition to the physical copies such as compact 

discs, vinyl and cassette tapes. 

2The Judges commenced a proceeding in 2006, as 

directed by section 804(b)(4) of the Copyright Act, 

and published their final determination in the 

Federal Register on January 26, 2009. 74 FR 4510. 

Therefore, commencement of the next proceeding— 

the current proceeding—was to occur in January 

2011. 17 U.S.C. 804(b)(4). 

3A complete list of parties submitting petitions to 

participate can be found at 77 FR 29261 (May 17, 

2012). The Judges also received one filing styled as 

a ‘‘Comment in Response to Request for Petitions 

to Participate,’’ which subsequently was 

withdrawn. See 77 FR at 29261 n.3. 

4The Settling Parties are comprised of National 

Music Publishers’ Association, Inc.; the Songwriters 

Guild of America; the Nashville Songwriters 

Association International; the Church Music 

Publishers Association; the Recording Industry 

Association of America; Digital Media Association; 

and CTIA-the Wireless Association. One 

participant’s signature was omitted inadvertently 

from the motion and subsequently provided on 

April 18, 2012. See 77 FR 29260 n.4. Although two 

participants did not sign the motion, the Judges 

presume that they each reviewed the settlement and 

harbored no objection to its adoption, per the 

signatories’ representation. Id. 

5The Judges questioned whether the adoption of 

two accounting provisions, found in proposed 

§ 385.12(e) and § 385.22(d), would encroach on the 

Register of Copyrights’ (Register) exclusive 

jurisdiction to promulgate regulations governing the 

statements of account to be submitted under section 

115 of the Copyright Act. See 77 FR 29259, 29260– 

61 (May 17, 2012). This issue is discussed infra. 

6On March 12, 2013, the Judges received a letter 

from the Settling Parties, which in part, urged that 

Mr. Clarida’s comments not be considered due to 

the untimeliness of the submission. The Settling 

Parties’ request is noted; the Judges decide, 

however, to consider Mr. Clarida’s comments to 

address his contention that certain provisions are 

contrary to the statute. 

7The Judges have corrected the non-substantive 

errors and addressed the stylistic issues in regard 

to the regulatory text identified by the Settling 

Parties in Exhibit A to their comment. 

the rates and terms for the section 115 

statutory license for the use of musical 

works in physical phonorecord 

deliveries, permanent digital 

downloads, ringtones, interactive 

streaming, limited downloads, limited 

offerings, mixed service bundles, music 

bundles, paid locker services, and 

purchased content locker services. 

DATES: Effective: January 1, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Richard Strasser, Senior Attorney, or 

Gina Giuffreda, Attorney Advisor. 

Telephone: (202) 707–7658 or email at 

crb@loc.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

Section 115 of the Copyright Act, title 

17 of the United States Code, also 

known as the mechanical compulsory 

license, requires a copyright owner of a 

nondramatic musical work to grant a 

license to any person who wants to 

make and distribute phonorecords of 

that work, including digital 

phonorecord deliveries,1 provided that 

the copyright owner has allowed 

phonorecords of the work to be 

produced and distributed to the public, 

and that the licensee complies with the 

statute and attendant regulations. 17 

U.S.C. 115(a). 

The Copyright Act requires the 

Copyright Royalty Judges (Judges) to 

conduct proceedings every five years to 

determine the rates and terms for the 

section 115 license. 17 U.S.C. 801(b)(1) 

and 804(b)(4).2 Thus, the Judges, in 

accordance with 17 U.S.C. 804(b)(4), 

published a notice in the Federal 

Register commencing the current 

proceeding to set rates and terms for the 

section 115 license and requesting 

interested parties to submit their 

petitions to participate. 76 FR 590 (Jan. 

5, 2011). In response to the notice, the 

Judges received 24 petitions to 

participate.3 The Judges set the 

timetable for the three-month 

negotiation period, see 17 U.S.C. 

803(b)(3), as well as a deadline of April 

30, 2012, for the participants’ 

submission of written direct statements. 

On April 11, 2012, the Judges received 

a Motion to Adopt Settlement stating 

that ‘‘[a]ll participants in the Proceeding 

are parties to the Settlement or have 

reviewed the Settlement and do not 

object to its being adopted as the basis 

for setting statutory rates and terms.’’ 4

Motion to Adopt Settlement, at 2 (Apr. 

11, 2012). 

Section 801(b)(7)(A) of the Copyright 

Act authorizes the Judges to adopt rates 

and terms negotiated by ‘‘some or all of 

the participants in a proceeding at any 

time during the proceeding’’ provided 

they are submitted to the Judges for 

approval. This section provides in part 

that the Judges must provide to both 

non-participants and participants to the 

rate proceeding who ‘‘would be bound 

by the terms, rates, or other 

determination set by any agreement 

* * * an opportunity to comment on 

the agreement.’’ 17 U.S.C. 

801(b)(7)(A)(i). Participants to the 

proceeding may also ‘‘object to [the 

agreement’s] adoption as a basis for 

statutory terms and rates.’’ Id. 

The Judges ‘‘may decline to adopt the 

agreement as a basis for statutory terms 

and rates for participants that are not 

parties to the agreement,’’ only ‘‘if any 

participant [to the proceeding] objects to 

the agreement and the [Judges] 

conclude, based on the record before 

them if one exists, that the agreement 

does not provide a reasonable basis for 

setting statutory terms or rates.’’ 17 

U.S.C. 801(b)(7)(A)(ii). Accordingly, on 

May 17, 2012, the Judges published a 

notice requesting comment on the 

proposed rates and terms, with certain 

modifications, submitted to the Judges.5

The Judges received two comments in 

response to the May 17 notice—one 

from the Settling Parties and the other 

from Gear Publishing Company (Gear), a 

non-participant. On November 20, 2012, 

five months after the deadline, the 

Judges received a third comment from 

Robert Clarida, also a non-participant, 

supporting the objections lodged by 

Gear in its June comments.6 The Settling 

Parties supported adoption of the 

settlement, suggested correction of 

certain non-substantive errors and 

raised certain stylistic issues with 

regard to the proposed regulatory text.7

Gear’s objections were primarily policybased concerns about the appropriate 

scope of the compulsory license. See, 

e.g., Comments of Gear Publishing 

Company, at 2 (‘‘it is inappropriate to 

offer interactive streaming and limited 

download rights via compulsory license 

until there is sufficient evidence to 

demonstrate that these uses will provide 

long term sustainable revenue * * *.’’) 

and 4 (‘‘promotional consideration’’ 

should not be allowed under a 

compulsory license). Mr. Clarida’s 

comments, which were submitted at 

Gear’s request, see Clarida Comments at 

2, challenged the compatibility of the 

proposed rates and terms with the 

section 115 license. See, e.g., Clarida 

Comments at 3–4 (promotional royalty 

rate of zero proposed in § 385.14 

violates section 115 of the Copyright 

Act). 

Section 801(b)(7)(A)(ii) limits the 

Judges’ ability to reject an agreement on 

the reasonableness of the rates and 

terms published for comment. The 

Judges may decline to adopt an 

agreement as a basis for statutory terms 

and rates for participants that are not 

parties to the agreement if a participant 

that would be bound by the agreement 

objects and the Judges conclude that the 

agreement does not provide a reasonable 

basis for setting statutory terms or rates. 

Id. Neither Gear nor Mr. Clarida 

qualifies as a participant to this 

proceeding, as neither submitted a 

petition to participate. Therefore, the 

Judges cannot consider any objections 

lodged by them, as non-participants, 

regarding the reasonableness of the rates 

and terms. See Determination of 

Reasonable Rates and Terms for 

Noncommercial Broadcasting, Final 

rule, Docket No. 2011–2 CRB NCEB II, 

77 FR 71104, 71107 (Nov. 29, 2012); see 

also, Review of Copyright Royalty Judges 

Determination, Notice; correction, 


emcdonald on DSK67QTVN1PROD with RULES
67940 Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 

8The Order directed participants to submit an 

initial brief no later than April 5, 2013, and to 

submit reply briefs no later than April 12, 2013. The 

lone brief, submitted by the Settling Parties, was 

transmitted to the Register on April 17, 2013. 

9Proposed § 385.12(e) would have required the 

licensee’s statement of account to ‘‘set forth each 

step of its calculations with sufficient information 

to allow the copyright owner to assess the accuracy 

and manner in which the licensee determined the 

payable royalty pool and per-play allocations 

(including information sufficient to demonstrate 

whether and how a minimum royalty or subscriberbased royalty floor pursuant to § 385.13 does or 

does not apply) and, for each offering reported, also 

indicate the type of licensed activity involved and 

the number of plays of each musical work 

(including an indication of any overtime adjustment 

applied) that is the basis of the per-work royalty 

allocation being paid.’’ 77 FR at 29267 (May 17, 

2012). The language of proposed § 385.22(d) mirrors 

that in § 385.12(e), except for non-substantive 

conforming language needed for its inclusion in 

proposed Subpart C. 

10The confidentiality provisions proposed in 

§§ 385.12(f) and 385.22(e) would mandate: ‘‘A 

licensee’s statements of account, including any and 

all information provided by a licensee with respect 

to the computation of a subminimum, shall be 

maintained in confidence by any copyright owner, 

authorized representative or agent that receives it, 

and shall solely be used by the copyright owner, 

authorized representative or agent for purposes of 

reviewing the amounts paid by the licensee and 

verifying the accuracy of any such payments, and 

only those employees of the copyright owner, 

authorized representative or agent who need to 

have access to such information for such purposes 

will be given access to such information; provided 

that in no event shall access be granted to any 

individual who, on behalf of a record company, is 

directly involved in negotiating or approving 

royalty rates in transactions authorizing third party 

services to undertake licensed activity with respect 

to sound recordings. A licensee’s statements of 

account, including any and all information 

provided by a licensee with respect to the 

computation of a subminimum, shall not be used 

for any other purpose, and shall not be disclosed 

to or used by or for any record company affiliate 

or any third party, including any third-party record 

company.’’ 77 FR at 29262, 29267–68. 11The Order directed participants to submit an 

initial brief no later than June 7, 2013, and to 

submit reply briefs no later than June 21, 2013. The 

lone brief, submitted by the Settling Parties, was 

transmitted to the Register on June 25, 2013. The 

Settling Parties also submitted a letter requesting 

that the Judges recommend to the Register that the 

language in the accounting provisions proposed in 

§§ 385.12(e) and 385.22(d) be incorporated into the 

Copyright Office’s regulations governing statements 

of account. The Judges transmitted the letter to the 

Register. As discussed supra, the Judges have made 

the requested recommendation. 

Docket No. 2009–1, 74 FR 4537, 4540 

(Jan. 26, 2009) (Judges able to review 

reasonableness of terms and rates 

contained in agreement only if a 

participant to the proceeding objects to 

the agreement). 

The Judges may, however, ‘‘declin[e] 

to adopt other portions of an agreement 

that would be contrary to the provisions 

of the applicable license(s) or otherwise 

contrary to statutory law.’’ 74 FR at 

4540. Mr. Clarida’s comments assert that 

certain of the proposed rules violate the 

section 115 statutory license. His 

assertions will be addressed below. 

Referral of Material Questions to the 

Register of Copyrights 

Section 802(f)(1)(A)(ii) of the 

Copyright Act, in pertinent part, 

authorizes one or more of the Judges to 

request from the Register ‘‘an 

interpretation of any material questions 

of substantive law that relate to the 

construction of provisions of this title 

and arise in the course of the 

proceeding.’’ Any request for a written 

interpretation must be in writing and on 

the record, and participants to the 

proceeding must be given an 

opportunity to comment on the 

question(s) referred. Id. 

