[Congressional Record (Bound Edition), Volume 148 (2002), Part 14]
[House]
[Pages 19279-19284]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 SMALL WEBCASTER AMENDMENTS ACT OF 2002

  Mr. SENSENBRENNER. Mr. Speaker, I move to suspend the rules and pass 
the bill (H.R. 5469) to suspend for a period of 6 months the 
determination of the Librarian of Congress of July 8, 2002, relating to 
rates and terms for the digital performance of sound recordings and 
ephemeral recordings, as amended.
  The Clerk read as follows:

                               H.R. 5469

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION. 1. SHORT TITLE.

       This Act may be cited as the ``Small Webcaster Amendments 
     Act of 2002''.

     SEC. 2. EPHEMERAL ROYALTY RATES FOR ELIGIBLE SMALL 
                   WEBCASTERS.

       Section 112(e) of title 17, United States Code, is 
     amended--
       (1) in paragraph (4), by inserting immediately before the 
     period at the end of the first sentence the following: ``, 
     except that the royalty payable under this section for any 
     reproduction of a phonorecord made during the period 
     beginning on October 28, 1998, and ending on December 31, 
     2004, and used solely by an eligible small webcaster to 
     facilitate transmissions for which it pays royalties as and 
     when provided in section 114(f)(2)(D) shall be deemed to be 
     included within such royalty payments''; and
       (2) in paragraph (6), by adding at the end the following: 
     ``Notwithstanding the preceding provisions of this paragraph, 
     the royalty payable under this section for any reproduction 
     of a phonorecord made during the period beginning on October 
     28, 1998, and ending on December 31, 2004, and used solely by 
     an eligible small webcaster to facilitate transmissions for 
     which it pays royalties as and when provided in section 
     114(f)(2)(D) shall be deemed to be included within such 
     royalty payments.''

     SEC. 3. ROYALTY RATES AND NOTICE AND RECORDKEEPING FOR 
                   ELIGIBLE SMALL WEBCASTERS.

       (a) Provision for Certain Rates.--Section 114(f)(2) of 
     title 17, United States Code, is amended--
       (1) in subparagraph (B), by inserting immediately before 
     the period at the end of the first sentence the following: 
     ``, except that the royalty rates for certain public 
     performances of sound recordings shall be as provided in 
     subparagraph (D)''; and
       (2) in subparagraph (C), by adding after clause (iii) the 
     following:
       ``(iv) Notwithstanding the preceding provisions of this 
     subparagraph, the royalty rates and terms for certain public 
     performances of sound recordings by certain entities shall be 
     as provided in subparagraph (D).''.
       (b) Rates for Eligible Small Webcasters.--Section 114(f)(2) 
     of title 17, United States Code, is amended by adding after 
     subparagraph (C) the following:
       ``(D)(i) Subject to clause (iii) and paragraph (3), but 
     notwithstanding any other provision of this paragraph, an 
     eligible small webcaster may, as provided in clause 
     (ii)(VII), for the period beginning on October 28, 1998, and 
     ending on December 31, 2002, or one or both of calendar years 
     2003 and 2004, elect the royalty rates specified in this 
     clause in lieu of any other applicable royalty rates:
       ``(I) For eligible nonsubscription transmissions made by an 
     eligible small webcaster during the period beginning on 
     October 28, 1998, and ending on December 31, 2002, the 
     royalty rate shall be 8 percent of the webcaster's gross 
     revenues during such period, or 5 percent of the webcaster's 
     expenses during such period, whichever is greater, except 
     that an eligible small webcaster that is a natural person 
     shall exclude from expenses those expenses not incurred in 
     connection with the operation of a service that makes 
     eligible nonsubscription transmissions, and an eligible small 
     webcaster that is a natural person shall exclude from gross 
     revenues his or her income

[[Page 19280]]

