[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2066]


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[Federal Register: February 1, 1994]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM 92-8A]

 

Digital Audio Recording Devices and Media; Statements of Account

AGENCY: Copyright Office, Library of Congress.

ACTION: Interim regulation with request for comments.

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SUMMARY: The Copyright Office is issuing interim regulations governing 
the administration of filings under the Audio Home Recording Act of 
1992 (AHRA). This Act deal with rights with respect to digital audio 
recording technology (DART), more specifically, parties who import and 
distribute in the United States, or manufacture and distribute in the 
United States, any digital audio recording device or digital audio 
recording medium, are obligated to pay royalties. In addition to 
sending the royalties to the Copyright Office, the importer or 
manufacturer must file with the Office Statements of Account that 
reflect the distribution of digital audio recording devices or media.

DATES: This interim regulation is effective February 1, 1994. Comments 
should be in writing and received on or before April 4, 1994.

ADDRESSES: If sent by mail, ten copies should be addressed to: 
Copyright Office, Library of Congress, Department 17, Washington, DC 
20540. If hand delivered, ten copies should be brought to: Office of 
the Copyright General Counsel, James Madison Memorial Building, room 
407, First and Independence Avenue, SE., Washington, DC 20540.

FOR FURTHER INFORMATION CONTACT: Marybeth Peters, Acting General 
Counsel, U.S. Copyright Office, Department 17, Library of Congress, 
Washington, DC 20540. Telephone (202) 707-8380.

SUPPLEMENTARY INFORMATION:

I. Background

    This document relates to the filing of both quarterly and annual 
Statements of Account and payment of royalties due under the new DART 
provisions of the Copyright Code (17 U.S.C. chap. 10). On February 22, 
1993, we published interim regulations on this subject (58 FR 9544 
(1993)), and we are now issuing superseding interim regulations.
    It should be noted that the manufacturers and importers covered by 
the new law are subject to other requirements, in addition to those 
dealt with here. For example, an obligation to file initial notices to 
identify the product categories and technologies distributed in the 
United States is provided by 17 U.S.C. 1003(b), and regulations 
regarding the filing of initial notices of distribution were issued by 
the Copyright Office at 57 FR 55464 (Nov. 25, 1992). In addition, 
manufacturers and importers of digital recording and interface devices 
must conform to the Serial Copy Management System or equivalent systems 
as described by 17 U.S.C. 10021 as a condition of distribution in 
the United States.
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    \1\See S. Rep. No. 294, 102d Cong., 2d Sess. 64 (1992); H. Rep. 
No. 873, 102 Cong. 2d. Sess., pt. 1, at 19 (1992); and H. Rep. No. 
873, 102d Cong., 2d Sess., pt. 2, at 18 (1992).
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    With respect to Statements of Account, paragraph (c)(1) of 17 
U.S.C. 1003 provides:

    Any importer or manufacturer that distributes any digital audio 
recording device or digital audio recording medium that it 
manufactured or imported shall file with the Register of Copyrights, 
in such form and content as the Register shall prescribe by 
regulation, such quarterly and annual Statements of Account with 
respect to such distribution as the Register shall prescribe by 
regulation.

Royalty payments are to be calculated in accordance with 17 U.S.C. 1004 
and sent to the Copyright Office under 17 U.S.C. 1003(c)(3).
    Following issuance in the Federal Register of the 1993 interim 
regulation regarding Statement of Account filings, the Copyright Office 
published notice of an informal public meeting to discuss both the 
interim regulations (58 FR 29001 (May 18, 1993)) and the initial 
edition of the quarterly Statement of Account form (DART/Q Form). The 
public meeting was held at the Copyright Office on June 11, 1993. 
Discussion of comments follows below in section III.
    The DART/Q Form as initially published incorporated practical 
modifications that were suggested by the parties in their comments on 
the written interim regulations describing what a Statement of Account 
should contain.
    In response to comments received from interested parties, we have 
made some revisions in the 1993 interim regulations, and we are now 
issuing superseding interim regulations governing the filing of 
Statement of Account Forms on both a quarterly (Form DART/Q) and an 
annual (Form DART/A) basis. The regulations provide the filing dates, 
frequency of filing, and content of the quarterly and annual Statements 
of Account.

