[Federal Register Volume 59, Number 234 (Wednesday, December 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30045]


[[Page Unknown]]

[Federal Register: December 7, 1994]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Parts 251, 252, 253, 257, and 259

[Docket No. RM 94-1A]

 

Copyright Arbitration Royalty Panels

AGENCY: Copyright Office, Library of Congress.

ACTION: Final regulations.

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SUMMARY: The Copyright Office of the Library of Congress is adopting 
final regulations governing the conduct of royalty distribution and 
rate adjustment proceedings prescribed by the Copyright Royalty 
Tribunal Reform Act of 1993.

EFFECTIVE DATE: These regulations are effective on January 6, 1995.

FOR FURTHER INFORMATION CONTACT: William Roberts, Senior Attorney, 
Copyright Arbitration Royalty Panel, P.O. Box 70977, Southwest Station, 
Washington, DC 20024, (202) 707-8380.

SUPPLEMENTARY INFORMATION: The Copyright Royalty Tribunal Reform Act of 
1993, Pub. L 103-198, 107 Stat. 2304, eliminated the Copyright Royalty 
Tribunal (CRT) and replaced it with a system of ad hoc Copyright 
Arbitration Royalty Panels (CARPs) administered by the Librarian of 
Congress (Librarian) and the Copyright Office (Office). The CARPs 
adjust royalty rates and distribute royalties collected under the 
various compulsory licenses and statutory obligations of the Copyright 
Act. The CRT Reform Act, which was effective immediately upon 
enactment, directed the Librarian and the Office to adopt the rules and 
regulations of the CRT found in chapter 3 of 37 CFR, 17 U.S.C. 802(d), 
and provided that the CRT's regulations were to remain in effect until 
the Librarian adopts ``supplemental or superseding regulations.'' The 
Office adopted the CRT's rules and regulations on an interim basis on 
December 22, 1993, and notified the public that it intended to begin a 
rulemaking proceeding to revise and update those rules. 58 FR 67690 
(1993).
    The Office began the rulemaking proceeding with publication of a 
Notice of Proposed Rulemaking (NPRM) on January 18, 1994. 59 FR 2550 
(1994). The NPRM contained substantial revisions required by the dual 
structure of the royalty rate adjustment and distribution system 
created by the CRT Reform Act. Since the CRT's rules were designed for 
a single administrative body, the Office proposed extensive changes to 
accommodate the division of authority between the Librarian and the 
Copyright Office on the one hand, and the CARPs on the other. In 
addition to inviting written public comment, the Copyright Office 
invited interested parties to a public meeting to discuss the proposed 
regulations. More than 50 individuals attended the February 1, 1994, 
meeting.

I. Interim Regulations

    After considering the concerns the parties expressed at the 
February public meeting, and thoroughly reviewing the written comments, 
the Copyright Office issued Interim Regulations on May 9, 1994. 59 FR 
23964 (1994).\1\ The Interim Regulations substantially revised and 
updated the rules adopted in December of 1993.
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    \1\The Copyright Office also published technical corrections to 
the Interim Regulations. 59 FR 33201 (1994).
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    The need for immediate adoption of a regulatory framework was 
underscored by the imminence of a royalty distribution of money 
collected under the Audio Home Recording Act of 1992 for digital audio 
recording technology (DART). Section 1007(b), 17 U.S.C., requires 
determination of a DART controversy and commencement of arbitration 
proceedings on March 30 of each year for the prior year's royalty 
collections. The 1992 DART distribution proceeding was begun by the 
Copyright Royalty Tribunal but was suspended when the Tribunal was 
abolished, and therefore needed to be started anew. The 1993 DART 
distribution was begun by the Copyright Office under the new authority 
conferred by the CRT Reform Act, and on March 1, 1994, the Office 
published a notice in the Federal Register asking the claimants to the 
1992 and 1993 DART royalties to comment as to the existence of any 
controversies in the royalty funds. 59 FR 9773 (1994).
    Anticipating a consolidated DART distribution proceeding for the 
1992 and 1993 calendar years, the Copyright Office postponed the date 
for determination of DART controversies from March 30, 1994, to June 
30, 1994, in order to permit adequate time for the adoption of 
regulations governing a CARP proceeding. On May 9, 1994, the Office 
adopted the Interim Regulations with the intention that they would 
govern any DART controversies and proceedings beginning June 30, 1994.
    The Office created a new subdivision of the regulations devoted 
entirely to the operation and procedures of the CARPs. We removed parts 
301 through 311 of chapter III of 37 CFR and created subchapters A and 
B of chapter II. Subchapter A comprises the Copyright Office rules and 
procedures, consisting of parts 201-211, and remains unchanged. New 
subchapter B, created by the Interim Regulations, comprises parts 251-
259, and prescribes the rules and procedures of the CARPs.
    Part 251, the Copyright Arbitration Royalty Panel Rules of 
Procedure, consists of regulations governing the organization of the 
CARPs, access to CARP meetings and records, rules governing the conduct 
and course of proceedings, and procedures applicable to rate 
adjustments and distributions. Part 251 also includes extensive rules 
of conduct for arbitrators, as well as appropriate ethical and 
financial standards. We did not propose any specific rules of conduct 
in the NPRM, but did reserve a subpart for such rules and solicited 
comment from the interested parties on the issue. See 59 FR at 2554 
(1994).
    Part 252 contains revised rules for the filing of claims to cable 
royalties, modeled after the system used by the CRT for the filing of 
DART royalty claims. Parts 253 to 256--Use of Certain Copyrighted Works 
in Connection With Noncommercial Educational Broadcasting; Adjustment 
of Royalty Rate for Coin-Operated Phonorecord Players; and Adjustment 
of Royalty Payable Under Compulsory License for Making and Distributing 
Phonorecords--is virtually identical to the former CRT's rules, with 
only some minor technical changes. Like part 252, part 257--Filing of 
Claims to Satellite Carrier Royalty Fees--is modeled after the royalty 
claim procedures used by the CRT for DART. Finally, parts 258 and 259--
Adjustment of Royalty Fee for Secondary Transmissions by Satellite 
Carriers and Filing of Claims to Digital Audio Recording Devices and 
Media Royalty Payments--contains only minor variations from the former 
CRT's rules. Since the CRT Reform Act eliminated the jukebox compulsory 
license and replaced it with a new provision for negotiated licenses 
(formerly section 116A of the Copyright Act, as amended by the CRT 
Reform Act), the Copyright Office dropped the regulations governing the 
filing of jukebox royalty claims (formerly 37 CFR part 305).
    In addition to soliciting general comments on the Interim 
Regulations, the Copyright Office also posed a number of questions to 
focus the commentators' attention on specific issues and to encourage 
the parties to offer their solutions. The questions ranged from whether 
certain types of DART proceedings were subject to CARP jurisdiction, 59 
FR 23967 (1994), to asking for comment on ten hypothetical scenarios 
designed to test the parameters of the conduct rules. Id. at 23980.
    Written comments on the Interim Regulations were due June 15, 1994. 
Reply comments were due July 15, 1994.\2\ The Copyright Office received 
a total of 14 comments and replies. Many parties filed joint comments, 
and some of the joint commentators also filed separate comments. The 
commentator groups for comments and/or replies were as follows:
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    \2\In addition, the Copyright Office met with representatives 
from ASCAP, BMI, the Canadian Claimants, the Devotional Claimants, 
the Joint Sports Claimants, NAB, NPR, PBS, and Program Suppliers on 
August 11th on matters pertaining to cable copyright royalty 
distribution. The minutes of that meeting are associated with the 
comment file and are available for public inspection and copying.

Canadian Claimants (Canadian Claimants);
Electronic Industries Association (EIA);
James Cannings (Cannings);
Joint Sports Claimants, the National Association of Broadcasters, 
Public Broadcasting Service, the Devotional Claimants, the Canadian 
Claimants, and National Public Radio (collectively Certain Copyright 
Owners);
National Association of Broadcasters (NAB);
National Music Publishers Association and the Harry Fox Agency 
(collectively ``Music Publishers'');
Office of the Commissioner of Baseball (Baseball);
Program Suppliers (Program Suppliers);
Program Suppliers, Joint Sports Claimants, the National Association 
of Broadcasters, Public Broadcasting Service, American Society of 
Composers, Authors and Publishers, Broadcast Music, Inc., SESAC, 
Inc., the Devotional Claimants, the Canadian Claimants and National 
Public Radio (collectively Copyright Owners);
Public Broadcasting Service and National Public Radio (collectively 
PBS/NPR);
Recording Industry Association of America, Inc. (``RIAA'');
Recording Industry Association of America, Inc. and the Alliance of 
Artists and Recording Companies, Inc. (RIAA/AARC).