     during such period, other than income derived from--
       ``(aa) a media or entertainment related business that 
     provides audio or other entertainment programming, or
       ``(bb) a business that primarily operates an Internet or 
     wireless service,
     that is in either case directly or indirectly controlled by 
     such natural person, or of which such natural person 
     beneficially owns 5 percent or more of the outstanding voting 
     or non-voting stock.
       ``(II) For eligible nonsubscription transmissions made by 
     an eligible small webcaster during 2003 or 2004, the royalty 
     rate shall be 10 percent of the eligible small webcaster's 
     first $250,000 in gross revenues and 12 percent of any gross 
     revenues in excess of $250,000 during the applicable year, or 
     7 percent of the webcaster's expenses during the applicable 
     year, whichever is greater.
       ``(ii) Notwithstanding paragraph (4)(C), payment of the 
     amounts specified in clause (i) shall be made as follows:
       ``(I) Except as provided in clause (iii)(I) and (IV), the 
     amounts specified in clause (i)(I) for eligible 
     nonsubscription transmissions made by an eligible small 
     webcaster during the period beginning on October 28, 1998, 
     and ending on September 30, 2002, shall be paid in three 
     equal installments, with the first due by November 30, 2002, 
     the second due by May 31, 2003, and the third due by October 
     31, 2003.
       ``(II) The amounts specified in clause (i) for eligible 
     nonsubscription transmissions made by an eligible small 
     webcaster during October 2002 or any month thereafter shall 
     be paid on or before the twentieth day of the month next 
     succeeding such month.
       ``(III) If the gross revenues, plus the third party 
     participation revenues and revenues from the operation of new 
     subscription services, of a transmitting entity and its 
     affiliates have not exceeded $1,250,000 in any year, and the 
     transmitting entity expects to be an eligible small webcaster 
     in 2003 or 2004, the transmitting entity may make payments 
     for 2003 or 2004, as the case may be, on the assumption that 
     it will be an eligible small webcaster for that year for so 
     long as that assumption is reasonable.
       ``(IV) In making payments under clause (i)(II), the 
     webcaster shall, at the time a payment is due, calculate its 
     gross revenues and expenses for the year through the end of 
     the applicable month, and for the applicable month pay the 
     applicable percentage of gross revenues or expenses, as the 
     case may be, for the year through the end of the applicable 
     month, less any amounts previously paid for such year.
       ``(V) If a transmitting entity has made payments under 
     clause (i)(II) for 2003 or 2004 based on the assumption that 
     it will qualify as an eligible small webcaster, as provided 
     in subclause (IV), but the actual gross revenues in 2003, or 
     the actual gross revenues, third party participation 
     revenues, and revenues from the operation of new subscription 
     services in 2004, of the eligible small webcaster and its 
     affiliates, exceed the maximum amounts provided in clause 
     (vi)(II), then the transmitting entity shall immediately 
     commence to pay monthly royalties based on the royalty rates 
     otherwise applicable under this subsection, and on the third 
     payment date after the month in which such maximum amounts 
     are exceeded, it shall pay an amount of royalties based on 
     such otherwise applicable rates for the whole year through 
     the end of the immediately preceding month, less any amounts 
     previously paid under clause (i) for such year.
       ``(VI) Payments of all amounts specified in clause (i) 
     shall be made to the entity designated by the Copyright 
     Office to receive royalty payments under this section and 
     shall under no circumstances be refundable, but if an 
     eligible small webcaster makes overpayments during a year, it 
     shall be entitled to a credit in the amount of its 
     overpayment, and such credit shall be applicable to its 
     payments in subsequent years.
       ``(VII) An eligible small webcaster that wishes to elect 
     the royalty rates specified in clause (i) in lieu of any 
     other royalty rates that otherwise might apply under this 
     subsection for the period beginning on October 28, 1998, and 
     ending on December 31, 2002, or one or both of calendar years 
     2003 and 2004, shall file an election with the Copyright 
     Office and serve it on each entity designated by the 
     Copyright Office to distribute royalty payments under this 
     section to copyright owners and performers entitled to 
     receive royalties under subsection (d)(2) by no later than 
     the first date on which the webcaster is obligated under this 
     clause to make a royalty payment for such period. An eligible 
     small webcaster that fails to make a timely election shall 
     pay royalties as otherwise provided under this section. As a 
     condition of such election, an eligible small webcaster 
     shall--
       ``(aa) make available to the entity designated to receive 
     royalties under this section, on request at any time during 
     the 3 years following the applicable period, sufficient 
     evidence to support its eligibility as an eligible small 
     webcaster; and
       ``(bb) provide to such entity, by not later than January 31 
     of the year following the applicable period, an accounting of 
     its third party participation revenues.