II. Review of 1993 Interim Regulations

A. Quarterly Statements of Account

    Most of the comments and explanations accompanying the interim 
regulations published on February 22, 1993 are still pertinent, but 
some specific points are addressed here.
1. Forms
    The 1993 interim regulations proposed four filings per fiscal or 
calendar year: Three quarterly statements, and a fourth Statement of 
Account combining the final quarterly statement and the required annual 
statement. Each manufacturing and/or importing party who distributes 
digital audio recording products files a quarterly form that contains 
information concerning product categories, technologies, transfer 
prices, series and model numbers, and units distributed. Comments we 
received concerning quarterly Statements of Account are discussed below 
in section III(A).
2. Filing Dates and Basis of Filing
    The 1993 interim regulations required Statements of Account to be 
submitted on either a calendar year or fiscal year basis, at the 
election of the filing party. Under our proposal the elected filing 
basis was to remain in effect for three years, with any change in the 
basis to be permitted only after a request to and approval by the 
Copyright Office. Comments on this provision are discussed below in 
section III(A)(2).
    The 1993 interim regulations require quarterly Statements of 
Account to be filed at intervals of three months. During the first 
stage of implementation of the AHRA the Office provided a transitional 
schedule that did not require a separate quarterly DART statement for 
the last part of 1992. The first quarterly statement covered the period 
from October 28, 1992 (the date of enactment of the AHRA) to the end of 
at least one full quarter, and was due either within 45 days following 
the end of the first full quarter after October 28, 1992, or by May 15, 
1993, whichever was later. Later quarterly statements are due within 45 
days after the end of the relevant quarters.
    Annual Statements of Account should reconcile quarterly figures and 
provide information regarding yearly activity. Annual statements are 
due two months after the close of the calendar or fiscal year covered 
by the statement. Comments regarding annual Statements of Account are 
discussed in section III(B).
3. Late Payments, Overpayments, Underpayments, and Refunds
    The 1994 interim regulations allow for corrections of quarterly and 
annual Statements of Account to rectify errors in payments of 
royalties. An underpayment of five dollars ($5.00) or less will require 
no action by the Office. The Licensing Division will notify the 
manufacturing or importing party of underpayments of more than five 
dollars so that party can make the necessary corrections or amended 
filings.
    If royalty payments are not made on time, copyright owners suffer 
from loss of the current value of funds. Therefore, interest will be 
imposed on underpayments and late payments.
    The earlier interim regulations provide for refunds to be made by 
the Copyright Office in connection with overpayments accompanying 
annual Statements of Account. These superseding interim regulations 
will also allow refunds of overpayments accompanying quarterly DART 
statements.
4. Credits for Returns or Exports
    The earlier 1993 interim regulations permitted credits to be taken 
for returned or unsold recording devices; the credit was to be taken in 
the first annual Statement of Account covering the actual period when 
the recording devices were returned, or in the next succeeding annual 
Statement of Account. The Copyright Office has decided to modify this 
policy in this superseding interim regulation.
    As revised, this new interim regulation permits manufacturers and 
importers to take a credit for returns of both recording devices and 
media on either quarterly or annual Statements of Account. Credits may 
be taken when products are exported or returned to the manufacturers or 
importers as unsold or defective. Whenever returned products for which 
credit has been taken are later distributed in the United States, the 
statutory royalty must be paid, and the distribution must be reported 
on the appropriate Statement of Account. The Copyright Office has also 
decided to allow a credit for exports. These regulations give filing 
parties two years to take a credit.
5. Access to Statements of Account
    In accordance with 17 U.S.C. 1003(c)(2), quarterly and annual 
Statements of Account will not be made part of the Copyright Office's 
public records or directly or indirectly disclosed to the general 
public. Specific regulations governing confidential access by 
interested parties, as defined in the AHRA, will be issued separately.

III. Discussion of Comments

A. Quarterly Statements of Account

    The Office received two comments responding to the interim 
regulations published on February 22, 1993. One was filed by the 
American Institute of Certified Public Accountants (AICPA), and the 
other was from the DART Coalition. In addition, the oral comments made 
at the Office's public meeting on this subject are essentially 
reflected in the parties' written comments, which are summarized here.
1. The American Institute of Certified Public Accountants (AICPA)
    The AICPA is a national professional association representing 
certified public accountants (CPA's) in public practice, industry, 
government, and education. The group aids in developing standards for 
audits and other services provided by CPAs, in administering the 
Uniform CPA Examination, and in monitoring and enforcing compliance 
with the profession's technical and ethical standards. The AICPA also 
monitors and analyzes federal regulations that may affect accounting 
and related matters.
    The AICPA did not comment on the quarterly form. Their comments 
related to CPAs' audits of annual DART Statements of Account, and are 
discussed below at section III(B).
2. The DART Coalition
    The DART Coalition consists of representatives of the Electronic 
Industries Association, the National Music Publishers' Association, 
Inc. and its subsidiary The Harry Fox Agency, Inc., the Recording 
Industry Association of America, the Home Recording Rights Coalition, 
the Alliance of Artists and Recording Companies, the American Society 
of Composers, Authors and Publishers, Broadcast Music, Inc., SESAC, 
Inc., the American Federation of Musicians of the United States and 
Canada, the American Federation of Television and Radio Artists, 
Copyright Management, Inc., and the Songwriters Guild of America.
    The Copyright Office had proposed in the 1993 interim regulation 
that a filing party be locked into election of a calendar or fiscal 
filing basis for three years. The Coalition suggested that, where a 
filing party shows good cause, it be allowed to change its accounting 
period (calendar or fiscal) at any time. The DART Coalition noted that, 
if its suggestion were to be accepted, a filing party should not be 
allowed to change its filing status to alter the total aggregate 
royalty payments. They suggested that the regulations require 
notification of changes in filing status to include provisions to 
equalize total aggregate payments under the new basis with those that 
would have been made under the earlier basis. DART Coalition comments 
at 3.
    The DART Coalition also suggested clarification with regard to 
products subject to Statements of Account and royalty payment 
obligations: except for ``credits for returns and exported merchandise 
and subsequent obligations with respect to products for which credits 
have been claimed,'' the obligation should apply only to units first 
distributed in the United States during the appropriate filing period. 
DART Coalition comments at 5.
    The DART Coalition suggested that in the reporting space for 
tracking audio recording devices and media manufactured and distributed 
or imported and distributed by a party, the terms ``product category'' 
and ``technology'' be expressed in the plural, and ``space should be 
provided for multiple product categories and technologies.'' DART 
Coalition comments at 6.
    In addition, the group suggested modification of the requirements 
governing presentation of model number and transfer price information 
to permit aggregation of products of the same model (or series) number 
with the same applicable transfer price. DART Coalition comments at 6-
7.
    Regarding information to be provided for stand-alone devices and 
devices first distributed with other devices, the Coalition indicated 
that the Office had not provided enough fee codes in the quarterly form 
to cover all the types of devices that have to be reported. DART 
Coalition comments at 7-9.
    The Coalition also suggested that clarification be made as to when 
royalties are payable. It recommended that language in the Office's 
final regulations should indicate that royalties are due upon the 
filing of quarterly or annual Statements of Account, not upon 
distribution. DART Coalition comments at 9. In addition, the Coalition 
suggested that because multiple transfer prices may apply to a given 
product series or model, the language in the interim regulations should 
be modified to provide for this possibility. Id.
    Finally, the Coalition suggested that, regarding treatment of 
monies that may be attributable to 1992 activities, any initial 
quarterly Statements of Account that include partial fiscal or calendar 
quarters ending in 1992 include estimates of payments attributable to 
1992 and 1993 quarters. DART Coalition comments at 10.

