1884 Federal Register / Vol. 90, No. 6 / Friday, January 10, 2025 / Rules and Regulations 

1Motion of SoundExchange, Inc. to Reopen 

Business Establishment Service Rate Proceedings 

for the Limited Purpose of Interpreting Regulations 

on Referral from the U.S. District Court for the 

District of Columbia (February 9, 2022) (eCRB no. 

26146) (Motion). 

2 Docket Nos. 2007–1 CRB DTRA–BE (2009–2013) 

(‘‘BES I’’), 2012–1 CRB Business Establishments II 

(2014–2018) (‘‘BES II’’), and 17–CRB–0001–BER 

(2019–2023) (‘‘BES III’’). 

§ 401.67 Carrying explosives. 

* * * * * 

■ 18. Amend § 401.73 by revising 

paragraph (b) to read as follows: 

§ 401.73 Cleaning tanks—hazardous cargo 

vessels. 

* * * * * 

(b) Hot work permission. Before any 

hot work, defined as any work that uses 

flame or that can produce a source of 

ignition, cutting or welding, is carried 

out by any vessel on any designated St. 

Lawrence Seaway Management 

Corporation (SLSMC) approach walls, 

Cote St. Catherine wharf or wharves in 

the Welland Canal, a written request 

must be sent to the SLSMC, preferably 

24 hours prior to the vessel’s arrival on 

the SLSMC approach walls or wharves. 

The hot work shall not commence until 

approval is obtained from an SLSMC 

Traffic Control Center. 

(1) Permission is granted under the 

following conditions: 

(i) Copy of vessel’s ‘‘Hot Work 

Permit’’ is provided to the SLSMC 

before welding commences; 

(A) In the Welland Canal, send to: 

nerie@seaway.ca and nrshipinspectors@

seaway.ca. 

(B) In the MLO Section, send to: cdo@

seaway.ca and inspecteursvm@

seaway.ca. 

(ii) Name of company performing the 

hot work is provided; 

(iii) Effective fire watch is maintained; 

(iv) Welding operations shall 

temporarily cease during vessel meets 

and lockages; 

(v) Welding operations shall cease at 

the direction of a Traffic Controller; and 

(vi) All sparks and/or flames are to be 

contained on the vessel. 

(2) [Reserved] 

* * * * * 

■ 19. Amend § 401.84 by: 

■ a. Adding a semicolon at the end of 

paragraph (c); 

■ b. Revising paragraph (d); and 

■ c. Removing the parenthetical 

authority citation at the end of the 

section. 

The revision reads as follows: 

§ 401.84 Reporting of impairment or other 

hazard by vessels transiting within the 

Seaway. 

* * * * * 

(d) Any modification or malfunction 

on the vessel of equipment and 

machinery that is noted as operational 

in the current ‘‘Enhanced Ship 

Inspection’’ or ‘‘Self-Inspection’’ of the 

vessel; 

* * * * * 

■ 20. Revise § 401.94 to read as follows: 

§ 401.94 Keeping copies of documents. 

(a) A paper copy of the vessel’s valid 

Ship Inspection Report shall be kept on 

board every vessel in transit. It must be 

easily accessible in the wheelhouse. 

(b) A paper or electronic copy of this 

subpart (the ‘‘Rules and Regulations’’) 

and the Seaway Notices for the current 

navigation year shall be kept easily 

accessible in the wheelhouse of every 

vessel in transit. 

(c) Onboard every vessel transiting the 

Seaway, a duplicate set of the vessel’s 

Fire Control Plans shall be permanently 

stored in a prominently marked 

weather-tight enclosure outside the 

deckhouse for the assistance of shore 

side fire-fighting personnel. 

Issued at Washington, DC, under authority 

delegated at 49 CFR 1.101. 

Great Lakes St. Lawrence Seaway 

Development Corporation. 

Carrie Lavigne, 

Chief Counsel. 

[FR Doc. 2024–31566 Filed 1–8–25; 8:45 am] 

BILLING CODE 4910–61–P 

LIBRARY OF CONGRESS 

Copyright Royalty Board 

37 CFR Part 384 

[Docket No. 2012–1 CRB Business 

Establishments II; Docket No. 2007–1 CRB 

DTRA–BE] 

Ruling on Regulatory Interpretation for 

Business Establishment Services 

AGENCY: Copyright Royalty Board, 

Library of Congress. 

ACTION: Ruling on regulatory 

interpretation. 

SUMMARY: The Copyright Royalty Judges 

publish their ruling on regulatory 

interpretation in a matter that was 

referred to them by the United States 

District Court for the District of 

Columbia. The regulation at issue is the 

definition of ‘‘Gross Proceeds’’ in the 

rates and terms set forth through 

settlements in the BES I and BES II 

proceedings in 37 CFR 384.3(a), which 

is used when calculating royalty 

payments paid to SoundExchange, a 

collective for copyright owners, in 

relation to digital transmissions of 

sound recordings pursuant to the 

statutory license in 17 U.S.C. 112. 

DATES: January 10, 2025 

ADDRESSES: The ruling is posted in 

eCRB at https://app.crb.gov/. For access 

to the docket, go to eCRB, the Copyright 

Royalty Board’s electronic filing and 

case management system, at https://

app.crb.gov/, and search for docket 

numbers 2012–1 CRB Business 

Establishments II and 2007–1 CRB 

DTRA–BES. 

FOR FURTHER INFORMATION CONTACT: 

Anita Brown, CRB Program Specialist, 

at (202) 707–7658 or crb@loc.gov. 

SUPPLEMENTARY INFORMATION: 

Ruling on Regulatory Interpretation 

Referred by the United States District 

Court for the District of Columbia 

Background 

On February 9, 2022, SoundExchange 

submitted a motion 1 to the Copyright 

Royalty Judges (Judges) to reopen 

certain proceedings addressing 

determinations of royalty rates and 

terms under the 17 U.S.C. 112 license 

for making ephemeral copies of sound 

recordings for transmission by a 

Business Establishment Service (BES) in 

three proceedings, BES I, BES II, and 

BES III.2

SoundExchange’s request arose from 

litigation before the U.S. District Court 

for the District of Columbia (District 

Court) in which SoundExchange alleged 

that Music Choice had failed to pay 

royalties due under 17 U.S.C. 112 for 

the license to reproduce and transmit 

ephemeral copies of sound recordings to 

business establishments. See 

SoundExchange, Inc. v. Music Choice, 

No. 19–999 (RBW) (D.D.C. Dec. 20, 

2021) (District Court Action). The 

District Court determined it was 

appropriate to refer a matter of 

regulatory interpretation regarding 37 

CFR 384.3(a) to the Judges under the 

doctrine of primary jurisdiction and 

found that the Judges have continuing 

jurisdiction to clarify the BES 

regulations, even though those 

regulations were originally formulated 

by the Copyright Arbitration Royalty 

Panel (CARP), a rate setting body that 

preceded the Copyright Royalty Board 

(Board). See District Court Action, 

Memorandum Opinion at 9–10 (Dec. 20, 

2021) (Memorandum Opinion) (attached 

to the Motion as Exhibit B) (citing 

Report of the Copyright Arbitration 

Royalty Panel to the Librarian of 

Congress, Rate Setting for Digital 

Performance Right in Sound Recordings 

and Ephemeral Recordings, Docket No. 

2000–9 CARP DTRA 1 & 2 at B–7 (Feb. 

20, 2002) (Web I CARP Report)). 


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3 Despite the fact that the regulations at issue 

were not drafted by Copyright Royalty Judges, but 

instead are the result of settlements by the settling 

proceeding participants, which the Judges are 

generally compelled, under 17 U.S.C. 801(b)(7)(a), 

to adopt, the Judges find that the relevant 

procedural history of these and predecessor 

proceedings does provide adequate basis for referral 

by the District Court under the doctrine of primary 

jurisdiction and the finding that the Judges have 

continuing jurisdiction. See Final rule, 

Determination of Rates and Terms for Business 

Establishment Services, Docket No. 2007–1 CRB 

DTRA–BE, 73 FR 16199 (Mar. 27, 2008) (BES I 

Determination) and Final rule, Determination of 

Rates and Terms for Business Establishment 

Services, Docket No. 2012–1 CRB Business 

Establishments II, 78 FR 66276, 66277 (Nov. 5, 

2013) (BES II Determination), citing 17 U.S.C. 

801(b)(7)(a). 

4Music Choice’s Response in Opposition to 

SoundExchange’s Motion to Reopen Business 

Establishment Service Rate Proceedings (Feb. 23, 

2022) (eCRB no. 26201). 

5SoundExchange’s Reply in Support of its 

Motion to Reopen Business Establishment Service 

Rate Proceedings (Mar. 2, 2022) (eCRB no. 26246). 

6Order Reopening Two Proceedings and 

Scheduling Briefing (Mar. 22, 2022) (eCRB no. 

26360) (‘‘Reopening Order’’). The Judges observe 

that the Register of Copyrights has previously 

opined that the Judges have jurisdiction to clarify 

regulations that the Judges have adopted. See, 

Register’s Memorandum Opinion on a Novel 

Question of Law (Apr. 8, 2015) (Addressing the reopened SDARS I proceeding and questions referred 

from the U.S. District Court for the District of 

Columbia). 

The underlying dispute revolves 

around the definition of ‘‘Gross 

Proceeds’’ in the rates and terms set 

forth through settlements in the BES I 

and BES II proceedings in 37 CFR 

384.3(a). Id. at 4–5.3 ‘‘Music Choice 

asserts that ‘its ‘‘Gross Proceeds’’ are 

only an allocated portion of its actual 

proceeds corresponding to music 

channels offered solely as part of its BES 

service.’’’ Id. at 6–7. SoundExchange 

asserts that ‘‘‘Music Choice must pay 

BES statutory royalties on fees and 

payments it receives from providing 

music channels used in its BES service, 

even if Music Choice also provides such 

channels as part of a different service.’’’ 