     The entity designated to receive royalties under this section 
     may share with individual copyright owners the accounting 
     provided by an eligible small webcaster under division (bb) 
     if such entity does so in such a way that the eligible small 
     webcaster cannot readily be identified.
       ``(iii) Notwithstanding clause (i), eligible small 
     webcasters that elect the royalty rates specified in clause 
     (i) shall pay a minimum fee for the periods specified in this 
     clause, as follows:
       ``(I) For eligible nonsubscription transmissions made by an 
     eligible small webcaster during the period beginning on 
     October 28, 1998, and ending on December 31, 1998, the 
     minimum fee for the year shall be $500.
       ``(II) For eligible nonsubscription transmissions made by 
     an eligible small webcaster in any part of calendar years 
     1999 through 2002, the minimum fee for each year in which 
     such transmissions are made shall be $2,000.
       ``(III) For eligible nonsubscription transmissions made by 
     an eligible small webcaster in any part of calendar years 
     2003 and 2004, the minimum fee for each year in which such 
     transmissions are made shall be $2,000 if the eligible small 
     webcaster had gross revenues during the immediately preceding 
     year of not more than $50,000 and expects to have gross 
     revenues during the applicable year of not more than $50,000.
       ``(IV) For eligible nonsubscription transmissions made by 
     an eligible small webcaster in any part of calendar years 
     2003 and 2004, the minimum fee for each year in which such 
     transmissions are made shall be $5,000 if the eligible small 
     webcaster had gross revenues during the immediately preceding 
     year of more than $50,000 or expects to have gross revenues 
     during the applicable year of more than $50,000.
       ``(V) The minimum fees specified in subclauses (I) and (II) 
     shall be paid within 30 days after the date of the enactment 
     of the Small Webcaster Amendments Act of 2002, except in the 
     case of an eligible small webcaster with gross revenues 
     during the period beginning on October 28, 1998, and ending 
     on December 31, 2002, of not more than $100,000, which may 
     pay such minimum fees in three equal installments at the 
     times specified in clause (ii)(I). The minimum fees specified 
     in subclauses (III) and (IV) shall be paid in two equal 
     installments, with the first due by January 31 of the 
     applicable year and the second due by June 30 of the 
     applicable year.
       ``(VI) Payments of all amounts specified in this clause 
     shall be made to the entity designated by the Copyright 
     Office to receive royalty payments under this section and 
     shall under no circumstances be refundable.
       ``(VII) All amounts paid under this clause shall be fully 
     creditable toward amounts due under clauses (i) and (ii) for 
     the same year.
       ``(iv) Subject to paragraph (3), but notwithstanding any 
     other provision of this paragraph, a noncommercial, non-FCC 
     webcaster may, for the period beginning on October 28, 1998, 
     and ending on December 31, 2002, or one or both of calendar 
     years 2003 and 2004, elect the royalty rates specified in 
     this clause in lieu of any other royalty rates that otherwise 
     might apply under this section. The royalty rate shall be .02 
     cents per performance. For the purpose of this clause, the 
     term `performance' has the meaning given that term in section 
     261.2 of title 37, Code of Federal Regulations, as published 
     in the Federal Register on July 8, 2002. Such royalties shall 
     be payable at the times specified in clause (ii)(I) and (II). 
     Noncommercial, non-FCC webcasters shall pay a minimum fee, 
     for any part of calendar years 1998 through 2004, of $500 for 
     each year in which such performances are made. Such minimum 
     fee shall be fully creditable toward royalties due for the 
     same year. For performances made during the period beginning 
     on October 28, 1998, and ending on December 31, 2002, such 
     minimum fee shall be paid within 30 days after the date of 
     the enactment of the Small Webcaster Amendments Act of 2002. 
     The minimum fee for a subsequent year shall be paid by 
     January 31 of that year. All payments specified in this 
     clause shall be made to the entity designated by the 
     Copyright Office to receive royalty payments under this 
     section and shall under no circumstances be refundable.
       ``(v) Any otherwise applicable terms determined in 
     accordance with this paragraph and applicable to payments 
     under this paragraph shall apply to payments under this 
     subparagraph except to the extent inconsistent with this 
     subparagraph.
       ``(vi) The rates and terms set forth in this subparagraph 
     shall not constitute evidence of rates and terms that would 
     have been negotiated in the marketplace between a willing 
     buyer and a willing seller or that meet the objectives set 
     forth in section 801(b)(1).
       ``(E) As used in subparagraph (D), the following terms have 
     the following meanings:
       ``(i) An `affiliate' of a transmitting entity is a person 
     or entity that directly, or indirectly through one or more 
     intermediaries --
       ``(I) has securities or other ownership interests 
     representing more than 50 percent of such person's or 
     entity's voting interests beneficially owned by--

       ``(aa) such transmitting entity; or
       ``(bb) a person or entity beneficially owning securities or 
     other ownership interests representing more than 50 percent 
     of the voting interests of the transmitting entity;

[[Page 19281]]

       ``(II) beneficially owns securities or other ownership 
     interests representing more than 50 percent of the voting 
     interests of the transmitting entity; or
       ``(III) otherwise controls, is controlled by, or is under 
     common control with the transmitting entity.
       ``(ii) A `beneficial owner' of a security or other 
     ownership interest is any person or entity who, directly or 
     indirectly, through any contract, arrangement, understanding, 
     relationship, or otherwise, has or shares voting power with 
     respect to such security or other ownership interest.
       ``(iii) The term `control' means the possession, direct or 
     indirect, of the power to direct or cause the direction of 
     the management and policies of a person or entity, whether 
     through the ownership of voting securities, by contract or 
     otherwise.
       ``(iv)(I) Subject to subclause (II), an `eligible small 
     webcaster' is a webcaster (as defined in section 261.2 of 
     title 37, Code of Federal Regulations, as published in the 
     Federal Register on July 8, 2002) that--
       ``(aa) for the period beginning on October 28, 1998, and 
     ending on December 31, 2002, has gross revenues during the 
     period beginning on November 1, 1998, and ending on June 30, 
     2002, of not more than $1,000,000;
       ``(bb) for 2003, together with its affiliates, has gross 
     revenues during 2003 of not more than $500,000; and
       ``(cc) for 2004, together with its affiliates, has gross 
     revenues, third party participation revenues, and revenues 
     from the operation of new subscription services during 2004 
     of not more than $1,250,000.
       ``(II) In determining qualification under subclauses 
     (I)(bb) and (cc), a transmitting entity shall exclude--
       ``(aa) income of an affiliate that is a natural person, 
     other than income such natural person derives from another 
     affiliate of such natural person that is either a media or 
     entertainment related business that provides audio or other 
     entertainment programming, or a business that primarily 
     operates an Internet or wireless service; and
       ``(bb) gross revenues of any affiliate that is not engaged 
     in a media or entertainment related business that provides 
     audio or other entertainment programming, and is not engaged 
     in a business that primarily operates an Internet or wireless 
     service, if the only reason such affiliate is affiliated with 
     the transmitting entity is that it is under common control of 
     the same natural person or both are beneficially owned by the 
     same natural person.
       ``(v) The term `expenses'--
       ``(I) means all costs incurred (whether actually paid or 
     not) by an eligible small webcaster, except that capital 
     costs shall be treated as expenses allocable to a period only 
     to the extent of charges for amortization or depreciation of 
     such costs during such period as are properly allocated to 
     such period in accordance with United States generally 
     accepted accounting principles (GAAP);
       ``(II) includes the fair market value of all goods, 
     services, or other non-cash consideration (including real, 
     personal, tangible, and intangible property) provided by an 
     eligible small webcaster to any third party in lieu of a cash 
     payment and the fair market value of any goods or services 
     purchased for or provided to an eligible small webcaster by 
     an affiliate of such webcaster; and
       ``(III) shall not include--