II. Suspension of DART Distribution

    As discussed above, the Office adopted the Interim Regulations to 
establish a regulatory framework in time for the start of DART 
distribution. The Office postponed the date for determination of 
controversies to the 1992/93 DART royalty pools from March 30, 1994, to 
June 30, 1994, to prepare for the possibility of convening a CARP for 
DART distribution. We published a request for comment on the existence 
of a controversy for the 1992/93 funds, adopted the Interim 
Regulations, established a procedural schedule for the filing of 
comments and motions leading up to a convocation of a CARP, and 
published the arbitrator list all before June 30. See 59 FR 9773 (1994) 
(Request for comments as to existence of controversy and consolidation 
of 1992 and 1993 funds); 59 FR 23964 (1994) (Interim Regulations); 59 
FR 25506 (1994) (Schedule of procedural dates); 59 FR 24486 (1994) 
(Arbitrator list).
    In response to the Office's request for comments as to the 
existence of controversies, the Office received a motion, supported by 
a majority of the 1992/93 DART claimants, requesting that the 1992/93 
DART royalty distribution be consolidated with the 1994 DART 
distribution. The movants argued that although they anticipated the 
existence of controversies, the amount of royalties in the 1992 and 
1993 funds was insufficient to justify the cost of a CARP proceeding. 
They therefore requested that the Office suspend all procedural dates 
and defer all consideration of DART distributions until 1995.
    On July 13, 1994, the Librarian of Congress granted the claimants' 
motion for suspension of the 1992/1993 DART distribution proceeding and 
consolidation of that proceeding with the 1994 DART distribution. 59 FR 
35762 (1994). The result of the Librarian's action is that the first 
DART distribution proceeding will begin no sooner than March 30, 1995. 
The Librarian also authorized distribution of the 1992 and 1993 
Nonfeatured Musicians and Nonfeatured Vocalists DART subfunds--two 
subfunds not subject to CARP proceedings--and scheduled a public 
meeting for September 27, 1994, to discuss what would constitute the 
best evidence for distribution of the Sound Recordings Fund and the 
Musical Works Fund. Id.
    With the suspension of DART until 1995, the first proceeding 
conducted by a Copyright Arbitration Royalty Panel will likely be 
distribution of the 1990 and 1991 cable royalties. The claimant groups 
to 1990/1991 cable royalties have informed the Copyright Office that 
they wish to begin proceedings in accordance with final, not interim, 
regulations. The Office has already received written comments on the 
Interim Regulations; therefore, the Copyright Office is adopting Final 
Regulations that will govern all rate adjustments and distributions of 
royalties prescribed by the CRT Reform Act.\3\
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    \3\It is important to note that while today's Final Regulations 
replace the rules contained in the Interim Regulations, there are 
several policy determinations and decisions discussed in the 
preambles to the Interim Regulations and Notice of Proposed 
Rulemaking which remain in effect. For example, the Office will 
continue to consider proceedings pending before the CRT at the time 
of its elimination as null and void and without binding effect. See 
59 FR at 23965-66 (1994). Parties practicing before the CARPs should 
therefore be familiar with the preambles to the Interim Regulations 
and the NPRM in this docket in conjunction with today's Final 
Regulations.
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III. Joint Claims

    Commentators had extensive comments about the interim rule 
governing the filing of joint royalty claims. Sections 252.3(4) and 
257.3(4) require claimants filing a joint claim to cable and satellite 
carrier compulsory license royalties, respectively, to identify at 
least one secondary transmission containing a claimant's copyrighted 
works for each claimant listed in the joint claim. See 59 FR 23992, 
23994 (1994). Performing rights societies were exempted from this 
requirement by Sec. 252.3(a)(4) and Sec. 257.3(a)(4). Because these 
sections generated much controversy, and because some of the 
commentators filed a motion requesting that the Office reconsider this 
part of the regulations, we find that the issue deserves 
reconsideration and resolution separate from the general discussion of 
amendment to the Interim Regulations.
    The former CRT's rules and regulations governing the filing of 
claims of the CRT, which we adopted on an interim basis in December 
1993, are brief. Section 302.7(a) of the CRT's old rules simply 
permitted the filing of joint claims for cable royalties, but provided 
little else:

    For purposes of this clause claimants may file claims jointly or 
as a single claim. Such filing shall include such information as the 
Copyright Royalty Tribunal may require. A joint claim shall include 
a concise statement of the authorization for the filing of the joint 
claim. A performing rights society shall not be required to obtain 
from its members or affiliates separate authorizations, apart from 
their standard agreements, for purposes of this filing and fee 
distribution.

37 CFR 302.7(a) (1993). To the Copyright Office's knowledge, the 
Tribunal never adopted or prescribed any additional requirements for 
the filing of joint claims, nor was there any guidance on what 
information should be included in a claim. Section 309 of the 
Tribunal's rules, governing the filing of claims to satellite carrier 
royalties, was even more concise with respect to the requirements for 
filing joint claims, stating simply that ``[c]laimants may file jointly 
or as a single claim,'' and providing the same exemption for performing 
rights societies regarding authorizations. 37 CFR 309.2 (1993).
    Our NPRM proposed significant revisions to the Tribunal's rules 
regarding the filing of both cable and satellite carrier royalty 
claims. 59 FR 2556, 2557 (1994). The purpose of the proposed revision 
was to ``implement a procedural system similar to that adopted by the 
Tribunal for the filing of digital audio claims.'' Id. at 2556. 
Claimants were expressly authorized to file joint claims, and would be 
required to file ``a concise statement of the authorization for the 
filing of the joint claim.'' Id. at 2566 (cable), 2567 (satellite). 
Performing rights societies would continue to enjoy an exemption from 
obtaining separate authorizations from each of their members for filing 
a joint claim. For claimants initially filing an individual claim and 
later negotiating a joint claim with other claimants, the proposed 
rules required that either the joint or individual claimant notify the 
Copyright Office of the change within 14 days of making the agreement 
to enter into a joint claim. Id. Finally, the proposed rules required 
joint claimants to ``make available to the Copyright Office, other 
claimants, and, where applicable, a Copyright Arbitration Royalty 
Panel, a list of all individual claimants covered by the joint claim.'' 
Id. No mention was made as to whether each joint claimant was required 
to identify at least one secondary transmission of its works, beyond 
the general language of Secs. 253.3(a)(4) (cable) and 257.3(a)(4) 
(satellite) establishing the basis for a claim: ``A general statement 
of the nature of the claimant's copyrighted works and identification of 
at least one secondary transmission * * * establishing a basis for the 
claim.'' Id.
    The Office's proposed changes to the requirements for filing cable 
and satellite carrier royalty claims elicited little comment. Only PBS 
asked for clarification of the requirement for identifying a secondary 
transmission for a joint claim; it asked what it took to satisfy the 
requirement--a statement that merely identified at least one secondary 
transmission for at least one of the claimants included within the 
joint claim, or a statement identifying at least one secondary 
transmission for each claimant to the joint claim. See 59 FR 23979 
(1994) (comments of PBS at 2). In discussing PBS' comment in the 
Interim Regulations, we acknowledged that the NPRM ``muddie[d] the 
waters'' for the filing of cable and satellite carrier claims, and the 
Interim Regulations deleted the proposed requirement for joint 
claimants providing a list identifying each claimant to the joint 
claim. Id. In so doing, we stated our belief that the former Tribunal's 
regulations required that a joint claim identify at least one secondary 
transmission for each joint claimant, and found support for such 
requirement in the Copyright Act:

    We are troubled, however, by changing what had been a 
longstanding requirement at the Tribunal for obliging all claimants 
to identify at least one secondary transmission of their copyrighted 
works. While such requirement does undoubtedly add to the time and 
expense burdens of joint claimants such as PBS, it is not without 
purpose. The law states plainly that cable compulsory license 
royalties are only to be distributed to ``copyright owners who claim 
that their works were the subject of secondary transmissions by 
cable systems during the relevant semiannual period.'' 17 U.S.C. 
111(d)(3). To support such a claim, each claimant may reasonably be 
asked to identify at least one secondary transmission of his or her 
work, thus permitting the Copyright Office to screen the claims and 
dismiss any claimants who are clearly not eligible for royalty fees. 
The requirement will also help to reduce time spent by a CARP 
determining which claimants have a valid claim: if only one 
secondary transmission is identified for one of the joint claimants, 
then it could not readily be determined if the other claimants were 
even eligible for cable royalties.

    In an effort to end this confusion we are deleting subsection (e) 
with its requirement that joint claimants submit a list identifying all 
the claimants. Instead, we are amending subsection (a)(4) to require 
that each claimant to a joint claim, other than a joint claim filed by 
a performing rights society on behalf of its members or affiliates, 
must identify at least one secondary transmission of his or her works.