On March 27, 2013, the Chief 

Copyright Royalty Judge issued an order 

referring material questions of law to the 

Register concerning the Judges’ 

authority to adopt certain terms in the 

Settling Parties’ Proposed Settlement 

relating to statements of account. See 

Order Referring Material Questions of 

Law and Setting Briefing Schedule, 

Docket No. 2011–3 CRB Phonorecords II 

(Mar. 27, 2013). The proposed terms 

involved the accounting provisions 

proposed in 37 CFR 385.12(e) and 

385.22(d) and the confidentiality 

provisions proposed in 37 CFR 385.12(f) 

and 385.22(e).8 Id. at 3. The Register 

delivered her decision to the Judges on 

May 1, 2013, and published it in the 

Federal Register on May 16, 2013. 78 

FR 28770. 

Proposed Accounting Provisions 

The Register found that the 

accounting provisions proposed in 

§§ 385.12(e) and 385.22(d) 9 ‘‘represent 

an encroachment on the Register’s 

[exclusive] authority’’ regarding 

statements of account even though the 

proposed provisions are consistent with 

the Register’s current regulations. Id. at 

28772. In light of the Register’s 

interpretation, the Judges cannot adopt 

proposed §§ 385.12(e) and 385.22(d). 

Nevertheless, the Judges recognize the 

parties’ efforts to reach an agreement 

and the importance of these provisions 

to the agreement. See Letter from 

Settling Parties to Copyright Royalty 

Judges (June 7, 2013) (on file with the 

Copyright Royalty Board) (proposed 

provisions ‘‘reflect an industry-wide 

consensus on necessary detail 

requirements as part of the accounting 

process for the proposed percentage 

rates’’ and represent an ‘‘important 

factor in reaching a settlement’’ in this 

proceeding). Therefore, the Judges 

recommend that the Register include 

these provisions in the amendments to 

the regulations regarding statements of 

account currently being considered in 

the Copyright Office’s ongoing 

rulemaking. See Division of Authority 

Between the Copyright Royalty Judges 

and the Register of Copyrights under the 

Section 115 Statutory License, Docket 

No. RF 2008–1, 73 FR 48396, 48398 

(Aug. 19, 2008) (the Judges may 

recommend that the Register ‘‘amend 

the regulations governing statements of 

account to include additional 

information.’’). 

Proposed Confidentiality Provisions 

Conversely, the Register found that 

the confidentiality provisions proposed 

at §§ 385.12(f) and 385.22(e) 10 do not 

‘‘encroach upon the Register’s authority 

with respect to statements of account’’ 

nor do they ‘‘conflict with any other 

authority reserved for the Register.’’ 78 

FR at 28773. The Register questioned, 

however, whether the Judges ‘‘have any 

independent authority to issue 

regulations such as the proposed 

confidentiality [provisions] which 

would impose obligations on a 

copyright owner with regard to what he 

or she is able to do with a statement of 

account received by a licensee.’’ Id. 

Consequently, the Register highlighted 

another potential novel question of law: 

the question of the Judges’ authority 

regarding ‘‘imposing requirements on 

what a copyright owner (as opposed to 

a licensee) may do (or not do) with 

information provided in a statement of 

account after that statement was 

prepared and served in accordance with 

the [Copyright] Office’s regulations.’’ Id. 

(emphasis in original). 

Referral of Novel Question to the 

Register of Copyrights 

Accordingly, on May 17, 2013, the 

Judges referred to the Register the novel 

question of ‘‘whether the [Judges] have 

the authority to impose a confidentiality 

requirement such as that proposed in 

§§ 385.12(f) and 385.22(e).’’ See Order 

Referring Novel Question of Law and 

Setting Briefing Schedule, Docket No. 

2011–3 CRB Phonorecords II, at 4.11 The 

Register delivered her decision to the 

Judges on July 25, 2013, and published 

it in the Federal Register on August 5, 

2013. 78 FR 47421. 

The Register concluded that the 

Judges are without authority to ‘‘adopt 

the provisions imposing a duty of 

confidentiality upon copyright owners, 

regardless of whether the provisions are 

included in a voluntarily negotiated 

license agreement between copyright 

owners and licensees.’’ Scope of the 

Copyright Royalty Judges’ Authority to 

Adopt Confidentiality Requirements 

upon Copyright Owners within a 

Voluntarily Negotiated License 


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Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 67941 

12Mr. Clarida also challenges the legal validity of 

the confidentiality provisions (proposed 

§§ 385.12(f), 385.22(e)). The Register’s 

determination that the Judges have no authority to 

impose an obligation of confidentiality on a 

copyright owner with respect to a statement of 

account renders Mr. Clarida’s arguments on this 

point moot. 

Moreover, at the outset of his comments, Mr. 

Clarida makes a vague, passing challenge to the 

Proposed Rule on the basis that ‘‘the proposed 

changes, if adopted, would risk placing the United 

States in violation of Article 13 of the Agreement 

on Trade-Related Aspects of Intellectual Property 

Rights (TRIPS). Clarida Comments, at 2. Congress 

was clear, however, that TRIPS may not be used as 

a basis for challenging any action of a federal 

agency and that, to the extent any conflict exists 

between TRIPS and U.S. law, U.S. law governs. The 

Uruguay Round Agreements Act, Public Law 103– 

465, sections 102(a)(1), (c)(1)(B), 108 Stat. 4809 

(1994). The Judges, therefore, will be guided by the 

provisions of the Copyright Act and will not 

consider any objections based on TRIPS. 

13Proposed § 385.21 defines ‘‘free trial royalty 

rate’’ as ‘‘the statutory royalty rate of zero in the 

case of certain free trial periods, as provided in 

§ 385.24.’’ 

14The Register suggested, in issuing an interim 

rule clarifying the definition of a ‘‘digital 

phonorecord delivery,’’ that a zero rate may be 

appropriate in certain circumstances. See 

Compulsory License for Making and Distributing 

Phonorecords, Including Digital Phonorecord 

Deliveries, Interim rule and request for comments, 

Docket No. RM 2000–7, 73 FR 66173, 66181 (Nov. 

7, 2008)(‘‘[T]he Office would not dispute a finding 

that non-interactive and interactive streams have 

different economic value, or even that a rate of zero 

might be appropriate for [digital phonorecord 

deliveries] made in the course of non-interactive 

streams.’’). 

15As noted supra, a ‘‘participant’’ in this 

proceeding could have objected to the 

reasonableness of the rates and terms of the 

settlement and the proposed regulations. If a 

Continued 

Agreement, Final Order, Docket No. 

2011–3 CRB, 78 FR at 47423. The 

Register noted that section 115(c)(3)(D) 

of the Copyright Act grants to the Judges 

the authority to establish ‘‘notice and 

recordkeeping requirements under 

which such records of use shall be kept 

and made available by licensees’’ but 

not to those to ‘‘be kept and made 

available by copyright owners.’’ Id. 

(emphasis in original). Moreover, she 

found that ‘‘such provisions are not 

necessary to effectively implement the 

[section 115] statutory license or to 

insure the smooth administration of the 

[section 115] license.’’ Id. In light of the 

Register’s interpretation, the Judges 

cannot adopt the confidentiality 

requirements in §§ 385.12(f) and 

385.22(e) of the proposed settlement. 

Having addressed the Register’s 

concerns with the proposed settlement, 

the Judges now turn to the concerns 

raised by Mr. Clarida. 

Comments of Mr. Clarida 

When presented with a settlement 

agreement, the Judges’ task is to 

implement the settlement to the extent 

possible as long as no provision on its 

face violates the statutory license at 

issue. See 17 U.S.C. 801(b)(7)(A); see 

also H.R. Rep. No. 108–408, at 24 (2004) 

(purpose of provision to facilitate and 

promote settlements). With this 

statutory task in mind, the Judges 

consider Mr. Clarida’s challenge to the 

legal validity of the promotional ‘‘free 

trial’’ royalty rates (proposed 

§§ 385.14(b)(1), 385.21, and 385.24), and 

Subpart C activities (i.e., ‘‘Limited 

Offerings, Mixed Service Bundles, Paid 

Locker Services, and Purchased Content 

Locker Services’’) (proposed §§ 385.20– 

24).12

Mr. Clarida’s Concerns Regarding 

Promotional and ‘‘Free Trial’’ Royalty 

Rates 

Mr. Clarida argues that the 

promotional royalty rate of zero in 

proposed § 385.14(b)(1) violates section 

115 of the Copyright Act, which, 

according to Mr. Clarida, requires that 

every phonorecord made and 

distributed under the license be subject 

to a royalty. Clarida Comments, at 3–4. 

He contends that ‘‘[z]ero is not a royalty; 

it is an exemption,’’ and only Congress 

possesses the authority to create 

statutory exemptions under the 

Copyright Act. Id. at 4. The Judges’ 

adoption of a royalty rate of zero, Mr. 

Clarida charges, would result in the 

creation of ‘‘a new statutory exemption 

in the guise of a regulation.’’ Id. at 4– 

5. 

Mr. Clarida also alleges legal 

infirmities with the ‘‘free trial royalty 

rate of zero’’ defined in proposed 

§ 385.21 13 and applied in proposed 

§ 385.24. Proposed § 385.24, in his view, 

allows a record company, rather than 

the owner of a musical work, to permit 

use of that label’s sound recordings 

gratis to ‘‘promote the offering’’ of a 

limited offering service, mixed service 

bundle, or paid locker service. Id. at 5. 

Mr. Clarida contends that this provision 

‘‘does not even credibly further the 

statutory purpose of encouraging the 

sales of musical works.’’ Id. He posits 

that proposed § 385.24 conceivably 

elevates technology companies and 

record companies to the status of joint 

copyright owners of the musical works, 

instead of mere licensees, thereby 

allowing licensees ‘‘to usurp the 

copyright owner’s exclusive rights with 

respect to works beyond the licensee’s 

own phonorecords’’ in violation of 

section 115 of the Copyright Act. Id. 5– 

6 (footnote omitted). 

Mr. Clarida interprets section 

115(c)(4) of the Copyright Act as 

requiring that even where distribution 

of a phonorecord is by rental, lease, or 

lending, the royalty must be calculated 

‘‘based on revenue generated ‘from 

every such act’ of distribution of the 

phonorecord under this clause.’’ Id. at 6 

(emphasis omitted). He concludes that 

‘‘the [proposed free trial royalty rate] 

does away with this required nexus 

between the distribution of specific 

phonorecords and the calculation of 

payment, allowing for extensive royaltyfree use by compulsory licensees.’’ Id. 

(footnote omitted). 

Judges’ Response 

The Judges find Mr. Clarida’s 

challenges unavailing. A royalty rate of 

zero set for a statutory license, while not 

common, is not unprecedented under 

the Copyright Act. Indeed, in 2009 the 

Judges adopted the promotional royalty 

rate in § 385.14 challenged here by Mr. 

Clarida. The Register reviewed the 

Judges’ adoption of the zero rate, which 

is still in effect, and found no legal error 

in such action.14 See Review of 

Copyright Royalty Judges 

Determination, Notice; correction, 

Docket No. 2009–1, 74 FR 4537 (Jan. 26, 

2009). See also Rate Adjustment for the 

Satellite Carrier Compulsory License, 

Final rule and order, Docket No. 96–3 

CARP SRA, 62 FR 55742, 55753 (Oct. 

