[Congressional Record Volume 148, Number 150 (Tuesday, November 19, 2002)]
[Senate]
[Pages S11548-S11549]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           HELMS-LEAHY SMALL WEBCASTER SETTLEMENT ACT OF 2002

  Mr. HELMS. Mr. President, last week, I introduced the Small Webcaster 
Settlement Act of 2002, along with the chairman of the Senate Judiciary 
Committee, Senator Leahy. Having now been passed by both Houses of 
Congress, this bill is expected soon to be signed by the President.
  The Helms-Leahy bill is the result of a sustained and arduous 
negotiating process involving numerous stakeholders. Its enactment 
enables small Internet radio services and the recording industry, if 
they both choose, to settle their longstanding disputes regarding the 
amount of royalties webcasters must pay in order to perform sound 
recordings over the Internet.
  This consensus legislation will bring much-needed stability to the 
emerging webcasting industry by permitting small commercial webcasters 
to establish with final certainty their financial obligations, thereby 
enabling entrepreneurs to secure additional venture capital and to 
avoid bankruptcy in many cases.
  Moreover, as enacted, this bill will ensure that privately negotiated 
settlements will not be enacted into positive law, thereby negatively 
impacting, either directly or indirectly, any industry or entity that 
does not or cannot yet settle their liabilities for these royalties.
  Finally, this bill will require artists to be paid directly their 
congressionally mandated share of performance royalties, so that there 
will no longer be any risk that record companies with disproportionate 
bargaining leverage will, by contract, squeeze recording artists out of 
their fair share.
  The Digital Millenium Copyright Act, DMCA, required, for the first 
time, users of music recordings to pay performance royalties to owners 
of copyrights in sound recordings. The creation of this new performance 
royalty represented a dramatic reversal of decades of U.S. public 
policy.
  Prior precedent had established that performances of sound recordings 
on traditional broadcast radio were not deemed to result in liability 
for performance royalties to sound recording copyright owners because 
it was those very same performances that introduced songs to the 
listening public, thereby promoting sales of sound recordings and 
generating revenue for copyright owners and recording artists.
  Notwithstanding this longstanding precedent, the DMCA required 
Internet radio services to pay sound recording performance royalties 
and determined that the royalties should be set by a panel or 
arbitrators, known as the Copyright Arbitration Royalty Panel or CARP.
  Unfortunately, the arbitration process has become too lengthy, too 
technical, and too expensive for many stakeholders. As a result, 
thousands of small commercial webcasters, broadcasters, noncommercial 
webcasters, college radio stations and hobbyists have been effectively 
denied the opportunity to participate in the arbitration proceedings in 
any meaningful way. Perhaps it was because these smaller interests were 
not adequately represented in the CARP proceeding that the resultant 
royalty was so high and the rate structure so inflexible that the

[[Page S11549]]

majority of small webcasters feared that it would lead to their demise? 
As the distinguished chairman of the Senate Judiciary Committee stated 
at a May 2002 hearing on this subject, Congress did not intend to 
bankrupt small webcasters when it created this new royalty.
  It would be a mistake for someone to construe the Helms-Leahy bill as 
a criticism of the arbitrators decision. Rather, I consider this 
legislation to be an indictment of the process, with unintended 
consequences flowing from the framework that Congress set forth in the 
DMCA.
  It is impossible for arbitrators to appreciate the full implications 
of their determinations if significant industry participants cannot 
afford to appear before them or if those with disproportionate control 
over the outcome refuse to deal in good faith. I understand that 
Senator Leahy intends to pursue comprehensive CARP reform in the 
Judiciary Committee next Congress. Though I will no longer be serving 
in the U.S. Senate next year, I hope that the chairman and ranking 
members of both Judiciary Committees will follow through on this 
commitment, working constructively to quickly remedy the concerns 
expressed about the current CARP process.
  There was not time to fully reform CARP this fall but I considered it 
essential that Congress move swiftly to ensure that small webcasters 
not be bankrupted by unfair arbitration outcomes. An equally important 
goal was to ensure that settlement agreements negotiated by recording 
companies and small webcasters facing bankruptcy not unfairly impact 
non-participating third parties--such as larger webcasters and 
broadcasters, or even the recording companies. Moreover, I consider it 
critically important to underline that nothing in this bill should be 
construed as affecting the outcome of any pending litigation.
  I commend Chairman Sensenbrenner for focusing attention on this issue 
and commencing the process that ultimately led to the passage of this 
critically-needed legislation. I respect that there was a difference of 
opinion on the precedential value of H.R. 5469, as originally passed by 
the House. Nevertheless, beyond dispute is the fact that numerous 
stakeholders had expressed serious reservations that the original 
House-passed bill could unintentionally and negatively influence future 
rate setting proceedings.
  The Helms-Leahy bill removes that concern, helps ensure that small 
webcasters will not be forced into bankruptcy, provides non-commercial 
webcasters with additional flexibility, and accomplishes several other 
goals on which the stakeholders and the Judiciary Committee leadership 
could agree.
  The deductibility provision contained in section 5(b) of the bill is 
one that was viewed as important to several parties. The final 
provision is intended to encourage competition among agents designated 
to distribute royalties. While I ultimately agreed to this provision, I 
wish to make it clear that I would consider it unconscionable if the 
provision were used to justify higher royalty rates for users of sound 
recordings.
  The ability to deduct these fees is premised on a balance of 
interests, owners of sound recordings should not be prejudiced by a 
process that precludes effective legal representation, designated 
agents should be incentivized to quickly and fairly conclude settlement 
agreements rather than engage in protracted and expensive legal and 
arbitration proceedings, and music services and other users of sound 
recordings should pay a fairly negotiated fee that is not impacted by 
the costs of litigation, arbitration, and legal expenses incurred by 
the designated agents.
  Users already bear their own litigation, expert fee and legal 
representation costs for participating in the CARP process and the 
resources of the Copyright Office are taxed when fair settlements are 
not reached among the parties.
  In my view, the public interest would not be well served if the 
deductibility provision were interpreted in a manner that had the 
effect of diluting the payout to copyright owners, reducing the 
incentives for negotiating settlements, and/or increasing the fees paid 
by consumers for the use of sound recordings. To avoid these clearly 
undesirable and unintended outcomes, I believe it would be unwise to 
take these costs into account in any arbitration or other proceeding to 
set royalty fees.
  I expect this to be the final piece of legislation I author in my 
career as a United States Senator. I particularly wish to thank 
Senators Leahy and Hatch and their superb staffs for their expertise 
and assistance in ensuring the quick approval of the U.S. Senate. 
Additionally, I want to recognize the substantial contributions of the 
Senate and House leadership as well as the leaders of the House 
Judiciary Committee, for their continued assistance and cooperation as 
we worked through these difficult issues over the past several weeks.
  Finally, I also wish to thank David Whitney, Joe Lanier, Wayne Boyles 
and David Crotts of my staff, the leaders of the affected industry and 
artist organizations who assisted me so greatly in negotiating this 
compromise legislation and a young lady entrepreneur of whom I am 
extremely proud, Deb Proctor of WCPE-FM in Raleigh, NC who first 
brought this issue to my attention.

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