B. Annual Statements of Account

    Comments about annual Statement of Account forms were based upon 
the language of the 1993 interim regulations governing the contents of 
annual forms, rather than a draft of the form itself.
1. The American Institute of Certified Public Accountants
    AICPA argued that the CPA who audits an annual statement should be 
required to audit a separate ``schedule of royalties'' (a document not 
anticipated or mentioned in the 1993 interim regulation) rather than 
the annual statement itself. AICPA comments at 1. The comments 
suggested that this separate schedule should relate only to the number 
of devices and media distributed, their transfer prices, and the 
cumulative amount of royalties. AICPA said that CPAs should not be 
associated with the information contained in the fourth quarterly 
statement or the entire annual statement, but instead should comment 
only on the data that has been audited. AICPA wrote:

    [W]e recommend that in addition to the Annual Statement of 
Account, management prepares a ``schedule of royalties'' which the 
CPA would audit. The appropriate information would be taken from the 
Annual Statement of Account and, therefore, not result in additional 
cost.

AICPA comments at 2. AICPA proposed that the auditing CPA should also 
be permitted to ``express a qualified or adverse opinion or a 
disclaimer of an opinion, and other comments.'' AICPA comments at 1. 
This would meet generally accepted auditing standards, and would apply 
in situations where conditions or circumstances beyond the auditor's 
control cannot be audited, corrected, or honestly vouched for by the 
CPA.
    In addition, AICPA proposed that the language in the illustrative 
CPA report which the Office had included in the 1993 interim 
regulations be revised to be ``consistent with current authoritative 
auditing literature.'' Id. Sample language was suggested to provide 
information about accurate usage of terms associated with accounting 
procedures. Regarding correct use of terms of art, or language used by 
CPAs in the exercise of their duties, the AICPA suggested correction of 
proposed language of section (4)(ii)(A) of the 1993 interim regulation. 
The proposed language showing that CPAs ``certify'' financial 
statements should be changed, because CPAs actually ``audit'' such 
documents. The two terms have different meanings that give CPAs 
different responsibilities. AICPA comments at 3.
    Finally, the AICPA requested extending the filing date for annual 
audited Statements of Account from two months to 90 or 120 days because 
CPAs are busiest during January and February. AICPA comments at 4.
2. The DART Coalition
    The Coalition commented on the 1993 interim regulations' provisions 
governing the annual summary of the number of devices and media 
manufactured or imported and distributed, and recommended several 
changes. Rather than follow the Office's proposed breakdown of the 
summary into ``product category,'' ``technology,'' and ``model 
number,'' the group preferred an integrated summary based on models 
within each category and technology. DART Coalition comments at 13.
    The Coalition also commented on the provision on credits for 
returns or exports. It was suggested that the credit provision be

    * * * clarified to make clear that credits are applicable to 
units on which a royalty payment has been made by the manufacturing 
party that are (a) returned to the manufacturing party less than two 
years following first distribution by the manufacturing party and 
(b) originally `distributed' (i.e., transferred by the manufacturing 
party for ultimate transfer to consumers in the United States), 
which are thereafter exported by the manufacturing party within two 
years following first distribution. A credit for exports would, 
therefore, arise where the manufacturing party, after an initial, 
internal distribution on which a royalty payment has been made, 
subsequently exports.

DART Coalition comments at 14-15. Further clarification was suggested 
to emphasize that a royalty payment is not triggered until distribution 
takes place, and that, if a product is never distributed, no royalty is 
paid and no need exists for a credit. DART Coalition comments at 15. In 
addition, the Coalition asserted that an individual listing of returned 
or exported digital audio recording products, as suggested by the 
Office, would not be as efficient as presenting information by model, 
with transfer price and applicable royalty credit ``in a format 
comparable to that provided for the quarterly Statement of Account.'' 
DART Coalition comments at 16.
    The Coalition had no comments, at the time of filing its comments 
on the 1993 interim regulation, regarding accounting certification.