       ``(aa) the imputed value of personal services rendered by 
     up to 5 natural persons who are, directly or indirectly, 
     owners of the eligible small webcaster, and for which no 
     compensation has been paid;
       ``(bb) the imputed value of occupancy of residential 
     property for which no Federal income tax deduction is claimed 
     as a business expense; or
       ``(cc) costs of purchasing phonorecords of sound recordings 
     used in the eligible small webcaster's service.

       ``(vi) The term `gross revenues'--
       ``(I) means all revenue of any kind earned by a person or 
     entity, less --

       ``(aa) revenue from sales of phonorecords and digital 
     phonorecord deliveries of sound recordings;
       ``(bb) the person or entity's actual cost of other products 
     and services actually sold through a service that makes 
     eligible nonsubscription transmissions, and related sales and 
     use taxes imposed on such transactions, costs of shipping 
     such products, allowance for bad debts, and credit card and 
     similar fees paid to unrelated third parties;
       ``(cc) revenue from the operation of a new subscription 
     service for which royalties are paid in accordance with 
     provisions of this section other than this subparagraph; and
       ``(dd) revenue from the sale of assets in connection with 
     the sale of all or substantially all of the assets of such 
     person's or entity's business, or from the sale of capital 
     assets; and

       ``(II) includes--

       ``(aa) all cash or cash equivalents;
       ``(bb) the fair market value of goods, services, or other 
     non-cash consideration (including real, personal, tangible, 
     and intangible property); and
       ``(cc) amounts earned by such person or entity but paid to 
     an affiliate of such person or entity in lieu of payment to 
     such person or entity.