28, 1997) (the Librarian of Congress 

upheld the imposition by a Copyright 

Arbitration Royalty Panel of a zero 

royalty rate for the retransmission of 

certain distant signals by satellite 

carriers under the section 119 statutory 

license and accepted the Register’s 

recommendation to adopt a zero royalty 

rate for certain local retransmissions of 

network signals.). 

The Judges also disagree with Mr. 

Clarida’s assertion that other provisions 

of the Copyright Act, which create 

exceptions to the payment of royalties 

in other contexts, imply that the Judges 

cannot approve a settlement and adopt 

regulations in which a royalty rate of 

zero is established for certain 

promotions or trial periods under 

section 115 of the Copyright Act. The 

fact that by granting exceptions 

Congress has determined, in effect, that 

in certain circumstances a royalty rate of 

zero must always apply does not imply 

that in all other circumstances a royalty 

rate of zero may never apply. Any 

mandatory statutory waiver of the 

payment of royalties in other contexts 

cannot serve to prohibit the Judges, in 

the exercise of their discretion, from 

incorporating into the regulations the 

terms of a settlement in which a zero 

royalty rate is established.15


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‘‘participant’’ had raised such objections, the Judges 

would have considered those arguments, including 

any arguments as to any alleged failure of the zero 

royalty rates, combined with the associated 

promotional benefits, to provide reasonable 

economic compensation to a copyright owner under 

section 115 of the Copyright Act. However, Mr. 

Clarida and Gear chose not to participate and 

therefore they cannot make any cognizable 

argument as to the reasonableness of the 

combination of the proposed zero royalty rates and 

the associated promotional benefits. 

Accordingly, the Judges conclude that 

nothing in the Copyright Act indicates 

that adoption of a zero royalty rate is 

contrary to section 115 of the Copyright 

Act; and the Judges adopt, as published 

on May 17, 2012, the provisions relating 

to the promotional and ‘‘free trial’’ 

royalty rates. 

Mr. Clarida’s Concerns Regarding 

Subpart C Activities 

Mr. Clarida charges that the use of the 

statutory license under section 115 of 

the Copyright Act by ‘‘entirely new 

classes of ‘bundled’ activity: So-called 

mixed service bundles, music bundles, 

paid locker services, and purchased 

content locker services’’ violates the 

primary-purpose requirement of section 

115(a), which states ‘‘[a] person may 

obtain a compulsory license only if his 

or her primary purpose in making 

phonorecords is to distribute them to 

the public for private use, including by 

means of a digital phonorecord 

delivery.’’ Clarida Comments at 7. Such 

bundling, he concludes, results in ‘‘an 

impermissible expansion of the scope’’ 

of the section 115 license because many 

of the services in such bundles ‘‘have 

nothing whatsoever to do with 

distributing phonorecords, and the 

services in their respective entireties are 

relieved of the statutory obligation to 

pay royalties based on specific 

individual music transactions.’’ Id. 

The Judges do not agree with Mr. 

Clarida’s assertion that the ‘‘primary 

purpose’’ of the providers of the new 

classes of ‘‘bundled’’ activity is not to 

make phonorecords and distribute them 

to the public for private use. The fact 

that other services are bundled with that 

service does not cause any one of the 

bundled services to have primacy over 

any other of the bundled services. In 

that regard, Mr. Clarida does not 

propose a method by which the Judges 

could rank the ‘‘purposes’’ of the several 

bundled services. 

Mr. Clarida also opposes the 

calculation of royalties proposed in 

§ 385.20(a), which would allow music 

bundle providers the option of paying 

for the ‘‘components’’ under the rates 

set forth in Subpart A of the proposed 

regulations or under the formula set 

forth in Subpart C of the proposal and 

would relieve those who distribute such 

bundles from paying for each 

phonorecord made or distributed. 

Clarida Comments at 7. Mr. Clarida also 

opposes the calculation of royalties 

under proposed § 385.22 for the other 

proposed Subpart C activities, asserting 

that such calculation ‘‘is utterly without 

support in the statute.’’ Id. In particular, 

Mr. Clarida objects to the portion of the 

proposed royalty formula that would 

allow, for instance, mixed service 

bundles and locker services to 

determine a ‘‘constructive number of 

plays,’’ even though the actual number 

of uses are known, and then apply that 

number against ‘‘a formula apportioning 

aggregate revenue from the service.’’ Id. 

The main problem with this approach, 

in his view, is that information 

regarding the number of plays is not 

simply reported and paid for 

accordingly. Id. 

Judges’ Response 

Despite Mr. Clarida’s objections, none 

of the challenged Subpart C provisions 

on their face appear to be contrary to the 

section 115 license. As Mr. Clarida 

acknowledges, under the proposed 

regulations, the copyright owners would 

receive royalties for the musical works 

bundled with the other services. Mr. 

Clarida therefore is objecting to the 

‘‘reasonableness’’ of those rates. As 

noted supra, since he and Gear were not 

‘‘participants’’ to this proceeding, they 

cannot challenge the reasonableness of 

the rates and terms of the settlement. 

Therefore, the Judges adopt the 

settlement as proposed with the 

exception of the provisions that the 

Register found to be contrary to law. 

List of Subjects in 37 CFR Part 385 

Copyright, Phonorecords, Recordings. 

Final Regulations 

For the reasons set forth in the 

preamble, the Copyright Royalty Judges 

amend Part 385 of Chapter III of title 37 

of the Code of Federal Regulations as 

follows: 

PART 385—RATES AND TERMS FOR 

USE OF MUSICAL WORKS UNDER 

COMPULSORY LICENSE FOR MAKING 

AND DISTRIBUTING OF PHYSICAL 

AND DIGITAL PHONORECORDS 

■ 1. The authority citation for part 385 

continues to read as follows: 

Authority: 17 U.S.C. 115, 801(b)(1), 

804(b)(4). 

§ 385.4 [Amended] 

■ 2. Section 385.4 is amended by 

removing ‘‘(201.19(e)(7)(i)’’ and adding 

‘‘§ 201.19(e)(7)(i)’’ in its place. 

■ 3. Revise the heading of Subpart B to 

read as follows: 

Subpart B—Interactive Streaming and 

Limited Downloads 

■ 4. Section 385.10 is amended by 

revising paragraph (b) and adding 

paragraph (c) to read as follows: 

§ 385.10 General. 

* * * * * 

(b) Legal compliance. A licensee that, 

pursuant to 17 U.S.C. 115, makes or 

authorizes interactive streams or limited 

downloads of musical works through 

subscription or nonsubscription digital 

music services shall comply with the 

requirements of that section, the rates 

and terms of this subpart, and any other 

applicable regulations, with respect to 

such musical works and uses licensed 

pursuant to 17 U.S.C. 115. 

(c) Interpretation. This subpart is 

intended only to set rates and terms for 

situations in which the exclusive rights 

of a copyright owner are implicated and 

a compulsory license pursuant to 17 

U.S.C. 115 is obtained. Neither this 

subpart nor the act of obtaining a license 

under 17 U.S.C. 115 is intended to 

express or imply any conclusion as to 

the circumstances in which any of the 

exclusive rights of a copyright owner are 

implicated or a license, including a 

compulsory license pursuant to 17 

U.S.C. 115, must be obtained. 

■ 5. Section 385.11 is amended as 

follows: 

■ a. By adding in alphabetical order 

definitions for ‘‘Affiliate’’, ‘‘Applicable 

consideration’’, and ‘‘GAAP’’; 

■ b. In paragraphs (1) and (2) of the 

definition of ‘‘Limited download’’, by 

adding ‘‘provider’’ after ‘‘service’’; 

■ c. In the definition of ‘‘Offering’’, by 

removing ‘‘service’s’’ and adding 

‘‘service provider’s’’ in its place, and by 

adding ‘‘provider’’ after ‘‘service’’; 

■ d. By removing the definition of 

‘‘Publication date’’; 

■ e. In the definition of ‘‘Relevant 

page’’, by adding ‘‘provider’’ after 

‘‘service’’ in the first sentence and by 

removing ‘‘users for limited downloads 

or interactive streams’’ and adding 

‘‘users for licensed activity’’ in its place 

in the second sentence; 

■ f. By revising the term ‘‘Service’’, to 

read ‘‘Service provider’’; 

■ g. Amend the definition of ‘‘Service 

revenue’’ by: 

■ i. In paragraph (1) introductory text, 

by removing ‘‘U.S. Generally Accepted 

Accounting Principles’’ and adding 

‘‘GAAP’’ in its place; 

■ ii. In paragraphs (1)(i) and (ii), by 

adding ‘‘provider’’ after ‘‘service’’; 

■ iii. In paragraph (1)(iii), by adding 

‘‘provider’’ after ‘‘by the service’’; 


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■ iv. In paragraph (2)(i), by removing 

‘‘service’’ and adding ‘‘service provider’’ 

in its place each place it appears; and 

■ v. In paragraph (5) introductory text, 

by removing ‘‘In connection with such 

a bundle, if a record company providing 

sound recording rights to the service’’ 

and by removing paragraphs (5)(i) and 

(ii). 

The additions read as follows: 

§ 385.11 Definitions. 

* * * * * 

Affiliate means an entity controlling, 

controlled by, or under common control 

with another entity, except that an 

affiliate of a record company shall not 

include a copyright owner of musical 

works to the extent it is engaging in 

business as to musical works. 

Applicable consideration means 

anything of value given for the 

identified rights to undertake the 

licensed activity, including, without 

limitation, ownership equity, monetary 

advances, barter or any other monetary 

and/or nonmonetary consideration, 

whether such consideration is conveyed 

via a single agreement, multiple 

agreements and/or agreements that do 

not themselves authorize the licensed 

activity but nevertheless provide 

consideration for the identified rights to 

undertake the licensed activity, and 

including any such value given to an 

affiliate of a record company for such 

rights to undertake the licensed activity. 

For the avoidance of doubt, value given 

to a copyright owner of musical works 

that is controlling, controlled by, or 

under common control with a record 

company for rights to undertake the 

licensed activity shall not be considered 

value given to the record company. 

Notwithstanding the foregoing, 

applicable consideration shall not 

include in-kind promotional 

consideration given to a record 

company (or affiliate thereof) that is 

used to promote the sale or paid use of 

sound recordings embodying musical 

works or the paid use of music services 

through which sound recordings 

embodying musical works are available 

where such in-kind promotional 

consideration is given in connection 

with a use that qualifies for licensing 

under 17 U.S.C. 115. 

GAAP means U.S. Generally Accepted 

Accounting Principles, except that if the 

U.S. Securities and Exchange 

Commission permits or requires entities 

with securities that are publicly traded 

in the U.S. to employ International 

Financial Reporting Standards, as 

issued by the International Accounting 

Standards Board, or as accepted by the 

Securities and Exchange Commission if 

different from that issued by the 

International Accounting Standards 

Board, in lieu of Generally Accepted 

Accounting Principles, then an entity 

may employ International Financial 

Reporting Standards as ‘‘GAAP’’ for 

purposes of this subpart. 

