[Federal Register Volume 75, Number 180 (Friday, September 17, 2010)]
[Rules and Regulations]
[Pages 56873-56875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23264]
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LIBRARY OF CONGRESS
Copyright Royalty Board
37 CFR Part 380
[Docket No. 2005-1 CRB DTRA]
Digital Performance Right in Sound Recordings and Ephemeral
Recordings
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Remand order.
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SUMMARY: The Copyright Royalty Judges are announcing their
determination regarding the minimum fee to be paid by Noncommercial
Webcasters under two statutory licenses, permitting certain digital
performances of sound recordings and the making of ephemeral
recordings, in response to an order of remand by the United States
Court of Appeals for the District of Columbia Circuit.
DATES: Effective September 17, 2010.
ADDRESSES: The remand order also is published on the Copyright Royalty
Board Web site at http://www.loc.gov/crb/orders/2010/amendment-remand-order-6-30-10.pdf.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney Advisor, by telephone at (202) 707-7658 or by
e-mail at [email protected].
SUPPLEMENTARY INFORMATION: On May 1, 2007, the Copyright Royalty Judges
(``Judges'') published in the Federal Register their determination of
royalty rates and terms under the statutory licenses under Sections
112(e) and 114 of the Copyright Act, title 17 of the United States
Code, for the period 2006 through 2010 for the digital public
performance of sound recordings by means of eligible nonsubscription
transmission or a transmission by a new subscription service. 72 FR
24084. In Intercollegiate Broadcast System, Inc. v. Copyright Royalty
Board, 574 F.3d 748 (DC Cir. 2009), the United States Court of Appeals
for the District of Columbia Circuit (``DC Circuit'') affirmed the
Judges' determination in the main but remanded to the Judges the matter
of setting the minimum fee to be paid by both Commercial Webcasters and
Noncommercial Webcasters under Sections 112(e) and 114 of the Copyright
Act. Id. at 762, 767. No rules or procedures applied to a proceeding
that is remanded, and the Judges adopted an Interim Final Rule to
govern. 37 CFR 351.15. Pursuant to this Rule, Intercollegiate
Broadcasting System, Inc. (``IBS'') and SoundExchange, Inc.
(``SoundExchange'') presented proposals for the conduct and schedule of
the remand proceeding, including settlement negotiations, written
direct statements with proposed rates, discovery and an evidentiary
hearing. By order dated October 23, 2009, the Judges established a
period commencing November 2, 2009, and concluding on December 2, 2009,
for the parties to negotiate and submit a settlement of the minimum fee
issue that is the subject of the remand. Absent settlement, the parties
were directed to file written direct statements by January 11, 2010.
On December 2, 2009, SoundExchange, Inc. and the Digital Media
Association (``DiMA'') submitted a settlement regarding the statutory
minimum fee to be paid by Commercial Webcasters. Subsequently, the
Judges published for comment the proposed change in the rule necessary
to implement that settlement pursuant to the order of remand from the
DC Circuit. 74 FR 68214 (December 23, 2009). The Judges received one
comment from IBS. The Final Rule for the minimum fee to be paid by
Commercial Webcasters was published. 75 FR 6097 (February 8, 2010).
Following the filing of Written Direct Statements by IBS and
SoundExchange, on January 20, 2010, the Judges established the
discovery schedule on the remaining issue of the minimum fee for
Noncommercial Webcasters. Following discovery, the hearing was held May
18, 2010. SoundExchange presented the testimony of W. Tucker McCrady,
associate counsel, digital legal affairs, Warner Music Group (``WMG''),
and Barrie Kessler, chief operating officer, SoundExchange. It also
offered Webcaster Settlement Acts of 2008 and 2009 agreements between
SoundExchange and College Broadcasters, Inc. (``CBI'') for
noncommercial educational webcasters, National Association of
Broadcasters (``NAB'') for broadcasters, Sirius XM Radio, Inc.
(``Sirius XM'') for satellite services and DiMA for commercial
webcasters. 5/18/10 Tr. at 13 (McCrady). IBS presented the testimony of
Frederick J. Kass, Jr., John E. Murphy and Benjamin Shaiken. 5/18/10
Tr. at 62 and 67 (Kass). The testimony of Mr. Kass was that IBS
supported a different rate proposal than the one filed. When this
different rate proposal was not timely filed, the Judges ordered that
it be filed by June 1, 2010. 5/18/10 Tr. at 98 (Kass). The IBS'
Restated Rate Proposal was filed June 1, 2010.