     Gross revenues shall be calculated in accordance with United 
     States generally accepted accounting principles (GAAP), 
     except that a transmitting entity that computes Federal 
     taxable income on the basis of the cash receipts and 
     disbursements method of accounting for any taxable year may 
     compute its gross receipts for any period included in such 
     taxable year on the same basis.
       ``(vii) A `noncommercial, non-FCC webcaster' is a webcaster 
     as defined in section 261.2 of title 37, Code of Federal 
     Regulations, as published in the Federal Register on July 8, 
     2002, that is exempt from taxation under section 501 of the 
     Internal Revenue Code of 1986 (26 U.S.C. 501).
       ``(viii) The `third party participation revenues' of a 
     transmitting entity are revenues of any kind earned by a 
     person or entity, other than the transmitting entity, 
     including those identified in divisions (aa), (bb), and (cc) 
     of clause (vi)(II)--
       ``(I) that relate to the public performance of sound 
     recordings and are subject to an economic arrangement in 
     which the transmitting entity receives anything of value; or
       ``(II) that are earned by such person or entity from the 
     sale of advertising of any kind in connection with the 
     transmitting entity's eligible nonsubscription 
     transmissions.''.
       (c) Notice and Recordkeeping.--Section 114(f)(4)(A) of 
     title 17, United States Code, is amended--
       (1) by striking ``(A) The'' and inserting ``(A)(i) Subject 
     to clauses (ii) and (iii), the''; and
       (2) by adding at the end the following:
       ``(ii) For either or both of calendar years 2003 and 2004, 
     an eligible small webcaster that makes an election pursuant 
     to paragraph (2)(D)(ii)(VII) for any year shall, for that 
     year, keep records, and make available to copyright owners of 
     sound recordings reports of use, covering the following on a 
     channel by channel basis:
       ``(I) The featured recording artist, group or orchestra.
       ``(II) The sound recording title.
       ``(III) The title of the retail album or other product (or, 
     in the case of compilation albums created for commercial 
     purposes, the name of the retail album identified by the 
     eligible small webcaster for purchase of the sound 
     recording).
       ``(IV) The marketing label of the commercially available 
     album or other product on which the sound recording is 
     found--
       ``(aa) for all albums or other products commercially 
     released after 2002; and
       ``(bb) in the case of albums or other products commercially 
     released before 2003, for 67 percent of the eligible small 
     webcaster's digital audio transmissions of such pre-2003 
     releases during 2003 and all of the eligible small 
     webcaster's digital audio transmissions during 2004.
       ``(V) The International Standard Recording Code (ISRC) 
     embedded in the sound recording, if available--
       ``(aa) for all albums or other products commercially 
     released after 2002; and
       ``(bb) in the case of albums or other products commercially 
     released before 2003, for 50 percent of the eligible small 
     webcaster's digital audio transmissions of such pre-2003 
     releases during 2003, and for 75 percent of the eligible 
     small webcaster's digital audio transmissions of such pre-
     2003 releases during 2004, to the extent that such 
     information concerning such pre-2003 releases can be provided 
     using commercially reasonable efforts.
       ``(VI) The copyright owner information provided in the 
     copyright notice on the retail album or other product (e.g., 
     following the symbol (P) (the letter P in a circle) or, in 
     the case of compilation albums created for commercial 
     purposes, in the copyright notice for the individual track)--
       ``(aa) for all albums or other products commercially 
     released after 2002; and
       ``(bb) in the case of albums or other products commercially 
     released before 2003, for 50 percent of an eligible small 
     webcaster's digital audio transmissions of such pre-2003 
     releases during 2003, and for 75 percent of an eligible small 
     webcaster's digital audio transmissions of such pre-2003 
     releases during 2004, to the extent that such information 
     concerning such pre-2003 releases can be provided using 
     commercially reasonable efforts.
       ``(VII) The aggregate tuning hours, on a monthly basis, for 
     each channel provided by the eligible small webcaster as 
     computed by a recognized industry ratings service or as 
     computed by the eligible small webcaster from its server 
     logs. For the purpose of this subclause, the term `aggregate 
     tuning hours' has the meaning given that term in section 
     261.2 of title 37, Code of Federal Regulations, as published 
     in the Federal Register on July 8, 2002.
       ``(VIII) The channel for each transmission of each sound 
     recording.
       ``(IX) The start date and time of each transmission of each 
     sound recording.
       ``(iii) Reports of use described in clause (ii) shall be 
     provided, at the same time royalty payments are due under 
     paragraph (2)(D)(ii)(II), to the entity designated by the 
     Copyright Office to distribute royalty payments under this 
     section.
       ``(iv) For calendar years 2003 and 2004, details of the 
     means by which copyright owners may receive notice of the use 
     of their sound recordings, and details of the requirements 
     under which reports of use concerning the matters identified 
     in clause (ii) shall be

[[Page 19282]]

     made available, shall be as provided in regulations issued by 
     the Librarian of Congress under clause (i).''.

     SEC. 4. DEDUCTIBILITY OF COSTS AND EXPENSES OF AGENTS AND 
                   DIRECT PAYMENT TO ARTISTS OF ROYALTIES FOR 
                   DIGITAL PERFORMANCES OF SOUND RECORDINGS.

