[Code of Federal Regulations]
[Title 37, Volume 1]
[Revised as of July 1, 2008]
From the U.S. Government Printing Office via GPO Access
[CITE: 37CFR261.7]

[Page 659-660]
 
              TITLE 37--PATENTS, TRADEMARKS, AND COPYRIGHTS
 
                                CONGRESS
 
PART 261_RATES AND TERMS FOR ELIGIBLE NONSUBSCRIPTION TRANSMISSIONS AND THE MAKING OF EPHEMERAL REPRODUCTIONS--Table of Contents
 
Sec. 261.7  Verification of royalty payments.

    (a) General. This section prescribes general rules pertaining to the 
verification by any Copyright Owner or Performer of royalty payments 
made by a Designated Agent; Provided, however, that nothing contained in 
this section shall apply to situations where a Copyright Owner or a 
Performer and a Designated Agent have agreed as to proper verification 
methods.
    (b) Frequency of verification. A Copyright Owner or a Performer may 
conduct a single audit of a Designated Agent upon reasonable notice and 
during reasonable business hours, during any given calendar year, for 
any or all of the prior three (3) calendar years, and no calendar year 
shall be subject to audit more than once.
    (c) Notice of intent to audit. A Copyright Owner or Performer must 
submit a notice of intent to audit a particular Designated Agent with 
the Copyright Office, which shall publish in the Federal Register a 
notice announcing the receipt of the notice of intent to audit within 
thirty (30) days of the filing of the notice. The notification of intent 
to audit shall be served at the same time on the Designated Agent to be 
audited. Any such audit shall be conducted by an independent and 
qualified auditor identified in the notice, and shall be binding on all 
Copyright Owners and Performers.
    (d) Acquisition and retention of records. The Designated Agent 
making the royalty payment shall use commercially

[[Page 660]]

reasonable efforts to obtain or to provide access to any relevant books 
and records maintained by third parties for the purpose of the audit and 
retain such records for a period of not less than three (3) years. The 
Copyright Owner or Performer requesting the verification procedure shall 
retain the report of the verification for a period of not less than 
three (3) 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 and qualified auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to a Copyright 
Owner or Performer, except where the auditor has a reasonable basis to 
suspect fraud and disclosure would, in the reasonable opinion of the 
auditor, prejudice the investigation of such suspected fraud, the 
auditor shall review the tentative written findings of the audit with 
the appropriate agent or employee of the Designated Agent being audited 
in order to remedy any factual errors and clarify any issues relating to 
the audit; Provided that the appropriate agent or employee of the 
Designated Agent reasonably cooperates with the auditor to remedy 
promptly any factual errors or clarify any issues raised by the audit.
    (g) Costs of the verification procedure. The Copyright Owner or 
Performer requesting the verification procedure shall pay the cost of 
the procedure, unless it is finally determined that there was an 
underpayment of ten percent (10%) or more, in which case the Designated 
Agent shall, in addition to paying the amount of any underpayment, bear 
the reasonable costs of the verification procedure; Provided, however, 
that a Designated Agent shall not have to pay any costs of the 
verification procedure in excess of the amount of any underpayment 
unless the underpayment was more than twenty percent (20%) of the amount 
finally determined to be due from the Designated Agent and more than 
$5,000.00.