Mr. McCrady testified that WMG enters voluntary licenses for
commercial webcasters. A negotiated license for the full catalogue must
generate at least payments of $25,000. 5/18/10 Tr. at 25 (McCrady). The
lowest commercial minimum fee is 20% of revenue. A smaller revenue
stream would not justify the time and resources WMG would need to
devote to evaluating, negotiating, implementing and monitoring an
agreement. 5/18/10 Tr. at 20 (McCrady). Noncommercial Webcasters use
the statutory license, because they do not generate enough revenue to
WMG to support negotiating a license. SX Remand Trial Ex. 1 at 6
(McCrady).
The CBI agreement has the rates and terms for noncommercial
educational webcasters, the same group that IBS represents in this
proceeding. 5/18/10 Tr. at 71 (Kass). It has a minimum fee of $500 per
year per station or channel and a usage rate of $500 per channel for
streaming a noncommercial educational service up to 159,400 aggregate
tuning hours (``ATH''). 5/18/10 Tr. at 14 (McCrady). The SoundExchange
proposed minimum fee is $500 per station or channel. 5/18/10 Tr. at 14
(McCrady). The proposed minimum fee is fully recoupable against royalty
fees owed and this feature reduces transaction costs for both parties.
5/18/10 Tr. at 21, 22 (McCrady). IBS says the average annual revenue of
its member stations is $9,000. 5/18/10 Tr. at 20 (McCrady) and 5/18/10
Tr. at 71 (Kass). So, the proposed fee is 6% of revenue, a large
discount for Noncommercial Webcasters off the negotiated license
agreements for commercial webcasters. 5/18/10 Tr. at 20 (McCrady). All
users of sound recordings should be licensed and pay something. It is
an important educational message for students to learn the value of
recorded music and to pay for it. 5/18/10 Tr. at 23 (McCrady). From the
first webcasting proceeding, the standard minimum fee
[[Page 56874]]
for statutory licenses has been $500, on the theory that the minimum
fee should be sufficient to cover at least the costs of administering
the license. SX Remand Trial Ex. 1 at 7 (McCrady).
Ms. Kessler testified about administering the royalties paid under
the statutory license. Of the approximately 730 webcasting services
paying royalties in 2009, 363 are noncommercial. The noncommercial
royalties are less than 1% of the total webcasting royalties paid for
2009. 5/18/10 Tr. at 34 (Kessler). Of the noncommercial services, 305
paid only the minimum fee of $500, and the remaining 58 paid more for
exceeding the ATH cap or streaming multiple channels or stations. These
payments are pursuant to the royalty minimum fee that is the subject of
this remand proceeding, 5/18/10 Tr. at 42 (Kessler), and they
demonstrate that noncommercial services are able and willing to pay the
minimum fee. 5/18/10 Tr. at 33 (Kessler). SoundExchange does not
regularly track the administrative costs on a licensee, station or
channel basis. Such costs vary widely based on the quality of the data
provided by the service. For this proceeding, SoundExchange estimated
its administrative costs. The average per channel or station cost for
webcasters for 2008 is $803. 5/18/10 Tr. at 36 (Kessler). The cost of
administering the statutory license is greater than the revenue from
noncommercial webcasters. 5/18/10 Tr. at 34 (Kessler). The CBI
agreement for noncommercial educational webcasters, together with the
NAB agreement, the Sirius XM agreement and the DiMA agreement all
provide a similar minimum fee of $500, as SoundExchange proposes in
this proceeding. All of these agreements were filed under the Webcaster
Settlement Acts of 2008 and 2009, which permit agreements on the
royalty rates under the statutory licenses. 5/18/10 Tr. at 13
(McCrady).
On June 1, 2010, IBS filed the restated rate proposal that Mr. Kass
had supported in his testimony. The general principle of the proposal
is that small noncommercial webcasters should pay only for the
performances of music subject to the statutory license that they
actually webcast. This principle is the same as the Judges used in the
Final Determination to support the per performance metric for royalty
rates, being more directly tied to the nature of the right being
licensed. See Intercollegiate Broadcast System, Inc. v. Copyright
Royalty Board, 574 F.3d 748, 760-61 (DC Cir. 2009). But contrary to
this principle, the proposal then provides for a flat royalty rate and
an exemption from recordkeeping and reporting requirements. Both the
flat rate and the exemptions are inconsistent with a per performance
royalty, which is based on the number of performances times the rate
for each performance. The proposal was for the royalty rates to be paid
by Noncommercial Webcasters (set by 37 CFR 380.3(a)(2)(i)) and not for
the minimum fee, which is the subject of this remand proceeding. The
proposed rate is $20 to $50 per annum, based on the number of aggregate
tuning hours. The proposal did not include a minimum fee. 5/18/10 Tr.