Id. at 7. 

Stated differently, the question is 

whether 37 CFR 384.3(a) requires BES 

providers to calculate royalties using 

their gross proceeds derived from the 

use of all licensed ephemeral copies 

used for the operation of the BES, or 

whether a BES may calculate royalties 

using their gross proceeds derived from 

the use of only those licensed 

ephemeral copies used for the ‘‘sole 

purpose’’ of the operation of the BES. 

The Memorandum Opinion stated 

that ‘‘[a]s a preliminary matter, the 

Court notes that the Board’s definition 

of ‘Gross Proceeds’ in 37 CFR 384.3(a)(2) 

is ‘ambiguous and do[es] not, on [its] 

face, make clear whether [Music 

Choice’s] approaches were permissible 

under the regulations.’ ’’ Id. at 9 n.2. 

On March 22, 2022, after considering 

the Motion, Music Choice’s response 4

and SoundExchange’s reply, 5 the Judges 

found that the claims to be addressed by 

the District Court only relate to time 

periods addressed by the BES I and BES 

II determinations and thus ordered the 

reopening of those two proceedings. The 

Judges ordered opening and reply 

briefing for the limited purpose of 

addressing the meaning of ‘‘Gross 

Proceeds’’ as defined in 37 CFR 

384.3(a).6

The relevant provision as set forth in 

the BES I determination states: 

§ 384.3(a) 

For the making of any number of 

Ephemeral Recordings in the operation of a 

service pursuant to the limitation on 

exclusive rights specified by 17 U.S.C. 

114(d)(1)(C)(iv), a Licensee shall pay 10% of 

such Licensee’s ‘‘Gross Proceeds’’ derived 

from the use in such service of musical 

programs that are attributable to copyrighted 

recordings. ‘‘Gross Proceeds’’ as used in this 

section means all fees and payments, 

including those made in kind, received from 

any source before, during or after the License 

Period that are derived from the use of 

copyrighted sound recordings during the 

License Period pursuant to 17 U.S.C. 112(e) 

for the sole purpose of facilitating a 

transmission to the public of a performance 

of a sound recording under the limitation on 

exclusive rights specified in 17 U.S.C. 

114(d)(1)(C)(iv). The attribution of Gross 

Proceeds to copyrighted recordings may be 

made on the basis of: 

(1) For classical programs, the proportion 

that the playing time of copyrighted classical 

recordings bears to the total playing time of 

all classical recordings in the program, and 

(2) For all other programs, the proportion 

that the number of copyrighted recordings 

bears to the total number of all recordings in 

the program. 

Final rule, Determination of Rates and 

Terms for Business Establishment 

Services, Docket No. 2007–1 CRB 

DTRA–BE, 73 FR 16199, 16200 (Mar. 27, 

2008) (BES I Determination). 

The relevant provision as set forth in 

the BES II determination states: 

§ 384.3(a) 

For the making of any number of 

Ephemeral Recordings in the operation of a 

Business Establishment Service, a Licensee 

shall pay 12.5% of such Licensee’s ‘‘Gross 

Proceeds’’ derived from the use in such 

service of musical programs that are 

attributable to copyrighted recordings. ‘‘Gross 

Proceeds’’ as used in this section means all 

fees and payments, including those made in 

kind, received from any source before, during 

or after the License Period that are derived 

from the use of copyrighted sound recordings 

during the License Period pursuant to 17 

U.S.C. 112(e) for the sole purpose of 

facilitating a transmission to the public of a 

performance of a sound recording under the 

limitation on exclusive rights specified in 17 

U.S.C. 114(d)(1)(C)(iv). The attribution of 

Gross Proceeds to copyrighted recordings 

may be made on the basis of: 

(1) For classical programs, the proportion 

that the playing time of copyrighted classical 

recordings bears to the total playing time of 

all classical recordings in the program, and 

(2) For all other programs, the proportion 

that the number of copyrighted recordings 

bears to the total number of all recordings in 

the program. 

Final rule, Determination of Rates and 

Terms for Business Establishment 

Services, Docket No. 2012–1 CRB 

Business Establishments II, 78 FR 

66276, 66277 (Nov. 5, 2013) (BES II 

Determination). 

Summary of Arguments 

Music Choice puts forth the initial 

arguments that (a) the plain meaning of 

the ‘‘gross proceeds’’ definition only 

requires royalty payments from revenue 

attributable to copies made solely to 

facilitate a BES transmission; (b) the 

plain meaning of the definition of gross 

proceeds is confirmed by the unique 

nature of the BES license and the 

Judges’ prior rulings; and (c) in the 

absence of a specific methodology in the 

regulations for apportioning revenues 

derived from copies made for the sole 

purpose of facilitating a BES 

transmission, a BES provider is entitled 

to use a reasonable methodology. See 

generally, Music Choice Opening Brief 

(eCRB no. 26631). 

Music Choice urges the Judges to 

apply basic principles of regulatory 

interpretation, including that when a 

regulation is unambiguous, one should 

not look beyond the text of the 

regulation itself unless the plain 

meaning of the regulation would lead to 

an absurd result (Plain Meaning Rule 

and Absurdity Doctrine). Id. at 24. 

Music Choice adds that the regulation 

explicitly calls for the inclusion of only 

those revenues that are derived from 

copies of sound recordings that are 

made ‘‘for the sole purpose of 

facilitating a transmission to the public 

of a performance of a sound recording.’’ 

37 CFR 384.3(a)(2). Music Choice asserts 

that the ‘‘sole purpose’’ language in the 

definition must place some limitation 

on the revenues that are to be included 

in ‘‘Gross Proceeds’’ or else the ‘‘sole 

purpose’’ language would be 

superfluous—a result that is at odds 

with long-settled cannons of regulatory 

and statutory interpretation (Rule 

Against Surplusage). Id. at 24–26 (citing 

e.g. U.S. v. Butler, 297 U.S. 1, 65 (1936), 

Lowe v. SEC, 472 U.S. 181, 207 n.53 

(1985) (‘‘[W]e must give effect to every 

word that Congress used in the 

statute.’’), and Gustafson v. Alloyd Co., 

513 U.S. 561, 577 (1995) (‘‘the presence 


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1886 Federal Register / Vol. 90, No. 6 / Friday, January 10, 2025 / Rules and Regulations 

7Music Choice also noted that in the SDARS II 

determination the Judges decided that a downward 

adjustment to the royalties owed was appropriate to 

account for the performance of any directly licensed 

sound recordings as well as for the performance of 

any pre-1972 sound recordings which, at the time, 

were ‘‘not licensed under the statutory royalty 

regime.’’ 78 FR 23072. 

8The relevant law at the time, section 802(f) of 

the Copyright Act directed that the Librarian shall 

adopt the report of the CARP, ‘‘unless the Librarian 

finds that the determination is arbitrary or contrary 

to the applicable provisions of this title.’’ See 

Determination of Reasonable Rates and Terms for 

the Digital Performance of Sound Recordings and 

Ephemeral Recordings; Final rule and order, 

Determination of Reasonable Rates and Terms for 

the Digital Performance of Sound Recordings and 

Ephemeral Recordings, 67 FR 45240, 45242 (July 8, 

2002) (citing 17 U.S.C. 802(f) (2002) (DTRA 

Determination)). 

of limiting language in [the statute] 

requires a narrow construction.’’). 

Music Choice posits that even if one 

were to conclude that there was some 

ambiguity in the definition of Gross 

Proceeds, or that it was, for some other 

reason, appropriate to look to other 

evidence, such evidence only confirms 

that the limitation imposed by the ‘‘for 

the sole purpose’’ language serves valid 

economic and copyright policy 

purposes, and therefore that limitation 

must be given its full effect. In this 

regard, Music Choice points to its 

conception that the right to make 

ephemeral copies has no independent 

value separate and apart from the 

performance right. Id. at 27–28. Music 

Choice also refers to various statements 

urging copyright and economic policy 

positions calling for an outright 

exemption for the rights covered by the 

112 license at issue. Id. at 29. 

Music Choice then pointed to several 

statements by the Judges, made in the 

context of determinations involving 

different statutory licenses, urging that 

‘‘it is almost axiomatic’’ that revenues 

unrelated to the particular statutory 

license at issue ‘‘should not be included 

in the revenue base’’ used to calculate 

royalties for a license where the royalty 

is calculated as a percentage of revenue. 

Id. at 29–31 (citing Final rule and order, 

Determination of Royalty Rates and 

Terms for Making and Distributing 

Phonorecords (Phonorecords III) (Feb. 5, 

2019), 84 FR 1918, 1961; Final rule and 

order, Determination of Rates and 

Terms for Preexisting Subscription 

Services and Satellite Digital Audio 

Radio Services (PSS/Satellite II), Docket 

No. 2011–1 CRB PSS/Satellite II, 78 FR 

23054, 23096 (Apr. 17, 2013) (excluding 

‘‘monies received by Licensee’s carriers 

from others and not accounted for by 

Licensee’s carriers to Licensee, for the 

provision of hardware by anyone and 

used in connection with the 

programming service’’ from the 

definition of ‘‘Gross Revenues.’’)).7

Music Choice then urges the Judges to 

go beyond the scope of the re-opened 

proceedings (provide guidance 

regarding the meaning of the ‘‘Gross 

Proceeds’’ definition) and provide 

guidance regarding the standard that 

should be used to evaluate the approach 

that a BES provider has taken to 

apportion its revenues. Music Choice 

argues the Judges should find that 

where a regulatory royalty formula at 

issue does not provide a specific 

approach for allocating revenues 

between those included in Gross 

Proceeds and those excluded, a 

‘‘reasonableness’’ standard should be 

applied. In making this request Music 

Choice notes that it would be 

inappropriate to provide such guidance 

if doing so required any fact-finding. Id. 

at 34–35. 