59 FR 23979 (1994).
    A number of commentators protested the Office's decision. PBS/NPR, 
the Office of the Commissioner of Baseball (Baseball), RIAA, NAB and 
Program Suppliers submitted comments devoted solely to the filing 
requirements for joint claims, with Program Suppliers asking that 
reconsideration of the joint claims interim regulations be severed from 
the instant proceeding for immediate disposition. See Program 
Suppliers, comments at 5.
    The commentators offered essentially four arguments against the 
Office's decision: (1) to require each joint claimant to identify a 
secondary transmission containing its work serves no valid purpose; (2) 
it creates undue expense; (3) the Copyright Office is erroneous in 
believing that the Copyright Royalty Tribunal required each joint 
claimant to identify a secondary transmission; and (4) it is unfair and 
inappropriate to afford performing rights societies an exemption and 
not others.
    First, PBS/NPR argued that ``no substantive purpose is served by 
the requirement for separate identifications of secondary transmissions 
as to each party included within the joint claim; this is simply a 
jurisdictional prerequisite that will not determine the distribution of 
royalties.'' PBS/NPR, comments at 2. Program Suppliers concurred with 
this view and criticized the Office's expressed concern that individual 
program information is needed to assist it and the CARPs to identify 
claims that should be dismissed:

    [T]he Office's suggestion that such information is needed so it 
could screen hundreds of yearly filings to determine eligibility, 
seems a particularly inefficient use of its resources. * * * 
Furthermore, it is unclear what action, if any, the Office could 
take regarding eligibility problems related to an individual 
claimant within a joint claim. Even if the Office finds that one 
claimant is ineligible to receive royalties, we would assume that 
the joint claim would still remain a valid claim. Whether and to 
what extent the share awarded to the joint claimants should be 
reduced by the ineligibility of one member of the group are 
questions for a panel based on the record evidence. Indeed, such 
questions are incapable of answers at the filing stage.

Program Suppliers, comments at 3-4 (footnote omitted). Program 
Suppliers and Baseball recommended that the Office should refrain from 
any examination or ``screening'' of claims as a regular practice, and 
leave such activities and eligibility issues to the claimants to raise 
through motions either to the Librarian or the CARPs. Program 
Suppliers, comments at 4; Baseball, comments at 7.
    Second, RIAA asserted that the requirement for each joint claimant 
to identify a secondary transmission is unduly expensive and 
burdensome. Organizations like RIAA, that represent many claimants, 
would be forced to contact all of their members and track down a 
secondary transmission for each one. The problem is compounded by the 
time lag between most secondary transmissions and the time period for 
filings of claims. RIAA, comments at 2-3. PBS submits that it devotes 
roughly 300 hours annually to the task of identifying secondary 
transmissions for its member stations. PBS/NPR, comments at 2. These 
commentators submitted that elimination of the identification 
requirement for all joint claimants would dramatically reduce their 
expense and workload.
    Third, all of the commentators argued that the Copyright Office 
erred in believing that the Copyright Royalty Tribunal required each 
joint claimant to identify a secondary transmission. Apparently, while 
a reading of the CRT's rules indicated there may be such a requirement, 
see footnote 15, 59 FR 23979 (1994), in actual practice the Tribunal 
allowed joint claimants to submit only one secondary transmission of a 
copyrighted work belonging to one of the joint claimants as 
establishing a basis for a claim for all of the joint claimants. 
Baseball and RIAA submitted several examples of such filings. Baseball, 
comments at appendix; RIAA, comments at appendix. They asserted that 
the CRT interpreted its rules to apply the requirement of 
identification of at least one secondary transmission to apply equally 
to individual claims as well as joint claims, meaning that 
identification of a least one secondary transmission of one joint 
claimant was satisfactory to establish a basis for the entire joint 
claim. PBS/NPR, comments at 4-5. They therefore submitted that the 
Copyright Office erroneously interpreted CRT practice and should alter 
its regulations to conform with CRT precedent. PBS/NPR comments at 6; 
Program Suppliers, comments at 5; RIAA, comments at 6; Baseball, 
comments at 5; NAB, comments at 1.
    Finally, Baseball, PBS/NPR, and RIAA objected to the exemption 
granted performing rights societies from the Interim Regulations' 
requirement of identifying at least one secondary transmission for each 
joint claimant. Baseball stated that it ``is firmly of the view that it 
should not be treated less favorably than the performing rights 
societies,'' noting that the Interim Regulations gave no reason why 
performing rights societies should enjoy privileged status. Baseball, 
comments at 5. See also PBS/NPR, comments at 5. RIAA urged that, if the 
Copyright Office insists on continuing to require each joint claimant 
to identify a secondary transmission, it should broaden the definition 
of a performing rights society ``to include not only traditional 
performing rights societies, but also those joint claimants such as 
RIAA who, with respect to the royalties distributed to its members 
under sections 111 and 119, essentially perform the same functions of 
`performing rights societies.''' RIAA, comments at 6.
    In addition to seeking relief from Secs. 252.3(a)(4) and 
257.3(a)(4), several commentators urged the Copyright Office to 
reconsider other requirements for the filing of cable and satellite 
carrier royalty claims. Baseball and the RIAA urged the Copyright 
Office to eliminate entirely the requirement of identifying a secondary 
transmission to establish a basis for a cable or satellite carrier 
royalty claim. Baseball, comments at 5-7; RIAA, comments at 3, 6. 
Baseball noted several instances where the CRT refused to dismiss a 
claim for failure to identify a secondary transmission, and suggested 
this demonstrates that ``the secondary transmission identification 
requirement did nothing more than unnecessarily increase the costs of 
claimants.'' Baseball, comments at 6. NAB, however, strongly opposed 
Baseball's recommendation, asserting that there is no compelling reason 
to change the requirement and that elimination of identification of a 
secondary transmission would be violative of section 111(d)(3) of the 
Copyright Act, which authorizes distribution of royalties only to 
copyright owners whose works were retransmitted on a distant signal. 
NAB, comments at 2-3.
    Baseball took the ``hands off'' approach one step further by urging 
the Copyright Office to refrain from making any substantive review of 
royalty claims. Baseball, comments at 6-7. See also NAB, comments at 2; 
Copyright Owners, reply comments at 9. Baseball argued that ``[r]outine 
Copyright Office review of all claims needlessly increases the costs of 
all copyright owners and does not serve any useful function,'' 
concluding that ``[d]isputes over a particular claimant's eligibility 
to royalties (when they arise) may be resolved internally within a 
Phase II class without involvement of the Copyright Office or a CARP.'' 
Baseball, comments at 7-8. Copyright Owners concurred, stating that 
``[t]he parties themselves are in the best position to identify those 
claimants who are not entitled to royalties,'' and that they ``do not 
believe...that the Copyright Office's resources (and Copyright Owners' 
royalties) should be expended to screen each and every one of the 
thousands of claims that will be timely filed over the years.'' 
Copyright Owners, reply comments at 9-10. Copyright Owners do not 
object, however, to the Copyright Office returning claims that are not 
timely filed. Id. at 9.
    Given the pendency of receipt of cable and satellite carrier 
royalty claims and the request of Program Suppliers to sever the joint 
claims issue from this proceeding, the Copyright Office issued an Order 
addressing the filing requirements for joint claims for the 1993 cable 
and satellite carrier royalties. Order in Docket Nos. RM 94-1A; 94 CARP 
(93-CD); 94 CARP (93-SD)(July 13, 1994). The Office stated that while 
it would ``make a decision on the requirement for joint claims when we 
publish the final rules,'' it would waive the requirement of 
identification of a secondary transmission for each joint claimant in 
Sec. 252.3(a)(4) and Sec. 257.3(a)(4) for the July 1994 filing period. 
As a result of this action, anyone filing a joint claim for 1993 cable 
or satellite carrier royalties was only required to identify at least 
one secondary transmission to establish a basis for the entire joint 
claim.
    The Copyright Office has reviewed the comments of the parties 
regarding the identification of a secondary transmission requirement 
for joint claims and is amending Sec. 252.3(a)(4) and Sec. 257.3(a)(4) 
to require identification of at least one secondary transmission for 
each joint claim, as opposed to at least one for each joint 
claimant.4 We have stated on several occasions that our intention 
in implementing the CRT Reform Act is to create a streamlined process 
that limits the cost of distribution and rate adjustment proceedings to 
the participating parties as much as possible. See e.g. 59 FR 23967 
(1994). It is apparent from the unanimous opinion of the commentators 
that requiring identification of a secondary transmission for each 
joint claimant would add in some cases a substantial burden and cost to 
joint claimants without yielding an appreciable return in 
administrative efficiency. We are also aware that, in the past, the CRT 
did not require identification of a secondary transmission for each 
joint claimant.5 The practice of the CRT was apparently an 
unwritten policy, and therefore of questionable precedential value, but 
it does demonstrate that the Tribunal did not experience any practical 
or administrative difficulties in allowing joint claimants to identify 
at least one secondary transmission for the entire joint claim.
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    \4\In amending these sections, we are also eliminating the 
exemption for performing rights societies filing joint claims, since 
the amended rules will treat all joint claimants equally.
    \5\It would appear from the comments that while Baseball, after 
consultation with the Tribunal, would only include some examples of 
secondary transmissions in their joint claim, PBS would include an 
example for each one of the claimants represented in its joint 
claim. PBS/NPR, comments at 2.
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    The amended rule, however, does require each joint claim to 
identify all claimants participating in the joint claim. Those who are 
not identified in the joint claim may not be added to it after the 
filing period. An exception, however, is made for the performing rights 
societies when they file cable and satellite carrier claims. If ASCAP, 
BMI and SESAC were to file a joint claim, those three organizations 
would have to be listed in the claim, but when ASCAP, BMI and SESAC 
file claims separately, they will not have to list their members or 
affiliates because of the burden of doing so, and the recognition that, 
together, they represent virtually every composer, lyricist, and 
publisher entitled to royalties.6 A similar exception is not being 
made for the performing rights societies in the case of DART claims. 
There, it is not clear that the performing rights societies represent 
virtually the entire composer-lyricist-publisher universe, because they 
have an affirmative duty to obtain a separate written authorization to 
collect on behalf of their members and affiliates and it is unknown how 
many of them they represent, and because there are other organizations 
such as the Harry Fox Agency and the Songwriters Guild who file claims 
in that proceeding.
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    \6\By this statement, we do not intend to prejudge controversies 
in the Music category. We know that there are composers, lyricists, 
and publishers, such as ACEMLA and Italian Book Corporation, who are 
unaffiliated with the three performing rights societies. However, to 
the extent that they file claims separate from the three performing 
rights societies, they become identified in the filing period as 
independent, leaving for future proceedings their proper share vis-
a-vis the performing rights societies.
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    While we are eliminating the requirement of identification of a 
secondary transmission for each joint claimant, we are not accepting 
RIAA and Baseball's recommendation of eliminating the secondary 
transmission identification requirement altogether. We agree with NAB 
that section 111(d)(3) of the Copyright Act authorizes distribution of 
cable royalties only to copyright owners whose works were retransmitted 
on a distant signal. Eliminating the requirement that the claim 
identify at least one instance of such qualifying retransmission would 
effectively eviscerate the claim requirement itself. See NAB, comments 
at 3. The argument has equal force for satellite carrier royalty 
claims. See 17 U.S.C. 119(b)(3).
    The Office also does not accept Baseball, NAB, and Copyright 
Owners' recommendation that the Office not review claims for 
eligibility and sufficiency. Section 801(c) expressly allows the 
Librarian, before a CARP is convened, to ``make any necessary 
procedural or evidentiary rulings that would apply to the proceedings 
conducted by such panel.'' We believe that this grant of authority is 
broad enough to allow the Copyright Office to examine royalty claims 
for timeliness and sufficiency. Furthermore, we do not accept Baseball 
and NAB's argument that review of claims is a waste of copyright 
owners' money. Eliminating claims which are untimely filed or patently 
deficient on their face promotes administrative efficiency by reducing 
the workload for the CARPs, which will already be pressed to conduct 
proceedings and issue a report within the 180-day time period. The 
Copyright Office will, therefore, continue to examine royalty claims 
for timeliness and sufficiency on their face.