IV. Public Meeting

    On June 11, 1993, the Copyright Office held a public meeting 
intended to exchange comments and information regarding the quarterly 
Statement of Account as proposed in the 1993 interim regulations and as 
published in the initial version of the DART/Q Form. Comments were 
invited as well about the annual Statement of Account form, which had 
been discussed in the interim regulations, but had not yet been 
published. 58 FR 29001 (May 18, 1993). The meeting was informal and no 
recording was made of the discussion, much of which covered points 
raised in the previously-submitted written comments.
    One new matter was raised: The possible use of spreadsheets as part 
of the Statement of Account reporting form. The Office considers this a 
suggestion that should be explored, but believes it does not need to be 
incorporated in the regulations. The Licensing Division is currently 
discussing the use of computer-generated forms with interested parties.

V. Policy Decisions

    The Copyright Office has examined our 1993 interim regulations in 
light of the comments received. We have accepted most of the 
suggestions made by the parties, noting that they involve solutions to 
practical problems and that the AHRA itself is the result of a 
cooperative agreement among the interested parties.
    The 1993 interim regulations published in 57 FR 9544 (Feb. 22, 
1993), are superseded by this second set of 1994 interim regulations. 
Several important modifications and additions are incorporated, 
including treatment of the auditor's report to accompany the annual 
Statement of Account, and fine tuning of the specific contents of 
quarterly and annual statements. We have also decided to provide for 
credits and for refunds on a quarterly as well as an annual basis, for 
both devices and media, and to extend the credit to situations where 
the products are exported. We also eliminate the former requirement 
that a manufacturing or importing party filing DART statements is 
locked into its choice of a filing basis for three years unless 
permission to change is sought from and granted by the Register of 
Copyrights. Although parties filing DART statements must note on the 
forms whether they are filing on a calendar or a fiscal year basis, 
changes in filing basis may be made by notifying the Register at least 
two months before filing on the changed basis, with a written statement 
of reasons as to why the change is to be made and a statement that such 
a change will not affect the aggregate royalty due under the earlier 
basis.
    Based upon AICPA's recommendations concerning appropriate auditing 
terminology and procedures, the Copyright Office is adopting procedures 
for the primary auditor's report that allow the auditor to make his or 
her report either on or attached to the DART/A Form.
    The DART Coalition's concerns regarding the manner in which 
products are to be aggregated on the Statements of Account by product 
and technology has been addressed by clarifying that the Statement of 
Account permits the reporting of each unique combination of product 
category, technology, series or model number, fee code, source code, 
and transfer price.
    The Office also received comments during its rulemaking proceeding 
RM 93-2, Auditing of and Confidential Access to Statements of Account, 
that should be noted. The Electronic Industries Association (EIA), 
commented that an audit may cost a party thousands of dollars, and 
could ``create a barrier that would keep small manufacturers or 
importers out of the digital audio market,'' a negative result not 
contemplated by the Act. EIA comments at 17. EIA suggested that small 
manufacturers or importers would benefit from an elective exemption 
from the Act's audit requirement. The exemption would be available for 
``filers that either (i) Do not engage an independent CPA to conduct an 
annual financial audit or (ii) file an annual statement of account 
showing a royalty payment due of less than five thousand dollars 
($5,000).'' Id. The Office has considered this proposal, but has 
concluded that it should not provide such a waiver in these regulations 
covering the primary audit.
    In an effort to facilitate easy and accurate filing of Statements 
of Account, the Office has revised the DART/Q Form since its original 
issue. Copies of the most current DART/Q and the new DART/A Forms are 
available upon writing the Licensing Division, Copyright Office, 
Library of Congress, Washington, DC 20557, by calling (202) 707-8150 or 
by facsimile (202) 707-0905. Forms may be requested via facsimile for 
informational purposes, but facsimile copies may not be submitted to 
the Office.

List of Subjects in 37 CFR Part 201

    Copyright, Digital audio recording products.

Interim Regulations

    In consideration of the foregoing, the Copyright Office is amending 
part 201 of 37 CFR chapter II, in the manner set forth below.

PART 201--[AMENDED]

    1. The authority citation for part 201 continues to read as 
follows:

    Authority: Sec. 702, 90 Stat. 2541; 17 U.S.C. 702; Sec. 201.28 
is also issued under Pub. L. 102-563, 106 Stat. 4237.

    2. Section 201.28 is revised to read as follows:


Sec. 201.28  Statements of Account for digital audio recording devices 
or media.

