[Federal Register Volume 59, Number 133 (Wednesday, July 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16963]


[[Page Unknown]]

[Federal Register: July 13, 1994]


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LIBRARY OF CONGRESS

Copyright Office
[Docket No. RM 94-2B CARP-DD]

 

Consolidation of 1992, 1993 and 1994 Digital Audio Recording 
Distribution Proceedings

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of consolidation of proceedings, royalty distribution, 
and public meeting.

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SUMMARY: The Copyright Office is granting a motion to consolidate the 
1992, 1993, and 1994 digital audio recording (DART) distribution 
proceedings which will begin in 1995. In addition, the Office will make 
distribution of the 1992 and 1993 Nonfeatured Musicians and Nonfeatured 
Vocalists DART subfunds in July. The Office will hold a public meeting 
to discuss the best evidence for the distribution of DART royalties in 
September.

DATES: (1) The distribution of the royalties in the 1992 and 1993 
Nonfeatured Musicians and Nonfeatured Vocalists DART subfunds will take 
place July 28, 1994. (2) The public meeting to discuss best evidence 
for distribution of royalties will take place 10 a.m., Tuesday, 
September 27, 1994.

ADDRESSES: The public meeting will take place at the temporary CARP 
hearing room, Suite 921, 1825 Connecticut Avenue, N.W., Washington, DC 
20009.

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

SUPPLEMENTARY INFORMATION:

I. Background

    On December 17, 1993, Congress passed the Copyright Royalty 
Tribunal Reform Act of 1993. This legislation dissolved the Tribunal 
and established a new system of copyright arbitration royalty panels 
(CARPs) to be supported by the Library of Congress and the Copyright 
Office.
    The first proceeding to be initiated under the new CARP system was 
the distribution of the 1992 and the 1993 digital audio recording 
technology (DART) royalties. The 1992 DART distribution proceeding was 
begun by the Tribunal but was suspended when the Tribunal was 
abolished, and needed to be started anew. The 1993 DART distribution 
was begun by the Copyright Office under the new authority conferred by 
the Copyright Royalty Tribunal Reform Act of 1993. On March 1, 1994, 59 
FR 9773, we began the process of distributing DART royalties by asking 
the claimants to the 1992 and 1993 DART funds for comments on the 
following questions:
    (a) Do any controversies exist concerning the distribution of 1992 
and/or 1993 DART royalties?
    (b) If controversies do exist, which subfunds do they exist in?
    (c) If settlements have been reached, which parties have reached 
settlement and which have not?
    (d) Do the claimants believe it would be advisable to consolidate 
the 1992 DART proceeding with the 1993 DART proceeding?
    In addition, in the March 1, 1994, notice and in a subsequent 
notice appearing May 16, 1994, 59 FR 25506, the Library of Congress and 
the Copyright Office established the initial procedural dates that 
would apply to the 1992 and 1993 DART proceedings, as follows:
    June 10, 1994--comments from claimants due on whether controversies 
exist in the distribution of 1992 and 1993 DART funds, and whether the 
1992 and 1993 DART distribution proceedings should be consolidated.
    June 15, 1994--precontroversy motions, and/or objections to any 
listed arbitrators due from claimants who will be participating in the 
1992 and/or 1993 DART distribution proceedings.
    June 30, 1994--declaration by the Librarian of Congress to be made 
as to whether any controversies exist in the distribution of 1992 and 
1993 DART royalties, and, if they do, a declaring of the initiation of 
CARP proceedings.
    August 1, 1994--authorization by the Copyright Office of the 
distribution of any royalties found not to be in controversy.