at 76, 83-85 (Kass). Mr. Kass said no minimum fee should be paid. He
said this discount is justified, because the small noncommercial
educational webcasters are teaching students. IBS Remand Trial Ex. 1 at
2. The CBI agreement is available for use by IBS members and some of
those members have joined the CBI agreement. 5/18/10 Tr. at 104, 105
(Kass). It proposes the $500 minimum fee per channel or station. 5/18/
10 Tr. at 14 (McCrady).
Noncommercial Minimum Fee
The Final Determination discussed in Section IV.C.2 that most
Noncommercial Webcasters qualified for a distinct segment of the
marketplace that justified royalties lower than those paid by
Commercial Webcasters. However, the Judges found that:
the bare minimum that such services should have to pay is the
administrative cost of administering the license. There is no
evidence in the record to suggest that the submarket in which a
Noncommercial Webcaster may reside would yield a different
administrative cost for SoundExchange as compared to the
administrative costs associated with Commercial Webcasters and
SoundExchange, notably, makes no distinction between webcasters with
respect to the $500 minimum fee. Webcaster I affirmed the notion
that all webcasters-all Noncommercial Webcasters as well as all
Commercial Webcasters-should pay the same minimum fee for the same
license. 67 FR 45259 (July 8, 2002). We also find no basis in the
record for distinguishing between Commercial Webcasters and
Noncommercial Webcasters with respect to the administrative cost of
administering the license. Therefore, we determine that a minimum
fee of an annual non-refundable, but recoupable $500 minimum per
channel or station payable in advance is reasonable over the term of
this license.
72 FR 24084, 24099 (May 1, 2007) (footnotes omitted).
Ms. Kessler testified that the rough estimate of the average
administrative cost for 2008 to SoundExchange per station or channel
for webcasters is $803. All of the agreements filed pursuant to the
Webcaster Settlement Acts of 2008 and 2009 have similar minimum fees as
the proposed rate of $500 per station or channel. One includes the
agreement for noncommercial educational webcasters (the CBI agreement),
the same type of services as IBS, which seeks to pay no minimum fee. As
found in the above quote from the Final Determination, a zero minimum
fee is not supported by the evidence. IBS also asserts that
administrative costs should be proportionately tied to the number of
performances on a channel in a given year, but fails to establish any
credible nexus. On the contrary, there are certain basic processes that
must be utilized in administering the use of sound recordings by any
Commercial or Noncommercial Webcaster of any size. Not surprisingly, at
lesser levels of sound recording usage, the establishment and conduct
of such administrative processes cannot simply be dispensed with.
Indeed, smaller users may even result in larger proportionate
administrative processing time than larger users. SoundExchange Remand
Trial Ex. 1 at 3-4 (Kessler). See also Order, 72 FR 24084, 24096 n.37
(May 1, 2007).
The evidence presented in the remand proceeding supports a minimum
fee of at least the same fee as adopted in the Final Determination.
SoundExchange has now presented evidence on administrative costs that
exceed this minimum. The agreements entered pursuant to the Webcaster
Settlement Acts of 2008 and 2009 support that the industry accepts this
minimum fee, which has substantially been in place since the first
webcasting proceeding. IBS' position seeks to pay no minimum fee and
indeed seeks to pay no or an extremely small royalty for use of
copyrighted content. The Judges adopt the same minimum fee for
Noncommercial Webcasters as stated in the Final Determination of an
annual non-refundable, but recoupable $500 minimum per annum per
channel or station payable in advance. 37 CFR 380.3(b)(2).
June 30, 2010.
So ordered.
James Scott Sledge,
Chief United States Copyright Royalty Judge.
William J. Roberts, Jr.,
United States Copyright Royalty Judge.
Stanley C. Wisniewski,
United States Copyright Royalty Judge.
[[Page 56875]]
Dated: July 21, 2010.
James Scott Sledge,
Chief, U.S. Copyright Royalty Judge.
James H. Billington,
Librarian of Congress.
[FR Doc. 2010-23264 Filed 9-16-10; 8:45 am]
BILLING CODE 1410-72-P