SoundExchange puts forth the initial 

arguments that (a) the ‘‘gross proceeds’’ 

definition is ambiguous, (b) Music 

Choice’s proposed interpretation of 37 

CFR 384.3(a)(2) creates incoherence 

with 37 CFR 384.3(a)(1), (c) Music 

Choice’s interpretation of 37 CFR 

384.3(a) produces absurd results, and 

(d) Music Choice’s interpretation of 37 

CFR 384.3(a) is inconsistent with past 

Determinations concerning that 

provision. See generally, 

SoundExchange’s Opening Legal Brief 

Concerning the Meaning of 37 CFR 

384.3(a) (eCRB no. 26639). 

SoundExchange recounts the past 

proceedings for setting of rates and 

terms for BES, noting that BES rates and 

terms have been litigated in a 

ratemaking proceeding only once, in the 

first CARP proceeding after enactment 

of the DMCA. Id. at 7 (citing Web I 

CARP Report at 111; Final order, 

Designation as a Preexisting 

Subscription Service, 71 FR 64639, 

64640–41 (Nov. 3, 2006)). 

SoundExchange notes that subsequent 

statutory royalty rates and terms for BES 

were settled in 2003, 2007, 2012, and 

2018, using essentially the same 

wording in the relevant regulations. Id. 

at 12–14 (citing Final rule, Digital 

Performance Right in Sound Recordings 

and Ephemeral Recordings, 69 FR 5693 

(Feb. 6, 2004); BES I Determination, 73 

FR 16199; BES II Determination, 78 FR 

66276; Final rule, Determination of 

Royalty Rates and Terms for Making 

Ephemeral Copies of Sound Recordings 

for Transmission to Business 

Establishments (BES III), 83 FR 60362 

(Nov. 26, 2018)). 

Regarding the one fully litigated 

determination of rates and terms for 

BES, SoundExchange observes that the 

CARP adopted as benchmarks existing 

direct license agreements for BES. Id. at 

9 (citing Web I CARP Report at 121–23). 

Additionally, SoundExchange notes that 

the CARP relied upon benchmark 

agreements not only for the rates but for 

the terms of the statutory license. Id. 

SoundExchange notes that the 

Librarian of Congress reviewed the Web 

I CARP Report and that the Librarian 

disagreed with the CARP’s conclusions 

about BES rates in one respect relevant 

to this re-opened proceeding, namely 

the regulations regarding gross 

proceeds, specifically the inclusion of 

in-kind payments. Id. at 9–11.8

SoundExchange argues that the 

relevant provision at issue is 

ambiguous. Id. at 20–24. In doing so, it 

cites to the District Court Opinion. 

SoundExchange also points to linguistic 

and interpretive challenges in the 

regulatory text. SoundExchange focuses 

specific attention to the word 

‘‘including’’ and to the principle of 

regulatory interpretation known as the 

‘‘Presumption of Nonexclusive 

‘Include’.’’ Id. at 22 (citing Am. Hosp. 

Ass’n v. Azar, 983 F.3d 528, 534 (D.C. 

Cir. 2020) (quoting Puerto Rico Mar. 

Shipping Auth. v. Interstate Com. 

Comm’n, 645 F.2d 1102, 1112 n.26 (D.C. 

Cir. 1981) (it is ‘‘hornbook law that the 

word ‘including’ indicates that the 

specified list . . . that follows is 

illustrative, not exclusive.’’)). 

SoundExchange asserts that the 

regulation is ambiguous as to whether 

the lengthy matter that follows the word 

‘‘including’’ in paragraph (a)(2) is: (a) a 

list of illustrative examples; (b) just one 

illustrative example; or (c) one or more 

illustrative examples plus some words 

that relate back to the ‘‘all fees and 

payments’’ at the beginning of the 

definition. Id. at 22–23. SoundExchange 

also focuses on the two instances of the 

phrase ‘‘derived from’’ arguing that both 

must be given effect, if possible. Id. at 

24–25. 

SoundExchange argues that these 

challenges within 37 CFR 384.3(a) 

render the regulation capable of 

numerous interpretations, which cannot 

all be right. It then offers two 

interpretations, which it views as being 

plausible. 

Under the first of SoundExchange’s 

proposed interpretations, the relevant 

regulation can be parsed as follows: 

all fees and payments 

including those made in kind, received from 

any source before, during or after the License 

Period that are derived from the use of 

copyrighted sound recordings during the 

License Period pursuant to 17 U.S.C. 112(e) 

for the sole purpose of facilitating a 

transmission to the public of a performance 

of a sound recording under the limitation on 

exclusive rights specified in 17 U.S.C. 

114(d)(1)(C)(iv). 37 CFR 384.3(a)(2). 


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9The Judges note that SoundExchange is citing to 

the BES III regulation, which, while structurally 

and substantively similar, is slightly different from 

the regulations in BES I and BES II, which are at 

issue in this proceeding. 

Read this way, the clauses following 

‘‘including those’’ are not meant to be 

exhaustive. SoundExchange argues that 

neither the CARP nor the Librarian 

intended to include within ‘‘all fees and 

payments’’ only ‘‘in kind’’ revenue. It 

then asserts that for the same reason and 

under the same logic, the language does 

not limit ‘‘all fees and payments’’ to 

only those derived from the use of 

ephemeral copies for the ‘‘sole purpose’’ 

of BES transmissions. Id at 22–23. 

Under the second of SoundExchange’s 

proposed interpretations, the relevant 

regulation can be parsed as follows: 

all fees and payments 

including those made in kind, received from 

any source before, during or after the License 

Period that are derived from the use of 

copyrighted sound recordings during the 

License Period pursuant to 17 U.S.C. 112(e) 

for the sole purpose of facilitating a 

transmission to the public of a performance 

of a sound recording under the limitation on 

exclusive rights specified in 17 U.S.C. 

114(d)(1)(C)(iv). 

37 CFR 384.3(a)(2). Read this way, the 

regulation means that ‘‘all’’ ‘‘fees and 

payments’’ are included, and then goes 

on to specify what kinds of ‘‘in kind’’ 

consideration count as well—those that 

come from ‘‘any source,’’ before or after 

the license period, provided that the 

consideration was offered ‘‘for the sole 

purpose’’ of facilitating a BES. Id. at 23– 

24. 

While offering the two interpretations, 

SoundExchange also maintains that 

other perhaps superior interpretations 

exist. Id. at 22–24. It argues that in light 

of the apparent ambiguity, the Judges 

may look elsewhere in the regulatory 

scheme to determine the proper 

interpretation. It urges that here the 

Judges can and should resolve 

ambiguities in the text of 37 CFR 

384.3(a) by examining the history of the 

regulation and the expressed intent of 

the regulation’s drafters. Id. at 24. 

SoundExchange next argues that 

Music Choice’s proposed interpretation 

creates incoherence. SoundExchange 

states that the alleged limitation by 

which ‘‘all fees and payments’’ ‘‘derived 

from the use of’’ ephemeral copies of 

sound recordings, is limited to only 

those copies that are used ‘‘for the sole 

purpose of facilitating a transmission’’ 

through a BES is inconsistent with the 

preceding sentence’s statement in the 

regulation indicating that a BES 

provider must pay a percentage of its 

Gross Proceeds ‘‘derived from the use in 

[a BES] of musical programs that are 

attributable to recordings subject to 

protection under title 17, United States 

Code.’’ Id. at 23–24 (citing 37 CFR 

384.3(a)(2) (July 8, 2019)).9

SoundExchange argues that such an 

interpretation violates the ‘‘endlessly 

reiterated principle of statutory 

construction . . . that all words in a 

statute are to be assigned meaning, and 

that nothing therein is to be construed 

as surplusage.’’ Id. at 25. 

SoundExchange then argues that its two 

proposed interpretations of the 

regulation are internally consistent, 

avoid any obvious redundancy or 

surplusage and give better effect to the 

clear intent of the regulation’s drafters, 

as evidenced by the CARP proceeding 

record. Id. at 26. 

SoundExchange also argues that 

Music Choice’s proposed interpretation 

produces absurd results, namely that if 

Music Choice’s interpretation of the 

word ‘‘solely’’ were correct, then the 

only copies for which it would owe 

royalties are those used in either its BES 

or its Preexisting Subscription Service 

(PSS), but not in both. The practical 

result would then be that Music Choice 

could deliver both a BES and a PSS with 

a high proportion of dual-use copies, 

most of the copies made by Music 

Choice would not generate any BES or 

PSS royalties, and Music Choice would 

pay less in statutory royalties when it 

used and profited off copies more. Id. at 

27. 

SoundExchange asserts that Music 

Choice’s proposed interpretation is 

inconsistent with the Web I CARP 

Decision and the Librarian’s review of 

that decision. Id. at 28. SoundExchange 

observes that the CARP set a blanket 

rate structure, as opposed to setting 

rates for separate sets of rights in 

multiple mini-licenses for the making of 

different kinds of ephemeral copies. 

SoundExchange argues that the CARP 

expressly decided not to allow BES 

providers to pick and choose license 

coverage for different types of 

ephemeral recordings, or to pay based 

on usage, approaches that the CARP 

referred to as ‘‘subdivid[ing] this 

package of rights into multiple minilicenses for the making of different 

kinds of ephemeral copies.’’ Id. at 29– 

30 (citing Web I CARP Report at 119). 

SoundExchange also argues that the 

benchmark agreements required 

payment of royalties based on a 

licensee’s gross proceeds, and not based 

on a portion of gross proceeds reflecting 

the extent of the licensee’s usage. Id. at 

31–32. SoundExchange also notes that 

the CARP specifically rejected any 

deductions from gross proceeds, 

because in ‘‘most’’ agreements, ‘‘there 

are no deductions from gross proceeds.’’ 