* * * * * 

■ 6. Section 385.12 is amended as 

follows: 

■ a. In paragraph (b) introductory text, 

by removing ‘‘offering.’’ and adding 

‘‘offering taking into consideration 

service revenue and expenses associated 

with such offering.’’ in its place in the 

second sentence; 

■ b. In paragraph (b)(1) introductory 

text, by removing ‘‘Service.’’ and adding 

‘‘Offering.’’ in its place and by adding 

‘‘provider’’ after ‘‘service’’; 

■ c. In paragraph (b)(1)(i), by removing 

‘‘revenue as’’ and adding ‘‘revenue 

associated with the relevant offering as’’ 

in its place; 

■ d. In paragraph (b)(2): 

■ i. By removing ‘‘service, subtract’’ and 

adding ‘‘service provider, subtract’’ in 

its place in the first sentence; 

■ ii. By removing ‘‘by the service’’ in the 

first sentence; 

■ iii. By removing ‘‘While’’ and adding 

‘‘Although’’ in its place in the second 

sentence; 

■ iv. By removing ‘‘under its agreements 

with performing rights societies as 

defined in 17 U.S.C. 101’’ in the second 

sentence; and 

■ v. By removing ‘‘In the latter case,’’ 

and adding ‘‘In the case where the 

service is also engaging in the public 

performance of musical works that does 

not constitute licensed activity,’’ in its 

place in the third sentence; 

■ e. In paragraph (b)(3) introductory 

text, by removing ‘‘This is’’ and adding 

‘‘The payable royalty pool is’’ in its 

place and by adding ‘‘provider’’ after 

‘‘service’’; 

■ f. In paragraph (b)(4), by removing 

‘‘used by the service’’ and adding ‘‘used 

by the service provider’’ in its place 

each place it appears, by removing ‘‘on 

or after October 1, 2010’’ in the fourth 

sentence, and by removing ‘‘if the 

service is’’ and adding ‘‘if the service 

provider is’’ in the fifth sentence; 

■ g. By revising paragraph (c); and 

■ h. In paragraph (d) introductory text, 

by removing ‘‘For licensed activity on or 

after October 1, 2010, for’’ and adding 

‘‘For’’ in its place. 

The revision reads as follows: 

§ 385.12 Calculation of royalty payments 

in general. 

* * * * * 

(c) Percentage of service revenue. The 

percentage of service revenue applicable 

under paragraph (b) of this section is 

10.5%. 

* * * * * 

■ 7. Section 385.13 is amended as 

follows: 

■ a. In paragraphs (a)(1) through (5), by 

removing ‘‘§ 385.12(b)(1)’’ and adding 

‘‘§ 385.12(b)(1)(ii)’’ in its place each 

place it appears, and by removing 

‘‘§ 385.12(b)(3)’’ and adding 

‘‘§ 385.12(b)(3)(ii)’’ in its place each 

place it appears; 

■ b. In paragraph (a)(4): 

■ i. By adding ‘‘providing licensed 

activity that is’’ before ‘‘made available 

to end users’’ in the first sentence; 

■ ii. By adding ‘‘(including products or 

services subject to other subparts)’’ 

before ‘‘as part of a single transaction’’ 

in the first sentence; 

■ iii. By removing ‘‘subscription service 

separate’’ and adding ‘‘subscription 

service providing licensed activity 

separate’’ in its place in the first 

sentence; and 

■ iv. By removing ‘‘subscription service 

for a single price’’ and adding 

‘‘subscription service providing licensed 

activity for a single price’’ in its place 

in the first sentence; 

■ c. By revising paragraphs (b) and (c); 

■ d. By redesignating paragraph (d) as 

paragraph (e); 

■ e. By adding a new paragraph (d); and 

■ f. In newly redesignated paragraph (e): 

■ i. By removing ‘‘the service shall for 

the relevant offering calculate its’’ and 

adding ‘‘the’’ in its place in the first 

sentence; and 

■ ii. By adding ‘‘shall be calculated,’’ 

before ‘‘taking into account’’ in the first 

sentence. 

The revisions and additions read as 

follows: 

§ 385.13 Minimum royalty rates and 

subscriber-based royalty floors for specific 

types of services. 

* * * * * 

(b) Computation of subminimum I. 

For purposes of paragraphs (a)(2), (3), 

and (4) of this section, subminimum I 

for an accounting period means the 

aggregate of the following with respect 

to all sound recordings of musical works 

used in the relevant offering of the 

service provider during the accounting 

period— 

(1) In cases in which the record 

company is the licensee under 17 U.S.C. 

115 and the record company has granted 

the rights to make interactive streams or 

limited downloads of a sound recording 

through the third-party service together 

with the right to reproduce and 

distribute the musical work embodied 

therein, 17.36% of the total amount 

expensed by the service provider or any 

of its affiliates in accordance with 


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67944 Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 

GAAP for such rights for the accounting 

period, which amount shall equal the 

applicable consideration for such rights 

at the time such applicable 

consideration is properly recognized as 

an expense under GAAP. 

(2) In cases in which the record 

company is not the licensee under 17 

U.S.C. 115 and the record company has 

granted the rights to make interactive 

streams or limited downloads of a 

sound recording through the third-party 

service without the right to reproduce 

and distribute the musical work 

embodied therein, 21% of the total 

amount expensed by the service 

provider or any of its affiliates in 

accordance with GAAP for such rights 

for the accounting period, which 

amount shall equal the applicable 

consideration for such rights at the time 

such applicable consideration is 

properly recognized as an expense 

under GAAP. 

(c) Computation of subminimum II. 

For purposes of paragraphs (a)(1) and (5) 

of this section, subminimum II for an 

accounting period means the aggregate 

of the following with respect to all 

sound recordings of musical works used 

in the relevant offering of the service 

provider during the accounting period— 

(1) In cases in which the record 

company is the licensee under 17 U.S.C. 

115 and the record company has granted 

the rights to make interactive streams 

and limited downloads of a sound 

recording through the third-party 

service together with the right to 

reproduce and distribute the musical 

work embodied therein, 18% of the total 

amount expensed by the service 

provider or any of its affiliates in 

accordance with GAAP for such rights 

for the accounting period, which 

amount shall equal the applicable 

consideration for such rights at the time 

such applicable consideration is 

properly recognized as an expense 

under GAAP. 

(2) In cases in which the record 

company is not the licensee under 17 

U.S.C. 115 and the record company has 

granted the rights to make interactive 

streams or limited downloads of a 

sound recording through the third-party 

service without the right to reproduce 

and distribute the musical work 

embodied therein, 22% of the total 

amount expensed by the service 

provider or any of its affiliates in 

accordance with GAAP for such rights 

for the accounting period, which 

amount shall equal the applicable 

consideration for such rights at the time 

such applicable consideration is 

properly recognized as an expense 

under GAAP. 

(d) Payments made by third parties. If 

a record company providing sound 

recording rights to the service provider 

for a licensed activity— 

(1) Recognizes revenue (in accordance 

with GAAP, and including for the 

avoidance of doubt all applicable 

consideration with respect to such 

rights for the accounting period, 

regardless of the form or timing of 

payment) from a person or entity other 

than the service provider providing the 

licensed activity and its affiliates, and 

(2) Such revenue is received, in the 

context of the transactions involved, as 

applicable consideration for such rights, 

(3) Then such revenue shall be added 

to the amounts expensed by the service 

provider solely for purposes of 

paragraphs(b)(1), (b)(2), (c)(1), or (c)(2) 

of this section, as applicable, if not 

already included in such expensed 

amounts. Where the service provider is 

the licensee, if the service provider 

provides the record company all 

information necessary for the record 

company to determine whether 

additional royalties are payable by the 

service provider hereunder as a result of 

revenue recognized from a person or 

entity other than the service provider as 

described in the immediately preceding 

sentence, then the record company shall 

provide such further information as 

necessary for the service provider to 

calculate the additional royalties and 

indemnify the service provider for such 

additional royalties. The sole obligation 

of the record company shall be to pay 

the licensee such additional royalties if 

actually payable as royalties hereunder; 

provided, however, that this shall not 

affect any otherwise existing right or 

remedy of the copyright owner nor 

diminish the licensee’s obligations to 

the copyright owner. 

* * * * * 

■ 8. Section 385.14 is amended as 

follows: 

■ a. In paragraph (a)(1)(iii), by removing 

‘‘service’’ and adding ‘‘service provider’’ 

in its place each place it appears; 

■ b. In paragraph (a)(1)(iii)(A), by 

removing ‘‘commencing on or after 

October 1, 2010, except’’ and adding 

‘‘other than’’ in its place; 

■ c. In paragraph (a)(3): 

■ i. By removing ‘‘the service shall 

provide’’ and adding ‘‘the service 

provider shall provide’’ in its place in 

the first sentence; 

■ ii. By removing ‘‘the service shall 

have’’ and adding ‘‘the service provider 

shall have’’ in its place in the first 

sentence; 

■ iii. By removing ‘‘service does not 

provide’’ and adding ‘‘service provider 

does not provide’’ in its place in the 

second sentence; and 

■ iv. By removing ‘‘the service (but’’ and 

adding ‘‘the service provider (but’’ in its 

place in the second sentence; 

■ d. By revising paragraph (b)(1); 

■ e. In paragraph (b)(4), by removing 

‘‘the service, and not’’ and adding ‘‘the 

service provider, and not’’ in its place 

in the second sentence; and 

■ f. By revising paragraph (d). 

The revisions read as follows: 

§ 385.14 Promotional royalty rate. 

* * * * * 

(b) * * * 

(1) No applicable consideration for 

making or authorizing the relevant 

interactive streams or limited 

downloads is received by the record 

company, any of its affiliates, or any 

other person or entity acting on behalf 

of or in lieu of the record company, 

except for in-kind promotional 

consideration given to a record 

company (or affiliate thereof) that is 

used to promote the sale or paid use of 

sound recordings or the paid use of 

music services through which sound 

recordings are available; 

* * * * * 

(d) Interactive streaming of clips. In 

addition to those in paragraph (a) of this 

section, the provisions of this paragraph 

(d) apply to interactive streaming 

conducted or authorized by record 

companies under the promotional 

royalty rate of segments of sound 

recordings of musical works with a 

playing time that does not exceed 90 

seconds. Such interactive streams may 

be made or authorized by a record 

company under the promotional royalty 

rate without any of the temporal 

limitations set forth in paragraphs (b) 

and (c) of this section (but subject to the 

other conditions of paragraphs (b) and 

(c) of this section, as applicable). For 

clarity, this paragraph (d) is strictly 

limited to the uses described herein and 

shall not be construed as permitting the 

creation or use of an excerpt of a 

musical work in violation of 17 U.S.C. 

106(2) or 115(a)(2) or any other right of 

a musical work owner. 

■ 9. Add Subpart C to read as follows: 

Subpart C—Limited Offerings, Mixed 

Service Bundles, Music Bundles, Paid 

Locker Services and Purchased Content 

Locker Services 

Sec. 

385.20 General. 

385.21 Definitions. 

385.22 Calculation of royalty payments in 

general. 

385.23 Royalty rates and subscriber-based 

royalty floors for specific types of 

services. 

385.24 Free trial periods. 

385.25 Reproduction and distribution rights 

covered. 


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Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 67945 

385.26 Effect of rates. 

Subpart C—Limited Offerings, Mixed 

Service Bundles, Music Bundles, Paid 

Locker Services and Purchased 

Content Locker Services 

§ 385.20 General. 

