[Federal Register: February 11, 2009 (Volume 74, Number 27)]
[Rules and Regulations]
[Page 6832-6834]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe09-7]
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LIBRARY OF CONGRESS
Copyright Royalty Board
37 CFR Part 385
[Docket No. 2006-3 CRB DPRA]
Mechanical and Digital Phonorecord Delivery Rate Determination
Proceeding
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Final rule.
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SUMMARY: The Copyright Royalty Judges are announcing four modifications
to the royalty terms previously adopted in their final determination of
rates and terms for the mechanical and digital phonorecord delivery
statutory license. These modifications are made to more clearly reflect
the law as stated in the Register of Copyrights' decision of January
26, 2009.
DATES: Effective Date: March 1, 2009.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658. Telefax:
(202) 252-3423.
SUPPLEMENTARY INFORMATION: On November 24, 2008, the Copyright Royalty
Judges (``Judges'') issued their final determination establishing rates
and terms for the mechanical and digital phonorecord delivery statutory
license found at 17 U.S.C. 115.\1\ Rates and terms were promulgated for
the use of musical works in physical phonorecords, permanent downloads,
ringtones, limited downloads, interactive streaming and incidental
digital phonorecord deliveries. Rates and terms for the latter three
categories--limited downloads, interactive streaming and incidental
digital phonorecord deliveries--were adopted pursuant to an agreement
reached by all participants in the proceeding and presented to the
Judges for adoption. After publishing the agreement in the Federal
Register and allowing interested parties to comment as required by 17
U.S.C. 801(b)(7)(A), the Judges determined that the same section did
not allow them to review or reject the agreement, or portions thereof,
in the absence of an objection from one of the participants to the
proceeding. Under the Judges' interpretation of the statute, if an
objection is filed, the Judges may review the agreement for
reasonableness. However, with no objection tendered, the agreement
should be adopted in toto.
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\1\ The Librarian of Congress, pursuant to 17 U.S.C. 803(c)(6),
published the Judges' determination in the Federal Register on
January 26, 2009. See 74 FR 4510.
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On January 26, 2009, the Register of Copyrights published a notice
in the Federal Register pursuant to 17 U.S.C. 802(f)(1)(D). 74 FR 4537
(January 26, 2009). That section provides that the ``Register of
Copyrights may review for legal error the resolution by the Copyright
Royalty Judges of a material question of substantive law under this
title that underlies or is contained in a final determination of the
Copyright Royalty Judges.'' The Register faulted our adoption of the
participants' agreement of rates and terms for limited downloads,
interactive streaming and incidental digital phonorecord deliveries,
concluding that ``it was legal error for the CRJs to conclude that the
restrictions on its authority to review the reasonableness of specific
valid terms and rates also precluded its review of the legality of the
provisions of the agreement as a threshold matter.'' 74 FR at 4540. The
Register further stated that her ``conclusion is consistent with the
CRJs' decision that it had the authority to decline to adopt language
in the participants' agreement that stated that the rates in the
agreement have no precedential effect and may not be introduced or
relied upon in any governmental or judicial proceeding.'' Id., citing
72 FR 61586 (October 31, 2007).\2\
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\2\ The cited proceeding established the rates and terms for
preexisting subscription services making digital transmissions of
sound recordings and ephemeral recordings. Docket No. 2006-1 CRB
DSTRA. The Judges made two changes to the agreement submitted by the
parties in that proceeding, changing the numbering of the proposed
provisions to reflect their ultimate position in Chapter III of
title 37 of the Code of Federal Regulations, and correcting a
clerical error in the agreement for the location to submit notices
of intention to audit preexisting subscription services. The Judges
also eliminated a provision concerning the experimental and
precedential effect and use of rates in an agreement in a proceeding
to adjust the rates and terms for noncommercial educational
broadcasting services under 17 U.S.C. 118. 72 FR 19138 (April 17,
2007). We declined to give such a term effect because it was outside
the scope of our jurisdiction to set rates for the section 118
license. 72 FR at 19139 (``It is not our task to offer evaluations,
limitations or characterizations of the rates and terms, or make
statements about their use or value in proceedings other than this
one.'').