IV. Precontroversy Discovery

    Of all the issues generated by the CRT Reform Act and the transfer 
of royalty distributions and rate adjustments to the Librarian and the 
CARPs, precontroversy discovery has generated the greatest amount of 
comment and concern. The questions are general (Should there be any 
precontroversy discovery? Who should conduct it?), as well as specific 
(What discovery motions may be filed? When and how will discovery 
orders be issued?). We have examined this controversial issue 
extensively and considered all of the arguments. We are adopting as our 
final rule a solution that we hope will streamline the evidentiary 
process for the CARPs: a limited discovery period of 45 days conducted 
by the Librarian prior to declaration of a controversy requiring 
exchange of cases among the participating parties and one round of 
discovery motions and rulings.
    The question of whether or not to have precontroversy discovery, 
defined as a period for exchange of evidence among the parties to a 
distribution or rate adjustment proceeding prior to the Librarian's 
declaration of a controversy and convocation of a CARP, has come full 
circle during the course of this rulemaking proceeding. In reaction to 
a statement of Representative William Hughes, Chairman of the House 
Subcommittee on Intellectual Property and Judicial Administration of 
the House Committee on the Judiciary, accompanying the passage of the 
CRT Reform Act and commenting favorably on the use of precontroversy 
discovery and exchange of information, see 139 Cong. Rec. H10973 (daily 
ed. Nov. 22, 1993), the Copyright Office proposed a precontroversy 
discovery period in the NPRM. In the case of distributions, we proposed 
that the Librarian would declare a 90-day period for discovery and 
exchange of documents sometime after the filing of royalty claims for 
the distribution and ending with the declaration of the controversy. 59 
FR 2550 (Jan. 18, 1994). Similarly, the Librarian would declare a 90-
day period for rate adjustment proceedings corresponding with the time 
period set aside for consideration of rate adjustment petitions. Any 
party to a proceeding could file motions related to discovery with the 
Librarian during these time periods, as well as ``objections to royalty 
claims or petitions, or motions for procedural or evidentiary 
rulings.'' Id. All parties were to be given 14 days in which to respond 
to a motion or objection, and the Librarian could not declare a 
controversy in a proceeding until he had ruled on all motions. Id.
    In addition to the proposed precontroversy discovery procedures, 
the Office asked for comment on several matters:

    We particularly seek comments on the scope of such 
precontroversy discovery: whether it should include interrogatories 
of witnesses as well as production of supporting documents, and 
whether it would advance Chairman Hughes' goal of reducing costs by 
being able to stipulate facts and remove issues, or whether the 
additional procedures might add costs to the proceeding.

Id.
    The commentators did not approve of the NPRM's precontroversy 
discovery proposal. In fact, the commentators urged the Librarian and 
the Copyright Office to refrain completely from conducting any 
precontroversy discovery, and proposed a unique solution whereby the 
CARPs could be convened for conducting such discovery prior to the 
beginning of the 180-day arbitration period. See 59 FR 23964, 23976 
(1994). Under the proposal offered by Copyright Owners, a distinction 
would be made between ``the commencement of proceedings'' in 17 U.S.C. 
803(d) and the ``notice initiating an arbitration proceeding'' 
described in 17 U.S.C. 802(b) and (e). The Copyright Office would first 
declare the ``commencement of proceedings'' and then immediately 
require the filing of written direct cases and empanel the CARP; 
discovery motions and objections would be ruled on by the CARP. After 
discovery was completed, the Office would ``initiate an arbitration 
proceeding,'' and at that point the statutory 180-day arbitration 
period would begin to run. 59 FR 23977 (1994) (comments of Copyright 
Owners at 9-12).
    We considered the statutory basis for Copyright Owners' proposal 
and concluded with respect to the Interim Regulations that it was 
without support:

    [A]s a matter of statutory construction, the Office cannot agree 
that the ``commencement of proceedings'' can be conceptually 
separated from ``initiating an arbitration proceeding'' so as to 
permit the CARP to sit earlier than the 180-day arbitration period. 
Section 802(b) (of the Copyright Act), which first uses the phrase 
``initiating an arbitration proceeding,'' employs it in the context 
of ``a notice in the Federal Register initiating an arbitration 
proceeding under section 803 * * *'' In Sec. 803, the notice to 
which Sec. 802(b) refers is the ``notice of commencement of 
proceedings.'' Therefore, the phrases refer to each other and must 
be considered synonymous. (parenthetical added).