Id. at 33 (citing Web I CARP Report at 

125). SoundExchange argues that the 

CARP determined that there should be 

no deductions from gross proceeds, and 

that therefore Music Choice’s proposed 

interpretation is contrary to the 

benchmark agreements embraced by the 

CARP. Id. 

SoundExchange then addresses the 

Librarian’s review and modification to 

the CARP recommendations. 

SoundExchange notes that the Librarian 

largely affirmed the CARP’s decision 

concerning BES rates. It argues that the 

Librarian disagreed with the CARP’s 

conclusions about BES rates in only one 

respect relevant to this proceeding, 

namely the specificity of the regulations 

as to whether gross proceeds include inkind payments. SoundExchange states 

that the Librarian decided ‘‘to expand 

on the CARP’s approach and adopt a 

definition of ‘gross proceeds’ which 

clarified that ‘gross proceeds’ shall 

include all fees and payments from any 

source, including those made in kind, 

derived from the use of copyrighted 

sound recordings to facilitate the 

transmission of the sound recording 

pursuant to the section 112 license.’’ Id. 

at 33–34 (citing Final rule and order, 

Determination of Reasonable Rates and 

Terms for the Digital Performance of 

Sound Recordings and Ephemeral 

Recordings, 67 FR 45260, 45268 (July 8, 

2002) (DTRA Determination). 

SoundExchange argues that the stated 

purpose of the Librarian’s new language 

was to expand rather than contract the 

CARP’s approach, to capture in-kind 

payments. In SoundExchange’s view, it 

would be contrary to the Librarian’s 

reasoned decision to attribute to the 

word ‘‘solely’’ the effect of drastically 

refiguring the CARP’s decision. Id. at 34. 

Music Choice offers reply arguments 

that (a) any attempt to find ambiguity 

regarding the meaning of gross proceeds 

do not withstand scrutiny; (b) the plain 

meaning of the definition of gross 

proceeds set forth by Music Choice does 

not produce absurd results; (c) 

SoundExchange’s proposed reading of 

the definition of gross proceeds is at 

odds with its own discussion of 

cannons of regulatory interpretation; 

and (d) flawed fact-finding and analysis 

from the CARP proceeding are 

irrelevant, but in any event are not 

inconsistent with the plain meaning of 

gross proceeds. See generally, Music 

Choice Reply Brief (eCRB no. 26791). 

Music Choice offers that 

SoundExchange is incorrect when it 

argues that Music Choice’s 

interpretation of Gross Proceeds would 

indicate ‘‘the only copies for which it 


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10Although the Judges find it unnecessary to also 

address the parties’ policy-based arguments, the 

Judges do find it instructive to address the parties’ 

incomplete and incorrect economic arguments on 

which they rely in their attempts to buttress their 

legal and policy arguments. The Judges address 

those arguments infra. 

11The Judges note that the Librarian’s review of 

the Web I CARP Report clarified: 

During the proceeding, the Services argued that 

these ‘ephemeral’ copies have no economic value 

would owe royalties are those used in 

either its BES or its PSS, but not in 

both.’’ Id. at 9. Music Choice notes that 

the PSS and BES regulations are 

separate and distinct and that the 

regulations applicable to PSS and BES 

are not analogous. Id. at 10. Music 

Choice argues that neither the word 

‘‘solely’’ in the PSS regulation, nor the 

rest of the Gross Revenues definition, 

allows a PSS to make the sort of 

‘‘absurd’’ carve-out that SoundExchange 

is suggesting. Id. at 10–11. 

Music Choice argues that 

SoundExchange’s proposed 

interpretations do not provide any 

plausible meaning for the ‘‘sole 

purpose’’ limiting language. It maintains 

that SoundExchange’s interpretations 

largely reads out the ‘‘sole purpose’’ 

limiting language. However, Music 

Choice allows that SoundExchange 

offers the view that the ‘‘sole purpose’’ 

language is applicable only to ‘‘in kind’’ 

consideration, and that the ‘‘sole 

purpose’’ language does not apply to 

any other form of consideration. But 

Music Choice argues that this 

interpretation from SoundExchange is 

internally inconsistent, stating that if 

‘‘all fees and payments’’ must be 

included, then it cannot also be the case 

that only a subset of ‘‘in kind’’ 

consideration (those ‘‘offered ‘for the 

sole purpose’ of facilitating a BES 

transmission’’) must be included. Id. at 

11–12. 

Music Choice asserts that 

SoundExchange’s interpretation is not 

sensical, positing that under 

SoundExchange’s interpretation the 

‘‘‘for the sole purpose’ of facilitating a 

BES transmission’’ language was meant 

to refer to payments, and not ephemeral 

copies. Music Choice maintains that 

payments cannot ‘‘facilitate’’ a 

transmission. Id. at 12. 

Music Choice argues that 

SoundExchange’s interpretation renders 

meaningless 37 CFR 384.3(c), which 

addresses ephemeral recordings other 

than those governed by 384.3(a). Music 

Choice reasons that if a BES provider is 

required to pay for all ephemeral copies, 

whether made solely to facilitate a 

transmission by a BES or not, then all 

copies made by a BES would be covered 

by section 384.3(a) and there would be 

no copies left for section 384.3(c) to 

address. Id. at 13. 

Music Choice suggests that the Judges’ 

Order Reopening Two Proceedings and 

Scheduling Briefing, as well as sound 

practice for referrals from a District 

Court, indicate that it would be 

inappropriate for the Judges to draw any 

factual conclusions from these 

statements from Music Choice’s Answer 

in the District Court proceeding. It adds 

that it would be inappropriate for the 

Judges to make factual findings 

regarding the manner and extent to 

which Music Choice actually makes 

various types of channels or 

intermediate copies in connection with 

its BES. Id. at 14–20. 

Music Choice then intimates that the 

Judges should not make factual 

determinations about the record of the 

CARP proceeding. Id. at 20–24. Music 

Choice suggests that the record in the 

CARP proceeding was too dated, narrow 

and sparse to provide useful guidance in 

this proceeding. Id. at 21. Music Choice 

then adds that it is possible that the 

evidentiary records between the CARP 

and other proceedings may be sufficient 

justifications for the Judges to come to 

different conclusions than those reached 

by the CARP and Librarian. Id. at 21– 

23. 

Music Choice further attacks reliance 

on the CARP proceeding by suggesting 

that it was rife with legal errors, and 

that the analysis within that 

determination can no longer withstand 

scrutiny. It argues that the 

benchmarking analysis is insufficient in 

comparison to more recent proceedings. 

Id. at 26–30. Music Choice then revisits 

its assertion that the CARP proceeding 

does not consider ephemeral copies in 

a proper manner consistent with the 

policy views of Music Choice and 

others. Id. at 30–35. Music Choice goes 

on to suggest that legal interpretations 

now suggest that buffer copies are now 

per se not legally recognizable copies or 

use of them is per se fair use. Id. 

Music Choice asserts that a blanket 

license may allow deductions from the 

revenue pool to which a percent of 

revenue royalty rate is applied. Id. at 

36–37. Music Choice adds that the 

benchmarks used by the CARP were 

unreliable, and non-comparable to its 

BES, and included vastly different 

rights. Id. at 37–38. 

In its Reply Brief, SoundExchange 

asserts that Music Choice’s policy-based 

arguments against statutory recognition 

of ephemeral copies are misplaced. Id. 

at 3–12. It adds that similar policy-based 

arguments as to the value of ephemeral 

copies are misplaced. SoundExchange’s 

Reply Brief Concerning the Meaning of 

37 CFR 384.3(a) at 12–13. (eCRB no. 

26794). 

SoundExchange reiterates its 

arguments that the ‘‘gross proceeds’’ 

definition is ambiguous. Id. at 17–20. It 

adds that the Judges should interpret the 

ambiguous provisions based on its 

context and its drafters’ intent. Id. at 20– 

22. 

SoundExchange urges the Judges not 

to place undue weight on the rates and 

terms for different licenses nor on the 

structure of such regulations for 

different licenses. Instead, it again urges 

the Judges to look to the intent of the 

drafters of the provision at issue. Id. at 

23–26. 

SoundExchange then challenges 

Music Choice’s suggestion that the 

Judges should wade into addressing the 

propriety of a licensee relying on a 

‘‘‘reasonableness’’’ standard that might 

allow a BES provider to apportion 

revenues in a way that makes sense for 

their particular circumstances. Id. at 27– 

31. 

Analysis 

A. Regulatory Analysis 

Several of the arguments put forward 

by Music Choice proceed from the 

position that the language of 37 CFR 

384.3(a) is unambiguous, in contrast to 

the finding of the District Court that the 

provision ‘‘is ‘‘ambiguous and do[es] 

not, on [its] face, make clear whether 

[Music Choice’s] approaches were 

permissible under the regulations.’’ 

Memorandum Opinion at 9 n.2. The 

Judges do not take issue her with the 

District Court’s finding of ambiguity, 

which is also persuasively asserted by 

SoundExchange. Furthermore, the 

Judges note that the parties have put 

forward various plausible 

interpretations of the provision, which 

is consistent with the District Court’s 

finding of ambiguity. Based on the 

entirety of the record, including the 

briefing received in response to the 

Reopening Order as well as the record 

of the underlying proceedings, the 

Judges find that the relevant language of 

37 CFR 384.3(a) is at least arguably 

ambiguous. Based on the entirety of that 

record, the Judges analysis and findings 

clarify this apparent ambiguity. 

The Judges find that resolution of the 

parties’ policy-based arguments 

regarding the provisions of the 112 

license and the value of ephemeral 

copies is largely unnecessary with 

regard to the referred question.10 The 

Judges can, and do, find it sufficient to 

address the referred question in light of 

the regulations in the relevant 

proceedings and the statute, as set forth 

by Congress, without influence of policy 

positions for alternative statutory 

provisions.11


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apart from the value of the performance they 

facilitate. Webcasters Petition at 67; Broadcasters 

Petition at 50. In support of this position, the 

Services cite with approval a Copyright Office 

Report which stated that the Office found no 

rationale for ‘the imposition of a royalty obligation 

under a statutory license to make copies that have 

no independent economic value, and are made 

solely to enable another use that is permitted under 

a separate license.’’ 

