[Congressional Record Volume 148, Number 151 (Wednesday, November 20, 2002)]
[Senate]
[Pages S11725-S11727]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 SMALL WEBCASTER SETTLEMENT ACT OF 2002

  Mr. LEAHY. Mr. President, I am pleased that the Senate is taking the 
important step of passing the Helms-Leahy substitute amendment to H.R. 
5469, the ``Small Webcaster Settlement Act of 2002.'' This legislation 
reflects hard choices made in hard negotiations under hard 
circumstances. I commend House Judiciary Chairman Sensen-
brenner and Representative Conyers for bringing this legislation to a 
successful conclusion and passage in the House of Representatives in a 
timely fashion to make a difference in the prospects of many small 
webcasters. I also thank Senator Helms and his staff for working 
constructively in the lame duck session of this Congress to get the 
bill done.
  The Internet is an American invention that has become the emblem of 
the Information Age and an engine for bringing American content into 
homes and businesses around the globe. I have long been an enthusiast 
and champion of the Internet and of the creative spirits who are the 
source of the music, films, books, news, and entertainment

[[Page S11726]]

content that enrich our lives, energize our economy and influence our 
culture. As a citizen, I am impressed by the innovation of new online 
entrepreneurs, and as a Senator, I want to do everything possible to 
promote the full realization of the Internet's potential. A flourishing 
Internet with clear, fair and enforceable rules governing how content 
may be used will benefit all of us, including the entrepreneurs who 
want us to become new customers and the artists who create the content 
we value.
  The advent of webcasting, streaming music online rather than 
broadcasting it over the air as traditional radio stations do, has 
marked one of the more exciting and quickly growing of the new 
industries that have sprung up on the Web. Many of the new webcasters, 
unconstrained by the technological limitations of traditional radio 
transmission, can and do serve listeners across the country and around 
the world. They provide music in specialized niches not available over 
the air. They feature new and fringe artists who do not enjoy the few 
spots in the Top 40. And they can bring music of all types to listeners 
who, for whatever reason, are not being catered to by traditional 
broadcasters.
  We have been mindful on the Judiciary Committee that as the Internet 
is a boon to customers, we must not neglect the artists who create and 
the businesses which produce the digital works that make the online 
world so fascinating and worth visiting. With each legislative effort 
to provide clear, fair and enforceable intellectual property rules for 
the Internet, a fundamental principle to which we have adhered is that 
artists and producers of digital works merit compensation for the value 
derived from the use of their work.
  In 1995, we enacted the Digital Performance Right in Sound Recordings 
Act, which created an intellectual property right in digital sound 
recordings, giving copyright owners the right to receive royalties when 
their copyrighted sound recordings were digitally transmitted by 
others. Therefore when their copyrighted sound recordings are digitally 
transmitted, royalties are due. In the 1998 Digital Millennium 
Copyright Act, DMCA, we made clear that this law applied to webcasters 
and that they would have to pay these royalties. At the same time, we 
created a compulsory license so that webcasters could be sure of the 
use of these digital works. We directed that the appropriate royalty 
rate could be negotiated by the parties or determined by a Copyright 
Arbitration Royalty Panel, or CARP, at the Library of Congress.

