[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Rules and Regulations]
[Pages 36469-36470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15384]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 260
[Docket No. 96-5 CARP DSTRA]
Determination of Reasonable Rates and Terms for the Digital
Performance of Sound Recordings
AGENCY: Copyright Office, Library of Congress.
ACTION: Final regulation.
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SUMMARY: The Copyright Office is announcing the final regulations that
will govern SoundExchange, an unincorporated division of the Recording
Industry Association of America, Inc., when it functions as the
designated agent for the purpose of receiving royalty payments and
statements of accounts from nonexempt subscription digital transmission
services which make digital transmissions of sound recordings under a
statutory license.
DATES: Effective Date: July 18, 2003.
Applicability Date: The regulations apply to the license period
which began on November 1, 1995.
FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or
Tanya M. Sandros, Senior Attorney, Copyright Arbitration Royalty Panel,
P.O. Box 70977, Southwest Station, Washington, DC 20024. Telephone:
(202) 707-8380. Telefax: (202) 252-3423.
SUPPLEMENTARY INFORMATION:
Background
Section 106(6) of the Copyright Act, title 17 of the United States
Code, gives copyright owners of sound recordings an exclusive right to
perform their copyrighted work publicly by means of a digital audio
transmission. This right is limited by section 114(d), which allows
certain noninteractive digital audio services to transmit sound
recordings under a compulsory license, provided that the services pay a
reasonable royalty fee and comply with the terms of the statutory
license. Among the categories of services that may use the section 114
license are preexisting subscription services \1\ of which there are
only three: Digital Cable Radio Associates, now known as Music Choice;
DMX Music, Inc. (``DMX''); and Muzak, L.P. (``Muzak'').
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\1\ A ``preexisting subscription service'' is defined as:
a service that performs sound recordings by means of
noninteractive audio-only subscription digital audio transmissions,
which was in existence and was making such transmissions to the
public for a fee on or before July 31, 1998, and may include a
number of limited number of sample channels representative of the
subscription service that are made available on a nonsubscription
basis in order to promote the subscription service.
17 U.S.C. 114(j)(11).
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In 1998, the Librarian of Congress adopted final rates and terms
applicable to the preexisting services after a hearing before a
copyright arbitration royalty panel (``CARP''). See 63 FR 25394 (May 8,
1998). In that proceeding, the parties proposed a term which gave the
RIAA the responsibility for collecting and distributing the royalty
fees to all copyright owners. Id. at 25397. The Librarian adopted this
term, then crafted additional regulations that afforded copyright
owners a means to verify the accuracy of the royalty payments made by
the RIAA collective,\2\ established the value of each performance,
specified the nature of the costs that RIAA may deduct from the royalty
fees prior to distribution, and set forth a procedure for handling
royalty fees in the case where the collective is unable to identify or
locate a copyright owner who is entitled to receive royalties collected
under the statutory license.
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\2\ In November 2000, RIAA formed ``SoundExchange,'' an
unincorporated division of RIAA, to administer statutory licenses,
including its responsibilities under the Librarian's May 8 Order.
See, Revised RIAA petition to Establish Terms Governing
SoundExchange at 1 n.1 (March 12, 2003).
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RIAA appealed both the rate and the additional terms announced in
the Librarian's determination and final order. See, Recording Industry
Ass'n v. Librarian of Congress, 176 F.3d 528 (D.C. Cir. 1999). The
United States Court of Appeals for the District of Columbia Circuit
upheld the rate and found that the Librarian had the authority to
impose additional terms on copyright owners or their agents. However,
it remanded for further consideration certain terms imposed on RIAA
under 37 CFR 260.2(d), 260.3(d), 260.6(b), and 260.7, because the CARP
had not considered these issues, leaving the record devoid of any
evidence upon which to fashion any terms concerning the collection and
distribution of the royalty fees. Id. at 536.
In 2001, RIAA petitioned the Copyright Office to adopt new terms
that would govern the RIAA collective. These terms were to be adopted
pursuant to Sec. 251.63(b) which allows the Librarian of Congress to
adopt proposed terms that are the result of settlement negotiations,
provided that no person with a substantial interest and an intent to
participate in a CARP proceeding files an objection.
Accordingly, the Copyright Office published the proposed terms in
the Federal Register and requested public comment. 66 FR 38226 (July
23, 2001). In response to this notice, the American Federation of
Musicians (``AFM'') and the American Federation of Television and Radio
Artists (``AFTRA'') filed a Notice of Intent to Participate and
objections to certain of the proposed terms. Shortly thereafter, RIAA
began discussions with AFTRA and AFM regarding their objections, and
the matter was held in abeyance, pending the outcome of those
discussions.
In the meantime, Congress passed the Small Webcaster Settlement Act
of 2002 (``SWSA''), Public Law 107-321, 116 Stat. 2780, which, among
other things, amended 17 U.S.C. 114(g) in two important ways that bear
directly on two key issues raised in this proceeding. First, the SWSA
provides for direct payment to featured recording artists and to the
administrators of the escrow accounts provided for in 17 U.S.C.
114(g)(2)(B)&(C). Second, the act allows a designated agent, prior to
the distribution of the royalty receipts, to deduct reasonable costs
incurred by that agent in the administration of those receipts,
including, but not limited to, costs associated with the collection and
distribution of the royalty fees and the costs incurred in
participating in negotiations or arbitration proceedings under sections
112 and 114.