    59 FR 23977 (1994). We acknowledged that Chairman Hughes 
recommended that our regulations provide for precontroversy discovery 
``to the extent practicable,'' but concluded that ``there is no way to 
accomplish this goal under the statutory scheme.'' Id. The result was 
that the Interim Regulations contained no rules for precontroversy 
discovery or exchange of documents.
    Copyright Owners have changed their approach\7\ and now seek 
restoration of a precontroversy discovery procedure similar to the one 
proposed by the Office in the NPRM. The Copyright Owners' proposal has 
three principal facets: (1) mandatory exchange of direct cases among 
all parties to a proceeding prior to commencement of arbitration; (2) 
formal scheduling of a precontroversy discovery period by the 
Librarian; and (3) submission of and ruling on direct case discovery 
motions and objections by the Librarian, including motions, objections, 
and petitions contemplated in Secs. 251.4, 251.41(b) and 251.45(a) of 
the Interim Regulations.
---------------------------------------------------------------------------

    \7\Copyright Owners ask the Copyright Office to reconsider their 
proposal of convening CARPs prior to commencement of the 180-day 
arbitration period, suggesting that the Office could consider that 
the phrases ``notice initiating an arbitration proceeding'' and 
``notice of commencement of proceedings'' have different meanings 
and therefore could constitute two separate events. For the reasons 
described in the Interim Regulations, however, the Office is 
adhering to its position that CARPs may not be convened prior to the 
commencement of the 180-day arbitration period. See 59 FR 23977 
(1994).
---------------------------------------------------------------------------

    Copyright Owners argue that in order for precontroversy discovery 
to be in any way productive, the Copyright Office rules must be amended 
to require the parties to a proceeding to exchange their direct cases 
prior to the commencement of arbitration, as opposed to after a CARP 
has been convened. Copyright Owners, comments at 3-5, 7-10. They assert 
that without an exchange of direct cases, precontroversy discovery 
would become a fishing expedition as the parties attempt to guess at 
each other's theory of the case and principal evidence. Exchange of 
direct cases would allow the parties to focus on the evidence that will 
be presented at a hearing and reduce the amount of time the CARPs will 
need to devote to discovery matters. Id. at 3-4.
    In order to streamline the process and promote efficiency, the 
Copyright Owners suggest that the Librarian coordinate and schedule the 
precontroversy discovery process. Under the Copyright Owners' plan for 
distribution proceedings, the Librarian would first publish a notice 
seeking comment as to the existence of a controversy.\8\ Id. at 8. The 
notice would specify a filing date for comments, request that 
interested parties file their notice of intent to participate in the 
proceeding with their comments, and ask the participating parties for 
their comments on scheduling issues. Id. After receipt of the comments 
and participation notices, the Librarian would evaluate the existence 
of controversies, and then issue a scheduling order that would provide:

    \8\Copyright Owners propose a similar plan for rate adjustment 
---------------------------------------------------------------------------
proceedings. Copyright Owners, reply comments at 7 n.5.

    1. dates for the filing of:
    (a) motions and objections contemplated by Sec. 251.45(a) of the 
Interim Regulations;
    (b) petitions to dispense with formal hearings under Sec. 251.41 
(b); and
    (c) objections to arbitrators under Sec. 251.4;
    2. a date for the filing of direct cases by parties;
    3. dates for discovery by the parties and for filing of 
discovery and evidentiary motions;
    4. a date by which the Librarian will rule on discovery and 
evidentiary motions; and
    5. a future date certain on which each identified controversy 
will be declared and the initiation of an arbitration proceeding 
will be published.

Id. at 9. Copyright Owners recommend that ``scheduling should be done 
on a case-by-case basis reflecting the comments from the parties; the 
rules themselves should not contain particular time periods for filing 
deadlines.'' Id.
    Copyright Owners argue that statutory authority for the above-
recommended procedures can be found in section 801(c) of the Copyright 
Act, which permits the Librarian ``before a Copyright Arbitration 
Royalty Panel is convened, [to] make any necessary procedural or 
evidentiary rulings that would apply to the proceedings conducted by 
such panel.'' Id. at 10. This provision, they argue, coupled with 
Chairman Hughes' expressed desire for precontroversy discovery, 
indicates the legislative intent to have a formal and organized 
precontroversy discovery period.
    Aside from satisfying legislative intent, Copyright Owners submit 
that their proposed plan offers advantages. Setting a date certain for 
declaration of controversies and commencement of arbitration in the 
scheduling order will give potential arbitrators sufficient advance 
notice to plan their schedules, thereby increasing the likelihood of 
their being able to serve. Id. at 11. Also, having the Librarian rule 
on prehearing discovery and other motions allows the parties to prepare 
their cases properly and permits the full 180-day period to be devoted 
to hearing, briefing, and decision on the merits. Id. at 12.
    We have carefully considered the views of the Copyright Owners with 
respect to precontroversy discovery, especially in light of their 
request that the CARPs conduct precontroversy discovery and our earlier 
proposal set forth in the NPRM. For reasons stated in the Interim 
Regulations, see 59 FR 23977, we do not believe that it is statutorily 
permissible to convene a CARP prior to the beginning of the 180-day 
arbitration period for the purposes of conducting precontroversy 
discovery. We reaffirm our decision that the CARPs cannot conduct or 
permit discovery prior to the beginning of the 180-day arbitration 
period.
    After considering the proposal of the Copyright Owners, however, we 
do think that it is appropriate that the Librarian of Congress and the 
Copyright Office conduct some precontroversy discovery. We are 
therefore adopting a precontroversy discovery procedure similar to that 
now being endorsed by the Copyright Owners and initially proposed in 
the NPRM.
    We therefore amend Sec. 251.45 of the rules to provide a procedure 
for conducting precontroversy discovery. New paragraph (b) directs the 
Librarian to designate a 45-day period for the conduct of 
precontroversy discovery. The Librarian shall designate the dates for 
the 45-day precontroversy discovery period on a case-by-case basis 
after receiving and reviewing comments on the existence of 
controversies and notices of intention to participate described in 
Sec. 251.45(a). During this time period, the parties will exchange 
their written direct cases and the Librarian will entertain motions and 
objections regarding discovery matters, motions and objections to 
dismiss any party's royalty claim, motions for declaratory rulings or 
for procedural or evidentiary rulings, petitions to dispense with 
formal hearings under Sec. 251.41(b), and objections to arbitrators 
under Sec. 251.4.
    As stated in the Interim Regulations, ``[w]e agree with the 
Copyright Owners that precontroversy discovery before the filing of 
written direct cases would not be productive.'' 59 FR 23977 (1994). The 
45-day precontroversy discovery period therefore shall begin with an 
exchange of written direct cases among the parties to the proceeding. 
Each party must serve one complete copy of their written direct case on 
each of the parties to the proceeding no later than the first day of 
the 45-day period. At any time during the 45-day period, the parties 
may file their motions and objections with the Librarian. Objections to 
any and all motions will be due seven days after the filing date for 
motions.
    The 45-day designated period shall be the sole time for filing 
precontroversy motions and objections. Any motions and objections 
received prior to, or after, the 45-day period will be returned. The 
Librarian will rule on motions and objections after the 45-day period 
has ended and prior to the declaration of the existence of a 
controversy. However, motions for production of documents or to compel 
production of evidence should be ruled upon by the Librarian within 
five days of receipt of the motion so as to expedite the discovery 
process.
    In addition to the exchange of direct cases and the filing of 
motions and objections, the Librarian will set the date on which 
controversies will be declared. We agree with Copyright Owners that 
fixing a date certain for declaration of controversies and initiation 
of arbitration proceedings will allow potential arbitrators and 
participating parties to clear their schedules, as well as afford the 
participating parties more time to prepare their cases.
    The precontroversy discovery period for rate adjustment proceedings 
is similar to that for distributions. After receiving a petition for 
rate adjustment, the Librarian will issue a request for public comment 
or conduct public hearings to determine whether the petitioner's 
interest is significant,9 and require interested parties to file a 
notice of intention to participate. After reviewing comments or the 
hearing record as to the petitioner's significant interest and 
receiving notices of intention to participate, and after the period 
described in Sec. 251.63(a), the Librarian will issue a precontroversy 
discovery scheduling order identical to that for distribution 
proceedings. The Librarian will require exchange of direct cases, 
conduct the one round of motions and objections, issue appropriate 
rulings, and announce the date on which initiation of arbitration 
proceedings will begin.
---------------------------------------------------------------------------

    \9\The determination of ``significant'' interest is not required 
for the noncommercial educational broadcasting and satellite carrier 
rate adjustments since they begin automatically as provided in 
sections 118 and 119 of the Copyright Act. The Librarian shall, 
therefore, schedule precontroversy discovery in advance of the pre-
set starting dates for those proceedings.
---------------------------------------------------------------------------

    We believe that these precontroversy discovery and scheduling 
regulations should provide a workable solution to the time pressures of 
distribution and rate adjustment proceedings, and should sharpen the 
focus of the proceedings by eliminating much of the preliminary work 
that would be faced by the CARPs without such procedures. We agree with 
the Copyright Owners that 17 U.S.C. 801(c), coupled with Chairman 
Hughes' floor statement regarding precontroversy discovery, provides 
ample statutory authority for the Librarian and the Copyright Office to 
conduct precontroversy discovery and issue rulings. It may be that, 
with some issues, the Librarian will designate the issue raised during 
the 45-day precontroversy discovery period to the appropriate CARP for 
disposition, but it is our belief that the Librarian will be able to 
dispose of most precontroversy discovery issues.