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It is evident from the Register's pronouncement that the Copyright
Act grants the Judges considerably broader authority over review of
agreements than discerned by the Judges in the statute. The Register
stated that an agreement must pass a threshold review prior to the
application of 17 U.S.C. 801(b)(7)(A). The Judges have the authority,
and in fact the obligation, to review any and all provisions in an
agreement. Provisions that are deemed legally erroneous may not be part
of the codification based on the agreement; otherwise their adoption
results in an error of law. See 74 FR at 4540. The Register stated that
once the agreement is vetted for errors of law, the remaining portions
of the agreement may be adopted as the agreement of the participants
unless, of course, there is an objection from one or more of the
participants in which case the procedures set forth in section
801(b)(7)(A) would apply.
The Register identified four provisions in the agreement adopted in
the Code of Federal Regulations that contain errors of law. All four
were in the participants' agreement. First, the Register concluded that
the second sentence of the definition of an ``interactive stream''
contained in Sec. 385.11 of the regulations was in error because it
altered the statutory terms of the section 115 license regarding what
constitutes a digital phonorecord delivery.\3\ 74 FR at 4541. That
sentence
[[Page 6833]]
provides that ``[a]n interactive stream is an incidental digital
phonorecord delivery under 17 U.S.C. 115(c)(3)(C) and (D).'' Second,
the Register determined that Sec. 385.14(e) of the regulations, which
establishes a promotional royalty rate for promotional interactive
streams and limited downloads offered in the context of a free trial
period for a digital music subscription service, amounts to
impermissible retroactive rulemaking. Id. at 4542. Third, the Register
concluded that Sec. 385.15 of the regulations, which addresses the
timing of royalty payments, was violative of the provisions of 17
U.S.C. 115(c)(5). Id. Fourth, the Register found error with the final
sentence of Sec. 385.14(a)(4), which provides that ``For the avoidance
of doubt, however, except as provided in paragraph (a) of this section,
statements of account under 17 U.S.C. 115 need not reflect interactive
streams or limited downloads subject to the promotional royalty rate.''
She determined that this sentence is contrary to her authority to
prescribe regulations for statements of account under the section 115
license. Id. at 4543.
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\3\ The Register asserts the faulty provision contained in the
Sec. 385.11 definition of an ``interactive stream'' is the product
of the Judges' failure to refer to her under 17 U.S.C. 802(f)(1)(B)
the question of what constitutes a digital phonorecord delivery as
defined in 17 U.S.C. 115(d), 74 FR at 4539 (``Failure to refer the
question of what constitutes a DPD to the Register has led to the
adoption of a regulation that, on its face, overstates the scope of
the section 115 license with respect to interactive streams''),
leading her to conclude that there are two errors of law on the same
matter. Id. (``The CRJs' failure to refer a novel material question
of substantive law is itself an erroneous legal resolution of `a
material question of substantive law under [title 17] that underlies
or is contained in a final determination of the [CRJs],' '' citing
17 U.S.C. 802(f)(1)(D)). As discussed infra, we are removing the
second sentence from the definition of an interactive stream
contained in Sec. 385.11 of the regulations. We cannot discern
authority in the cited section 802(f)(1)(D), or any other section of
the Copyright Act, that a procedural decision--to refer or not to
refer--is itself an error of substantive law, particularly where the
procedural matter is neither contained in nor underlies our final
determination.
The statutory scheme embodied in 17 U.S.C. 801 et seq.,
specifically limits the participation of the Register in a rate-
setting proceeding to certain questions of ``substantive law.'' 17
U.S.C. 802(f)(1)(A), (B), (D). A decision whether or not to refer a
matter for review by the Register is one of procedure and, thus, not
reviewable by the Register under the Act. Therefore, the error of
law that underlies and is indeed contained in our final
determination is the second sentence of the definition of an
interactive stream as codified in Sec. 385.11 of the regulations,
which is being removed in this amendment to the determination.