       (a) Findings.--The Congress finds that--
       (1) in the case of royalty payments from the licensing of 
     digital transmissions of sound recordings under subsection 
     (f) of section 114 of title 17, United States Code, the 
     parties have voluntarily negotiated arrangements under which 
     payments shall be made directly to featured recording artists 
     and the administrators of the accounts provided in subsection 
     (g)(2) of that section;
       (2) such voluntarily-negotiated payment arrangements have 
     been codified in regulations issued by the Librarian of 
     Congress, currently found in section 261.4 of title 37, Code 
     of Federal Regulations, as published in the Federal Register 
     on July 8, 2002;
       (3) other regulations issued by the Librarian of Congress 
     were inconsistent with the voluntarily-negotiated 
     arrangements by such parties concerning the deductibility of 
     certain costs incurred for licensing and arbitration, and the 
     Congress is therefore restoring those terms as originally 
     negotiated among the parties; and
       (4) in light of the special circumstances described in this 
     subsection, the uncertainty created by the regulations issued 
     by the Librarian of Congress, and the fact that all of the 
     interested parties have reached agreement, the voluntarily-
     negotiated arrangements agreed to among the parties are being 
     codified.
       (b) Deductibility.--Section 114(g) of title 17, United 
     States Code, is amended by adding after paragraph (2) the 
     following:
       ``(3) A nonprofit agent designated to distribute receipts 
     from the licensing of transmissions in accordance with 
     subsection (f) may deduct from any of its receipts, prior to 
     the distribution of such receipts to any person or entity 
     entitled thereto, the reasonable costs of such agent incurred 
     after November 1, 1995, in--
       ``(A) the administration of the collection, distribution, 
     and calculation of the royalties;
       ``(B) the settlement of disputes relating to the collection 
     and calculation of the royalties; and
       ``(C) the licensing and enforcement of rights with respect 
     to the making of ephemeral recordings and performances 
     subject to licensing under section 112 and this section, 
     including those incurred in participating in negotiations or 
     arbitration proceedings under section 112 and this 
     section.''.
       (c) Direct Payment to Artists.--Section 114(g)(2) of title 
     17, United States Code, is amended to read:
       ``(2) An agent designated to distribute receipts from the 
     licensing of transmissions in accordance with subsection (f) 
     shall distribute such receipts as follows:
       ``(A) 50 percent of the receipts shall be paid to the 
     copyright owner of the exclusive right under section 106(6) 
     of this title to publicly perform a sound recording by means 
     of a digital audio transmission.
       ``(B) 2-1/2 percent of the receipts shall be deposited in 
     an escrow account managed by an independent administrator 
     jointly appointed by copyright owners of sound recordings and 
     the American Federation of Musicians (or any successor 
     entity) to be distributed to nonfeatured musicians (whether 
     or not members of the American Federation of Musicians) who 
     have performed on sound recordings.
       ``(C) 2-1/2 percent of the receipts shall be deposited in 
     an escrow account managed by an independent administrator 
     jointly appointed by copyright owners of sound recordings and 
     the American Federation of Television and Radio Artists (or 
     any successor entity) to be distributed to nonfeatured 
     vocalists (whether or not members of the American Federation 
     of Television and Radio Artists) who have performed on sound 
     recordings.
       ``(D) 45 percent of the receipts shall be paid, on a per 
     sound recording basis, to the recording artist or artists 
     featured on such sound recording (or the persons conveying 
     rights in the artists' performance in the sound 
     recordings).''.

     SEC. 5. REPORT TO CONGRESS.

       (a) Findings.--The Congress finds that--
       (1) eligible small webcasters have economic arrangements 
     with third parties, as a result of which third parties, many 
     of them large businesses, realize a significant portion of 
     the revenues generated from the use of sound recordings in 
     the services operated by eligible small webcasters; and
       (2) as a result of these arrangements, any royalty based on 
     revenues realized by an eligible small webcaster may result 
     in recording artists and sound recording copyright owners 
     receiving a royalty based on revenues that are a fraction of 
     the total revenues generated from the use of the sound 
     recordings under statutory license.
       (b) Report to Congress.--By not later than June 1, 2004, 
     the Register of Copyrights and the Comptroller General of the 
     Untied States shall prepare and submit to the Committee on 
     the Judiciary of the House of Representatives and the 
     Committee on the Judiciary of the Senate a joint report 
     concerning--
       (1) the economic arrangements among eligible small 
     webcasters and third parties and their consequences for the 
     ability of recording artists and sound recording copyright 
     owners to be compensated appropriately on a percentage of 
     revenue basis; and
       (2) the economic incentives that percentage of revenue 
     statutory rates create for structuring economic arrangements 
     among eligible small webcasters and third parties that may be 
     to the detriment of recording artists and sound recording 
     copyright owners.
       (c) Definition.--In this section, the term ``eligible small 
     webcaster'' has the meaning given that term in section 
     114(f)(2)(E) of title 17, United States Code, as added by 
     section 3 of this Act.

     SEC. 6. EFFECTIVE DATE.

       The amendments made by this Act shall take effect on the 
     date of the enactment of this Act.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Wisconsin (Mr. Sensenbrenner) and the gentleman from California (Mr. 
Berman) each will control 20 minutes.
  The Chair recognizes the gentleman from Wisconsin (Mr. 
Sensenbrenner).


                             General Leave

  Mr. SENSENBRENNER. Mr. Speaker, I ask unanimous consent that all 
Members may have 5 legislative days within which to revise and extend 
their remarks and include extraneous material on H.R. 5469, the bill 
currently under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Wisconsin?
  There was no objection.
  Mr. SENSENBRENNER. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, the 1995 Digital Performance Right and Sound Recording 
Act that created a performance right in sound recordings for digital 
transmissions did not specifically address the issue of webcasting or 
Internet radio broadcasts. As a result, the 1998 Digital Millennium 
Copyright Act contains provisions that authorize eligible webcasters to 
accept a compulsory license, thereby enabling them to operate over the 
Internet without negotiating licenses in the marketplace. A compulsory 
license essential allows an individual or entity to use copyrighted 
works like music and movies at an industry-negotiated or government-
mandated rate.
  Because webcasters and members of the recording industry could not 
agree to a rate, a statutorily authorized arbitration panel, called a 
CARP, was convened at the U.S. Copyright Office to determine what the 
rate would be. The arbitrators issued a decision on February 20, 2002. 
The copyright holders in the recording industry thought that the rate 
was too low, and the webcasters thought that the rate was too high.
  Pursuant to his authority under the Copyright Act, the Librarian of 
Congress, based upon a recommendation by the Register of Copyrights, 
decided on June 8 to reject the suggestions of the webcasting CARP. On 
June 20, he issued a final decision which lowered the rate further. 
Some webcasters believe that the rate is still excessive. The copyright 
holders maintain that this lower rate is even less reflective of a fair 
market standard. That decision is now on appeal to the United States 
Court of Appeals for the District of Columbia circuit.
  Although a resolution to this dispute is legally in play, 
implementation of the decision by the Librarian takes effect on October 
20 and is retroactive to 1998. Unless Congress acts, some webcasters 
will shut down. This explains the point of H.R. 5469 as originally 
drafted: to suspend the implementation of the Librarian's decision for 
6 months, effective October 20. This delay would ensure that all 
parties would receive all of the judicial process to which they are 
entitled under the law before the rate took effect.
  I am happy to report that introduction of this bill placed a burr 
under the saddle of both the copyright holders and the small webcasters 
to conclude negotiations on these matters that began last summer. Since 
last week, the parties have negotiated around the clock. They have now 
arrived at a deal that sets new rates and payment terms