Web I CARP Report at 98 citing U.S. Copyright 

Office, DMCA Section 104 Report at 114 n.434 

(August 2001). 

The Panel also contended that experts on both 

sides took this view. Webcasters Petition at 66 

citing Jaffe W.D.T. 52–54; Tr. at 6556; Tr. at 2632 

(Nagle). Had there been nothing more, the Panel 

might have agreed with the Services and adopted 

the Office’s position. In construing the statute, 

however, the Panel found that Congress did not 

share the Copyright Office’s view. Instead, the Panel 

found that Congress required that a rate be set for 

the making of ephemeral copies in accordance with 

the willing buyer/willing seller standard. Report at 

98–99.’’ 67 FR 45261 (footnote omitted). 

12Furthermore, the Judges decline to second 

guess the evidentiary and legal conclusions within 

the CARP proceeding. 

13Relevant language from each determination 

states: 

CARP—‘‘for the sole purpose of facilitating a 

transmission to the public of a performance of a 

sound recording under the limitation on the 

exclusive rights specified in section 

114(d)(1)(c)(iv).’’ DTRA Determination, 67 FR at 

45268. 

BES I—‘‘for the sole purpose of facilitating a 

transmission to the public of a performance of a 

sound recording under the limitation on exclusive 

rights specified in 17 U.S.C. 114(d)(1)(C)(iv.).’’ BES 

I Determination, 73 FR at 16200. 

BES II—‘‘for the sole purpose of facilitating a 

transmission to the public of a performance of a 

sound recording under the limitation on exclusive 

rights specified in 17 U.S.C. 114(d)(1)(C)(iv).’’ BES 

II Determination, 78 FR 66277. 

14The Web I CARP Report would have set forth 

the BES rate as follows: 

For the making of unlimited numbers of 

ephemeral recordings in the operation of broadcast 

services pursuant to the Business Establishment 

exemption contained in 17 U.S.C. 114(d)(l)(C)(iv), a 

Business Establishment Service shall pay a § 112(e) 

ephemeral recording royalty equal to ten percent 

(10%) of the Licensee’s annual gross proceeds 

derived from the use in such broadcast service of 

the musical programs which are attributable to 

copyrighted recordings. The attribution of gross 

proceeds to copyrighted recordings shall be made 

on the basis of: 

(i) for classical programs, the proportion that the 

playing time of copyrighted classical recordings 

bears to the total playing time of all classical 

recordings in the program, and 

(ii) for all other programs, the proportion that the 

number of copyrighted recordings bears to the total 

number of all recordings in the program. 

15See Transcript, 2000–9 CARP DTRA 1&2 (WEB 

1998–2002 (consolidated)) (eCRB no.7947 pp 242– 

267). 

Confronted with an apparent 

ambiguous regulation, the Judges are 

informed by the arguments by Music 

Choice and SoundExchange regarding 

regulatory interpretation, as well as the 

history of and analysis underlying the 

regulations at issue from the CARP 

proceeding. 

The Judges find that Music Choice is 

incorrect in arguing that the CARP 

findings and analysis from the CARP 

proceeding are irrelevant.12 As the Court 

accurately observed: ‘‘The original 

formulation of ‘‘Gross Proceeds’’ was 

determined by a Copyright Arbitration 

Royalty Panel (‘‘CARP’’) in a 2002 

royalty-rate setting proceeding.’’ 

Memorandum Opinion at 3. The Judges 

observe that relevant provisions in the 

CARP determination are substantively 

identical to the language set forth in 

BES I and BES II, which form the basis 

for Music Choice’s asserted exclusion 

from gross proceeds.13 The Judges 

logically look to the CARP proceeding’s 

analysis and findings to address the 

referred question. As suggested by the 

Court, the CARP proceeding findings are 

essential to understand the basis for, 

and the meaning of, the language in the 

BES I and BES II rates and terms. 

The CARP determination of BES rates 

and terms adopted as benchmarks 

certain direct license agreements for 

BES. Web I CARP Report at 121–23. The 

CARP noted that the benchmark 

agreements generally called for a royalty 

payment that was a stated percentage 

‘‘of gross proceeds derived by the 

background music company from the 

licensed service.’’ Id. at 124. The CARP 

noted that in most of the benchmark 

agreements it considered, there are no 

deductions from gross proceeds. Id. at 

125. The CARP determined that the 

royalty should simply be 10% ‘‘of the 

Licensee’s annual gross proceeds 

derived from the use in such broadcast 

service of the musical programs which 

are attributable to copyrighted 

recordings.’’ Id. at B–7.14

The Librarian of Congress, upon and 

through recommendations of the 

Register of Copyrights, reviewed the 

CARP’s decision. See DTRA 

Determination, 67 FR at 45240. The 

Librarian rejected the argument 

advanced by a licensee in that 

proceeding that it was arbitrary for the 

CARP to set a rate for a blanket license 

covering all ephemeral copies used to 

provide a BES. Id. at 45263. The 

Librarian found it ‘‘consistent with the 

purpose of the section 112 license’’ for 

CARP to have set a Section 112(e) rate 

for a blanket license of ‘‘all the rights 

necessary’’ for a BES. Id. The Librarian 

also affirmed the CARP’s reliance on 

existing BES direct license agreements 

as benchmarks, finding the CARP’s 

adoption of a 10% rate based on those 

agreements to be ‘‘well-founded and 

supported by the record.’’ Id. at 45243. 

The Librarian took issue with aspects 

of the CARP’s regulatory language 

regarding gross proceeds, finding that it 

‘‘does not necessarily appear to capture 

in-kind payments of goods, free 

advertising or other similar payments 

for use of the license.’’ Id. at 45268. The 

Librarian decided ‘‘to expand on the 

CARP’s approach and adopt a definition 

of ‘gross proceeds’ which clarifies that 

‘gross proceeds’ shall include all fees 

and payments from any source, 

including those made in kind, derived 

from the use of copyrighted sound 

recordings to facilitate the transmission 

of the sound recording pursuant to the 

section 112 license. Id. (citing RIAA 

Exhibit No. 60A DR15). 

The Librarian added the following 

definition for ‘‘gross proceeds’’ to the 

final rule: 

‘‘Gross Proceeds’’ as used in this section 

means all fees and payments, including those 

made in kind, received from any source 

before, during or after the License Period that 

are derived from the use of copyrighted 

sound recordings during the License Period 

pursuant to 17 U.S.C. 112(e) for the sole 

purpose of facilitating a transmission to the 

public of a performance of a sound recording 

under the limitation on exclusive rights 

specified in 17 U.S.C. 114(d)(1)(C)(iv). 

See generally, DTRA Determination, 67 

FR at 45240. 

The proposed benchmark agreement 

that the Librarian looked to in support 

of this clarification regarding gross 

proceeds, RIAA Exhibit No. 60A DR, 

itself includes a notable exclusion from 

gross proceeds. An exclusion in the 

cited benchmark agreement targets a 

specific type of in-kind payment, 

namely in-kind payments [REDACTED]. 

RIAA Exhibit No. 60A DR. 

The Librarian’s decision to adopt the 

aforementioned regulatory definition of 

‘‘gross proceeds’’ did not specifically 

address the addition of the language 

‘‘for the sole purpose of facilitating a 

transmission to the public of a 

performance of a sound recording under 

the limitation on exclusive rights 

specified in 17 U.S.C. 114(d)(1)(C)(iv)’’ 

but the decision to adopt that specific 

language appears to incorporate 

exclusions from certain in-kind 

payments that may reasonably 

approximate the exclusions for in-kind 

payments found in RIAA Exhibit No. 

60A DR. Interpretation of this exclusion 

as an approximation of exclusions for 

in-kind payments in the benchmark 

agreements is supported by the 

Librarian’s finding that it would be 

unwise to include even an illustrative 

list of what specific types of revenues 

should be considered in the calculation 

of gross proceeds. DTRA Determination, 

67 FR at 45268. The Library also stated 

its intent to adhere to the revenue 

streams contemplated by the CARP and 


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16This relevant regulatory text is identical across 

BES I and BES II. The corresponding regulatory text 

from the underlying Web I CARP proceeding is 

substantively and structurally identical. 

the relied upon benchmark agreements. 

Id. 

The expansive exclusion posited by 

Music Choice does not closely adhere to 

the revenue streams contemplated by 

the CARP and the Librarian and 

reflected in the relied upon benchmark 

agreements. As previously stated, the 

CARP noted that in most of the 

benchmark agreements it considered, 

there are no deductions from gross 

proceeds. Web I CARP Report at 125. 

The agreements with deductions from 

gross proceeds include only narrow 

deductions. See, e.g. RIAA Exhibit No. 

60A DR. 

In light of these findings by the CARP 

and the Librarian, and considering the 

entirety of the record, the Judges find 

that the Librarian’s gross proceeds 

definition intended a narrow exception 

for a limited scope of in-kind payments, 

which are narrow to a degree 

corresponding to those in the 

benchmark agreements. Specifically, the 

Judges find that the meaning of ‘‘Gross 

Proceeds’’ as defined in 37 CFR 384.3(a) 

is that ‘‘all’’ ‘‘fees and payments’’ are 

included, and that following the words 

‘‘including those’’ the definition then 

specifies/limits what kinds of ‘‘in kind’’ 

consideration count as well—those that 

come from ‘‘any source,’’ before or after 

the license period, provided that such 

in-kind consideration was offered ‘‘for 

the sole purpose’’ of facilitating a BES. 

