Source: https://www.federalregister.gov/documents/2003/07/03/03-16727/determination-of-reasonable-rates-and-terms-for-the-digital-performance-of-sound-recordings-by
Timestamp: 2017-09-26 20:28:26
Document Index: 309178544

Matched Legal Cases: ['§\u2009251', '§\u2009251', '§\u2009251', '§\u2009251', '§\u2009260', '§\u2009260']

A Rule by the Copyright Office, Library of Congress on 07/03/2003
39837-39841 (5 pages)
https://www.federalregister.gov/d/03-16727 https://www.federalregister.gov/d/03-16727
In accordance with the time frame set forth in the law for the purpose of setting rates and terms for use of the section 114 license by preexisting services, the Copyright Office published a notice in the Federal Register on January 9, 2001. 66 FR 1700 (January 9, 2001). This notice initiated a six-month negotiation period the purpose of which was to provide an opportunity for interested parties to set rates and terms for use of the section 114 license as it applied to both the preexisting subscription services and the preexisting satellite digital audio radio services. Unfortunately, no agreement was reached by the end of that period and petitions were filed requesting that the Librarian of Congress convene a Copyright Arbitration Royalty Panel (“CARP”) to determine the rates and terms for both categories of preexisting services.
On January 17, 2003, the Copyright Office received notification of a settlement among the parties contesting rates and terms for preexisting services and a joint petition requesting the Librarian to publish their proposed rates and terms in accordance with § 251.63(b) of the CARP rules, 37 CFR, which provides that—
On January 30, 2003, the Copyright Office published a Notice of Proposed Rulemaking (“NPRM”) in the Federal Register announcing the settlement and proposing the rates and terms for preexisting services. 68 FR 4744 (January 30, 2003). The NPRM specified that—
68 FR at 4745. Objections to the proposed rates and terms were due by March 3, 2003. On March 3, the Office received an objection from Royalty Logic, Inc. (“RLI”).
RLI's March 3, 2003, objection and Notice of Intent to Participate represents RLI's second attempt to enter this proceeding. On January 17, 2003, on the same day that the Copyright Office received notification of the settlement of rates and terms for preexisting services and 14 months after the Office called for Notices of Intent to Participate in this proceeding, RLI filed a motion to accept a late-filed Notice of Intent to Participate. In an Order issued March 14, 2003, the Office denied RLI's motion. The Office applied its two-part test for considering late-filed Notices of Intent to Participate—the disruption to the proceeding by accepting the Notice and whether good cause is shown for it being late—and determined that RLI failed both prongs of the test. Order in Docket No. 2001-1 CARP DSTRA2 (March 14, 2003). We now consider whether there are sufficient grounds to accept RLI's March 3 objection and its new Notice of Intent to Participate.
On March 26, 2003, RLI filed a supplement to its March 3, 2003, objection to the NPRM. RLI stated that—
The consequences of an objection to a proposal of rates published under § 251.63(b) of the CARP rules are considerable; the Librarian will not adopt the proposed rates and terms and will schedule a CARP proceeding to resolve the matter. However, because a challenge is lodged does not necessarily mean that a CARP must be convened. The Librarian must evaluate the sufficiency of the objection to determine whether the objecting party (1) has a significant interest in the establishment of the rates and terms and (2) has asserted objections to the proposed rates and terms that can be resolved in a CARP proceeding.
The first requirement, that an objecting party have a significant interest in the rates and terms to be established, is derived from the language of the Copyright Act. Section 803(a)(1) of the Act provides that rate proceedings for certain statutory licenses in the Act-particularly sections 112 and 114 which are at issue in this proceeding-begin with the submission of a petition to the Librarian of Congress. In other words, one or more parties may request the Librarian to invoke the CARP process to establish rates and terms by filing a petition or petitions. For each petition received, the statute requires that the “Librarian of Congress shall, upon the recommendation of the Register of Copyrights, make a determination as to whether the petitioner has such a significant interest in the royalty rate in which an adjustment is requested.” 17 U.S.C. 803(a)(1). Although there is no legislative history as to what constitutes a “significant interest,” the requirement of such makes a great deal of sense. Rate proceedings before a CARP are lengthy, complex, and expensive. It would make no sense to allow an entity with a tentative or collateral interest in the rates to invoke a CARP proceeding; in order to initiate the proceeding, a party should at a minimum have a significant interest in the rates and terms to be established.