  Despite some privately negotiated agreements, no industry-wide 
agreement on royalty rates was reached and therefore a CARP proceeding 
was instituted that concluded on February 20, 2002. The CARP decision 
set the royalty rate to be paid by commercial webcasters, no matter 
their size, at .14 cents per song per listener, with royalty payments 
retroactive to October 1998, when the DMCA was passed.
  At a Judiciary Committee hearing I convened on this issue on May 15, 
2002, nobody seemed happy with the outcome of the arbitration and, in 
fact, all the parties appealed. The recording industry and artist 
representatives feel that the royalty rate, which was based on the 
number of performances and listeners, rather than on a percentage-of-
revenue model, was too low to adequately compensate the creative 
efforts of the artists and the financial investments of the labels. 
Many webcasters declared that the per-performance approach, and the 
rate attached to it, would bankrupt small operations and drain the 
large ones. I said then that such an outcome would be highly 
unfortunate not only for the webcasters but also for the artists, the 
labels and the consumers, who all would lose important legitimate 
channels to connect music and music lovers online.
  On appeal, the Librarian in June 2002, cut the rate in half, to .07 
cents per song per listener for commercial webcasters. Nevertheless, 
many webcasters, who had been operating during the four year period 
between 1998 and 2002, were taken by surprise at the amount of their 
royalty liability. The retroactive fees were to be paid in full by 
October 20 and would have resulted in many small webcasters in 
particular, going out of business.
  In order to avoid many webcasting streams going silent on October 20, 
when retroactive royalty payments were due, I urged all sides to avoid 
more expense and time and reach a negotiated outcome more satisfactory 
to all participants than the Librarian's decision. I also monitored 
closely the progress of negotiations between the RIAA and webcasters. 
On July 31, I sent a letter with Senator Hatch to Sound Exchange, which 
was created by the RIAA to act as the agent for copyright holders in 
negotiating the voluntary licenses with webcasters under the DMCA and 
to serve as the receiving agent for royalties under the CARP process. 
The letter posed questions on the status of the reported on-going 
negotiations between RIAA/Sound Exchange and the smaller webcasters, 
the terms being proposed and considered, and how likely the outcome of 
those negotiations would be to produce viable deals for smaller 
webcasters, while still satisfying the copyright community.
  Reports on the progress of these negotiations were disappointing, 
which makes this legislation all the more important. As a general 
principle, marketplace negotiations are the appropriate mechanism for 
determining the allocation of compensation among interested parties 
under copyright law. Yet, we have made exceptions to this general 
principle, as reflected in this legislation and the very compulsory 
license provisions it amends.
  The legislation reflects a compromise for all the parties directly 
affected by this legislation--small webcasters, noncommercial 
webcasters, and hobbyists that could not survive with the rates set by 
the Librarian, and copyright owners and performers who under this bill 
will give certain eligible webcasters an alternative royalty payment 
scheme. this legislation does not represent a complete victory for any 
of these stakeholders. Artists and music labels may believe that they 
are foregoing significant royalties under this legislation and I 
appreciate that there are those in the webcasting business, who are 
either not covered or not sufficiently helped by the bill, who believe 
that this legislation should do more. As one analyst the Radio and 
Internet Newsletter stated, in the October 11, 2002 issue, ``Clearly, 
the `Small Webcaster Amendments Act of 2002' a/k/a H.R. 5469 is an 
imperfect bill that doesn't fix everything for everybody; Still, 
overall, does it do more good than harm for more people? My belief is 
that many are helped one way or the other and virtually no one is 
assured of being hurt. Thus, the answer, the whole, would be yes.''
  I know that most webcasters share my belief that artists and labels 
should be fairly compensated for the use of their creative works. This 
legislation provides both compensation to the copyright owners and 
helps to support the webcasting industry by offering more variable 
payment options to small webcasters than the one-size-firts-all per 
performance rate set out in the original CARP and Librarian decisions. 
The rates, terms and record-keeping provisions are applicable only to 
the parties that qualify for and elect to be governed by this 
alternative royalty structure and no broad principles should be 
extrapolated from the rates, terms and record-keeping provisions 
contained in the bill. The Copyright Office is presently engaged in a 
rule-making on record-keeping and this bill does not supplant that 
ongoing process.
  After the House passed H.R. 5469 on October 7, 2002, I have worked 
with Senator Hatch to clear the bill for passage through the Senate and 
address concerns raised on both sides of the aisle. While the bill was 
finally cleared for passage by all the Democratic Senators on October 
17, passage of the legislation was blocked before the lame-duck 
session. I am pleased to have worked with Senator Helms on a substitute 
that resolves some of the concerns raised about the original House-
passed bill.
  The Helms-Leahy substitute makes the following changes in H.R. 5469:
  First, it authorizes SoundExchange to enter into agreements with 
groups representing small webcasters and noncommercial webcasters. Such 
agreements will be available generally to any party which qualifies 
under their terms as an option to the rates adopted by the Copyright 
Office. The rates and terms of such agreements will be binding on all 
copyright holders once the