II. The Commentators

    We received comments from the following claimants:

The Alliance of Artists and Recording Companies (AARC)
Ymistye L. White
Alicia Carolyn Evelyn
Eugene (Lambchops) Curry
James Cannings
Gear Publishing Company
Hideout Productions on behalf of Punch Enterprises, Inc. and Bob Seger
Sword and Stone Publishing, Inc.
Bopp du Wopp, Inc.
Jointly, the independent administrator of the Nonfeatured Musicians and 
the Nonfeatured Vocalists subfund; the American Federation of Musicians 
(AFM); the American Federation of Television and Radio Artists (AFTRA); 
and the Recording Industry Association of America (RIAA).
Jointly, AARC, American Society of Composers, Authors and Publishers 
(ASCAP), Broadcast Music, Inc. (BMI); Copyright Management, Inc. (CMI), 
Gospel Music Coalition (GOSPEL); The Harry Fox Agency, Inc. (HFA); 
SESAC, Inc. (SESAC), and the Songwriters Guild of America (SGA).
Jointly, ASCAP, BMI, CMI, GOSPEL, HFA, SESAC, and the SGA.

III. Motion to Consolidate and Stay Procedural Dates

    The comments indicated that, while many settlements were reached, 
there still existed some unresolved controversies in each of the 
subfunds. Rather than requesting the immediate initiation of a CARP 
proceeding to resolve these controversies, a joint motion was filed by 
AARC, ASCAP, BMI, CMI, GOSPEL, HFA, SESAC, and SGA requesting that the 
Librarian of Congress and the Copyright Office consolidate the 1992 and 
the 1993 DART distribution proceedings with the 1994 DART distribution 
proceedings that will start next year, and defer all consideration of 
DART distributions until 1995.
    As a consequence of their motion to consolidate, the joint 
commentators also requested that the initial DART procedural dates of 
June 15 (precontroversy motions and objections), June 30 (initiation of 
proceedings), and August 1 (authorization of distributions) be stayed 
until after the 1994 claims are filed in 1995.

A. Justification of Motion to Consolidate and Stay of Procedural Dates

    In support of their motion to consolidate, the joint commentators 
noted that the 1992 and the 1993 DART funds, which are the first funds 
to be collected under the Audio Home Recording Act that took effect on 
October 28, 1992, are quite small: a little over $100,000 for 1992, and 
less than $500,000 for 1993. They anticipate that, because the DART 
fund is new, many issues of first impression will have to be resolved, 
but that the costs of such action will be such as to consume most, if 
not all, of the fund. The joint commentators observed that the costs 
borne by the copyright owners in a DART proceeding are not only their 
own costs, but the costs of the Library of Congress, the Copyright 
Office, and the arbitrators. In the interest of economy, therefore, the 
joint commentators requested that the 1992 and 1993 distribution 
proceedings be consolidated with the 1994 proceeding.
    In addition, the joint commentators noted that the Library of 
Congress and the Copyright Office have endeavored to adopt regulations 
to govern the new CARP proceedings, but that the current regulations 
are interim rules. Comments on the interim rules were due June 15, 
1994, and reply comments are due July 15, 1994. The joint commentators 
would prefer that a DART proceeding operate under the final rules that 
result from these latest rounds of comments, rather than proceed under 
the interim rules.
    Last, the joint commentators stated that they will endeavor to use 
the time between now and 1995 to gather the best information and data 
relevant to a DART distribution proceeding, and to continue to work for 
more settlements in each of the subfunds. To the extent that more 
settlements are reached, fewer controversies will need to be brought 
before the arbitrators, and fewer royalties will have to be spent on 
the expense of a CARP proceeding.

 B. Grant of Motion to Stay Procedural Dates and Establishment of 
Comment Period

    On June 21, 1994, the Library of Congress and the Copyright Office 
issued an Order finding good cause to grant the motion to stay the 
procedural dates of June 15, June 30, and August 1, established in this 
proceeding.
    Concerning the motion to consolidate the 1992, 1993, and 1994 
distribution proceedings, the Order gave those persons who did not join 
in the joint motion until June 24, 1994, to respond to it, as provided 
by Sec. 251.45 of the Copyright Office rules.1
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    \1\Section 251.45 provides that the comment period for 
precontroversy motions is two weeks from the filing of the motion.
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C. Responses to the Motion to Consolidate Proceedings