[[Page 19283]]

that will obviate the need for further legal and administrative 
intervention. The manager's amendment simply codifies the terms of that 
deal.
  Mr. Speaker, this solution is fair to both sides, the small 
webcasters as well as the copyright holders. It dovetails with the 
purpose of the Copyright Act in these cases, that is, to encourage 
parties to develop their own agreements governing rates and terms. I am 
happy to report that the parties have agreed today, as evidenced by the 
manager's amendment. I urge my colleagues to support the bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. BERMAN. Mr. Speaker, I yield myself such time as I may consume.
  I rise in support of the manager's amendment to H.R. 5469.
  Last week, the Chairman introduced a bill which was scheduled for the 
suspension file, which I reacted initially to, assumed was a rather 
ham-handed effort to force the copyright owners, the recording artists, 
the backup musicians and vocalists to wait at least another 6 months 
before they receive the royalties they were entitled to under the 
performance right we legislated in 1995, as amended by the compulsory 
license in the Digital Millennium Copyright Act.
  I was wrong. The Chairman had a method to the ham-handedness, and the 
result of his legislative effort was to pull the parties together, the 
webcasters, recording industry and the other affected parties, and put 
together an excellent proposal which, as adjusted by a few matters just 
today, I think builds a broad base of support for this proposal.
  The manager's amendment will greatly benefit small webcasters. Under 
this legislation, small webcasters will receive a huge discount on the 
webcasting royalties they are required to pay pursuant to a July 
decision by the Librarian of Congress.
  From the small webcasters' perspective, this legislation is 
particularly beneficial because it allows them to pay royalties as a 
percentage of revenue. Small webcasters vehemently objected to the 
Librarian's decision because it required them to pay royalties on a per 
song per listener basis.
  The terms of the deal are somewhat complicated, but the basic 
provisions are this. Small webcasters pay webcasting royalties that 
equal 8 percent of their gross revenues for the years 1998 through 
2002, or a statutory minimum, whichever is greater. In 2003 and 2004, 
small webcasters will pay the greater of 10 percent of their gross 
revenues under $250,000 and 12 percent of their gross revenues over 
$250,000, or 7 percent of expenses.
  The criteria for eligibility as a small webcaster are reasonable and 
allow such webcasters to grow and yet still obtain the royalty discount 
provided by the legislation. A webcaster will be eligible for the 
discounted royalty rate for the past 4 years if it had less than $1 
million in gross revenues over those four years. A webcaster will be 
eligible in the year 2003 if it has gross revenues under $500,000 for 
that calendar year and in 2004 if it has gross revenues under $1.25 
million.
  While it drastically cuts the royalties to be paid copyright owners 
and artists, this legislation has the support of the recording 
industry. The legislation also requires that artists get direct payment 
of webcasting royalties and thus gives them something that they stated 
was necessary to garner their support; and it is a result of that that 
the American Federation of Radio and Television Artists, the American 
Federation of Musicians, the Screen Actor's Guild and the AFL-CIO are 
supportive of this legislation.
  The recording industry and small webcasters are to be commended for 
working so hard to agree on terms, and the Chairman is to be commended 
for driving them to this agreement.