(a) Scope. This subpart establishes 

rates and terms of royalty payments for 

certain reproductions or distributions of 

musical works through limited 

offerings, mixed service bundles, music 

bundles, paid locker services and 

purchased content locker services 

provided in accordance with the 

provisions of 17 U.S.C. 115. For the 

avoidance of doubt, to the extent that 

product configurations for which rates 

are specified in subpart A of this part 

are included within licensed subpart C 

activity, as defined in § 385.21, the rates 

specified in subpart A of this part shall 

not apply, except that in the case of a 

music bundle the compulsory licensee 

may elect to pay royalties for the music 

bundle pursuant to subpart C of this 

part or for the components of the bundle 

pursuant to subpart A of this part. 

(b) Legal compliance. A licensee that, 

pursuant to 17 U.S.C. 115, makes or 

authorizes reproduction or distribution 

of musical works in limited offerings, 

mixed service bundles, music bundles, 

paid locker services or purchased 

content locker services shall comply 

with the requirements of that section, 

the rates and terms of this subpart, and 

any other applicable regulations, with 

respect to such musical works and uses 

licensed pursuant to 17 U.S.C. 115. 

(c) Interpretation. This subpart is 

intended only to set rates and terms for 

situations in which the exclusive rights 

of a copyright owner are implicated and 

a compulsory license pursuant to 17 

U.S.C. 115 is obtained. Neither this 

subpart nor the act of obtaining a license 

under 17 U.S.C. 115 is intended to 

express or imply any conclusion as to 

the circumstances in which any of the 

exclusive rights of a copyright owner are 

implicated or a license, including a 

compulsory license pursuant to 17 

U.S.C. 115, must be obtained. 

§ 385.21 Definitions. 

For purposes of this subpart, the 

following definitions shall apply: 

Affiliate shall have the meaning given 

in § 385.11. 

Applicable consideration shall have 

the meaning given in § 385.11, except 

that for purposes of this subpart C, 

references in the definition of 

‘‘Applicable consideration’’ in § 385.11 

to licensed activity shall mean licensed 

subpart C activity, as defined in this 

section. 

Free trial royalty rate means the 

statutory royalty rate of zero in the case 

of certain free trial periods, as provided 

in § 385.24. 

GAAP shall have the meaning given 

in § 385.11. 

Interactive stream shall have the 

meaning given in § 385.11. 

Licensee shall have the meaning given 

in § 385.11. 

Licensed subpart C activity means, 

referring to subpart C of this part— 

(1) In the case of a limited offering, 

the applicable interactive streams or 

limited downloads; 

(2) In the case of a locker service, the 

applicable interactive streams, 

permanent digital downloads, restricted 

downloads or ringtones; 

(3) In the case of a music bundle, the 

applicable reproduction or distribution 

of a physical phonorecord, permanent 

digital download or ringtone; and 

(4) In the case of a mixed service 

bundle, the applicable— 

(i) Permanent digital downloads; 

(ii) Ringtones; 

(iii) To the extent a limited offering is 

included in a mixed service bundle, 

interactive streams or limited 

downloads; or 

(iv) To the extent a locker service is 

included in a mixed service bundle, 

interactive streams, permanent digital 

downloads, restricted downloads or 

ringtones. 

Limited download shall have the 

meaning given in § 385.11. 

Limited offering means a subscription 

service providing interactive streams or 

limited downloads where— 

(1) An end user is not provided the 

opportunity to listen to a particular 

sound recording chosen by the end user 

at a time chosen by the end user (i.e., 

the service does not provide interactive 

streams of individual recordings that are 

on-demand, and any limited downloads 

are rendered only as part of programs 

rather than as individual recordings that 

are on-demand); or 

(2) The particular sound recordings 

available to the end user over a period 

of time are substantially limited relative 

to services in the marketplace providing 

access to a comprehensive catalog of 

recordings (e.g., a service limited to a 

particular genre, or permitting 

interactive streaming only from a 

monthly playlist consisting of a limited 

set of recordings). 

Locker service means a service 

providing access to sound recordings of 

musical works in the form of interactive 

streams, permanent digital downloads, 

restricted downloads or ringtones, 

where the service has reasonably 

determined that phonorecords of the 

applicable sound recordings have been 

purchased by the end user or are 

otherwise in the possession of the end 

user prior to the end user’s first request 

to access such sound recordings by 

means of the service. The term locker 

service does not extend to any part of 

a service otherwise meeting this 

definition as to which a license is not 

obtained for the applicable 

reproductions and distributions of 

musical works. 

Mixed service bundle means an 

offering of one or more of permanent 

digital downloads, ringtones, locker 

services or limited offerings, together 

with one or more of non-music services 

(e.g., Internet access service, mobile 

phone service) or non-music products 

(e.g., a device such as a phone) of more 

than token value, that is provided to 

users as part of one transaction without 

pricing for the music services or music 

products separate from the whole 

offering. 

Music bundle means an offering of 

two or more of physical phonorecords, 

permanent digital downloads or 

ringtones provided to users as part of 

one transaction (e.g., download plus 

ringtone, CD plus downloads). A music 

bundle must contain at least two 

different product configurations and 

cannot be combined with any other 

offering containing licensed activity 

under subpart B of this part or subpart 

C of this part. 

(1) In the case of music bundles 

containing one or more physical 

phonorecords, the physical phonorecord 

component of the music bundle must be 

sold under a single catalog number, and 

the musical works embodied in the 

digital phonorecord delivery 

configurations in the music bundle must 

be the same as, or a subset of, the 

musical works embodied in the physical 

phonorecords; provided that when the 

music bundle contains a set of digital 

phonorecord deliveries sold by the same 

record company under substantially the 

same title as the physical phonorecord 

(e.g., a corresponding digital album), up 

to 5 sound recordings of musical works 

that are included in the stand-alone 

version of such set of digital 

phonorecord deliveries but are not 

included on the physical phonorecord 

may be included among the digital 

phonorecord deliveries in the music 

bundle. In addition, the seller must 

permanently part with possession of the 

physical phonorecord or phonorecords 

sold as part of the music bundle. 

(2) In the case of music bundles 

composed solely of digital phonorecord 

deliveries, the number of digital 

phonorecord deliveries in either 

configuration cannot exceed 20, and the 

musical works embodied in each 


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configuration in the music bundle must 

be the same as, or a subset of, the 

musical works embodied in the 

configuration containing the most 

musical works. 

Paid locker service means a locker 

service that is a subscription service. 

Permanent digital download shall 

have the meaning given in § 385.2. 

Purchased content locker service 

means a locker service made available to 

end-user purchasers of permanent 

digital downloads, ringtones or physical 

phonorecords at no incremental charge 

above the otherwise applicable purchase 

price of the permanent digital 

downloads, ringtones or physical 

phonorecords, with respect to the sound 

recordings embodied in permanent 

digital downloads or ringtones or 

physical phonorecords purchased from 

a qualifying seller as described in 

paragraph (1) of this definition of 

‘‘Purchased content locker service,’’ 

whereby the locker service enables the 

purchaser to engage in one or both of 

the qualifying activities indentified in 

paragraph (2) of this definition of 

‘‘Purchased content locker service.’’ In 

addition, in the case of a locker service 

made available to end-user purchasers 

of physical phonorecords, the seller 

must permanently part with possession 

of the physical phonorecords. 

(1) A qualifying seller for purposes of 

this definition of ‘‘purchased content 

locker service’’ is the same entity 

operating such locker service, one of its 

affiliates or predecessors, or— 

(i) In the case of permanent digital 

downloads or ringtones, a seller having 

another legitimate connection to the 

locker service provider set forth in one 

or more written agreements (including 

that the locker service and permanent 

digital downloads or ringtones are 

offered through the same third party); or 

(ii) In the case of physical 

phonorecords, a seller having an 

agreement with— 

(A) The locker service provider 

whereby such parties establish an 

integrated offer that creates a consumer 

experience commensurate with having 

the same service both sell the physical 

phonorecord and offer the locker 

service; or 

(B) A service provider that also has an 

agreement with the entity offering the 

locker service, where pursuant to those 

agreements the service provider has 

established an integrated offer that 

creates a consumer experience 

commensurate with having the same 

service both sell the physical 

phonorecord and offer the locker 

service. 

(2) Qualifying activity for purposes of 

this definition of ‘‘purchased content 

locker service’’ is enabling the 

purchaser to— 

(i) Receive one or more additional 

phonorecords of such purchased sound 

recordings of musical works in the form 

of permanent digital downloads or 

ringtones at the time of purchase, or 

(ii) Subsequently access such 

purchased sound recordings of musical 

works in the form of interactive streams, 

additional permanent digital 

downloads, restricted downloads or 

ringtones. 

Record company shall have the 

meaning given in § 385.11. 

Restricted download means a digital 

phonorecord delivery distributed in the 

form of a download that may not be 

retained and played on a permanent 

basis. The term restricted download 

includes a limited download. 

Ringtone shall have the meaning 

given in § 385.2. 

Service provider shall have the 

meaning given in § 385.11, except that 

for purposes of this subpart references 

in the definition of ‘‘Service provider’’ 

in § 385.11 to licensed activity and 

service revenue shall mean licensed 

subpart C activity, as defined in this 

section, and subpart C service revenue, 

as defined in this section, respectively. 

Subpart C offering means, referring to 

subpart C of this part, a service 

provider’s offering of licensed subpart C 

activity, as defined in this section, that 

is subject to a particular rate set forth in 

§ 385.23(a) (e.g., a particular 

subscription plan available through the 

service provider). 

Subpart C relevant page means, 

referring to subpart C of this part, a page 

(including a Web page, screen or 

display) from which licensed subpart C 

activity, as defined in this section, 

offered by a service provider is directly 

available to end users, but only where 

the offering of licensed subpart C 

activity, as defined in this section, and 

content that directly relates to the 

offering of licensed subpart C activity, 

as defined in this section, (e.g., an image 

of the artist or artwork closely 

associated with such offering, artist or 

album information, reviews of such 

offering, credits and music player 

controls) comprises 75% or more of the 

space on that page, excluding any space 

occupied by advertising. A licensed 

subpart C activity, as defined in this 

section, is directly available to end users 

from a page if sound recordings of 

musical works can be accessed by end 

users for licensed subpart C activity, as 

defined in this section, from such page 

(in most cases this will be the page 

where the transmission takes place). 

Subpart C service revenue. (1) Subject 

to paragraphs (2) through (6) of the 

definition of ‘‘Subpart C service 

revenue,’’ as defined in this section, and 

subject to GAAP, subpart C service 

revenue shall mean, referring to subpart 

C of this part, the following: 

(i) All revenue recognized by the 

service provider from end users from 

the provision of licensed subpart C 

activity, as defined in this section; 

(ii) All revenue recognized by the 

service provider by way of sponsorship 

and commissions as a result of the 

inclusion of third-party ‘‘in-stream’’ or 

‘‘in-download’’ advertising as part of 

licensed subpart C activity, as defined 

in this section, (i.e., advertising placed 

immediately at the start, end or during 

the actual delivery, by way of 

transmissions of a musical work that 

constitute licensed subpart C activity, as 

defined in this section); and 

(iii) All revenue recognized by the 

service provider, including by way of 

sponsorship and commissions, as a 

result of the placement of third-party 

advertising on a subpart C relevant page, 

as defined in this section, of the service 

or on any page that directly follows 

such subpart C relevant page, as defined 

in this section, leading up to and 

including the transmission of a musical 

work that constitutes licensed subpart C 

activity, as defined in this section; 

provided that, in the case where more 

than one service is actually available to 

end users from a subpart C relevant 

page, as defined in this section, any 

advertising revenue shall be allocated 

between such services on the basis of 

the relative amounts of the page they 

occupy. 