    Responses to the joint motion to consolidate proceedings were filed 
by James Cannings, Eugene Curry, and Alicia Carolyn Evelyn.
    Mr. Cannings agreed with the consolidation of the 1992, 1993 and 
1994 proceedings provided that the distribution methodology proposed by 
Bopp du Wopp, Inc. is considered as one possible method by the 
claimants. Mr. Cannings urged diligent and good faith efforts at 
settlement before 1995.
    Mr. Curry questioned whether the proposed consolidation of 1992, 
1993 and 1994 would lead to another consolidation next year, then the 
year after that, ad infinitum. Mr. Curry would agree to future years 
being consolidated, i.e., 1994, 1995, and 1996, but wanted an immediate 
distribution of 1992 and 1993 moneys this August.
    Ms. Evelyn stated that she would object to the motion to 
consolidate so long as public performance royalty issues she has raised 
with BMI and ASCAP remain unresolved. She joined with Mr. Cannings in 
support of Bopp du Wopp, Inc.'s proposed distribution methodology.

IV. Grant of Motion to Consolidate

    The Library of Congress and the Copyright Office agree with the 
arguments made by the joint commentators and hereby grant the motion to 
consolidate the 1992, 1993, and 1994 DART royalty distribution 
proceedings into one proceeding that will begin in 1995.
    As we discussed in our notice of March 1, 1994, the Audio Home 
Recording Act established certain statutory deadlines for the 
commencement of DART distribution proceedings which, as the agency 
delegated the responsibility, we were prepared to meet. However, as 
observed by the Administrative Conference of the United States, 1 
C.F.R. 305.78-3, there are special circumstances when the meeting of a 
statutory deadline would not serve the public interest. Here, the 
majority of the claimants themselves have asked for a waiving of the 
statutory dates so that they might realize the economies that would 
accrue from a consolidation of proceedings, and so that they might 
continue settlement talks that could potentially avoid the cost of a 
CARP proceeding altogether. Under these circumstances, to initiate a 
CARP proceeding immediately will only serve to spend the claimants' 
royalties needlessly, and will likely result in the claimants receiving 
fewer royalties today than if they waited until 1995.2 In 
addition, we see no financial harm in waiting until 1995. The 
claimants' royalties will remain invested in United States Treasury 
securities, and will continue to earn interest.
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    \2\When confronted with the question of whether to nullify the 
Copyright Royalty Tribunal's cable rate adjustment because the 
Tribunal missed its statutory deadline by 28 days, the Court of 
Appeals for the District of Columbia stated that ``Statutes that, 
for guidance of a government official's discharge of duties, propose 
to secure order, system, and dispatch in proceedings, are usually 
construed as directory, whether or not worded in the imperative, 
especially when the alternative is harshness or absurdity.'' The 
Court also noted that ``agencies rigidly tied to a deadline * * * 
would become Penelopes, forever engaged in unraveling the webs they 
wove.'' National Cable Television Association v. Copyright Royalty 
Tribunal, 724 F. 2d 176, 189, fn. 23 (D.C. Cir. 1983).
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    The objection of Mr. Curry to consolidation is based on a concern 
that consolidations will happen every year, and no moneys will ever be 
distributed. We do not see that occurring. Our goal, and, we believe 
that of the moving parties, is economy, not delay. The moving parties 
do not want to see their royalties remaining with the government and 
neither do we.
    The objection of Ms. Evelyn is tied to her other issues with ASCAP 
and BMI, and are not relevant to our consideration here.
    As stated earlier, in our Order, dated June 21, 1994, we granted 
the joint commentators' motion to stay all previously announced 
procedural dates intended to govern a 1992 and 1993 DART royalty 
distribution proceeding.3 Consistent with our ruling today to 
consolidate the 1992, 1993, and 1994 proceedings, new procedural dates 
will be established in 1995, in accordance with our yearly statutory 
obligation under Chapter 10 of the Copyright Code to ascertain DART 
controversies and to initiate DART proceedings.
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    \3\As discussed below, in part VI, we are making a full 
distribution of the Nonfeatured Musicians Subfund and the 
Nonfeatured Vocalists Subfund on July 28, 1994. See, discussion 
below, at VI.
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V. Inquiry Into Best Evidence