V. Status of Certain DART Proceedings

    The Copyright Office concluded in the Interim Regulations that two 
categories of digital audio proceedings set forth in chapter 10 of the 
Copyright Act were not CARP proceedings and therefore not subject to 
these rules:

    (i) the proceeding raising the maximum rate for digital audio 
tape royalties which, under 17 U.S.C. 1004(a)(3), is to be handled 
solely by the Librarian;
    (ii) the arbitration proceeding under 17 U.S.C. 1010 to 
determine if a digital audio recording or interface device is 
subject to royalty payments.

59 FR 23967 (1994).
    RIAA/AARC agrees with the Office that proceedings under section 
1004(a)(3) to raise the royalty maximum should be ``handled solely by 
the Librarian.'' RIAA/AARC, comments at 2. RIAA/AARC is concerned, 
however, with the costs involved in adjusting the royalty maximum and 
urges the Copyright Office to apply to DART its policy for CARP rate 
adjustments; that is, requiring that the burden of costs be shared 
equally by both copyright owners and users participating in an 
adjustment proceeding. Id. at 3 (59 FR 23977).
    RIAA/AARC does not agree that arbitration proceedings under section 
1010 should be treated separately and states that ``the CARP system 
should be applied in these proceedings.'' Id. RIAA/AARC, however, 
offers no support for its position.
    EIA supports the Copyright Office position for both section 
1004(a)(3) royalty maximum adjustment and section 1010 arbitration. EIA 
notes that section 801 of the Copyright Act contains no reference to 
royalty maximum adjustments or section 1010 arbitration, and that the 
Copyright Office correctly observed that the former Copyright Royalty 
Tribunal's duty to ``carry out its other responsibilities under chapter 
10'' was expressly repealed from section 801 in the CRT Reform Act. 
EIA, comments at 2. Absent jurisdictional authorization, EIA argues 
that section 1010 is outside the scope of the CARPs. Furthermore, EIA 
notes that CARP procedures are inconsistent with section 1010 
arbitration; a petition initiates CARP rate adjustments whereas 
agreement of the parties is necessary to initiate section 1010 
arbitration. Id. at 3 (citing section 1010(a) and (b)). Section 1010 
arbitration is also governed ``by such procedures as [the Arbitration 
Panel] may adopt,'' as opposed to CARP procedures adopted by the 
Librarian of Congress. Id. (citing section 1010(d)). Finally, argues 
EIA, section 1010 arbitration relates solely to whether given devices 
are subject to chapter 10 requirements and are therefore unrelated to 
the purpose or expertise of the CARPs to make royalty rate adjustments 
and distributions. Id. at 3-4.
    In addition to its comments regarding section 1010 arbitration, EIA 
believes that the issue of costs regarding both section 1010 and 
section 1004(a)(3) proceedings is not properly before the Copyright 
Office since neither is a CARP proceeding. Id. at 4.
    The Copyright Office reaffirms the conclusion announced in the 
Interim Regulations that proceedings under sections 1004(a)(3) and 1010 
are not within the jurisdiction of the CARPs. 59 FR 23967 (1994). 
Proceedings to adjust the royalty maximum under section 1004(a)(3) 
shall therefore be handled solely by the Librarian, and proceedings 
under section 1010 shall not be subject to the rules and regulations 
governing the CARPs. It may be that an arbitration panel convened under 
section 1010 chooses to use some or all of the rules applicable to CARP 
proceedings; that choice, however, is up to the arbitration panel. See 
17 U.S.C. 1010(d) (the arbitration panel is governed by ``such 
procedures as it may adopt'').
    With respect to the division of costs among the parties 
participating in a section 1004(a)(3) or section 1010 proceeding, we 
agree with the EIA that the issue is not ripe for decision since 
neither of these proceedings is within the scope of this rulemaking.

VI. Costs

    The issue of the costs involved in the entire CARP process was 
understandably a serious concern of a number of commentators. These 
concerns included the payment and fees charged by arbitrators, 
deductions from royalty pools, and billing cycles for arbitrators. The 
commentators offered some unique solutions to these problems, some of 
which we are adopting in these Final Regulations.
    Sections 251.54, 251.65 and 251.74 are the principal regulations 
governing the costs of CARP proceedings.10 Section 251.54 directs 
the CARP panels in the case of rate adjustment proceedings to establish 
each participating party's share of the costs of the proceeding. In the 
case of distribution proceedings, each participating party's cost is in 
direct proportion to its share of the distribution. Sections 251.65 and 
251.74 allow the Library of Congress and the Copyright Office to 
recover their respective costs for rate adjustment and distribution 
proceedings. For rate adjustments, the Librarian and Office may deduct 
their reasonable costs from the relevant royalty pool. If no such pool 
exists, then the participating parties' costs shall be assessed 
directly to them. In distribution proceedings, reasonable costs may be 
deducted directly from the relevant royalty pool.
---------------------------------------------------------------------------

    \1\0Section 251.38 governs the accounting and costs that 
arbitrators are allowed to charge (meals, lodging, etc.). This 
section, however, relates to the ethical standards of arbitrators 
and is discussed in the context of subpart D of these regulations.
---------------------------------------------------------------------------

A. Assessment of Arbitrator Costs in Distribution Proceedings

    We concluded in the Interim Regulations that we did not have the 
authority to deduct the costs of the CARPs from the relevant royalty 
pool, and could only deduct our costs. We noted that this was an 
unsatisfactory result, and described our effort to have Congress amend 
the statute. 59 FR 23977 (1994). Our proposed statutory amendment would 
allow the Librarian and the Copyright Office to deduct a CARP's costs 
from the relevant royalty pool, and pay the arbitrators with such 
deductions, before the fees were distributed to copyright claimants.
    Copyright Owners noted a problem with our proposal, specifically 
the provision which provided that deductions would be made ``before the 
fees are distributed to any copyright claimants.'' Copyright Owners 
submit that this sentence could be interpreted as suggesting that all 
royalty fees must remain on deposit until the final deduction for the 
costs of a CARP proceeding has been made. Such an interpretation, they 
argue, ``would contradict the authority to make partial distribution as 
found elsewhere in the statute and present a serious hardship to 
Copyright Owners because of the potential long delay between collection 
of royalty fees and their distribution after an arbitration hearing.'' 
Copyright Owners, comments at 35. They therefore recommend that the 
provision be amended to read ``Such deduction shall be made before the 
fees are fully distributed to all copyright claimants.'' Id.
    Aside from the legislative solution, the commentators offer other 
ways for handling the payment and costs of the CARPs. Copyright Owners 
offer a unique proposal: make a substantial partial distribution of 
royalties at an early stage of each distribution proceeding to an 
escrow account administered jointly by all of the claimants. The sole 
purpose of the escrow account would be to make funds available for 
timely payment of monthly CARP member billings, while avoiding the need 
for advance cash outlays from the claimants. Copyright Owners, comments 
at 33. Further partial distributions to the escrow account could, if 
necessary, be made during the proceeding, and any excess remaining 
after all CARP bills are paid could be distributed in accordance with 
the final distribution determination. Id.
    RIAA/AARC generally supports the proposed escrow account, but 
expresses concern that in DART proceedings, the escrow account could be 
depleted by monthly CARP payments before the end of the proceeding. 
RIAA/AARC also points out that monthly payments in a DART distribution 
proceeding are problematic since there has not yet been a DART 
distribution decision and there is no precedent to follow for division 
of royalties among the claimants and each claimant's pro rata share of 
expenses. RIAA/AARC, reply comments at 2-3. RIAA/AARC therefore 
recommends that the Copyright Office deduct all CARP expenses from the 
royalty pool at the end of a distribution proceeding, citing 17 U.S.C. 
802(h)(1) and 802(c) as providing the Office with authority to make 
such deductions. RIAA/AARC, comments at 5.
    The method of payment of the CARPs is a problem, especially given 
our lack of statutory authority to pay the arbitrators directly. 
Unfortunately, the legislative solution discussed in the Interim 
Regulations, 59 FR 23977, failed for this Congress. Thus, we cannot pay 
the CARPs. We will seek the necessary statutory authority in the 104th 
Congress.
    Because of our lack of authority in this area, we are not adopting 
any regulations governing the method of payment of CARP costs. As 
discussed above, the Copyright Owners proposed the creation of an 
escrow account, administered by the parties, to pay the arbitrators.
    Compensation of the arbitrators is the responsibility of the 
parties to a proceeding. 17 U.S.C. 802(g). If Copyright Owners wish to 
establish such an escrow account, and can obtain the consent of all 
parties to the proceeding, they are free to do so. We note that in the 
proceeding to adjust royalty rates for the section 119 satellite 
carrier license in 1991, the parties paid an upfront sum to those 
arbitrators to begin the proceeding, and a final payment at the 
conclusion of the proceeding. We offer no opinion as to whether this is 
the appropriate manner in which to proceed, but offer it as a 
possibility to be considered by the CARPs who have the authority to 
direct the ``manner and proportion'' of payment of a CARP's costs.