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Given the Register's legal determination that the Copyright Royalty
Judges have broader powers of review of agreements submitted in royalty
rate and distribution proceedings, the Judges are exercising their
authority under 17 U.S.C. 803(c)(4) and are modifying the terms adopted
in Sec. Sec. 385.11, 385.14 and 385.15. Although the Register clearly
recognizes that her decision identifying certain errors of copyright
law is only binding as precedent upon the Judges in subsequent
proceedings, the Register suggests certain of these legal errors may be
within the Judges' discretion to correct even in the instant proceeding
under the continuing jurisdiction provisions of 17 U.S.C. 803(c)(4).
That statutory provision establishes continuing jurisdiction under
which the Judges may ``issue an amendment to a written determination to
correct any technical or clerical errors in the determination or to
modify the terms, but not the rates, of royalty payments in response to
unforeseen circumstances that would frustrate the proper implementation
of such determination.'' 17 U.S.C. 803(c)(4) (emphasis added). The
Register further interprets this provision of the statute as applicable
even to the participants' partial agreement, notwithstanding the
Judges' previously articulated view of the statutory limits on their
review of such agreements. 74 FR at 4541, 4543.
Following the Register's view of the Judges' statutory discretion
to ``correct'' agreements, though only binding as to future
proceedings, offers a singular advantage in the instant proceeding to
clarify potential confusion facing users of the license at issue (some
of whom may not have been parties to the partial agreement). Because
the Register's published decision has interpreted certain provisions of
the partial agreement of the participants regarding limited downloads
and interactive streaming in this proceeding as necessarily implicating
errors of copyright law and, at the same time, because the partial
agreement of the participants containing the offending terms were
previously published as statutorily required together with the Judges'
resolution of litigated issues, users of the license may well be
confused as to the status of the currently codified terms. In order to
clarify those terms by means of an updated codification and, thereby,
to promote an efficient administration of the applicable license, we
find, pursuant to the Register's statement of our discretion under 17
U.S.C. 803(c)(4), four terms which should be clarified by means of the
issuance of amended regulations to more clearly reflect the law as
stated in the Register's decision. Because they are contrary to law,
the following are deleted: (1) The second sentence of the definition of
an ``interactive stream'' in Sec. 385.11; (2) Sec. 385.14(e); (3)
Sec. 385.15; and (4) the last sentence of Sec. 385.14(a)(4). The
Judges act under the Register's determination that agreements of the
participants may be modified to excise provisions that conflict with
law and still be the agreement of the participants. The basis for the
regulations in Subpart B is the agreement presented by the participants
pursuant to 17 U.S.C. 801(b)(7)(A). The Judges decline to add
provisions to the participants' agreement, as the Register suggests, to
correct errors of law and still treat it as an agreement of the
participants under section 801(b)(7)(A).
So ordered.
William J. Roberts, Jr.,
Copyright Royalty Judge.
Stanley C. Wisniewski,
Copyright Royalty Judge.
Dated: February 6, 2009.
Dissenting Opinion of Chief Copyright Royalty Judge Sledge
With utmost respect for my esteemed colleagues, Marybeth Peters,
Register of Copyrights, and Copyright Royalty Judges Stanley C.
Wisniewski and William J. Roberts, Jr., the Chief Copyright Royalty
Judge, James Scott Sledge, dissents. The Copyright Royalty and
Distribution Reform Act of 2004 is relatively new. This proceeding is
the third rate determination proceeding tried to completion with a
final determination under the new act. Appeals are pending on the first
two rate proceedings. The Register of Copyrights, the Copyright Royalty
Judges, the participants and the public are all trying to implement the
new act and faithfully follow its provisions. Consistent with all new
legislation, the implementation will evolve as the common law develops.