    The concerns expressed by the commentators about the potential for 
the costs of a DART proceeding to use up most or all of the DART 
royalties available for distribution are valid, and are very much 
shared by the Library and the Copyright Office. Two scenarios 
especially concern us. One, there is the possibility of holding 
extensive hearings for controversies where the amounts in dispute are 
ultimately determined to be quite small. Two, even if the amounts in 
controversy are sizable, there is the possibility of holding months-
long hearings about the validity of the evidence offered by the 
parties, which again would ultimately use up the bulk of the royalties 
in the DART funds, and the time allotted for arbitration. This is 
especially likely because DART proceedings have never been held, and 
there is no precedent concerning what is the most relevant evidence. We 
note that at a similar stage in its regulatory history, the issue of 
the best evidence for distributing jukebox royalties was the subject of 
a full evidentiary hearing at the Copyright Royalty Tribunal, but, 
nevertheless, resulted in the Tribunal deciding that no distribution 
determination could be reached without further efforts at producing 
better evidence.4 This is a situation we should like to avoid.
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    \4\``The Tribunal considers that the record of the current 
proceeding is insufficient as a basis on which we can make a 
distribution of the 1979 jukebox royalties. * * * The Tribunal, 
therefore, has elected not to make a distribution in this 
proceeding.'' 1979 Jukebox Royalty Distribution, 46 FR 58139, 58142 
(Nov. 30, 1981).
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    Consequently, the Library of Congress and the Copyright Office will 
hold a public meeting at 10 a.m., Tuesday, September 27, 1994 at the 
temporary CARP hearing room, Suite 921, 1825 Connecticut Avenue, N.W., 
Washington, D.C. 20009. The purpose of the meeting is to discuss what 
would be the best evidence for distribution of the Sound Recordings 
Fund and the Musical Works Fund.
    We note that section 1006(c) of the Copyright Code states that the 
allocation of the Sound Recordings Fund shall be made according to the 
extent sound recordings were distributed, and that the allocation of 
the Musical Works Fund shall be made according to the extent musical 
works were distributed or disseminated to the public in transmissions. 
We should like, therefore, to know:
    (a) Do industry data exist, or can industry data be produced, that 
will demonstrate validly the distribution of sound recordings in the 
United States?
    (b) Do industry data exist, or can industry data be produced, that 
will demonstrate validly the dissemination of musical works to the 
public in transmissions in the United States?
    (c) How should ``distributed'' be defined given the practice of 
allowable returns? Should the arbitrators employ the rule adopted by 
the Copyright Office with respect to section 115?5
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    \5\ With respect to the 17 U.S.C. 115 mechanical license, 
``distributed'' is defined as occurring when ``the person exercising 
the compulsory license has voluntarily and permanently parted'' with 
possession of the phonorecord. The Copyright Office has taken the 
position that permanent distribution of phonorecords occurs one year 
from the date that the compulsory licensee parts with possession, or 
at the time when a sale of the phonorecord is recognized in 
accordance with generally accepted accounting principles, or 
according to the IRS' practices, whichever of these events comes 
earlier. 42 FR 64889, 64892 (Dec. 29, 1977).
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    (d) If methodologies exist for the production of data relating to 
(a) and (b), what are the drawbacks of such methodologies?
    (e) If methodologies exist for the production of data relating to 
(a) and (b), would the data cover all distributions and all public 
disseminations so that even the smallest or most specialized claimant 
can be compared mathematically to the larger claimants?
    (f) If the methodologies cannot cover the smaller claimants, what 
measurements can be proposed to cover them?
    (g) If conflicting methodologies exist, how do the parties propose 
to resolve the conflicts?
    We emphasize that we are not asking these questions to decide 
distribution issues. Distribution issues are properly for the CARP 
arbitrators. But if we can in any way help to focus and sharpen the 
proceedings, the savings in time and expense before a CARP panel will 
far outweigh the cost of this one public meeting. The public meeting 
will give the parties an opportunity to explore the positions of each 
claimant, facilitate concentrating on solving the evidentiary problems, 
and reveal what further steps need to be taken. A public record of the 
meeting will be made for those who do not attend, and for the benefit 
of the CARP panel, if one is ultimately convened.