[[Page S11727]]

agreement has been published in the Federal Register by the Copyright 
Office. Such deals are authorized to cover the retroactive fees, as 
well as those going forward.
  Second, the substitute amendment imposes a 6 month moratorium on fee 
collections from noncommercial entities, to allow for negotiations with 
such entities. This provision is particularly important for 
noncommercial webcasters, such as those operating at colleges and 
universities. The Librarian's decision contained an anomaly under which 
nonprofit entities that held FCC licenses were given a lower per 
performance rate than were commercial entities, but no such provision 
was made for noncommercial entities that were not FCC licensees. The 
bill provides a moratorium on the collection of royalties in order for 
an alternative agreement to be reached.

  It also authorizes Sound Exchange to postpone retroactive royalty 
collections from small webcasters with whom it is negotiating deals. 
The original House-passed bill recognized the retroactive burden on 
many of the small commercial webcasters by allowing them to make their 
payments based on a percentage of revenue or percentage of expense, but 
also allows both small commercial and noncommercial webcasters to pay 
these retroactive fees in three payments over he span of a year.
  Third, the substitute amendment adopts language making clear that 
such deals are not precedent in any judicial proceeding or in future 
CARPs.
  Fourth, the substitute amendment provides for direct payment to 
artists and deductibility of expenses from the proceeds of the 
royalties.
  Finally, the substitute amendment authorizes a GAO/Copyright Office 
study on the impact of agreements between third parties and webcasters 
and the effect that such agreements should have on percentage of 
expense royalty rates. This authorization does not contain any 
preliminary findings or sense of the Congress language as to how such 
study should be resolved.
  The agreement to be negotiated between Sound Exchange and small 
webcasters will likely reflect the rates and terms set forth in the 
original House-passed bill. These terms provide an option of paying a 
percentage of revenue and stay in business. As one Vermont webcaster 
told me, ``Although the percentage of revenue is too high, at least we 
have the option. A percentage of revenue deal with enable [us] to stay 
in business moving forward, grow our audience, and compete.''
  The Librarian of Congress royalty rate is based on a per performance 
formula, which has the unfortunate effect of requiring webcasters to 
pay high fees for their use of music, even before the audience of the 
webcaster has grown to a sufficient size to attract any appreciable 
advertising revenues. Without any percentage of revenue option (as the 
legislation allows), the webcasting industry would be closed to all but 
those with the substantial resources necessary to subsidize the 
business until the advertising revenues caught up to the per 
performance royalty rate.
  A number of concerns have been raised that the rate and terms of the 
agreements authorized under the substitute amendment do not constitute 
evidence of any rates, rate structure, fees, definitions, conditions or 
terms that would have been negotiated in the marketplace between a 
willing buyer and willing seller. The concern stems from the DMCA's 
statutory license fee standard directing the CARP to establish rates 
and terms ``that most clearly represent the rates and terms that would 
have been negotiated in the marketplace between a willing buyer and a 
willing seller,'' rather than a determination of ``reasonable copyright 
royalty rates'' according to a set of balancing factors. This new 
webcasting standard may be having the unfortunate and unintended result 
that webcasters and copyright owners are concerned that the rates and 
terms of any voluntary licensing agreements will be applied industry-
wide. The new webcasting standard appears to be making all sides 
cautious and reluctant to enter into, rather than facilitating, 
voluntary licensing agreements.
  Passage of this legislation does not mean that our work is done. As 
this webcasting issue has unfolded, I have heard complaints from all 
sides about the fairness and completeness of procedures employed in the 
arbitration. Indeed, the concerns of many small webcasters were never 
heard, since the cost of participating in the proceedings was 
prohibitively expensive and their ability to participate for free was 
barred by procedural rules. One thing is clear: Compulsory licenses are 
no panacea and their implementation may only invite more congressional 
intervention. To avoid repeated requests for the Congress or the courts 
to intercede, we must make sure the procedures and standards used to 
establish the royalty rates for the webcasting and other compulsory 
licenses produce fair, workable results. Next year, we should focus 
attention on reforming the CARP process.

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