(2) In each of the cases identified in 

paragraph (1) of the definition of 

‘‘Subpart C service revenue,’’ of this 

section such revenue shall, for the 

avoidance of doubt, 

(i) Include any such revenue 

recognized by the service provider, or if 

not recognized by the service provider, 

by any associate, affiliate, agent or 

representative of such service provider 

in lieu of its being recognized by the 

service provider; 

(ii) Include the value of any barter or 

other nonmonetary consideration; 

(iii) Not be reduced by credit card 

commissions or similar payment 

process charges; and 

(iv) Except as expressly set forth in 

this subpart, not be subject to any other 

deduction or set-off other than refunds 

to end users for licensed subpart C 

activity, as defined in this section, that 

they were unable to use due to technical 

faults in the licensed subpart C activity, 

as defined in this section, or other bona 

fide refunds or credits issued to end 

users in the ordinary course of business. 


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(3) In each of the cases identified in 

paragraph (1) of the definition of 

‘‘Subpart C service revenue’’ of this 

section, such revenue shall, for the 

avoidance of doubt, exclude revenue 

derived solely in connection with 

services and activities other than 

licensed subpart C activity, as defined 

in this section, provided that advertising 

or sponsorship revenue shall be treated 

as provided in paragraphs (2) and (4) of 

the definition of ‘‘Subpart C service 

revenue’’ of this section. By way of 

example, the following kinds of revenue 

shall be excluded: 

(i) Revenue derived from non-music 

voice, content and text services; 

(ii) Revenue derived from other nonmusic products and services (including 

search services, sponsored searches and 

click-through commissions); 

(iii) Revenue generated from the sale 

of actual locker service storage space to 

the extent that such storage space is sold 

at a separate retail price; 

(iv) In the case of a locker service, 

revenue derived from the sale of 

permanent digital downloads or 

ringtones; and 

(v) Revenue derived from other music 

or music-related products and services 

that are not or do not include licensed 

subpart C activity, as defined in this 

section. 

(4) For purposes of paragraph (1) of 

the definition of ‘‘Subpart C service 

revenue’’ of this section, advertising or 

sponsorship revenue shall be reduced 

by the actual cost of obtaining such 

revenue, not to exceed 15%. 

(5) In the case of a mixed service 

bundle, the revenue deemed to be 

recognized from end users for the 

service for the purpose of the definition 

in paragraph (1) of the definition of 

‘‘Subpart C service revenue’’ of this 

section shall be the greater of— 

(i) The revenue recognized from end 

users for the mixed service bundle less 

the standalone published price for end 

users for each of the non-music product 

or non-music service components of the 

bundle; provided that, if there is no 

such standalone published price for a 

non-music component of the bundle, 

then the average standalone published 

price for end users for the most closely 

comparable non-music product or nonmusic service in the U.S. shall be used 

or, if more than one such comparable 

exists, the average of such standalone 

prices for such comparables shall be 

used; and 

(ii) Either— 

(A) In the case of a mixed service 

bundle that either has 750,000 

subscribers or other registered users, or 

is reasonably expected to have 750,000 

subscribers or other registered users 

within 1 year after commencement of 

the mixed service bundle, 40% of the 

standalone published price of the 

licensed music component of the 

bundle (i.e., the permanent digital 

downloads, ringtones, locker service or 

limited offering); provided that, if there 

is no such standalone published price 

for the licensed music component of the 

bundle, then the average standalone 

published price for end users for the 

most closely comparable licensed music 

component in the U.S. shall be used or, 

if more than one such comparable 

exists, the average of such standalone 

prices for such comparables shall be 

used; and further provided that in any 

case in which royalties were paid based 

on this paragraph due to a reasonable 

expectation of reaching 750,000 

subscribers or other registered users 

within 1 year after commencement of 

the mixed service bundle and that does 

not actually happen, applicable 

payments shall, in the accounting 

period next following the end of such 1- 

year period, retroactively be adjusted as 

if paragraph (5)(ii)(B) of the definition of 

‘‘Subpart C service revenue’’ of this 

section applied; or 

(B) Otherwise, 50% of the standalone 

published price of the licensed music 

component of the bundle (i.e., the 

permanent digital downloads, ringtones, 

locker service or limited offering); 

provided that, if there is no such 

standalone published price for the 

licensed music component of the 

bundle, then the average standalone 

published price for end users for the 

most closely comparable licensed music 

component in the U.S. shall be used or, 

if more than one such comparable 

exists, the average of such standalone 

prices for such comparables shall be 

used. 

(6) In the case of a music bundle 

containing a physical phonorecord, 

where the music bundle is distributed 

by a record company for resale and the 

record company is the compulsory 

licensee— 

(i) Service revenue shall be 150% of 

the record company’s wholesale 

revenue from the music bundle; and 

(ii) The times at which distribution 

and revenue recognition are deemed to 

occur shall be in accordance with 

§ 201.19 of this title. 

Subscription service means a digital 

music service for which end users are 

required to pay a fee to access the 

service for defined subscription periods 

of 3 years or less (in contrast to, for 

example, a service where the basic 

charge to users is a payment per 

download or per play), whether such 

payment is made for access to the 

service on a standalone basis or as part 

of a bundle with one or more other 

products or services, and including any 

use of such a service on a trial basis 

without charge as described in § 385.24. 

§ 385.22 Calculation of royalty payments 

in general. 

(a) Applicable royalty. Licensees that 

make or authorize licensed subpart C 

activity, as defined in § 385.21, pursuant 

to 17 U.S.C. 115 shall pay royalties 

therefor that are calculated as provided 

in this section, subject to the royalty 

rates and subscriber-based royalty floors 

for specific types of services provided in 

§ 385.23, except as provided for certain 

free trial periods in § 385.24. 

(b) Rate calculation methodology. 

Royalty payments for licensed subpart C 

activity, as defined in § 385.21, shall be 

calculated as provided in this paragraph 

(b). If a service provides different 

subpart C offerings, as defined in 

§ 385.21, royalties must be separately 

calculated with respect to each such 

subpart C offering, as defined in 

§ 385.21, taking into consideration 

service revenue and expenses associated 

with such offering. Uses subject to the 

free trial royalty rate shall be excluded 

from the calculation of royalties due, as 

further described in this section and 

§ 385.23. 

(1) Step 1: Calculate the All-In 

Royalty for the Subpart C Offering, as 

Defined in § 385.21. For each 

accounting period, the all-in royalty for 

each subpart C offering, as defined in 

§ 385.21, of the service provider is the 

greater of: 

(i) The applicable percentage of 

subpart C service revenue, as defined in 

§ 385.21, associated with the relevant 

offering as set forth in § 385.23(a) 

(excluding any subpart C service 

revenue, as defined in § 385.21, derived 

solely from licensed subpart C activity, 

as defined in § 385.21, uses subject to 

the free trial royalty rate); and 

(ii) The minimum specified in 

§ 385.23(a) for the subpart C offering, as 

defined in § 385.21, involved. 

(2) Step 2: Subtract applicable 

performance royalties to determine the 

payable royalty pool, which is the 

amount payable for the reproduction 

and distribution of all musical works 

used by the service provider by virtue 

of its licensed subpart C activity, as 

defined in § 385.21, for a particular 

subpart C offering, as defined in 

§ 385.21, during the accounting period. 

From the amount determined in step 1 

in paragraph (b)(1) of this section, for 

each subpart C offering, as defined in 

§ 385.21, of the service provider, 

subtract the total amount of royalties for 

public performance of musical works 

that has been or will be expensed 


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pursuant to public performance licenses 

in connection with uses of musical 

works through such subpart C offering, 

as defined in § 385.21, during the 

accounting period that constitute 

licensed subpart C activity, as defined 

in § 385.21, (other than licensed subpart 

C activity, as defined in § 385.21, 

subject to the free trial royalty rate), or 

in connection with previewing of such 

subpart C offering, as defined in 

§ 385.21, during the accounting period. 

Although this amount may be the total 

of the payments with respect to the 

service for that subpart C offering, as 

defined in § 385.21, for the accounting 

period, it will be less than the total of 

such public performance payments if 

the service is also engaging in public 

performance of musical works that does 

not constitute licensed subpart C 

activity, as defined in § 385.21, or 

previewing of such licensed subpart C 

activity, as defined in § 385.21. In the 

case where the service is also engaging 

in the public performance of musical 

works that does not constitute licensed 

subpart C activity, as defined in 

§ 385.21, the amount to be subtracted for 

public performance payments shall be 

the amount of such payments allocable 

to licensed subpart C activity, as defined 

in § 385.21, uses (other than free trial 

royalty rate uses), and previewing of 

such uses, in connection with the 

relevant subpart C offering, as defined 

in § 385.21, as determined in relation to 

all uses of musical works for which the 

public performance payments are made 

for the accounting period. Such 

allocation shall be made on the basis of 

plays of musical works or, where perplay information is unavailable due to 

bona fide technical limitations as 

described in step 3 in paragraph (b)(3) 

of this section, using the same 

alternative methodology as provided in 

step 3 in paragraph (b)(3) of this section. 

(3) Step 3: Calculate the Per-Work 

Royalty Allocation for Each Relevant 

Work. This is the amount payable for 

the reproduction and distribution of 

each musical work used by the service 

provider by virtue of its licensed 

subpart C activity, as defined in 

§ 385.21, through a particular subpart C 

offering, as defined in § 385.21, during 

the accounting period. To determine 

this amount, the result determined in 

step 2 in paragraph (b)(2) of this section 

must be allocated to each musical work 

used through the subpart C offering, as 

defined in § 385.21. The allocation shall 

be accomplished as follows: 

(i) In the case of limited offerings (but 

not limited offerings that are part of 

mixed service bundles), by dividing the 

payable royalty pool determined in step 

2 in paragraph (b)(2) of this section for 

such offering by the total number of 

plays of all musical works through such 

offering during the accounting period 

(other than free trial royalty rate plays) 

to yield a per-play allocation, and 

multiplying that result by the number of 

plays of each musical work (other than 

free trial royalty rate plays) through the 

offering during the accounting period. 

For purposes of determining the perwork royalty allocation in all 

calculations under this step 3 only (i.e., 

after the payable royalty pool has been 

determined), for sound recordings of 

musical works with a playing time of 

over 5 minutes, each play shall be 

counted as provided in paragraph (c) of 

this section. Notwithstanding the 

foregoing, if the service provider is not 

capable of tracking play information due 

to bona fide limitations of the available 

technology for services of that nature or 

of devices usable with the service, the 

per-work royalty allocation may instead 

be accomplished in a manner consistent 

with the methodology used by the 

service provider for making royalty 

payment allocations for the use of 

individual sound recordings. 