B. Assessment of Library of Congress and Copyright Office Costs in Rate 
Adjustment Proceedings

    Section 251.65 of the Interim Regulations allows the Library and 
Copyright Office to deduct their costs in rate adjustment proceedings 
from the ``relevant royalty pool,'' and, if no such pool exists, to 
assess the costs directly to the parties to the proceeding. RIAA/AARC 
and Copyright Owners oppose deductions from royalty pools for rate 
adjustment proceedings.
    RIAA/AARC submits that Sec. 251.65 is contrary to the intent of the 
CRT Reform Act. They note that 17 U.S.C. 802(h)(1) provides for 
assessment of costs directly to parties where ``no royalty pool exists 
from which [the Library and Copyright Office's] costs can be deducted--
i.e. a rate adjustment proceeding.'' Thus, according to RIAA/AARC, 
deductions can only be made from royalty pools in distribution 
proceedings and not in rate adjustment proceedings. RIAA/AARC, comments 
at 10-11. Furthermore, if costs are deducted from the relevant royalty 
pool for rate adjustment proceedings, then copyright owners will bear 
the entire brunt of the proceeding in contradiction to the Office's 
determination that both owners and users should share the cost of rate 
adjustments. Id. at 11.
    Copyright Owners believe that a portion of the costs of a rate 
adjustment could be deducted from a royalty pool, but submit that it is 
difficult to identify exactly what is the ``relevant'' royalty pool. 
Copyright Owners, reply comments at 1-2. Rate adjustment proceedings 
involve the setting of rates for future, not-yet-collected royalty 
funds. The ``relevant'' pools would therefore be the future funds 
affected by the rate change, rather than past funds. Copyright Owners 
submit that the Office should therefore seek the comments of the owners 
as to what is the proper meaning of the word ``relevant.'' Id. at 5. 
Furthermore, Copyright Owners argue that it is completely unfair for 
owners to bear all of the Office's expenses for rate adjustments, since 
users clearly benefit as well from the adjustments. They ask that the 
Office reinstate the deduction rule proposed in the NPRM which simply 
provides that rate adjustment costs will be assessed ``directly to the 
parties participating in the proceedings.'' Id. at 6 (citing 59 FR at 
2565 (1994)).
    We agree that RIAA/AARC and Copyright Owners raise valid points 
with respect to Sec. 251.65. As we stated in the Interim Regulations, 
we believe that the burden of the Library and Office's costs in a rate 
adjustment proceeding should be shared by both owners and users. We did 
not intend to place the burden solely on copyright owners, although it 
is arguable that Sec. 251.65 appears to do that very thing. We also 
agree with Copyright Owners' assessment that the ``relevant'' royalty 
pool is not clear; it would seem that it may be necessary to amortize 
the costs over a number of royalty pools. In an attempt to solve these 
problems, we are therefore accepting Copyright Owners' suggestion of 
reinstating Sec. 251.65 as proposed in the NPRM. The section therefore 
now reads:

    In accordance with 17 U.S.C. 802(h)(1), the Librarian of 
Congress and the Register of Copyrights may assess the reasonable 
costs incurred by the Library of Congress and the Copyright Office 
as a result of the rate adjustment proceedings directly to the 
parties participating in the proceedings.

C. Frivolous Claims

    Both RIAA/AARC and Copyright Owners are concerned with the costs 
that may be generated by frivolous claimants to royalty distributions. 
Section 251.54(a)(2) provides that CARPs may assess their costs in 
direct proportion to each party's share of the distribution. Thus, a 
party who received 0% of the distribution would bear 0% of the costs, 
even though the claim of that party may have contributed greatly to the 
costs of the other claimants. RIAA/AARC believes that every party 
participating in a distribution proceeding should be prepared to bear 
some portion of the procedural costs, regardless of whether or not it 
receives any portion of the royalty fund. RIAA/AARC, reply comments at 
3. They recommend that the Office adopt some type of participation fee 
for distribution proceedings, similar to that used by other government 
agencies conducting proceedings. Id. at 4. In lieu of a participation 
fee, RIAA/AARC recommends that the CARPs be granted the discretion to 
allocate a share of expenses of the proceeding to bad faith or 
frivolous claimants who receive little or no share of the distribution. 
Id. at 4-5.
    Copyright Owners echo RIAA/AARC's concerns regarding frivolous 
claims and the added costs associated with those claimants. Copyright 
Owners, however, would resolve the problem by an amendment to the 
statute which they propose the Copyright Office seek. Such an amendment 
would provide that ``upon a finding of bad faith or other frivolous or 
vexatious conduct, the Librarian may allow a different allocation of 
costs of the proceedings as necessary to respond to such conduct.'' 
Copyright Owners, comments at 38.
    With regard to costs in distribution proceedings, section 802(c) is 
quite clear in providing that ``the parties shall bear the cost in 
direct proportion to their share of the distribution.'' 17 U.S.C. 
802(c). No provision is made to charge parties fees for participating 
in distribution proceedings, or assessing costs against parties for 
frivolous behavior or claims. We cannot imply or interpret the statute 
to provide for such measures, nor are we prepared to seek an amendment 
of the statute to allow the Librarian to make an assessment of a 
claimant's conduct or behavior and impose an additional share of the 
cost of the proceedings against that party. Since the Librarian is only 
charged with handling matters preliminary to the arbitration and 
reviewing the CARP's decision, the Librarian is not in a proper 
position to evaluate the conduct of participants to a proceeding. There 
is no authority in the statute for the CARPs to change 17 U.S.C. 
802(c)'s direction to assess costs in direct proportion to each party's 
share of the distribution, nor is there authority for the CARPs to 
sanction parties or individuals to a proceeding. The CARPs are, 
however, in the best position to assess the conduct of the participants 
to a distribution proceeding. Deliberate misrepresentation to a CARP by 
a party or individual to a proceeding will be referred by the Copyright 
Office to the Justice Department for possible prosecution under the 
applicable provisions of title 18 of the United States Code.

D. Arbitrator Costs

    Section 251.54(a) provides that a CARP may ``assess its ordinary 
and necessary costs'' to the participants to a proceeding. NMPA/HFA 
urges the Office to adopt a mechanism for appealing the reasonableness 
of fees and expenses assessed. They recommend creation of a procedure, 
although they do not describe what kind of procedure or when and how it 
could be invoked, whereby the Librarian would be available in instances 
where the parties question the fees and expenses charged. NMPA/HFA, 
comments at 4.
    We are declining to adopt a fee review procedure at this time 
because we believe that the rules already contain adequate safeguards. 
Section 251.38 governs billing and provides that ``[a]rbitrators are 
bound by the hourly or daily fee they proposed to the Librarian of 
Congress when their names were submitted to be listed under Sec. 251.3, 
and shall not bill in excess of their proposed charges.'' 59 FR 23986 
(1994). Subsection (b) further provides that ``[a]rbitrators shall not 
charge the parties any expenses in addition to their hourly or daily 
charge.'' The safeguards in these rules are reinforced by the agreement 
the arbitrators must sign stating they will abide by the terms of these 
Final Regulations including ``the billing restrictions specified in 
this subpart.'' Sec. 251.38(e). The regulations already contain 
substantial provisions to assure that arbitrators not charge excessive 
rates or expenses.
    Although our regulations do not specifically address the number of 
hours for which an arbitrator can charge, we expect that the 
arbitrators will be fair and charge for the actual amount of time they 
devoted to the proceedings. In some cases, the amount spent may be more 
or less for one arbitrator than it is for another. Should an arbitrator 
charge for an unreasonable number of hours that could not possibly bear 
any relationship to the amount of work performed, we believe that such 
action would amount to an ethical violation subject to the remedies of 
Sec. 251.39. We do not, however, intend to judge or measure the amount 
of time it should take an arbitrator to perform a specific task, and we 
therefore decline to create a billing review procedure.

