Opinion ID: 187426
Heading Depth: 4
Heading Rank: 1

Heading: Rejection of the NPR Agreement as a Benchmark

Text: Executed in 2001, the NPR Agreement provided that NPR would pay SoundExchange a flat-fee lump sum for licenses over a six-year period but did not specify the parties' valuations of any given year of the contract. At the time the agreement was executed, NPR had 410 stations providing streaming content. By the end of the NPR agreement period, NPR had 798 such stations. The agreement was silent as to how stations beyond the original 410 were to be handled. The Judges rejected the NPR Agreement as a benchmark, finding that it [did] not provide clear evidence of a per station rate that could be viewed as a proxy for one that a willing buyer and a willing seller would negotiate today. Order, 72 Fed.Reg. at 24,098. The Judges gave four reasons. First, the agreement provided for a lump sum amount to cover the entire 74-month term of the contract with no amount specified for different years. Id. The Judges noted that there was nothing in the agreement or the record to indicate the proper attribution of payments for any given year. The Judges declined noncommercials' invitation to arrive at this annual per station rate by simply dividing the lump sum amount by the number of years and number of stations covered, because such a proposal accounted for neither the time value of money in the latter years of the [agreement] nor the erosion in the purchasing power of the dollar since 2004. Id. at 24,098-99. Second, the proposal sought to divide the average yearly rate by 798 stations (the number of NPR stations covered by the agreement in 2004), but the Judges noted that the agreement covered only 410 stations when it was executed and that neither the contract nor the record indicated how additional stations beyond the 410 covered by the agreement were to be handled. Id. at 24,098. Depending on which figure was used, the two possible fees would have been approximately one-half or double the amount of the other. Id. Third, the Judges took issue with the fact that nothing in the agreement or the record indicate[d] the parties' expectations as to levels of streaming. Id. Fourth, the Judges stated that none of the final rate proposals of the Noncommercial Webcasters would cover the minimum annual fee determined for Commercial Webcasters. Id. at 24,099. In maintaining that this determination was arbitrary, noncommercials object not simply to the Judges' rejection of the agreement as evidence of the appropriate rate, but to their failure to adopt the agreement as the appropriate benchmark. See, e.g., Noncommercials Op. Br. 20. Congress invited the Judges to consider voluntary marketplace agreements for comparable types of digital audio transmission services and comparable circumstances. 17 U.S.C. § 114(f)(2)(B). Noncommercials contend that the NPR agreement was exactly the type of agreement suggested by Congress, as it covered (1) the same rights at issue here, (2) the same activity: noninteractive Internet simulcast streaming of radio broadcasts, (3) the same seller: SoundExchange and its members, and (4) the same buyer: NPR, one of the noncommercial broadcasters who brought this appeal. Noncommercials Op. Br. 17-18. For the reasons that follow, however, the Judges' decision to reject the agreement as a benchmark was not arbitrary. First, the Judges noted that the number of NPR stations covered by the agreement seemed to have nearly doubled over the course of the agreement, making it unclear which figure it ought to use in calculating a benchmark. Second, given the Judges' dual concerns that flat fee structures permit increasing usage without increasing payment, Order, 72 Fed.Reg. at 24,091, and that this benchmark was proposed to cover all noncommercials, irrespective of whether they were part of a submarket in the marketplace for non-interactive webcasting that was distinctly different from commercial non-interactive webcasting, id. at 24,098, the Judges could reasonably conclude the agreement's silence as to the parties' expectations as to levels of streaming, id., was relevant to their decision to reject the agreement as a benchmark. Finally, the Judges' statement that the agreement did not serve as a proxy for one that a willing buyer and a willing seller would negotiate today, id., evinces concern with the age of the agreement, especially in light of their further emphasis that the lump sum payment covered the period between 1998 and 2004. In addition to the Judges' concern that the proposal failed to account for the time value of money, reference to the agreement's 1998-2004 coverage dates highlights how outmoded the agreement was. This time period began a little over seven years prior to the Order's January 1, 2006 applicability date and just a few months short of nine years prior to the Order's May 1, 2007 effective date. The Judges might have been able to compensate for some of these mathematical deficiencies in calculating a fee. But another shortcomingthe lack of evidence that SoundExchange valued each year of the agreement equallyprevented them from making those adjustments in a rational way. Noncommercials point out that the Judges adopted rates for commercial webcasting that were based on an interactive commercial subscription benchmark that required mathematical adjustments to deduct the value added by interactivity even though the benchmark was concededly not ... without any warts. Id. at 24,094. Consequently, noncommercials contend that the Judges' rejection of the NPR agreement as the benchmark was arbitrary because [a]gencies cannot `treat[] type A cases differently from similarly situated type B cases.' Noncommercials Reply Br. 9 (quoting Indep. Petroleum Ass'n v. Babbitt, 92 F.3d 1248, 1260 (D.C.Cir. 1996)). This contention might have merit if the NPR Agreement and the interactive subscriptions benchmark suffered from the same shortcomings. However, the Judges rejected the NPR Agreement for reasons independent of the mathematical adjustments it required. Nevertheless, even if the required mathematical adjustments were the only shortcomings of the agreement, the Judges adopted the benchmark for commercial webcasters based on the testimony of Dr. Michael Pelcovits, SoundExchange's expert, regarding the hedonic regression analysis that he performed to quantify and deduct the value of interactivity from the interactive commercial subscription benchmark. By contrast, noncommercials presented no evidence quantifying SoundExchange's yearly valuation of the NPR agreement, the time value of money, or the declining purchasing power of the dollar. Because the Judges had no duty to compensate for these shortcomings, the situations were not similarly situated and any purported differences in treatment were not arbitrary. Moreover, even if the Judges erred in rejecting the NPR Agreement because the proposed fee would not cover the minimum annual fee determined for Commercial Webcasters, Order, 72 Fed.Reg. at 24,099, see infra Part II.C. 1.b, this was harmless error in light of the Judges' other independent reasons for rejecting the agreement. See PDK Labs., Inc. v. U.S. Drug Enforcement Admin., 362 F.3d 786, 799 (D.C.Cir.2004).