    (a) General. This section prescribes rules pertaining to the filing 
of Statements of Account and royalty fees in the Copyright Office as 
required by 17 U.S.C. 1003(c) and 1004, in order to import and 
distribute, or manufacture and distribute, in the United States any 
digital audio recording device or digital audio recording medium.
    (b) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Annual statement of account is the statement required under 17 
U.S.C. 1003, to be filed no later than two months after the close of 
the accounting period covered by the annual statement.
    (2) Device and medium have the same meaning as digital audio 
recording device and digital audio recording medium, respectively, have 
in 17 U.S.C. 1001.
    (3) Digital audio recording product means digital audio recording 
devices and digital audio recording media.
    (4) Generally accepted auditing standards (GAAS), means the 
auditing standards promulgated by the American Institute of Certified 
Public Accountants.
    (5) Manufacturing or importing party refers to any person or entity 
that manufactures and distributes, and/or imports and distributes, any 
digital audio recording device or digital audio recording medium in the 
United States, and is required under 17 U.S.C. 1003 to file with the 
Copyright Office quarterly and annual Statements of Account.
    (6) Product category of a device or medium is a general class of 
products made up of functionally equivalent digital audio recording 
products with substantially the same use in substantially the same 
environment, including, for example, hand-held portable integrated 
combination units (``boomboxes''); portable personal recorders; stand-
alone home recorders (``tape decks''); home combination systems (``rack 
systems''); automobile recorders; configurations of tape media 
(standard cassettes or microcassettes); and configurations of disc 
media, such as 2\1/2\ inch, 3 inch, or 5 inch discs.
    (7) Primary auditor is the certified public accountant retained by 
the manufacturing or importing party to audit the amounts reported in 
the annual Statement of Account submitted to the Copyright Office. The 
primary auditor may be the certified public accountant engaged by the 
manufacturing or importing party to perform the annual audit of the 
party's financial statement.
    (8) Quarterly statement of account is the statement accompanying 
royalty payments required under 17 U.S.C. 1003, to be filed for each of 
the first three quarters of the accounting year, and no later than 45 
days after the close of the quarterly period covered by the statement.
    (9) Technology of a device or medium is a digital audio recording 
product-type distinguished by different technical processes for 
digitally recording musical sounds, such as digital audio tape 
recorders (DAT), digital compact cassettes (DCC), or recordable compact 
discs, including minidiscs (MD).
    (10) Distribute, manufacture, transfer price, and serial copying 
have the meanings set forth in 17 U.S.C. 1001.
    (c) Accounting periods and filing deadlines. (1) Election of filing 
basis. Statements of Account may be filed on either a calendar or 
fiscal year basis at the election of the manufacturing party. The 
election of a calendar or fiscal year basis must be made when the 
manufacturing or importing party files its first quarterly Statement of 
Account by appropriate designation on the Form DART/Q submitted. 
Thereafter the specific calendar or fiscal-year accounting period must 
be designated on each quarterly Statement of Account. The filing basis 
may be changed at any time upon notification in writing to the Register 
of Copyrights, accompanied by a statement of reasons as to why the 
change is to be made and a statement that such change will not affect 
the aggregate royalties due under the earlier basis. The notification 
of change in filing basis must be made at least two months before the 
date the next quarterly Statement of Account is due to be filed.
    (2) Quarterly filings. Quarterly Statements of Account shall be 
filed on Form DART/Q and shall cover a three-month period corresponding 
to the calendar or fiscal year of the filing party. A quarterly 
statement shall be filed no later than 45 days after the close of the 
period it covers.
    (3) Annual filings. Annual Statements of Account shall be filed on 
Form DART/A and shall cover both the fourth quarter of an accounting 
year and the aggregate of the entire year corresponding to the calendar 
or fiscal accounting year elected. An annual statement shall be filed 
no later than two months after the close of the period it covers. As a 
transitional measure, however, the first annual Statement of Account 
filed after October 28, 1992, is not due until March 1, 1994, or two 
months after the end of the calendar or fiscal year in which the 
manufacturing or importing party first filed a quarterly Statement of 
Account, whichever is later. The first annual Statement of Account 
shall cover the entire period from October 28, 1992, to the end of the 
full accounting year. The appropriate royalty payment, calculated 
according to the instructions contained in Form DART/A, shall accompany 
the annual Statement of Account covering royalties due for the filing 
year: that is, royalties for the fourth quarter and any additional 
royalties that are due because of adjustments in the aggregate amounts 
of devices or media distributed.
    (4) Early or late filings. Statements of Account and royalty fees 
received before the end of the particular accounting period covered by 
the statement will not be processed by the Office. The statement must 
be filed after the close of the relevant accounting period. Statements 
of Account and royalty fees received after the 45-day deadline for 
quarterly statements or the two month deadline for annual statements 
will be accepted for whatever legal effect they may have and will be 
assessed the appropriate interest charge for the late filing.
    (d) Forms. (1) Each quarterly or annual Statement of Account shall 
be submitted on the appropriate form prescribed by the Copyright 
Office. Computation of the royalty fee shall be in accordance with the 
procedures set forth in the forms and this section. Statement of 
Account forms are available from the Licensing Division, Library of 
Congress. Forms and other information may be requested from the 
Licensing Division by facsimile transmission (FAX), but copies of 
Statement of Account forms transmitted to the Office by FAX will not be 
accepted.
    (2) Forms prescribed by the Copyright Office are designated 
Quarterly Statement of Account for Digital Audio Recording Products 
(Form DART/Q) and Annual Statement of Account for Digital Audio 
Recording Products (Form DART/A).
    (e) Contents of quarterly Statements of Account. (1) Quarterly 
period and filing. Any quarterly Statement of Account shall cover the 
full quarter of the calendar or fiscal accounting year for the 
particular quarter for which it is filed. A separate quarterly 
statement shall be filed for each quarter of the first three quarters 