(ii) In the case of mixed service 

bundles and locker services, by— 

(A) Determining a constructive 

number of plays of all licensed musical 

works that is the sum of the total 

number of interactive streams of all 

licensed musical works made through 

such offering during the accounting 

period (other than free trial royalty rate 

interactive streams), plus the total 

number of plays of restricted downloads 

of all licensed musical works made 

through such offering during the 

accounting period as to which the 

service provider tracks plays (other than 

free trial royalty rate restricted 

downloads), plus 5 times the total 

number of downloads of all licensed 

musical works made through such 

offering during the accounting period as 

to which the service provider does not 

track plays (other than free trial royalty 

rate downloads); 

(B) Determining a constructive perplay allocation that is the payable 

royalty pool determined in step 2 of 

paragraph (b)(2) of this section for such 

offering divided by the constructive 

number of plays of all licensed musical 

works determined in paragraph 

(b)(3)(ii)(A) of this section; 

(C) For each licensed musical work, 

determining a constructive number of 

plays of that musical work that is the 

sum of the total number of interactive 

streams of such licensed musical work 

made through such offering during the 

accounting period (other than free trial 

royalty rate interactive streams), plus 

the total number of plays of restricted 

downloads of such licensed musical 

work made through such offering during 

the accounting period as to which the 

service provider tracks plays (other than 

free trial royalty rate restricted 

downloads), plus 5 times the total 

number of downloads of such licensed 

musical work made through such 

offering during the accounting period as 

to which the service provider does not 

track plays (other than free trial royalty 

rate downloads); and 

(D) For each licensed musical work, 

determining the per-work royalty 

allocation by multiplying the 

constructive per-play allocation 

determined in paragraph (b)(3)(ii)(B) of 

this section by the constructive number 

of plays of that musical work 

determined in paragraph (b)(3)(ii)(C) of 

this section. 

(E) Notwithstanding the foregoing, if a 

service provider offers both a paid 

locker service and a purchased content 

locker service, and with respect to the 

purchased content locker service there 

is no subpart C service revenue, as 

defined in § 385.21, and the applicable 

subminimum is zero dollars, then the 

service provider shall be permitted to 

include within the calculation of 

constructive plays under paragraphs 

(b)(3)(ii)(A) and (C) of this section for 

the paid locker service, the licensed 

subpart C activity, as defined in 

§ 385.21, made through the purchased 

content locker service (i.e., the total 

number of interactive streams of all 

licensed musical works made through 

the purchased content locker service 

during the accounting period (other 

than free trial royalty rate interactive 

streams), plus the total number of plays 

of restricted downloads of all licensed 

musical works made through the 

purchased content locker service during 

the accounting period as to which the 

service provider tracks plays (other than 

free trial royalty rate restricted 

downloads), plus 5 times the total 

number of downloads of all licensed 

musical works made through the 

purchased content locker service during 

the accounting period as to which the 

service provider does not track plays 

(other than free trial royalty rate 

downloads)); provided that the relevant 

licensed subpart C activity, as defined 

in § 385.21, made through the 

purchased content locker service is 

similarly included within the play 

calculation for the paid locker service 

for the corresponding sound recording 

rights. 

(iii) In the case of music bundles, by— 

(A) Allocating the payable royalty 

pool determined in step 2 of paragraph 

(b)(2) of this section to separate pools 

for each type of product configuration 


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included in the music bundle (e.g., CD, 

permanent digital download, ringtone) 

in accordance with the ratios that the 

standalone published prices of the 

products that are included in the music 

bundle bear to each other; provided 

that, if there is no such standalone 

published price for such a product, then 

the average standalone published price 

for end users for the most closely 

comparable product in the U.S. shall be 

used or, if more than one such 

comparable exists, the average of such 

standalone prices for such comparables 

shall be used; and 

(B) Allocating the product 

configuration pools determined in 

paragraph (b)(3)(iii)(A) of this section to 

individual musical works by dividing 

each such pool by the total number of 

sound recordings of musical works 

included in products of that 

configuration in the music bundle. 

(c) Overtime adjustment. For purposes 

of the calculations in step 3 of 

paragraph (b)(3)(i) of this section only, 

for sound recordings of musical works 

with a playing time of over 5 minutes, 

adjust the number of plays as follows: 

(1) 5:01 to 6:00 minutes—Each play = 

1.2 plays 

(2) 6:01 to 7:00 minutes—Each play = 

1.4 plays 

(3) 7:01 to 8:00 minutes—Each play = 

1.6 plays 

(4) 8:01 to 9:00 minutes—Each play = 

1.8 plays 

(5) 9:01 to 10:00 minutes—Each play 

= 2.0 plays 

(6) For playing times of greater than 

10 minutes, continue to add .2 plays for 

each additional minute or fraction 

thereof. 

§ 385.23 Royalty rates and subscriberbased royalty floors for specific types of 

services. 

(a) In general. The following royalty 

rates and subscriber-based royalty floors 

shall apply to the following types of 

licensed subpart C activity, as defined 

in § 385.21: 

(1) Mixed service bundle. In the case 

of a mixed service bundle, the 

percentage of subpart C service revenue, 

as defined in § 385.21, applicable in 

step 1 of § 385.22(b)(1)(i) is 11.35%. The 

minimum for use in step 1 of 

§ 385.22(b)(1)(ii) is the appropriate 

subminimum as described in paragraph 

(b) of this section for the accounting 

period, where the all-in percentage 

applicable to § 385.23(b)(1) is 17.36%, 

and the sound recording-only 

percentage applicable to § 385.23(b)(2) 

is 21%. 

(2) Music bundle. In the case of a 

music bundle, the percentage of subpart 

C service revenue, as defined in 

§ 385.21, applicable in step 1 of 

§ 385.22(b)(1)(i) is 11.35%. The 

minimum for use in step 1 of 

§ 385.22(b)(1)(ii) is the appropriate 

subminimum as described in paragraph 

(b) of this section for the accounting 

period, where the all-in percentage 

applicable to § 385.23(b)(1) and (3) is 

17.36%, and the sound recording-only 

percentage applicable to § 385.23(b)(2) 

is 21%. 

(3) Limited offering. In the case of a 

limited offering, the percentage of 

subpart C service revenue, as defined in 

§ 385.21, applicable in step 1 of 

§ 385.22(b)(1)(i) is 10.5%. The minimum 

for use in step 1 of § 385.22(b)(1)(ii) is 

the greater of— 

(i) The appropriate subminimum as 

described in paragraph (b) of this 

section for the accounting period, where 

the all-in percentage applicable to 

§ 385.23(b)(1) is 17.36%, and the sound 

recording-only percentage applicable to 

§ 385.23(b)(2) is 21%; and 

(ii) The aggregate amount of 18 cents 

per subscriber per month. 

(4) Paid locker service. In the case of 

a paid locker service, the percentage of 

subpart C service revenue, as defined in 

§ 385.21, applicable in step 1 of 

§ 385.22(b)(1)(i) is 12%. The minimum 

for use in step 1 of § 385.22(b)(1)(ii) is 

the greater of— 

(i) The appropriate subminimum as 

described in paragraph (b) of this 

section for the accounting period, where 

the all-in percentage applicable to 

§ 385.23(b)(1) is 17.11%, and the sound 

recording-only percentage applicable to 

§ 385.23(b)(2) is 20.65%; and 

(ii) The aggregate amount of 17 cents 

per subscriber per month. 

(5) Purchased content locker service. 

In the case of a purchased content 

locker service, the percentage of subpart 

C service revenue, as defined in 

§ 385.21, applicable in step 1 of 

§ 385.22(b)(1)(i) is 12%. For the 

avoidance of doubt, paragraph (1)(i) of 

the definition of ‘‘Subpart C service 

revenue,’’ as defined in § 385.21, shall 

not apply. The minimum for use in step 

1 in § 385.22(b)(1)(ii) is the appropriate 

subminimum as described in paragraph 

(b) of this section for the accounting 

period, where the all-in percentage 

applicable to § 385.23(b)(1) is 18%, and 

the sound recording-only percentage 

applicable to § 385.23(b)(2) is 22%, 

except that for purposes of paragraph (b) 

of this section the applicable 

consideration expensed by the service 

for the relevant rights shall consist only 

of applicable consideration expensed by 

the service, if any, that is incremental to 

the applicable consideration expensed 

for the rights to make the relevant 

permanent digital downloads and 

ringtones. 

(b) Computation of subminima. For 

purposes of paragraph (a) of this section, 

the subminimum for an accounting 

period is the aggregate of the following 

with respect to all sound recordings of 

musical works used in the relevant 

subpart C offering, as defined in 

§ 385.21, of the service provider during 

the accounting period— 

(1) Except as provided in paragraph 

(b)(3) of this section, in cases in which 

the record company is the licensee 

under 17 U.S.C. 115 and the record 

company has granted the rights to 

engage in licensed subpart C activity, as 

defined in § 385.21, with respect to a 

sound recording through the third-party 

service together with the right to 

reproduce and distribute the musical 

work embodied therein, the appropriate 

all-in percentage from paragraph (a) of 

this section of the total amount 

expensed by the service provider or any 

of its affiliates in accordance with 

GAAP for such rights for the accounting 

period, which amount shall equal the 

applicable consideration for such rights 

at the time such applicable 

consideration is properly recognized as 

an expense under GAAP. 

(2) In cases in which the record 

company is not the licensee under 17 

U.S.C. 115 and the record company has 

granted the rights to engage in licensed 

subpart C activity, as defined in 

§ 385.21, with respect to a sound 

recording through the third-party 

service without the right to reproduce 

and distribute the musical work 

embodied therein, the appropriate 

sound recording-only percentage from 

paragraph (a) of this section of the total 

amount expensed by the service 

provider or any of its affiliates in 

accordance with GAAP for such rights 

for the accounting period, which 

amount shall equal the applicable 

consideration for such rights at the time 

such applicable consideration is 

properly recognized as an expense 

under GAAP. 

(3) In the case of a music bundle 

containing a physical phonorecord, 

where the music bundle is distributed 

by a record company for resale and the 

record company is the compulsory 

licensee, the appropriate all-in 

percentage from paragraph (a) of this 

section of the record company’s total 

wholesale revenue from the music 

bundle in accordance with GAAP for 

the accounting period, which amount 

shall equal the applicable consideration 

for such music bundle at the time such 

applicable consideration is properly 

recognized as revenue under GAAP, 

subject to the provisions of § 201.19 of 


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67950 Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 

this title concerning the times at which 

distribution and revenue recognition are 

deemed to occur. 

(4) If a record company providing 

sound recording rights to the service 

provider for a licensed subpart C 

activity, as defined in § 385.21— 

(i) Recognizes revenue (in accordance 

with GAAP, and including for the 

avoidance of doubt all applicable 

consideration with respect to such 

rights for the accounting period, 

regardless of the form or timing of 

payment) from a person or entity other 

than the service provider providing the 

licensed subpart C activity, as defined 

in § 385.21, and its affiliates, and 

(ii) Such revenue is received, in the 

context of the transactions involved, as 

applicable consideration for such rights, 

(iii) Then such revenue shall be added 

to the amounts expensed by the service 

provider solely for purposes of 

paragraph (b)(1) or (2) of this section, as 

applicable, if not already included in 

such expensed amounts. Where the 

service provider is the licensee, if the 

service provider provides the record 

company all information necessary for 

the record company to determine 

whether additional royalties are payable 

by the service provider hereunder as a 

result of revenue recognized from a 

person or entity other than the service 

provider as described in the 

immediately preceding sentence, then 

the record company shall provide such 

further information as necessary for the 

service provider to calculate the 

additional royalties and indemnify the 

service provider for such additional 

royalties. The sole obligation of the 

record company shall be to pay the 

licensee such additional royalties if 

actually payable as royalties hereunder; 

provided, however, that this shall not 

affect any otherwise existing right or 

remedy of the copyright owner nor 

diminish the licensee’s obligations to 

the copyright owner. 