That is, the second interpretation 

offered by SoundExchange is the correct 

one, under which the relevant 

regulation are to be read as follows: 

all fees and payments 

including those made in kind, received from 

any source before, during or after the License 

Period that are derived from the use of 

copyrighted sound recordings during the 

License Period pursuant to 17 U.S.C. 112(e) 

for the sole purpose of facilitating a 

transmission to the public of a performance 

of a sound recording under the limitation on 

exclusive rights specified in 17 U.S.C. 

114(d)(1)(C)(iv).16

Read this way, the regulation means that 

‘‘all’’ ‘‘fees and payments’’ are included, 

and then goes on to specify what kinds 

of ‘‘in kind’’ consideration count as 

well—those that come from ‘‘any 

source,’’ before or after the license 

period, provided that the consideration 

was offered ‘‘for the sole purpose’’ of 

facilitating a BES. 

In addition to reflecting an 

appropriately narrow scope of an 

exception approximating those in the 

benchmark agreements, the Judges agree 

with SoundExchange that this 

interpretation follows and complies 

with relevant canons of interpretation. 

This proper interpretation adheres to 

the presumption of the non-inclusive 

‘‘include’’ whereby the word ‘‘include’’ 

indicates that the specified items that 

follow are illustrative and not exclusive. 

See Am Hosp. Assoc. v. Azar, 983 F.3d 

528, 534 (D.C. Cir. 2020). In this case, 

that which follows ‘‘include’’ are those 

payments made ‘‘in-kind’’ albeit only if 

those in-kind payments are derived 

from the use of copyrighted sound 

recordings during the License Period 

pursuant to 17 U.S.C. 112(e) for the sole 

purpose of facilitating a transmission to 

the public of a performance of a sound 

recording under the limitation on 

exclusive rights specified in 17 U.S.C. 

114(d)(1)(C)(iv). In adhering to this 

approach to the word ‘‘including’’ as 

well as the language which follows, the 

regulation is not ungrammatical. 

This proper interpretation is not in 

tension with the rule against surplusage. 

See Qi-Zhuo v. Meissner, 70 F.3d 136, 

139 (D.C. Cir. 1995). The ‘‘for the sole 

purpose’’ limitation has specific and 

effective meaning. Additionally, the 

proper interpretation does not create 

surplusage with regard to section 

384.3(c), regarding ‘‘other royalty rates 

and terms’’, because the limitation 

within the definition of gross proceeds 

in 384.3(a) is an economic limitation on 

the scope of the term gross proceeds, 

and not a limitation on the scope of 

rights applicable to Licensees or 

particular types of ephemeral 

recordings, such as ephemeral 

recordings made under different 

licenses. 

This proper interpretation is not 

nonsensical. Contrary to Music Choice’s 

assertions, it is those in-kind payments 

derived from the use of copyrighted 

sound recordings which are subject to 

the ‘‘for the sole purpose’’ limitation. 

The proper interpretation does not 

indicate that payments facilitate a 

transmission. Rather, it is the use of 

sound recordings that facilitates a 

transmission. 

This proper interpretation is not 

internally inconsistent, as it is accepted 

that specific provisions, here those 

regarding in-kind payments, do not 

govern the general, here a general 

statement of inclusiveness regarding 

fees and payments. See Nitro-Lift 

Techs., L.L.C. v. Howard, 568 U.S. 17, 

21 (2012) (addressing the interpretive 

principle generalia specialibus non 

derogant). This proper interpretation is 

consistent in that the specific does not 

govern the general with regard to the 

scope of fees and payments within gross 

proceeds as well as subset of in-kind 

proceeds, and with regard to the term 

‘‘derived from’’ used to apply generally 

as well as specifically with regard to 

certain in-kind payments. 

This proper interpretation does not 

produce absurd results, as it adheres to 

the economic intent of the CARP and 

the Librarian and is consistent with the 

narrow exclusions from gross proceeds 

in the relevant relied upon benchmark 

agreements. This interpretation is also 

supported by the Judges’ economic 

analysis of the BES license. 

B. Economic Analysis 

The Parties’ Economic Arguments Fail 

to Clearly Capture the Legal and 

Economic Value of the Section 112 

Ephemeral License Applicable to a 

BES—Value Which Supports the Judges’ 

Construction of the Gross Proceeds 

Definition 

The foregoing regulatory analysis is 

sufficient to make clear that the drafters 

of the disputed regulatory language did 

not intend to allow a BES to use its PSS 

ephemeral license to effectuate plays at 

business establishments by a BES 

without a separate ephemeral license 

and the payment of the section 112 

royalties. To buttress that legal statutory 

argument, it is instructive to 

demonstrate the economic 

unreasonableness of Music Choice’s 

position. 

Music Choice relies on the fact that, 

when a section 114 service, such as a 

PSS, requires both the section 114 

performance license and the section 112 

ephemeral license, the Judges, 

SoundExchange and other licensees, 

have traditionally assigned a carved-out 

5% of the section 114 performance 

license royalty as attributable to the 

ephemeral license. This, Music Choice 

maintains, is an acknowledgement of 

the absence of any actual value in the 

ephemeral license. See e.g. Music 

Choice Opening Brief at 16–20. 

By contrast, SoundExchange argues 

that the ephemeral right under section 

112 has inherent and independent 

economic value. See, e.g., 

SoundExchange Reply Brief at 13. Thus, 

SoundExchange argues that the 

consensual carve-out of the section 112 

ephemeral royalty from the section 114 

royalty is irrelevant. SoundExchange 

Reply Brief at 15. 

Both of these arguments miss the 

mark. More particularly, 

SoundExchange’s argument is 

incomplete. That is, although 

SoundExchange is correct in that the 

ephemeral license has value, provided it 

can and must be used in order to 

operate a music service, that value is 

either an independent value or a joint 


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17One of the Judges previously taught an 

intermediate microeconomics course, in which he 

utilized this ‘‘pair of shoes example.’’ After class, 

one of the students came up to him, raised one 

pantleg and explained that his left foot had been 

blown off in Afghanistan by an IED while he was 

serving in combat in the United States military. 

(The Judge was appropriately chagrined, but the 

student/former soldier was quite understanding.) 

The student’s economic point was that when he 

bought shoes, even though he needed just one shoe 

out of a pair, he had to pay the for the complete 

pair, despite the fact that the left shoe provided him 

no value. This anecdote has analogous economic 

meaning in the context of the single-license BES 

context, discussed herein, because the value of the 

two combined perfect complements was the same 

as the value of only one of the items when the other 

had no actual value. 

18Cf. Y. Barzel, What are ‘‘Property Rights’, and 

Why do they Matter? A Comment on Hodgson’s 

Article, 11 J. Inst. Econ. 719 (2015) (distinguishing 

between ‘‘legal’’ and ‘‘economic’’ conceptions of 

property rights, but acknowledging that ‘‘[w]hen 

legal rights are granted and enforced, it enhances 

the corresponding economic rights,’’ even though 

the law might not provide the most efficient or 

complete protection of a claim of rightful 

possession and property) (emphasis added); see 

generally R. Posner, Economic Analysis of Law at 

34, 529 (6th ed. 2003) ((‘‘It is no surprise that 

property rights are less extensive in primitive 

societies than in advanced societies where there is 

an ‘‘increase[ ] in the ratio of the benefits of 

property rights to their costs . . . ’’ ‘‘[T]he . . . 

question [of] what allocation of resources . . . 

maximize[s] efficiency . . . is given to the legal 

system to decide in situations where the costs of a 

market determination would exceed those of a legal 

determination.’’) 

19A music industry analogy is instructive in the 

context of intellectual property goods. There was no 

adequate ability to sufficiently police, prevent and 

remedy piracy that diminished the economic return 

to the owners of sound recording copyrights. In the 

absence of such protections, the private economic 

value of music copyrights as property rights was 

significantly diminished. See Phonorecords III, 

Final Determination 84 FR 1918, 1978 (Feb. 5, 2019) 

(Strickler, J. dissenting) (‘‘When piracy is 

uncontrolled, copies of sound recordings . . . 

resemble pure public goods [which] ha[ve] a zero 

marginal production cost (formally, they are ‘nonrivalrous in consumption)’ [and] the provider of the 

public good cannot prevent consumption of the 

good by non-payers (formally, ‘non-excludability’). 

See Nicholson & Snyder, supra, at 679 (subsequent 

history omitted)); see also N. Tyler, Music Piracy 

and Diminishing Revenues: How Compulsory 

Licensing for Interactive Webcasters Can Lead the 

Recording Industry Back to Prominence, 161 U. Pa. 

L. Rev. 2101, 2108 (June 2013) (‘‘the labels 

abandoned [their] litigation strategy because of the 

high costs, the lack of a significant deterrent effect 

on the general public, and the judgment-proof 

status of many of the named defendants.’’). 

20As a matter of law and economics, the statutory 

and compulsory license provides a ‘‘liability’’ right 

as opposed to a ‘‘property’’ right, in that the 

payment of royalties is sufficient for a BES to utilize 

sound recordings, without first obtaining the 

consent of the owner of the sound recording 

copyright. (By contrast, the performances of sound 

Continued 

(perfect complement) value, depending 

on whether one is evaluating the BES 

license, on the one hand, or the 

noninteractive license, on the other. 

By contrast, Music Choice’s position 

is not simply incomplete, but rather 

clearly incorrect. Music Choice asserts 

that because SoundExchange and others 

(including the CRB Judges) have noted 

the absence of any independent value in 

the section 112 ephemeral license in 

other statutory licensing contexts, it 

therefore has no stand-alone value in 

the BES context. Relying on this 

assertion, Music Choice argues that its 

statutory duty to pay any royalties 

under the section 112 ephemeral license 

is economically inappropriate. See, e.g., 

Music Choice Opening Brief at 16–20. 