of the accounting year during which there is any activity relevant to 
the payment of royalties under 17 U.S.C. 1004. The annual Statement of 
Account identified in paragraph (f) of this section incorporates the 
fourth quarter of the accounting year.
    (2) General content. Each quarterly Statement of Account shall be 
filed on Form DART/Q, the ``Quarterly Statement of Account for Digital 
Audio Recording Products,'' and shall include a clear statement of the 
following information:
    (i) A designation of the calendar or fiscal year of the annual 
reporting period;
    (ii) A designation of the period, including the beginning and 
ending day, month, and year of the period covered by the quarter;
    (iii) The full legal name of the manufacturing and/or importing 
party, together with any ``doing-business-as'' names used by such 
person or entity for the purpose of conducting the business of 
manufacturing, importing, or distributing digital audio recording 
products;
    (iv) The full mailing address of the manufacturing or importing 
party, including a specific number and street name, or rural route and 
box number, of the place of business of the person or entity. A post 
office box or similar designation will not be sufficient for this 
purpose except where it is the only address that can be used in that 
geographic location;
    (v) A designation of the manufacturing or importing party status, 
i.e., ``Manufacturer,'' ``Importer,'' or ``Manufacturer and Importer;''
    (vi) The designation ``Product Categories'' together with the 
product categories of the digital audio recording products manufactured 
or imported and distributed during the quarter covered by the 
statement;
    (vii) The designation ``Technologies'' together with the 
technologies of the digital audio recording products manufactured or 
imported and distributed under the AHRA during the quarter covered by 
the statement;
    (viii) The designation ``Series or Model Number'' followed by the 
model or series numbers of the digital audio recording products 
manufactured or imported and distributed under the AHRA during the 
quarter covered by the statement;
    (ix) The ``fee code'' associated with the product;
    (x) The ``source code'' for the product category;
    (xi) The ``transfer price'' of the product;
    (xii) The ``number of units distributed'' for each product;
    (xiii) The ``minimum fee per unit'' for each product;
    (xiv) The statutory royalty ``rate'' for digital audio recording 
devices or media;
    (xv) The ``rate fee'' for each product;
    (xvi) The appropriate ``maximum fee per unit'' for each product;
    (xvii) The ``maximum fee'' for each product; and
    (xviii) A computation of the total royalty payable for the quarter 
covered by the statement. Filing parties may not round off the figures 
they list in Space C, the computation section of the form, except for 
the figure representing the total royalty fee due; in that case, 
numbers ending in 50 to 99 cents may be rounded up to the next dollar, 
and numbers ending in one to 49 cents may be rounded down to the next 
dollar;
    (3) Royalty payments and accounting. (i) The royalty specified in 
17 U.S.C. 1004 shall accompany the quarterly and annual Statements of 
Account. No royalty is payable for redistribution of the same product 
item unless a credit has been taken for such items. Where royalties are 
payable for the period covered by the statement, the Statement of 
Account shall contain the following information for each unique 
combination of product category, technology, series or model number, 
fee code, source code, and transfer price:
    (A) The total number of digital audio recording media distributed, 
multiplied by the statutory royalty rate of three percent (3%) of the 
transfer price;
    (B) The total number of digital audio recording devices distributed 
for which the statutory royalty rate of two percent (2%) of the 
transfer price is payable, multiplied by such percentage rate of the 
transfer price;
    (C) The total number of digital audio recording devices distributed 
for which the statutory maximum royalty is limited to eight dollars 
($8.00), multiplied by such eight dollar amount;
    (D) The total number of digital audio recording devices distributed 
for which the statutory maximum royalty is limited to twelve dollars 
($12.00), multiplied by such twelve dollar amount; and
    (E) The total number of digital audio recording devices distributed 
for which the statutory minimum royalty is limited to one dollar 
($1.00), multiplied by such one dollar amount.
    (ii) The amount of the royalty payment shall be calculated in 
accordance with the instructions specified in the quarterly Statement 
of Account form. Payment of the royalty fee must be in the form of a 
certified check, cashier's check, money order, or electronic payment 
payable to the Register of Copyrights.
    (4) Reduction of royalty fee. (i) Section 1004(a)(2)(A) of title 17 
U.S. Code, provides an instance in which royalty payments may be 
reduced if the digital audio recording device and such other devices 
are part of a physically integrated unit, the royalty payment shall be 
based on the transfer price of the unit, but shall be reduced by any 
royalty payment made on any digital audio recording device included 
within the unit that was not first distributed in combination with the 
unit.
    (ii) Notice of this provision together with directions for possible 
application to a product is contained in the DART/Q Form.
    (5) Contact party. Each Statement of Account shall include the 
name, address, and telephone and facsimile (FAX) numbers of an 
individual whom the Copyright Office can write or call about the 
Statement of Account.
    (6) Credits for returned or exported products. When digital audio 
recording products first distributed in the United States for ultimate 
transfer to United States consumers are returned to the manufacturer or 
importer as unsold or defective merchandise, or are exported, the 
manufacturing or importing party may take a credit to be deducted from 
the royalties payable for the period when the products were returned or 
exported. The credit may be taken only for returns or exports made 
within two years following the date royalties were paid for the 
products. This credit must be reflected in the manufacturing or 
importing party's quarterly or annual Statement of Account. If the 
manufacturer or importer later redistributes in the United States any 
products for which a credit has been taken, these products must be 
listed on the Statement of Account, and a new computation of the 
royalty fee must be made based on the transfer price of the products at 
the time of the new distribution.
    (7) Oath and signature. Each Statement of Account shall include the 
handwritten signature of an authorized officer, principal, or agent of 
the filing party. The signature shall be accompanied by:
    (i) The printed or typewritten name of the person signing the 
quarterly Statement of Account;
    (ii) The date the document is signed;
    (iii) The following certification:

    I, the undersigned, hereby certify that I am an authorized 
officer, principal, or agent of the ``manufacturing or importing 
party'' identified in Space B.

Penalties for fraud and false statements are provided under 18 U.S.C. 
1001 et. seq.
    (f) Contents of annual Statements of Account. (1) General contents. 
Each annual Statement of Account shall be filed on form DART/A, 
``Annual Statement of Account for Digital Audio Recording Products.'' 
It must be filed by any importer or manufacturer that distributed in 
the United States, during a given calendar or fiscal year, any digital 
audio recording device or digital audio recording medium. The annual 
statement shall cover the aggregate of the distribution of devices and 
media for the entire year corresponding to the calendar or fiscal year 
elected. The annual Statement of Account shall contain the information, 
oath, and certification prescribed in paragraphs (e)(2)(i) through 
(e)(7)(iii) of this section, and shall cover the entire accounting 
year, including the fourth quarter distribution, and shall also provide 
for the reconciliation of the aggregated accounting of digital audio 
recording devices and media for the reported accounting year.
    (2) Reconciliation. Any royalty payment due under sections 1003 and 
1004 of title 17 that was not previously paid with the filing party's 
first three quarterly Statements of Account, shall be reconciled in the 
annual statement. Reconciliation in the annual Statement of Account 
provides for adjustments for reductions, refunds, underpayments, 
overpayments, credits, and royalty payments paid in Quarters 1, 2, and 
3, and shall be computed in accordance with the instructions included 
in the annual Statement of Account. Errors that require reconciliation 
shall be corrected immediately upon discovery.
    (3) Accountant's opinion. Each annual Statement of Account or any 
amended annual Statement of Account shall be audited by the primary 
auditor as defined in paragraph (b)(7) of this section. An amendment 
may be submitted to the Office either as a result of responses to 
questions raised by a Licensing Division examiner or on the initiative 
of the manufacturing or importing party to correct an error in the 
original Statement of Account.
    (i) The audit shall be performed in accordance with generally 
accepted auditing standards (GAAS). The audit may be performed in 
conjunction with an annual audit of the manufacturing or importing 
party's financial statements.
    (ii) The CPA shall issue a report, the ``primary auditor's 
report,'' reflecting his or her opinion as to whether the annual 
statement presents fairly, in all material respects, the number of 
digital audio recording devices and media that were imported and 
distributed, or manufactured and distributed, by the manufacturing or 
importing party during the relevant year, and the amount of royalty 
payments applicable to them under 17 U.S.C. chapter 10, in accordance 
with that law and these regulations.
    (iii) The primary auditor's report shall be filed with the 
Copyright Office together with the annual Statement of Account, within 
two months after the end of the annual period for which the annual 
Statement of Account is prepared. The report may be qualified to the 
extent necessary and appropriate.
    (iv) The Copyright Office does not provide a specific form, or 
require a specific format, for the CPA's review; however, in addition 
to the above, certain items must be named as audited items. These 
include the variables necessary to complete Space C of the Statement of 
Account form. The CPA may place his or her opinion, which will serve as 
the ``primary auditor's report,'' in the space provided on Form DART/A, 
or may attach a separate sheet or sheets containing the opinion.
    (v) The auditor's report shall be signed by an individual, or in 
the name of a partnership or a corporation, and shall include city and 
state of execution, certificate number, jurisdiction of certificate, 
and date of opinion. The certificate number and jurisdiction are not 
required if the report is signed in the name of a partnership or a 
corporation.
    (g) Documentation. All filing parties shall keep and retain in 
their possession, for at least three years from the date of filing, all 
records and documents necessary and appropriate to support fully the 
information set forth in quarterly and annual statements that they 
file.
    (h) Corrections, supplemental payments, and refunds. (1) General. 
Upon compliance with the procedures and within the time limits set 
forth in this paragraph (h), corrections to quarterly and annual 
Statements of Account will be placed on record, and supplemental 
royalty fee payments will be received for deposit, or refunds without 
interest will be issued, in the following cases:
    (i) Where, with respect to the accounting period covered by the 
quarterly or annual Statement of Account, any of the information given 
in the statement filed in the Copyright Office is incorrect or 
incomplete; or
    (ii) Where, for any reason except that mentioned in paragraph 
(h)(2) of this section, calculation of the royalty fee payable for a 
particular accounting period was incorrect, and the amount deposited in 
the Copyright Office for that period was either too high or too low.
    (2) Corrections to quarterly or annual Statements of Account will 
not be placed on file, supplemental royalty fee payments will not be 
received for deposit, and refunds will not be issued, where the 
information in the Statements of Account, the royalty fee calculations, 
or the payments were correct as of the date on which the accounting 
period ended, but changes (for example, cases where digital audio 
recording media were exported) took place later.
    (3) Requests that corrections to annual or quarterly Statements of 
Account be accepted, that fee payments be accepted, or that refunds be 
issued shall be addressed to the Licensing Division of the Copyright 
Office, and shall meet the following conditions:
    (i) The request shall be made in writing and must clearly identify 
the manufacturing or importing party making the request, the accounting 
period in question, and the purpose of the request. A request for a 
refund must be received in the Copyright Office before the expiration 
of two months from the last day of the applicable Statement of Account 
filing period. A request made by telephone or by telegraphic or similar 