I dissent from the amendment to the final determination, only because I
feel an amendment is inappropriate and unwarranted. If an amendment is
appropriate to be issued, I do not oppose any part of the analysis in
the majority amendment. This dissenting opinion is the first instance
that any order or ruling, written or oral, of the Copyright Royalty
Judges has not been unanimous. We can be proud of our record of harmony
and this dissent is made after careful deliberation.
The Judges are not required to amend the final determination unless
the Court of Appeals reverses and orders changes. The Judges have full
independence in making initial determinations of copyright royalty
rates and terms, subject only to a Register's decision following a
referral of a novel question or a request for an interpretation of a
material question of substantive law in title 17. 17 U.S.C.
802(f)(1)(A) and (B). A review of the Judges' final
[[Page 6834]]
determination for legal error by the Register is precedent in
subsequent proceedings under Chapter 8. 17 U.S.C. 802(f)(1)(D). The
Register does not claim the authority to direct amendments in the
determination and regulations, like a remand, and her corrections to
the legal errors she found are suggestions to the Judges.
The Judges are not authorized to make the corrections suggested by
the Register. Section 803(c)(4) only permits an amendment to a final
determination to correct technical or clerical errors or to modify
terms in response to unforeseen circumstances that would frustrate the
proper implementation of the determination. The Register's suggested
changes are substantive changes of rates and terms. A determination of
what constitutes a technical or clerical error is not a material
question of substantive law in title 17 that is subject to the
Register's authority in section 802(f)(1)(D). If any correction
suggested by the Register is an unforeseen circumstance, one must
conclude that it is unreasonable or unforeseeable for the Register to
review a determination and find legal error.
The Judges should not make the suggested changes to the
determination as they are not consistent with Chapter 8. The change to
the agreement presented by all the participants discourages
settlements. The procedure in proceedings throughout section 803
encourages settlements. Section 801(b)(7)(A) encourages settlements and
does not include the threshold requirement suggested by the Register
for a review to delete any provision that is contrary to law. The
suggested change would adopt an agreement of the participants after
provisions are deleted and new provisions added, notwithstanding the
non-severability restrictions in the agreement. This practice
discourages settlements. The changes hinder judicial efficiency by
encouraging parties that are disgruntled or losing arguments in a
proceeding to make last-minute requests to refer novel questions of law
to the Register. Also, the Judges would be reviewing agreements for
legal error after the record is closed and shortly before the
determination is required to be issued, which was the timing of the
agreement in this case. The changes involve the Register in procedural
issues in a proceeding. An order granting or denying a motion to refer
a novel question of law is a procedural, interlocutory order that is
not subject to Register review, section 802(f)(1)(A)(ii), and is not a
material question of law under title 17 that underlies or is contained
in a final determination. The changes undermine the statutorily
conferred independence of the Judges, section 802(f)(1)(A).
Rather than amend the determination, I would hold that the
determination and regulations should remain as published.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
Dated: February 6, 2009.
List of Subjects in 37 CFR Part 385
Copyright, Phonorecords, Recordings.
Final Regulation
0
For the reasons set forth in the preamble, the Copyright Royalty Judges
are further amending Part 385 of Chapter III of title 37 of the Code of
Federal Regulations as published January 26, 2009, at 74 FR 4510 as
follows:
PART 385--RATES AND TERMS USE OF MUSICAL WORKS UNDER COMPULSORY
LICENSE FOR MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL
PHONORECORDS
0
1. The authority citation for part 385 continues to read:
Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4).
Sec. 385.11 [Amended]
0
2. Section 385.11 is amended by removing the last sentence from the
definition of ``Interactive stream''.
Sec. 385.14 [Amended]
0
3. Section 385.14 is amended as follows:
0
a. In paragraph (a)(4), by removing the last sentence; and
0
b. By removing paragraph (e).
Sec. 385.15 [Removed and Reserved]
0
4. Remove and reserve Sec. 385.15.
Dated: February 6, 2009.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
[FR Doc. E9-2900 Filed 2-10-09; 8:45 am]
BILLING CODE 1410-72-P