While section 803(a)(1) addresses petitions to initiate rate proceedings, there is no similar provision in the Copyright Act related to challenges of proposed rates and terms that are the result of settlement reached by participants in a CARP proceeding. The Copyright Office developed § 251.63(b) of the CARP rules to address circumstances where, due to a settlement, a CARP is no longer necessary. Although § 251.63(b) is a rule and not a statutory provision, it has the specific endorsement of the Congress.
If an agreement as to rates and terms is reached and there is no controversy as to these matters, it would make no sense to subject the interested parties to the needless Start Printed Page 39839expense of an arbitration proceeding conducted under (section 114(f)(2) (1995)). Thus, it is the Committee's intention that in such a case, as under the Copyright Office's current regulations concerning rate adjustment proceedings, the Librarian of Congress should notify the public of the proposed agreement in a notice-and-comment proceeding and, if no opposing comment is received from a party with a substantial interest and intent to participate in an arbitration proceeding, the Librarian of Congress should adopt the rates embodied in the agreement without convening an arbitration panel.
S. Rep. No. 104-128, at 29 (1995) (citations omitted) (emphasis added). Plainly, for the same reasons that the Librarian must determine whether a petitioner for a rate proceeding has a significant interest in the rates and terms, Congress recognized that a party challenging proposed rates and terms that are the product of a settlement must likewise have a significant, or substantial, interest. Consequently, when the Office published the NPRM in this proceeding, it required any party filing objections to identify its specific interest in the rates and terms to be adjusted to enable the Librarian to determine whether it has a significant (substantial) interest. See 68 FR at 4745 (“[U]nless there is an objection from a person with a significant interest in the proceeding who is prepared and eligible to participate in a CARP proceeding, * * * the Librarian can adopt the rates and terms in the proposed settlement in final regulations without convening a CARP”).
Likewise, an entity that represents users of copyrighted works can have a specific interest in a rate proceeding, but only gains that specific interest from the authorization of the users it represents. A person or entity that is not a user of a statutory license but expresses a vague or unspecified desire to form a business that would make use of the license or that would benefit indirectly from another's use does not have a specific interest. Order in Docket No. 99-6 CARP DTRA at 2 (June 21, 2000) (“Glaser's interest in what the fees will be is general in that it may affect the profitability of his other businesses, but it is not specific to his person or to his role as a representative of these other businesses.”). And a person or entity that proposes or objects to a rate proceeding solely on the basis of espoused public policy or consumer interest concerns does not have a specific interest.
The NPRM in this proceeding specified that parties objecting to the proposed rates and terms identify their interest in the proceeding no later than March 3, 2003. Review of RLI's March 3, 2003, filing reveals that RLI did not represent any copyright owners entitled to collect royalties from preexisting subscription services under the section 112 and 114 licenses. Rather, it states that its “key business objective” is to distribute such royalties in the future and that its participation in this proceeding is necessary to attaining that objective. RLI Objection at 2. This is confirmed in the March 26, 2003, “supplement” to its objection where RLI states that it is “pleased to inform the Copyright Office” that it had entered into affiliation agreements with unspecified copyright owners and performers whose works it purports are used under the section 112 and 114 licenses. RLI Supplement at 2.[1] Since RLI did not represent copyright owners entitled to royalties from preexisting subscription services under the section 112 and 114 licenses at the time that it filed its objection, and did not have authorization from any copyright owners eligible to receive such royalties to lodge the objection and participate in a CARP proceeding on their behalf, RLI does not have a specific interest in this rate adjustment proceeding.