VI. The Nonfeatured Musicians and the Nonfeatured Vocalists 
Subfunds

A. Background--1993

    The Audio Home Recording Act established two funds: the Sound 
Recordings Fund and the Musical Works Fund. Within the Sound Recordings 
Fund, the Act further established four subfunds: the Copyright Owners 
Subfund, the Featured Artists Subfund, the Nonfeatured Musicians 
Subfund, and the Nonfeatured Vocalists Subfund.
    With regard to the Nonfeatured Musicians Subfund and the 
Nonfeatured Vocalists Subfund, the Act outlined certain specific 
procedures. It required that ``2\5/8\ percent of the royalty payments 
allocated to the Sound Recordings Fund shall be placed in an escrow 
account managed by an independent administrator jointly appointed by 
the interested copyright parties described in section 1001(7)(A) 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 or any successor entity) who have 
performed on sound recordings distributed in the United States.'' 
Similarly,``1\3/8\ percent of the royalty payments allocated to the 
Sound Recordings Fund shall be placed in an escrow account managed by 
an independent administrator jointly appointed by the interested 
copyright parties described in section 1001(7)(A) 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 or any successor 
entity) who have performed on sound recordings distributed in the 
United States.'' 17 U.S.C. 1006.
    In 1993, the Copyright Royalty Tribunal adopted a regulation, 
ultimately reissued by the Library of Congress and the Copyright Office 
when the Tribunal was abolished, that required the independent 
administrator to give notice to the government of his or her selection 
by March 31 of each year. 37 C.F.R. 311.4; 58 FR 53822 (1993).
    In the same rulemaking, the Tribunal determined that it did not 
have the jurisdiction to decide controversies within the two subfunds 
that were administered by an independent administrator. The Tribunal 
reasoned that, according to the wording of section 1006(a), its 
authority over the distribution of royalties extended only to 
``interested copyright parties'' and that nonfeatured performers, 
whether musicians or vocalists, were not defined under the Audio Home 
Recording Act as ``interested copyright parties.'' 58 FR 53822, 53824 
(Oct. 18, 1993).
    Therefore, the Tribunal concluded that its role in handling the 
moneys for the two nonfeatured performer subfunds was simply a 
ministerial task of distributing the royalties to the independent 
administrator when a distribution was ready to be made. Id.

B. Background--1994

    After the Tribunal's abolition, the Copyright Office began to 
receive claims for 1993 DART royalties during January-February, 1994. 
One claimant, Eugene Curry, filed a claim for the Nonfeatured Musicians 
Subfund. Subsequently, the Office was informed that Edward Peters had 
been appointed the independent administrator for both the Nonfeatured 
Musicians Subfund and the Nonfeatured Vocalists Subfund.
    The Copyright Office sent a letter to Mr. Curry and Mr. Peters 
asking three questions: (a) who were the interested copyright parties 
that participated in the selection of the independent administrator?; 
(b) is there any controversy between Mr. Curry and Mr. Peters about the 
distribution of Nonfeatured Musicians Subfund?; and (c) if there is a 
controversy, how would Mr. Curry and Mr. Peters recommend the 
resolution of the controversy? Letter, dated May 4, 1994.
    Mr. Curry responded that there was a controversy between him and 
Mr. Peters on the distribution of the subfund.
    Mr. Peters responded that he was selected by RIAA and AFM6; 
that, according to the Copyright Code and Tribunal precedent, the 
Copyright Office has no authority to resolve disputes in the 
nonfeatured subfunds; that, because the Copyright Office has no 
authority, Mr. Curry should not have filed a claim with the Copyright 
Office nor should the Office have processed his claim; that Mr. Curry 
will be treated properly by Mr. Peters; and the fact of his non-union 
membership will have no relevance whatever in the ultimate distribution 
of the subfund.
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    \6\ RIAA, as a representative of copyright owners in sound 
recordings, is entitled to participate in the selection of the 
independent administrator. Other claimants to the Copyright Owners 
Subfund of the Sound Recordings Fund are also entitled to 
participate.
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    Separately, the Copyright Office received a joint comment from Mr. 
Peters, AFM, AFTRA, and the RIAA arguing in greater detail that the 
Audio Home Recording Act and the Tribunal's decision in 1993 support 
the conclusion that the independent administrator is to receive the 
allocated royalties for the two nonfeatured performers subfunds 
directly, and is not subject to the authority of the Copyright Office 
or the CARP panel in resolving disputes in those subfunds.