Music Choice seeks to utilize this 

economic argument as justification for 

the indication that its BES royalty 

obligation should be zero for sound 

recordings played on its PSS service for 

which it has already utilized a section 

112 ephemeral license. As explained 

infra, in this regard, Music Choice 

conflates the concepts of ‘‘no 

independent value’’ and ‘‘no value.’’ For 

Services that by Law Must Utilize the 

Sections 112 and 114 Licenses, these 

Two Licenses are ‘‘Perfect 

Complements.’’ 

Economists define ‘‘ ‘[p]erfect 

complements’ [as] goods that are always 

consumed together in fixed proportions 

. . . A nice example is that of right and 

left shoes. . . . Having only one out of 

a pair of shoes doesn’t do the consumer 

a bit of good.’’ H. Varian, Intermediate 

Microeconomics: A Modern Approach 

40 (8th ed. 2010). Thus, a customer 

purchasing a pair of shoes for $80 

would be indifferent to any allocation of 

that $80 as between the left and right 

shoe (which is why it is obviously 

efficient that the shoes are priced as a 

pair).17

In similar fashion, a noninteractive 

service cannot operate its service unless 

it possesses both the ephemeral and the 

performance licenses for sound 

recordings. As the Judges have noted, 

when two licensed rights are perfect 

complements, the licensees are 

indifferent as to how much they pay for 

each individual license, and instead are 

focused on the total cost of the two 

licenses. See Final rule and order, 

Determination of Royalty Rates and 

Terms for Ephemeral Recording and 

Webcasting Digital Performance of 

Sound Recordings, Docket No. 14–CRB– 

0001–WR (2016–2020), 78 FR 26316 

(May 2, 2016) (Web IV Determination) 

(‘‘willing buyers and willing sellers 

would prefer that the rates for the 

[Sections 112 and 114] licenses be 

bundled and . . . would be agnostic 

with respect to the allocation of those 

rates to the Section 112 and 114 license 

holders,’’ allowing for ‘‘the minimum 

fee for the Section 112 license [to be] 

subsumed under the minimum fee for 

the Section 114 license, 5% of which 

shall be allocable to the Section 112 

license holders, with the remaining 95% 

allocated to the Section 114 license 

holders.’’), aff’d SoundExchange, Inc. v. 

Copyright Royalty Bd., 904 F.3d 41 (D.C. 

Cir. 2016). 

However, in the context of a BES 

service, this perfect complementarity is 

non-existent; indeed, there is no 

complementarity at all. The BES service 

by law is not required to obtain a 

section 114 performance license to 

transmit sound recordings, but is 

required to obtain the section 112 

ephemeral license to do so. 

The foregoing point is actually a 

subset of a larger point made clear in 

scholarly literature integrating 

economics and law. A claimed 

‘‘property right’’ only has exchange or 

asset value to its claimant if it is 

protected by law. For tangible and 

intangible resources to generate such 

economic value that can be 

appropriated by private actors, the 

resources must be ‘‘excludable,’’ i.e., the 

possessor need be able to invoke the law 

to prevent someone else from 

misappropriating his or her resource or 

seek compensation for its taking. See, 

e.g., G. Hodgson, Much of the 

‘‘Economics of Property Rights’’ 

Devalues Property and Legal Rights,11 J. 

Inst. Econ. 683, 684 (2015) (‘‘The term 

‘property’ should be reserved for cases 

of institutionalized possession with 

legal mechanisms of adjudication and 

enforcement. Property involves 

acknowledged rights granted by 

legitimate legal authority.’’).18 For 

example, what value would one’s car 

have if anyone could simply steal it 

without legal consequence or remedy? 19

Legal authority is in accord. See U.S. v. 

Willow River Power Co., 324 US 499, 

502 (1945) (Jackson, R., J.) (‘‘[N]ot all 

economic interests are ‘property rights’; 

. . . We cannot start the process of 

decision by calling such a claim as we 

have here a ‘property right’ [that] is 

really the question to be answered. Such 

economic uses are rights only when 

they are legally protected interests.’’) 

Thus, a necessary element for 

protecting the intellectual property right 

of sound recording copyright owners is 

a legal regime that both acknowledges 

that right and prohibits infringement, 

regardless of which license is designated 

as representing that right and is 

enforced by law. In the present BES 

context, via the statutory compulsory 

license, Congress has elected to 

acknowledge that right by attaching it to 

the section 112 ephemeral right only, 

and to enforce that right by requiring a 

BES to pay royalties as set by the 

Judges.20


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recording by an interactive (‘‘on-demand’’) 

streaming service, which are unregulated and 

subject to market forces, are ‘‘property’’ rights, in 

that the streaming service can be enjoined from 

transmitting these performances unless it has 

obtained a license to do so, typically in exchange 

for the service’s agreement to pay royalties to the 

copyright owners.) 

21 Indeed, this is an example of an ‘‘absurd’’ result 

that Music Choice’s statutory interpretation 

argument would permit if followed. 

22See SDARS II Final Determination 78 FR 

23054. Indeed, the SDARS regulations have 

expressly excluded from PSS ‘Gross Revenues’’, 

inter alia, ‘‘[r]evenues recognized by the licensee for 

the provision of . . . [c]hannels, [and]programming, 

products . . . for which . . . the making of 

Ephemeral Recordings . . . is separately licensed, 

including by a statutory license and, for the 

avoidance of doubt . . . transmissions to business 

establishments.’’ 37 CFR 382.11 (Definitions . . . 

Gross Revenues (3)(vi)((D). Clearly, no revenue, and 

no value, attributable to the sound recordings 

transmitted through a BES has been included in the 

PSS royalty base. 

23 ‘‘Economies of scope’’ should be distinguished 

from ‘‘economies of scale,’’ in that the latter refers 

to diminishing average unit costs for a single 

product produced by a firm. 

24See Varian, supra at 357 (identifying ‘‘profit 

maximization as an economic ‘‘axiom’’); C.E. 

Ferguson & S.C. Maurice, Economic Analysis 234 (It 

is a ‘‘fundamental assumption . . . that 

entrepreneurs try to maximize profits’’) 234. 

Accordingly, a BES’s obligation under 

the section 112 ephemeral license, as 

opposed to the section 114 performance 

license, as a condition for performing 

sound recordings, does not affect the 

economic value of the required 

licensing. 

The foregoing analysis undermines 

Music Choice’s attempt to narrowly 

construe the ‘‘gross proceeds’’ definition 

on economic grounds. That is, there is 

insufficient economic predicate to 

support Music Choice’s reliance on 

legislative history, statutory 

construction, regulatory rulings and 

judicial precedents as bases for limiting 

‘‘gross proceeds’’ in the manner Music 

Choice proposes. 

So, in our Title 17 context, under 

section 114, the ephemeral right and the 

performance right are perfect 

complements in the legal and the 

economic sense, in that neither has any 

value independent of the other. This is 

why SoundExchange is on record in 

previous non-BES proceedings as 

acknowledging that—in those 

contexts—the ephemeral license has no 

‘‘independent’’ value. Thus, a licensee 

would be disinterested in how the total 

royalty is legally allocated as between 

the ephemeral and the performance 

license. 

Pursuant to this analysis, the word 

‘‘solely’’ cannot rationally be construed 

as disconnected from the fact that the 

ephemeral license is the only license 

that allows for a BES to legally generate 

‘‘Gross Proceeds.’’ Music Choice is 

simply trying to unfairly obtain a ‘‘free 

ride’’ on the use of the copyrighted 

sound recordings. The fact that Music 

Choice’s use of the ephemeral license 

also allows it to generate further 

proceeds when used to operate a PSS 

does not negate this fundamental 

point.21

Music Choice’s Attempt to Obtain a 

‘‘Free Ride’’ on the Statutory Ephemeral 

License it Obtained for its PSS—by 

Extending its Reach to Music Choice’s 

BES—is Economically Meritless 

As noted supra, Music Choice’s legal 

argument, if adopted, would allow it to 

‘free ride’’ on the statutory ephemeral 

license applicable to its PSS service. 

That is, although the section 112 PSS 

ephemeral license was established in a 

separate proceeding pursuant to 

economic analyses unrelated to the BES 

statutory license, there was insufficient 

evidence adduced to account for the 

value added by the of that ephemeral 

license to facilitate a BES.22 Moreover, 

because the section 112 ephemeral 

license is a perfect complement to the 

section 114 performance license for a 

PSS, the ephemeral license could be— 

and was—set as a percentage (5%) of the 

section 114 license. Final rule and 

order, Determination of Rates and 

Terms for Preexisting Subscription 

Services and Satellite Digital Audio 

Radio Services, Docket No. 2011–1 CRB 

PSS/Satellite II, 78 FR 23054, 23056 

(Apr. 17, 2013) (SDARS II Final 

Determination); see also 37 CFR 

382.12(b). That is, as long as the total 

royalty rate was supported by the 

evidence, the apportionment of the 

royalty as between the section 112 and 

114 licenses was economically 

irrelevant, as discussed supra. Thus, 

there was insufficient economic 

evidence proffered in the PSS actions to 

establish an independent value for the 

PSS section 112 license. (As explained 

supra, the absence of an independent 

value for one of two perfect 

complements, does not mean that either 

has no value.) 

Of course, it cannot be disputed that, 

legally, the ephemeral license which a 

BES must obtain has economic value. 

That is, but for the existence of the 

section 112 license, a BES would not be 

able to operate, absent a separate license 

such as a direct license. And, as 

explained supra, the sound recording 

copyright owner’s legal right is what 

ensures and generates the economic 

value in the BES license. 

Music Choice’s statutory argument 

boils down—economically—to the 

claim that the section 112 ephemeral 

license it obtained in the PSS 

proceedings adds no value to Music 

Choice in the BES context—or at least 

no value for which Music Choice must 

compensate sound recording copyright 

owners—for sound recordings also 

played on Music Choice’s PSS service. 

This ‘‘free rider’’ argument ignores the 

relevant economics of the matter, as 

discussed below. 

The economic context of Music 

Choice’s argument lies in what 

economists recognize as involving the 

concept of ‘‘economies of scope.’’ 