These arguments do not compel the conclusion that RLI has standing to block a settlement and force the determination of rates and terms to be made by a CARP. The fact that more than one entity could serve as Designated Agents does not mean that there necessarily ought to be more than one Designated Agent,[2] or that an aspiring candidate for designation has sufficient interest to participate in its own right in a CARP proceeding. The fact that Congress has recognized that Start Printed Page 39840there have been and may continue to be more than one Designated Agent also does not mean that this is a necessary or even a desirable outcome. On the other hand, it could be that when Congress, in the Small Webcaster Settlement Act, amended the law to permit SoundExchange to deduct costs incurred in licensing rights under section 114 or to deduct costs incurred as a participant in a CARP proceeding from the royalties that it distributes to copyright owners and performers,[3] it also included the provision denying SoundExchange that right with respect to “copyright owners and performers who have elected to receive royalties from another designated agent,” 17 U.S.C. 114(g)(3), in order to give copyright owners and performers a means to avoid being subject to recoupment of SoundExchange's litigation and other costs. Such a provision may have been intended to deter SoundExchange from making excessive deductions, in light of the fact that copyright owners and performers could elect to receive their royalties from an alternative Designated Agent if they were dissatisfied with the extent of SoundExchange's deductions. But even if that is so, it would not give RLI standing to participate on its own behalf in a CARP in order to seek designation as an agent. Instead, it would give a copyright owner or performer entitled to participate in the CARP the power to seek the designation of RLI or some other entity as an alternative Designated Agent.[4]
(c) Commencing in the year 2003 and continuing through the year 2007, each Licensee making digital performances of sound recordings pursuant to 17 U.S.C. 114(d)(2) and ephemeral phonorecords pursuant to 17 U.S.C. 112(e) shall make an advance payment of $100,000 per year, payable no later than January 20th of each year; Provided, however, that for 2003, the annual advance payment shall be due on August 20, 2003. The annual advance payment shall be nonrefundable, but the royalties due and payable for a given year or any month therein under paragraphs (a) and (b) of this section shall be recoupable Start Printed Page 39841against the annual advance payment for such year; Provided, however, that any unused annual advance payment for a given year shall not carry over into a subsequent year.
(f) A Licensee shall make any payments due under § 260.2(a) for digital transmissions or ephemeral phonorecords made between January 1, 2002, and July 31, 2003, to the Designated Agent, less any amounts previously paid by such period to the Recording Industry Association of America, Inc., or SoundExchange by September 15, 2003.
8. Section 260.6 (revised at
a. By revising paragraphs (a), (b) and (c);
b. In paragraph (f), by removing “designated agent” and adding “entity which made the underpayment” in its place; and
c. In paragraph (g), by removing “individuals or entities”.
The revisions to § 260.6 read as follows:
9. Section 260.7 (amended at
1. RLI also faxed replies on April 11 and April 24, 2003, to the objections lodged against its March 26 Supplement. Permission was not sought to submit these replies and they are therefore not considered. Moreover, unless otherwise directed by the Librarian, the rules do not provide for the submission of any pleading by facsimile transmission. 37 CFR 251.44(a).
2. Indeed, we have expressed skepticism about the benefit of the two-tier structure involving a Receiving Agent and more than one Designated Agent, which adds expense and administrative burdens to a process the purpose of which is to make prompt, efficient, and fair payments of royalties to copyright owners and performers with a minimum of expense. See Determination of Reasonable Rates and Terms for the Digital Performance of Sound Recordings and Ephemeral Recordings; Final Rule, 67 FR 45239, 45267 n.46 (July 8, 2003).
3. SoundExchange had sought the power to make such deductions in the previous CARP proceeding setting rates and terms for eligible nonsubscription services, but the Librarian, on the recommendation of the Register, rejected the CARP's terms that would have permitted such deductions. See Determination of Reasonable Rates and Terms for the Digital Performance of Sound Recordings and Ephemeral Recordings; Final Rule, 67 FR 45239, 45269 (July 8, 2003)(noting that “[s]uch activity is beyond the scope of collection and distribution of royalties.”).
4. In fact, it is not clear that RLI needs to participate in a CARP proceeding or be named in a negotiated settlement in order to act as a designated agent for purposes of collecting royalty fees on behalf of copyright owners and performers who are entitled to receive funds collected pursuant to the section 112 and section 114 licenses. Section 112(e)(2) and section 114(e) of the Copyright Act both expressly provide that a copyright owner of a sound recording may designate common agents to negotiate, agree to, pay, or receive royalty payments. Under these provisions, it is plausible that a copyright owner or performer could designate any agent of his or her choosing (including RLI)—whether or not that agent had been formally designated in the CARP proceeding-to receive royalties from the licensing of digital transmissions and, by doing so, limit the costs of such agents to those specified in section 114(g)(4), as amended by the Small Webcaster Settlement Act of 2002.
[FR Doc. 03-16727 Filed 7-2-03; 8:45 am]