C. Discussion

    The Library of Congress and the Copyright Office have reviewed the 
Audio Home Recording Act and the Tribunal's 1993 decision, and agree 
with the joint commentators, AFM, AFTRA, RIAA and Mr. Peters, that the 
independent administrator is to receive the royalties from the two 
nonfeatured performers subfunds directly from the Copyright Office, and 
that disputes as to his (or her) distribution of those funds are not 
subject to the jurisdiction of a CARP panel.
    Our purpose in sending the May 4 letter to Mr. Curry and Mr. Peters 
was to facilitate a settlement. The provisions of the Audio Home 
Recording Act are unique among other provisions governing statutory 
royalties in that they open up the possibility of a dispute in a 
royalty fund without offering an administrative remedy. How to handle 
such a dispute was not a question that was faced by the Tribunal in 
1993, because in that year there were no claims filed at all in the 
nonfeatured performers subfunds. This year, Mr. Curry's claim, and his 
subsequent notice that he is in controversy, presents the issue 
foursquare.
    Recognizing the plain meaning of the statute, we agree that the 
royalties in the two nonfeatured performers subfunds are to be 
distributed directly to the independent administrator. We also 
recognize that claimants to those two subfunds do not file claims with 
the Copyright Office. They need to contact the independent 
administrator directly.
    But we believe there is a function for the Copyright Office to 
perform. Each year, to the extent that the Copyright Office receives 
expressions of interest to receive royalties from those two subfunds, 
we will forward the names to the independent administrator.7 In 
addition, the Copyright Office will maintain a public file that will 
consist of (a) the names of those expressing interest in the subfunds; 
(b) the notice of the independent administrator; (c) any correspondence 
concerning the two subfunds; and (d) any notification of the final 
disposition of any dispute within the subfunds. The notification is not 
required, but is being requested to complete the public record. It is 
also noted that we are not asking for a notification of the disposition 
of all moneys in the subfunds, just those is dispute. We recognize and 
will continue the Tribunal's policy of not inquiring into the 
distribution of settled claims.
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    \7\ This year, in addition to Mr. Curry, James Cannings filed a 
claim for the Nonfeatured Musicians Subfund and the Nonfeatured 
Vocalists Subfund. Mr. Cannings' claims were filed after the 
February 28, 1994 deadline, and would have been returned as untimely 
filed if they were claims subject to the Copyright Office's 
jurisdiction. However, in light of our ruling today, the statutory 
deadline in 17 U.S.C. 1007(a)(1) does not apply to claims beyond the 
Copyright Office's jurisdiction. Therefore, his claims are also 
being forwarded to the independent administrator for resolution.
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D. Distribution Notice

    In light of the above discussion, we are ordering a full 
distribution of the royalties available in the 1992 and 1993 
Nonfeatured Musicians and Nonfeatured Vocalists Subfunds to Mr. Edward 
Peters, the independent administrator, on July 28, 1994. This 
distribution will constitute the final distribution in those subfunds, 
except (a) in the event that there are any late payments, a subsequent 
distribution will be made to the independent administrator that 
represents those subfunds' share of the late payment; and (b) in the 
event that any refund is ultimately found to be required, the 
independent administrator will need to repay the Office the subfunds' 
share of the refund.

    Dated: July 7, 1994.
Barbara Ringer,
Acting Register of Copyrights.
    Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 94-16963 Filed 7-12-94; 8:45 am]
BILLING CODE 1410-09-P