                              {time}  1445

  The recording industry and small webcasters are to be commended for 
working so hard to agree on terms, and the chairman is to be commended 
for driving them to this agreement.
  In sum, this legislation provides small webcasters with much better 
terms than the webcasting rates set by the Librarian of Congress. As 
such, it addresses the concerns that the Librarian's rate might drive 
many small webcasters out of business.
  Mr. Speaker, I was wondering if I might engage with the chairman of 
the committee in a colloquy.
  Mr. SENSENBRENNER. Mr. Speaker, will the gentleman yield?
  Mr. BERMAN. I yield to the gentleman from Wisconsin.
  Mr. SENSENBRENNER. Mr. Speaker, I am happy to engage in a colloquy 
with the gentleman.
  Mr. BERMAN. Mr. Speaker, section 4 of this bill requires that agents 
directed by the copyright office to distribute webcasting royalties 
must make direct payment of those royalties to featured and nonfeatured 
recording artists and musicians. Section 4 also allows such agents to 
deduct their administrative and other reasonable expenses from the 
royalties they distribute. These provisions are somewhat unusual, so I 
want to confirm my understanding of their import with the distinguished 
chairman. It is my understanding that both provisions simply codify 
what is the current practice in the marketplace. Copyright office 
regulations require direct payment of royalties for the years 1998 to 
2002, and the only distributing agent currently designated by the 
copyright office has contracted to make direct payments. Further, 
royalty recipients have agreed to allow that distributing agent to 
deduct its expenses from royalties. Is it the chairman's understanding 
that these provisions simply codify those current practices?
  Mr. SENSENBRENNER. Yes, that is my understanding.
  Mr. BERMAN. Mr. Speaker, I would like to make one other point. It is 
my understanding that these two provisions in no way interfere with the 
long-standing U.S. legal doctrine that parties can voluntarily assign, 
transfer, or allocate through contracts and other marketplace 
arrangements the rights provided them under U.S. copyright law.
  Mr. SENSENBRENNER. If the gentleman will yield further, that is also 
my understanding.
  Mr. BERMAN. I thank the gentleman for confirming my understanding.
  Mr. CONYERS. Mr. Speaker, I rise in support of the manager's 
amendment to H.R. 5469. This legislation reflects a compromise between 
vocalists, recording artists, background musicians, record labels, and 
small webcasters.
  This bill has several provisions that will make it easier for music 
to be performed online and for the creators to be compensated. First, 
it incorporates an agreement that was reached between the content 
owners and the small webcasters on royalty rates for Internet 
broadcasts from 1998 through 2004.
  I am especially pleased that the final legislation includes a 
statutory direct payment provision. This provision ensures the 
musicians, vocalists, and artists receive their royalties from digital 
music directly from the collection agent instead of through other 
intermediaries.
  Ms. McCARTHY of Missouri. Mr. Speaker, I rise in support of H.R. 
5469, the Small Webcaster Amendments Act of 2002. This bill codifies a 
compromise between webcasters, recording artists, and record companies 
to determine royalty payments for Internet radio broadcasts. I opposed 
the bill in its original form last week when it delayed the payments to 
copyright holders for six months. The measure allows webcasters to 
broadcast diverse programming to consumers, artists will be paid the 
royalty fees they need to continue creating and performing the music we 
want to hear, and record companies will deduct the administrative fees 
for royalty collection.
  This compromise bill benefits all parties involved. After deductions, 
record companies will receive 50 percent of the royalty, artists will 
receive 45 percent of the direct royalty payments, and the rest is 
distributed to nonfeatured musicians and vocalists. This is a vast 
improvement from past versions of this bill which left the recording 
artists out of the equation. Even though webcasters have not begun to 
make payments, future royalty rights are protected in H.R. 5469. Small 
webcasters benefit from a reduced royalty fee, which will keep many 
webcasters from declaring bankruptcy due to excessively high costs. 
This lower payment schedule will ensure that Internet radio continues 
to offer consumers a nearly endless number of listening choices 
including Latin, classical, and even native African music that may not 
be available over terrestrial stations. In addition, record companies

[[Page 19284]]

can deduct the administrative costs associated with royalty collection 
for digital recordings so that their past and future expenses are 
reimbursed.
  Paying copyright owners for the use of their creative work is not a 
new concept. In 1909, Congress passed a law to ensure that 
manufacturers of piano rolls had to pay for the songs they were 
reproducing. The license protects the composer's right to control 
reproductions of the work, but permits the recording of a song by a 
third party on ``mechanical'' media like a piano roll or record. This 
statute was later expanded to protect digital media, and thus it 
applies to Internet radio. The Copyright Arbitration Panel (CARP) first 
met in 1998 to determine royalty fees, but they were unable to come to 
an agreement between the interested parties. The last piece of the 
puzzle came in the form of the Librarian of Congress implementing rates 
for the statutory license on June 20, 2002, with the assumption that 
Internet radio companies would begin paying royalties on October 20, 
2002. The private sector compromise codifies the Librarian's 
recommendations, and webcasters now have a defined schedule to pay 
artists for the use of copyrighted works.
  I thank my colleagues for their support of H.R. 5469. I am very 
grateful to the organizations whose negotiations helped craft this 
important legislation. Due to this agreement, consumers will benefit 
from a myriad of choices for their listening pleasure.
  Mr. BERMAN. Mr. Speaker, I yield back the balance of my time.
  Mr. SENSENBRENNER. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Cantor). The question is on the motion 
offered by the gentleman from Wisconsin (Mr. Sensenbrenner) that the 
House suspend the rules and pass the bill, H.R. 5469, as amended.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill, as amended, was passed.
  The title of the bill was amended so as to read: ``A bill to amend 
title 17, United States Code, with respect to the statutory license for 
webcasting, and for other purposes.''.
  A motion to reconsider was laid on the table.

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