(c) Computation of subscriber-based 

royalty rates. For purposes of 

paragraphs (a)(3) and (4) of this section, 

to determine the subscriber-based 

minimum applicable to any particular 

subpart C offering, as defined in 

§ 385.21, the total number of subscribermonths for the accounting period shall 

be calculated, taking into account all 

end users who were subscribers for 

complete calendar months, prorating in 

the case of end users who were 

subscribers for only part of a calendar 

month, and deducting on a prorated 

basis for end users covered by a free 

trial period subject to the free trial 

royalty rate as described in § 385.24. 

The product of the total number of 

subscriber-months for the accounting 

period and the specified number of 

cents per subscriber shall be used as the 

subscriber-based component of the 

minimum for the accounting period. 

§ 385.24 Free trial periods. 

(a) General provisions. This section 

establishes a royalty rate of zero in the 

case of certain free trial periods for 

mixed service bundles, paid locker 

services and limited offerings under a 

license pursuant to 17 U.S.C. 115. 

Subject to the requirements of 17 U.S.C. 

115 and the additional provisions of 

paragraphs (b) through (e) of this 

section, the free trial royalty rate shall 

apply to a musical work when a record 

company transmits or authorizes the 

transmission, as part of a mixed service 

bundle, paid locker service or limited 

offering, of a sound recording that 

embodies such musical work, only if— 

(1) The primary purpose of the record 

company in providing or authorizing 

the free trial period is to promote the 

applicable subpart C offering, as defined 

in § 385.21; 

(2) No applicable consideration for 

making or authorizing the transmissions 

is received by the record company, or 

any other person or entity acting on 

behalf of or in lieu of the record 

company, except for in-kind 

promotional consideration used to 

promote the sale or paid use of sound 

recordings or audiovisual works 

embodying musical works or the paid 

use of music services through which 

sound recordings or audiovisual works 

embodying musical works are available; 

(3) The free trial period does not 

exceed 30 consecutive days per 

subscriber per two-year period; 

(4) In connection with authorizing the 

transmissions, the record company has 

obtained from the service provider it 

authorizes a written representation 

that— 

(i) The service provider agrees to 

maintain for a period of no less than 5 

years from the end of each relevant 

accounting period complete and 

accurate records of the relevant 

authorization, and identifying each 

sound recording of a musical work 

made available through the free trial 

period, the licensed subpart C activity, 

as defined in § 385.21, involved, and the 

number of plays or downloads, as 

applicable, of such recording; 

(ii) The service is in all material 

respects operating with appropriate 

license authority with respect to the 

musical works it is using; and 

(iii) The representation is signed by a 

person authorized to make the 

representation on behalf of the service 

provider; 

(5) Upon receipt by the record 

company of written notice from the 

copyright owner of a musical work or 

agent of the copyright owner stating in 

good faith that a particular service is in 

a material manner operating without 

appropriate license authority from such 

copyright owner, the record company 

shall within 5 business days withdraw 

by written notice its authorization of 

such uses of such copyright owner’s 

musical works under the free trial 

royalty rate by that service; 

(6) The free trial period is offered free 

of any charge to the end user; and 

(7) End users are periodically offered 

an opportunity to subscribe to the 

service during such free trial period. 

(b) Recordkeeping by record 

companies. To rely upon the free trial 

royalty rate for a free trial period, a 

record company making or authorizing 

the free trial period shall keep complete 

and accurate contemporaneous written 

records of the contractual terms that 

bear upon the free trial period; and 

further provided that, if the record 

company itself is conducting the free 

trial period, it shall also maintain any 

additional records described in 

paragraph (a)(4)(i) of this section. The 

records required by this paragraph (b) 

shall be maintained for no less time 

than the record company maintains 

records of usage of royalty-bearing uses 

involving the same type of licensed 

subpart C activity, as defined in 

§ 385.21, in the ordinary course of 

business, but in no event for less than 

5 years from the conclusion of the 

licensed subpart C activity, as defined 

in § 385.21, to which they pertain. If the 

copyright owner of a musical work or its 

agent requests a copy of the information 

to be maintained under this paragraph 

(b) with respect to a specific free trial 

period, the record company shall 

provide complete and accurate 

documentation within 10 business days, 

except for any information required 

under paragraph (a)(4)(i) of this section, 

which shall be provided within 20 

business days, and provided that if the 

copyright owner or agent requests 

information concerning a large volume 

of free trial periods or sound recordings, 

the record company shall have a 

reasonable time, in view of the amount 

of information requested, to respond to 

any request of such copyright owner or 

agent. If the record company does not 

provide required information within the 

required time, and upon receipt of 

written notice citing such failure does 

not provide such information within a 

further 10 business days, the uses will 

be considered not to be subject to the 

free trial royalty rate and the record 

company (but not any third-party 


emcdonald on DSK67QTVN1PROD with RULES
Federal Register / Vol. 78, No. 219 / Wednesday, November 13, 2013 / Rules and Regulations 67951 

service it has authorized) shall be liable 

for any payment due for such uses; 

provided, however, that all rights and 

remedies of the copyright owner with 

respect to unauthorized uses shall be 

preserved. 

(c) Recordkeeping by services. If the 

copyright owner of a musical work or its 

agent requests a copy of the information 

to be maintained under paragraph 

(a)(4)(i) of this section by a service 

authorized by a record company with 

respect to a specific promotion, the 

service provider shall provide complete 

and accurate documentation within 20 

business days, provided that if the 

copyright owner or agent requests 

information concerning a large volume 

of free trial periods or sound recordings, 

the service provider shall have a 

reasonable time, in view of the amount 

of information requested, to respond to 

any request of such copyright owner or 

agent. If the service provider does not 

provide required information within the 

required time, and upon receipt of 

written notice citing such failure does 

not provide such information within a 

further 10 business days, the uses will 

be considered not to be subject to the 

free trial royalty rate and the service 

provider (but not the record company) 

will be liable for any payment due for 

such uses; provided, however, that all 

rights and remedies of the copyright 

owner with respect to unauthorized 

uses shall be preserved. 

(d) Interpretation. The free trial 

royalty rate is exclusively for audio-only 

licensed subpart C activity, as defined 

in § 385.21, involving musical works 

subject to licensing under 17 U.S.C. 115. 

The free trial royalty rate does not apply 

to any other use under 17 U.S.C. 115; 

nor does it apply to public 

performances, audiovisual works, lyrics 

or other uses outside the scope of 17 

U.S.C. 115. Without limitation, uses 

subject to licensing under 17 U.S.C. 115 

that do not qualify for the free trial 

royalty rate (including without 

limitation licensed subpart C activity, as 

defined in § 385.21, beyond the time 

limitations applicable to the free trial 

royalty rate) require payment of 

applicable royalties. This section is 

based on an understanding of industry 

practices and market conditions at the 

time of its development, among other 

things. The terms of this section shall be 

subject to de novo review and 

consideration (or elimination altogether) 

in future proceedings before the 

Copyright Royalty Judges. Nothing in 

this section shall be interpreted or 

construed in such a manner as to nullify 

or diminish any limitation, requirement 

or obligation of 17 U.S.C. 115 or other 

protection for musical works afforded 

by the Copyright Act, 17 U.S.C. 101, et 

seq. 

§ 385.25 Reproduction and distribution 

rights covered. 

A compulsory license under 17 U.S.C. 

115 extends to all reproduction and 

distribution rights that may be necessary 

for the provision of the licensed subpart 

C activity, as defined in § 385.21, solely 

for the purpose of providing such 

licensed subpart C activity, as defined 

in § 385.21 (and no other purpose). 

§ 385.26 Effect of rates. 

In any future proceedings under 17 

U.S.C. 115(c)(3)(C) and (D), the royalty 

rates payable for a compulsory license 

shall be established de novo. 

Dated: August 21, 2013. 

Suzanne M. Barnett, 

Chief Copyright Royalty Judge. 

Approved by: 

James H. Billington, 

Librarian of Congress. 

[FR Doc. 2013–25454 Filed 11–12–13; 8:45 am] 

BILLING CODE 1410–72–P 

POSTAL REGULATORY COMMISSION 

39 CFR Part 3010 

[Docket No. RM2013–2; Order No. 1786] 

Price Cap Rules for Certain Postal Rate 

Adjustments; Corrections 

AGENCY: Postal Regulatory Commission. 

ACTION: Correcting amendments. 

SUMMARY: The Postal Regulatory 

Commission published a document in 

the Federal Register on August 26, 2013 

(78 FR 52694), revising Commission 

rules. Due to a clerical error, the 

document submitted to the Federal 

Register was inconsistent with the rules 

adopted in Commission Order No. 1786. 

This document corrects the final 

regulations published in the Federal 

Register to be consistent with the rules 

adopted in Order No. 1786. 

DATES: Effective: November 13, 2013, 

and is applicable beginning September 

25, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Stephen L. Sharfman, General Counsel, 

202–789–6820. 

SUPPLEMENTARY INFORMATION: In a notice 

posted November 6, 2013, on PRC’s Web 

site, the Commission identified 

discrepancies between the text of 

several sections of rules adopted in 

Order No. 1786, issued on July 23, 2013, 

and the text of those sections of the 

rules as published in the Federal 

Register. This document transmits the 

corrections to the Federal Register, and 

has been drafted in conformance with 

Office of the Federal Register (OFR) 

requirements for substantive corrections 

to rules that have already taken effect. 

The corrections are applicable as of 

September 25, 2013, which coincides 

with the date the underlying final rules 

took effect. 

Section 3010.11. One correction 

changes the word ‘‘limitations’’ to the 

singular form in three places in 

§ 3010.11 (paragraphs (b)(2), (d), and (k)) 

and aligns the presentation of section 

symbols in paragraphs (d) and (k) with 

OFR codification practice. 

Section 3010.23(d). The Federal 

Register version omits a qualifying 

phrase at the outset of the third sentence 

in § 3010.23(d). It also refers to historic 

volume data. The correction revises the 

rule to include the qualifying phrase 

‘‘Whenever possible,’’ at the outset of 

the sentence and replaces historic with 

historical. These corrections are 

consistent with Order No. 1786 as 

issued. 

Section 3010.28. The Federal Register 

version omits a reference to Type 1–B in 

the heading of § 3010.28 in both the 

table of contents for subpart C and in 

the presentation of this section in the 

main body of the regulations. The 

instruction corrects these omissions by 

revising the section heading where it 

appears in the main body. The OFR 

automatically generates a corresponding 

change in the table of contents based on 

this instruction. 

Section 3010.42(f). Section 3010.42(f) 

is revised to reflect the inadvertent 

omission of the introductory text of a 

third paragraph in Order No. 1786 as 

issued and the impact this had on the 

presentation of the second sentence. 

The omission resulted in the second 

sentence in the rule as published 

including text associated with the 

omitted third sentence. To remedy this, 

the correcting instruction replaces the 

colon in the second sentence of 

§ 3010.42(f) as it appeared in the 

Federal Register version with a period, 

consistent with the presentation of this 

sentence as adopted in Order No. 1786. 

This change in punctuation results in 

the deletion of all the text following the 

colon in the Federal Register version, so 

the instruction adds the third sentence 

as presented in Order No. 1786 as 

adopted, which includes introductory 

text and the subparagraphs that were 

erroneously associated with the second 

sentence in the Federal Register 

version. The text of those subparagraphs 

remains unchanged, but the 

designations for § 3010.42(f)(5)(A) and 

(B) in Order No. 1786 as adopted should 

have been to § 3010.42(f)(5)(i) and (ii), 


emcdonald on DSK67QTVN1PROD with RULES