unsigned communication will be considered to meet this requirement if 
it clearly identifies the basis of the request, is received in the 
Copyright Office within the two-month period, and a written request 
meeting all the conditions of this paragraph (h)(3) is also received in 
the Copyright Office within 14 days after the end of such two-month 
period.
    (ii) The request must clearly identify the incorrect or incomplete 
information formerly filed and must provide the correct or additional 
information.
    (iii) In the case where a royalty fee was miscalculated and the 
amount deposited with the Copyright Office was too large or too small, 
the request must be accompanied by an affidavit under the official seal 
of any officer authorized to administer oaths within the United States, 
or a statement in accordance with 28 U.S.C. 1746, made and signed in 
accordance with paragraph (e)(7) of this section. The affidavit or 
statement shall describe the reasons why the royalty fee was improperly 
calculated and include a detailed analysis of the proper royalty 
calculation.
    (iv) Following final processing, all requests will be filed with 
the original Statement of Account in the records of the Copyright 
Office. Nothing contained in this paragraph shall be considered to 
relieve manufacturing or importing parties of their full obligations 
under title 17 of the United States Code, and the filing of a 
correction or supplemental payment shall have only such effect as may 
be attributed to it by a court of competent jurisdiction.
    (v)(A) The request must be accompanied by a filing fee in the 
amount of $20 for each Statement of Account involved. Payment of this 
fee may be in the form of a personal or company check, or a certified 
check, cashier's check, or money order, payable to the Register of 
Copyrights. No request will be processed until the appropriate filing 
fees are received.
    (B) Requests that a supplemental royalty fee payment be deposited 
must be accompanied by a remittance in the full amount of such fee. 
Payment of the supplemental royalty fee must be in the form of a 
certified check, cashier's check, money order, or electronic payment 
payable to the Register of Copyrights. No such request will be 
processed until an acceptable remittance in the full amount of the 
supplemental royalty fee has been received.
    (vi) All requests submitted under paragraph (h) of this section 
must be signed by the manufacturing or importing party named in the 
Statement of Account, or the duly authorized agent of that party in 
accordance with paragraph (e)(7) of this section.
    (vii) A request for a refund is not necessary where the Licensing 
Division, during its examination of a Statement of Account or related 
document, discovers an error that has resulted in a royalty 
overpayment. In this case, the Licensing Division will forward the 
royalty refund to the manufacturing or importing party named in the 
Statement of Account. The Copyright Office will not pay interest on any 
royalty refunds.
    (i) Examination of Statements of Account by the Copyright Office. 
(1) Upon receiving a Statement of Account and royalty fee, the 
Copyright Office will make an official record of the actual date when 
such statement and fee were physically received in the Copyright 
Office. Thereafter, the Licensing Division will examine the statement 
for obvious errors or omissions appearing on the face of the documents 
and will require that any such obvious errors or omissions be corrected 
before final processing of the document is completed. If, as the result 
of communications between the Copyright Office and the manufacturer or 
importer, an additional fee is deposited or changes or additions are 
made in the Statement of Account, the date that additional deposit or 
information was actually received in the Office will be added to the 
official record.
    (2) Completion by the Copyright Office of the final processing of a 
Statement of Account and royalty fee deposit shall establish only the 
fact of such completion and the date or dates of receipt shown in the 
official record. It shall not be considered a determination that the 
Statement of Account was, in fact, properly prepared and accurate, that 
the correct amount of the royalty was deposited, that the statutory 
time limits for filing had been met, or that any other requirements of 
17 U.S.C. 1001 et. seq. were fulfilled.
    (j) Interest on late payments or underpayments. (1) Royalty 
payments submitted as a result of late payments or underpayments shall 
include interest, which shall begin to accrue on the first day after 
the close of the period for filing Statements of Account for all late 
payments or underpayments of royalties occurring within that accounting 
period. The accrual period for interest shall end on the date appearing 
on the certified check, cashier's check, money order, or electronic 
payment submitted by the manufacturing or importing party, if the 
payment is received by the Copyright Office within five business days 
of that date. If the payment is not received by the Copyright Office 
within five business days of its date, the accrual period shall end on 
the date of actual receipt by the Copyright Office.
    (2) The interest rate applicable to a specific accounting period 
shall be the Current Value of Funds rate in accordance with the 
Treasury Financial Manual, at 1 TFM 6-8025.40, in effect on the first 
business day after the close of the filing deadline for the relevant 
accounting period. The interest rate for a particular accounting period 
may be obtained by consulting the Federal Register for the applicable 
Current Value of Funds Rate, or by contacting the Licensing Division of 
the Copyright Office.
    (3) Interest is not required to be paid on any royalty underpayment 
or late payment from a particular accounting period if the interest 
charge is five dollars ($5.00) or less.
    (k) Confidentiality of Statements of Account. Public access to the 
Copyright Office files of Statements of Account for digital audio 
recording products shall not be provided. Access will only be granted 
to interested copyright parties in accordance with regulations 
prescribed by the Register of Copyrights pursuant to 17 U.S.C. 1003(c).

    Dated: January 26, 1994.
Barbara Ringer,
Acting Register of Copyrights.
    Approved by:
James H. Billington,
Librarian of Congress.
[FR Doc. 94-2066 Filed 1-31-94; 8:45 am]
BILLING CODE 1410-08-P