Succinctly stated, ‘‘economies of scope’’ 

are cost savings realized by a firm that 

can utilize one of its inputs to produce 

two inputs. See R. Pindyck & D. 

Rubinfeld, Microeconomics at 258 (8th 

ed. 2013).23 More particularly, 

‘‘economies of scope’’ will exist when, 

inter alia, a firm’s two products are 

closely linked to one another, and are 

produced ‘‘from the joint use of inputs 

. . . .’’ Id. 

Before considering the actual 

statutory context, for pedagogical 

purposes, consider a hypothetical 

market-based scenario, i.e., absent 

statutorily required compulsory 

licensing. Music Choice would be 

required to obtain licensing rights— 

whether bundled or separate—to allow 

it to operate both its PSS subscription 

service and its BES. In this market 

scenario, Music Choice would need to 

negotiate with the sound recording 

copyright owners. As a matter of basic 

economics, bargaining and price-setting, 

the copyright owners would need to 

estimate Music Choice’s willingness to 

pay (‘‘WTP’’) for the inputs, i.e., the 

licensing rights to the sound recordings. 

Applying the economic axiom that 

businesses seek to maximize profits 24 in 

the negotiations the copyright owners 

would not ignore the value added to 

Music Choice by a business 

establishment service when proposing a 

license. This point not only follows 

from the axiomatic microeconomic 

assumption of profit maximization, but 

also from the concept of ‘‘derived 

demand,’’ which holds that the 

‘‘upstream demand . . . for . . . sound 

recordings . . . known as ‘factors’ of 

production or ‘inputs’ . . . [is] derived 

from the downstream demand of 

listeners . . . and users . . . .’’ 

Phonorecords III Determination, 84 FR 

at 1977 (Strickler, J. dissenting) 

(subsequent history omitted).’’ See also 

Phonorecords III Final Determination 

after Remand, Appx. A (Initial Ruling 

and Order after Remand at 111 (restating 

the foregoing and adding: ‘‘[D]emand for 

the factor is derived from the 

downstream firm’s output choice’’). 

Here, the downstream distribution firm 

is Music Choice, and its ‘‘output 


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25Additionally, the copyright owners would want 

to estimate the separate opportunity costs of 

licensing to the PSS and to the BES, i.e., whether 

licensing to each would be likely to cause listeners 

to leave a different royalty-bearing service that 

generated higher revenues. In this context, a 

licensor would not provide the BES license gratis 

to a licensee who paid separately for the PSS 

license—especially if a stand-alone BES would pay 

a market-based royalty for the BES license. 

One wrinkle in this otherwise standard economic 

point is that additional (marginal) digital copies of 

a sound recording are essentially zero. Basic 

economics provides that in a competitive market for 

a private good, price will equal marginal cost, but 

at a marginal cost of zero, price cannot equal zero, 

or else the copyright owners would not recover 

their significant fixed costs and earn a profit. Thus, 

for a licensor of sound recording copyrights, 

ascertaining the demand from various distribution 

channels is needed to generate a schedule of royalty 

rates. (As the Judges have noted on prior occasions, 

the sound recording copyright owners are 

‘‘complementary oligopolists,’’ which affords them 

substantial market power beyond that of ordinary 

competing oligopolists, but that complication is not 

relevant to the present discussion.) 

26The PSS rates were set (as is customary) in the 

same proceedings that established the SDARS rates, 

which is why the Determinations are identified as 

‘‘SDARS I’’ and ‘‘SDARS II.’’ 

27 If the market for licenses was competitive and 

price discrimination was absent, the licensor might 

be compelled by market forces to accept a royalty 

rate lower than the licensee’s maximum WTP, 

providing that licensee with what economists term 

a ‘‘consumer surplus.’’ On the other hand, if the 

sound recording licensor had complementary 

oligopoly power in the BES market, the Judges 

might need to adjust downward a marketplace 

benchmark rate to adjust for that specific marketpower. See e.g., Web IV Determination, 81 FR at 

26344; Phonorecords III 84 FR at 1953 (subsequent 

history omitted); Web V 86 FR at 59478. However, 

those potential adjustments do not impact the 

analysis in the text supra, which applies the 

axiomatic assumption of ‘‘profit maximization’’ to 

the economic analysis of any market structure. 

28Having addressed the referred question 

regarding the meaning of the ‘‘Gross Proceeds’’ 

definition, the Judges decline to go beyond the 

scope of the re-opened proceedings or the directive 

in the Court’s Memorandum Opinion. The Judges 

did not request briefing on the standard that should 

be used to evaluate the approach that a BES 

provider has taken to apportion its revenues, and 

therefore do not address that matter. 

choice’’ requires use of licenses as 

factors of production to facilitate its (1) 

its PSS transmissions and (2) its BES 

transmissions. Thus, a copyright owner 

would rationally estimate the 

downstream demand for noninteractive 

and business establishment services, 

and incorporate each separate demand 

into the royalty it would seek for each 

respective license.25

Although the foregoing textbook 

analysis applies to a world which does 

not include statutory compulsory 

licenses, that distinction neither negates 

nor alters the applicability of this 

analysis in the present context where 

statutory compulsory licensing exists. 

This is so because the PSS and BES 

royalty standards applicable during the 

BES I and BES rate periods (2009–2013 

and 2014–2018, respectively) and the 

BES royalty standards themselves 

invoke the economics of the 

hypothetical unregulated market— 

before considering any potential 

adjustments. 

More particularly, the PSS rate 

determinations which applied during 

these BES rate proceeding periods were 

largely the product of the SDARS I and 

SDARS II proceedings, respectively.26 In 

these proceedings, the Judges approach 

was first to identify marketplace 

benchmarks between willing sellers 

(licensors) and willing buyers 

(licensees), and then consider whether 

adjustments to these market-based rates 

is needed to achieve one or more of the 

four ‘‘objectives’’ listed in section 

801(b)(1). See SDARS II Final 

Determination, 78 FR at 23054–56, 

(explaining that the Judges ‘‘evaluat[ed] 

the evidence to determine . . . 

reasonable royalty rates based on market 

benchmarks’’ . . . as a ‘‘useful starting 

point,’’ before weighing the four 

statutory objectives ‘‘required by 17 

U.S.C. 801(b) . . . .’’). And although the 

PSS rates established via settlement, see 

Final rule and order, Determination of 

Rates and Terms for Preexisting 

Subscription Services and Satellite 

Digital Audio Radio Services, Docket 

No. 2006–1 CRB DSTRA, 73, 4080, 4081 

& n.8 (Jan. 24, 2008) (SDARS I Final 

Determination), in the companion 

SDARS rate case which was adjudicated 

under the same section 801(b)(1) rate 

standard, the Judges likewise 

determined that ‘‘comparable 

marketplace royalty rates are ‘‘a good 

starting point’’ before separately 

considering the four section 801(b)(1) 

factors). Id. at 4088. Thus, marketplace 

economics were part and parcel of the 

Judge’s section 801(b)(1) rate analysis, 

and marketplace conduct includes the 

fundamental assumption that licensors 

seek to maximize their profits, and, as 

explained supra, would not simply give 

away their licensing rights to a BES/PSS 

service merely because it had already 

provided that service a PSS license for 

separate royalty payments. 

In the BES context, the applicability 

of market forces is statutorily prescribed 

(rather than inferred by the Judges, as in 

the section 801(b)(1) proceedings 

discussed supra). That is, for a BES 

service to access copyrighted sound 

recordings, it must utilize the section 

112 ephemeral license and pay royalty 

rates ‘‘that most clearly represent the 

fees that would have been negotiated in 

the marketplace between a willing buyer 

[i.e., licensee] and a willing seller [i.e., 

licensor].’’ 17 U.S.C. 112(e)(4). 

Accordingly, any rational profitmaximizing licensor of a BES license in 

the marketplace—for the reasons set 

forth supra—would seek the highest 

royalty it could obtain by estimating the 

maximum WTP of the potential licensee 

with which it is bargaining 27—and 

certainly would not irrationally provide 

the BES license for free merely because 

that potential licensee would like to 

appropriate for itself the entire value of 

the ‘‘economies of scope’’ it could 

realize by using its PSS license for its 

BES service. 

Conclusion 

Based on the entirety of the record as 

well as the foregoing findings and 

reasoning, the Judges answer the District 

Court by concluding that 37 CFR 

384.3(a) directs Business Establishment 

Service providers to calculate royalties 

using their gross proceeds derived from 

all fees and payments for the use of all 

licensed ephemeral copies used for the 

operation of the Business Establishment 

Service, except that in-kind payments 

must only be included in gross proceeds 

when such in-kind payments are 

derived from the use of copyrighted 

sound recordings during the licensing 

period pursuant to 17 U.S.C. 112(e) for 

the sole purpose of facilitating a 

transmission to the public of a 

performance of a sound recording under 

the limitation on exclusive rights 

specified in 17 U.S.C. 114(d)(1)(C)(iv).28

The Judges issue this decision to the 

parties in restricted format. The Judges 

will separately order the participants in 

the proceedings to confer and jointly file 

a notice of proposed redactions, if any 

are needed, no later than December 20, 

2024. 

So ordered. 

David P. Shaw, 

Chief Copyright Royalty Judge. 

David R. Strickler, 

Copyright Royalty Judge. 

Steve Ruwe, 

Copyright Royalty Judge. 

Dated: December 4, 2024. 

The Judges issued this Ruling on 

Regulatory Interpretation to the parties 

in interest on December 4, 2024. This 

publication of the Ruling on Regulatory 

Interpretation redacts confidential 

information that is subject to a 

protective order in the proceedings. 

Dated: December 31, 2024. 

David P. Shaw, 

Chief Copyright Royalty Judge. 

[FR Doc. 2024–31779 Filed 1–8–25; 8:45 am] 

BILLING CODE P 


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