Because of these changes in the law, RIAA revised its proposed
amendments to 37 CFR part 260 to conform the terms in question to the
new law and, in doing so, it addressed the concerns of AFM and AFTRA.
However, the proposed rules could not be adopted until all interested
parties had an opportunity to comment. Therefore, pursuant to Sec.
251.63(b) of the CARP rules, the Library published in the Federal
Register the proposed terms and sought comment from any party with a
substantial interest in this proceeding. 68 FR 19482 (April 21, 2003).
[[Page 36470]]
Having received no objections to the recently proposed terms, the
Librarian is adopting the proposed amendments as final regulations. The
proposed terms shall govern SoundExchange, the collecting rights entity
that was formed from the designated RIAA collective, in its capacity as
the sole agent designated to receive royalty payments from the three
subscription services that were parties to this proceeding. Terms
governing the administrative functions of any future collective or the
designation of alternative agents shall be decided in future rate
adjustment proceedings either through negotiations or after a hearing
before a CARP based upon a fully developed written record. See, e.g.,
67 FR 45239 (July 8, 2002).
List of Subjects in 37 CFR Part 260
Copyright, Digital audio transmissions, Performance right, Sound
recordings.
Final Regulation
0
For the foregoing reasons, the Library amends part 260 of 37 CFR as
follows:
PART 260--USE OF SOUND RECORDINGS IN A DIGITAL PERFORMANCE
0
1. The authority citation for part 260 continues to read as follows:
Authority: 17 U.S.C. 114, 801(b)(1).
Sec. 260.2 [Amended]
0
2. In Sec. 260.2, remove paragraph (d).
0
3. Section 260.3 is amended by revising paragraphs (c), (d), and (e) to
read as follows:
Sec. 260.3 Terms for making payments of royalty fees.
* * * * *
(c) The agent designated to receive the royalty payments and the
statements of account shall have the responsibility of making further
distribution of these payments to those parties entitled to receive
such payments according to the provisions set forth at 17 U.S.C.
114(g)(2); Provided that the designated agent shall only be responsible
for making distributions to those parties who provide the designated
agent with such information as is necessary to identify and pay the
correct recipient for such payments. The agent shall distribute royalty
payments on a reasonable basis that values all performances by a
Licensee equally based upon the information provided by the Licensee
pursuant to the regulations governing records of use of performances by
Licensees; Provided, however, that parties who have designated the
agent may agree to allocate their shares of the royalty payments made
by any Licensee among themselves on an alternative basis. Parties
entitled to receive payments under 17 U.S.C. 114(g)(2) may agree with
the designated agent upon payment protocols to be used by the
designated agent that provide for alternative arrangements for the
payment of royalties consistent with the percentages in 17 U.S.C.
114(g)(2).
(d) The designated agent may deduct from the payments made by
Licensees under Sec. 260.2, prior to the distribution of such payments
to any person or entity entitled thereto, all incurred costs permitted
to be deducted under 17 U.S.C. 114(g)(3); Provided, however, that any
party entitled to receive royalty payments according to 17 U.S.C.
114(g)(2) may agree to permit the designated agent to deduct any
additional costs.
(e) Commencing June 1, 1998, and until such time as a new
designation is made, SoundExchange, which currently is an
unincorporated division of the Recording Industry Association of
America, Inc., shall be the agent that receives royalty payments and
statements of account under this part 260 and shall continue to be
designated as such if it should be separately incorporated.
0
4. Section 260.6 is revised to read as follows:
Sec. 260.6 Verification of royalty payments.
(a) General. This section prescribes general rules pertaining to
the method of verification of the payment of royalty fees by the
designated agent to interested parties; Provided, however, that the
designated agent and any interested person may agree as to an
alternative method of verification.
(b) Frequency of verification. Interested parties may conduct a
single audit of the designated agent during any given calendar year and
no calendar year shall be subject to audit more than once.
(c) Notice of intent to audit. Interested parties must file with
the Copyright Office a notice of intent to audit the designated agent.
Such notice of intent shall also be served at the same time on the
designated agent to be audited. Within 30 days of the filing of the
notice of intent, the Copyright Office shall publish in the Federal
Register a notice announcing such filing.
(d) Retention of records. The interested party requesting the
verification procedure shall retain the report of the verification for
a period of three years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent auditor, shall serve as an acceptable verification
procedure for all interested parties.
(f) Costs of the verification procedure. The interested parties
requesting the verification procedure shall pay for the cost of the
verification procedure, unless an independent auditor concludes that
there was an underpayment of five (5) percent or more, in which case,
the designated agent shall bear the costs of the verification
procedure.
(g) Interested parties. For purposes of this section, interested
parties are those individuals or entities who are entitled to receive
royalty payments pursuant to 17 U.S.C. 114(g)(2), or their designated
agents.
Sec. 260.7 [Amended]
0
5. Section 260.7 is amended by removing the word ``collecting'' after
the phrase ``If the designated'; by removing the word ``collecting''
each place it appears and adding the word ``designated `` in its place;
and in the last sentence, by removing the word ``fees'' and adding the
word ``payments'' in its place.
Dated: May 27, 2003.
Marybeth Peters,
Register of Copyrights.
Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 03-15384 Filed 6-17-03; 8:45 am]
BILLING CODE 1410-33-P