Opinion ID: 187426
Heading Depth: 3
Heading Rank: 3

Heading: Adoption of a Use-Based Fee Above a Listenership Threshold

Text: Acknowledging that commercial and certain noncommercial webcasters represent two different segments of the marketplace, the Judges noted that agreements produced by the parties in this proceeding covering noncommercial services typically structured payments as flat fees. Order, 72 Fed.Reg. at 24,091 (citing the NPR Agreement). The Judges also noted the myriad of characteristics that [noncommercials] claim set them apart from commercial broadcasters, such as non-profit status, different noncommercial mission, and different sources of funding. Id. at 24,098. Nevertheless, the Judges expressed concern that flat fees do permit increasing usage without increasing payment. Id. Therefore, to account for these competing considerations, the Judges adopted a flat, per-station rate structure up to a specified cap coupled with a per performance rate for usage exceeding the cap. Id. In imposing the cap, the Judges relied on testimony from SoundExchange's economic expert, Dr. Erik Brynjolfsson, that as noncommercial stations grow, they begin to compete with commercial stations for listeners. Dr. Brynjolfsson opined that, beyond a certain size, a cap is necessary in order to reduce `the chance that small noncommercial stations will cannibalize the webcasting market more generally' and thereby adversely affect the value of the digital performance right in sound recordings. Id. at 24,097 (quoting Brynjolfsson Written Rebuttal Testimony at 42). The Judges agreed, concluding as a matter of pure economic rationale based on the willing buyer/willing seller standard, that the proliferation of a different price for noncommercials must include safeguards to assure that, as the submarket for noncommercial webcasters that can be distinguished from commercial webcasters evolves, it does not simply converge or overlap with the submarket for commercial webcasters. Id. at 24,097-98. The Judges explained that this convergence theory approximates the circumstances in which willing buyers and willing sellers would have a meeting of the minds that would result in a lower rate than the rate applicable to the general commercial webcasting market. Id. at 24,100. Noncommercials contend that the record evidence and the Judges' reasoning demonstrate that the only appropriate fee structure for noncommercials is a flat fee. However, Dr. Brynjolfsson's testimony provided evidence against a plain flat-fee structure beyond a certain listenership threshold, and the Judges' decision to adopt a listenership threshold was rationally based on Dr. Brynjolfsson's testimony of how the willing buyer/willing seller calculation would change as a noncommercial broadcaster grew and competed with a commercial webcaster for listeners. Also, the Judges did set a flat fee structure for the vast majority of noncommercials, most of which were not expected to exceed the specified cap. Noncommercials also contend that the Judges legally erred by substituting a theory of convergence for the willing buyer/willing seller standard. As the Judges stated, however, it relied on convergence as a proxy for what a willing buyer and willing seller would negotiate in the marketplace. Id. at 24,100. To the extent noncommercials suggest that this statement constituted lip service to the statutory standard, as competition was the beginning and end of the Board's inquiry, Noncommercials Op. Br. 26 n. 8, this criticism is no criticism at all because competition certainly would affect the actions of a willing seller, as the Judges noted. Even assuming the Judges should have recognized noncommercial services' unwillingness to accept a commercial rate in a marketplace transaction, id. 26, the Judges did not set a commercial rate for the noncommercials. It set a per-performance rate only above a listenership threshold. Noncommercials are given a monthly discount of 159,140 ATH on the commercial rate. Moreover, that assertion, as do many others made by noncommercials, speaks only to the willingness of the buyer to enter the transaction and says nothing of the seller. The Judges, taking both buyers and sellers into account, came to a reasonable compromise between the two positions. Noncommercials further contend the Judges arbitrarily selected listenership levels as the measure of alleged convergence. They maintain [f]ocusing on listenership rather than the standard Congress set is, by definition, arbitrary because agency action is arbitrary if it `relied on factors which Congress has not intended it to consider.' Noncommercials Op. Br. 28 (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)). As the Judges could rationally conclude that competition for listeners would be a major factor affecting convergence, however, it was also rational for them to conclude that competition could be assessed by looking to listenership. The Judges did not rel[y] on factors which Congress has not intended it to consider, State Farm, 463 U.S. at 43, 103 S.Ct. 2856, for competition is relevant to the willing buyer/willing seller standard. Still, noncommercials maintain that the arbitrariness of setting 159,140 ATH as the convergence point underscores the arbitrariness of using listenership to assess convergence. Even assuming the Judges' decision to set the convergence point at 159,140 ATH was arbitrary, it would not undermine their approach of using listenership to assess convergence: miscalculating a convergence point does not undermine the validity of a convergence approach any more than an economics student who miscalculates the equilibrium point on a demand curve undermines the notion that such a point exists. Finally, noncommercials contend the evidence upon which the Judges relied to support convergence does not demonstrate convergence. While noncommercials make several challenges on this score, their most fundamental[] objection is that this evidence related to a few of the largest NPR stations. Noncommercials Op. Br. 29. The Judges explained, however, that the evidence of convergence in the record appears to apply more clearly to the stations at the larger end of the range of NPR station size, Order, 72 Fed.Reg. at 24,099. Under these circumstances, the Judges reasonably looked to evidence of the largest NPR stations for evidence of convergence. Although noncommercials protest that the Judges cited very little non-NPR evidence in support of convergence, the Judges need not have cited any non-NPR evidence to reach a rational result; basing their determination on NPR evidence from large NPR stations made logical sense because without evidence relating to the largest NPR stations, there would be very little evidence of convergence at all, Noncommercials Op. Br. 29. In other words, this evidence constituted the most, if not only, relevant evidence. To show this determination was arbitrary, noncommercials had to demonstrate that the Judges misconstrued the evidence of convergence or else failed to consider important evidence that undermined their understanding of the convergent effect. The most noncommercials did, however, was to assert that the NPR Agreement undermined the theory of convergence because the agreement made no distinctions based on listenership. As noted, however, the Judges rejected the NPR Agreement's flat-fee structure in favor of a structure that prohibited, beyond a threshold, increasing usage without increasing payment. Also, the ATH threshold imposed as a result of the adopted convergence theory would appear to apply only to large NPR stations, lending further support to the Judges' use of and reliance on evidence from the larger NPR stations. Noncommercials thus fail to show the Judges' determination in this regard was arbitrary.