VII. Final Regulations

    The following is a section-by-section summary of the amended 
regulations, together with a discussion of the applicable comments on 
the corresponding provisions of the Interim Regulations.

(a) Part 251--Copyright Arbitration Royalty Panels Rules of Procedure

    Part 251 contains most of the rules and procedures governing the 
operation of the CARPs and, like the rules proposed in the NPRM, 
received the greatest number of observations and suggestions from the 
commentators. It is divided into seven subparts, identified as subparts 
A through F. Subpart A, entitled ``Organization,'' describes the 
composition and selection process for the CARPs. Subparts B and C, 
``Public Access to Copyright Arbitration Royalty Panel Meetings'' and 
``Public Access to and Inspection of Records,'' remain virtually the 
same as those adopted in the Interim Regulations, with only a few minor 
amendments. Subpart D, ``Standards of Conduct,'' prescribes the 
financial and ethical requirements for arbitrators, and governs ex 
parte communications, billing, sanctions for misconduct, and other 
matters involving ethical standards. Subpart E, ``Procedures of 
Copyright Arbitration Royalty Panels,'' prescribes the procedures to be 
followed by the CARPs in conducting proceedings, including those 
governing submission of evidence, conduct of hearings, reports of the 
CARPs, and orders of the Librarian. Subparts F and G,'' Rate Adjustment 
Proceedings'' and ``Royalty Fee Distribution Proceedings,'' provide 
certain additional requirements inherent in rate adjustment and 
distribution proceedings.
    We have already described most of the major issues raised by the 
commentators to the Interim Regulations and discussed our responses and 
amendments. The following summarizes other additions and changes to the 
Interim Regulations in the various subparts of part 251.
(1) Subpart A--Organization
    Arbitrator lists. Section 251.3 describes the information that must 
be submitted to the Librarian by an arbitration association for each 
person to be eligible to serve on a Copyright Arbitration Royalty 
Panel. Section 251.3(a)(5) requires ``a description or schedule 
detailing fees proposed to be charged by the person for service on a 
CARP.'' James Cannings submits that the proposed fees ``should reflect 
the current market daily or hourly rate as are charged by arbitrators 
who serve National Arbitration Associations, such as, the Arbitration 
Association of America.'' Cannings, comments at 2.
    For reasons stated above in the discussion of our rejection of a 
fee schedule, it is not appropriate for the Librarian or the Copyright 
Office to impose fee restrictions on persons seeking to be arbitrators. 
Although the fee information provided by a potential arbitrator will 
have a bearing on his or her selection, we decline to amend 
Sec. 251.3(a)(5) to adopt fee limitations.
    Qualifications of the arbitrators. As was the case with the 
comments filed in response to the NPRM in this rulemaking proceeding, 
Copyright Owners had disparate opinions regarding the requirement in 
Sec. 251.5 that all CARP arbitrators be admitted to the practice of 
law. Program Suppliers filed a separate comment in response to the 
Interim Regulations devoted solely to arguing that the Librarian should 
also consider non-lawyers in the selection process, while other 
copyright owners identified as Certain Copyright Owners filed a 
separate comment urging that the Copyright Office retain the 
requirement.
    Program Suppliers advance essentially the same argument, which they 
made in response to the NPRM, that allowing non-lawyers as arbitrators 
could prove invaluable in expediting the arbitration process:

    In reaching its ruling, the Office ignored the important value 
that non-lawyers with expertise in the types of statistical and 
economic studies that comprise the heart and body of distribution 
and rate adjustment evidence could bring to the decisionmaking 
process. Having arbitrators who are familiar with statistical and 
economic studies similar to those presented in prior rate adjustment 
and distribution proceedings would give each panel added competence 
to deal with the substantive issues raised, and thus assist the 
decisionmaking.
    It is ironic, to say the least, that the Office's ruling was 
based on a concern about the lack of time for non-lawyers to learn 
the nuances of legal rulings, but ignored the possibility that 
lawyer-arbitrators might have absolutely no familiarity with the 
type of complex studies presented by expert witnesses over and over 
again in prior distribution and rate adjustment hearings. Although 
legal rulings can affect certain aspects of a hearing, 
interpretation and understanding of the conflicting substantive 
evidence is crucial to reasoned final determinations setting rates 
or distribution royalties.

Program Suppliers, comments at 2-3. Program Suppliers believe that 
retaining subsection (c) of Sec. 251.5 requiring arbitrators to have 
``[e]xperience in conducting arbitration proceedings or facilitating 
the resolution and settlement of disputes'' would satisfactorily 
provide the potential arbitrator with the type of experience necessary 
to conduct arbitration proceedings. Id. at 2.
    Certain Copyright Owners argue that Program Suppliers' arguments 
have already been rejected in the Interim Regulations, and that Program 
Suppliers fail to make any showing that ``the list already developed 
will fail to yield at least three Panel members who are capable of 
resolving royalty disputes in a fair and efficient manner.'' Certain 
Copyright Owners, reply comments at 2. Certain Copyright Owners believe 
that economic expertise is not necessary, and might cause an undue bias 
among the panel members. Id. 
    The Copyright Office has reconsidered the lawyer requirement 
imposed by Sec. 251.5 and reaffirms its decision to retain the 
requirement. It appears that Program Suppliers are not so much 
concerned with allowing non-lawyers to serve on CARP panels as they are 
with seeing economists among the listed arbitrators. Section 251.5 in 
no way prevents economists or those with economic training from serving 
on a CARP, provided that they are admitted to the practice of law. 
Furthermore, we agree with Certain Copyright Owners' observation that 
Program Suppliers have failed to demonstrate any deficiency in the 
quality of experience of the potential arbitrators appearing on the 
current list. See 59 FR 24486 (1994). The listed arbitrators have 
diverse backgrounds and training, including economic expertise. 
Moreover, all of the listed persons have experience in the practice of 
law which, given the shortness of the arbitration period, is important 
in the efficiency and speedy disposition of CARP proceedings. The 
Copyright Office, therefore, declines to make any changes to 
Sec. 251.5.
(2) Subpart B--Public Access to Copyright Arbitration Royalty Panel 
Meetings
    CARP Meetings. Copyright Owners make several suggestions with 
respect to meetings of the CARPs. Because confidential proprietary 
information is sometimes introduced into the record, it is necessary 
for the CARP to close a meeting for the purposes of receiving that 
information. When confidential material is involved in only a limited 
portion of the meeting, it is not necessary to close the entire 
meeting. The Interim Regulations, however, provide only for the closing 
of an entire meeting. Copyright Owners therefore suggest that 
Secs. 251.11(b) and 251.13 be amended to make clear that a CARP may 
close only that part of a meeting during which confidential information 
is discussed; all other portions of the meeting, however, would be 
open. Copyright Owners, comments at 26.
    Copyright Owners also note that because it is often impossible to 
determine when and if confidential information may be disclosed at a 
meeting, it may be impossible to give the seven-day advance notice in 
the Federal Register required by Sec. 251.11(b). Copyright Owners 
therefore suggest that a general notice of the possibility of the 
introduction of confidential information during the course of a hearing 
should suffice to meet the notice requirements even though it would be 
impossible to provide a specific date and time of the closed portion of 
the meeting. Id.
    Another issue raised by Copyright Owners is the treatment of a 
CARP's internal deliberations. According to Copyright Owners, a literal 
reading of Subpart B would apply to confidential deliberations among 
CARP arbitrators. ``Thus, for example, if the members of a CARP want to 
talk over an objection to testimony during the course of a hearing 
before ruling on it, they would be obliged to have that discussion 
transcribed and to announce the fact of that confidential `meeting' in 
the Federal Register.'' Id. at 26-27. Copyright Owners therefore 
propose that the procedures of Secs. 251.14 and 251.15 be modified so 
that (a) transcripts or minutes are not necessary for internal CARP 
deliberations, and (b) the procedures for closed meetings in 
Sec. 251.14 do not apply to such deliberations. Id. at 27.
    The points made by Copyright Owners are well taken. In order to 
allow CARPs to close only a portion of a meeting, as opposed to an 
entire meeting, for the taking of confidential information and related 
material, we are amending Secs. 251.11(b) and 251.13 by adding the 
phrase ``any portion of a meeting.'' With respect to seven-day advance 
publication notice in the Federal Register of a meeting that may be 
closed in part or in whole, we agree that a general notice of the 
possibility of the introduction of confidential information should 
suffice to satisfy the notice requirements. The notice of publication 
in the Federal Register therefore shall, as a matter of policy, contain 
such a general statement.
    Finally, with respect to the procedures required for closed 
meetings applying to CARP deliberations, we agree with Copyright Owners 
that application of those procedures is neither desirable nor 
appropriate. We are therefore amending Sec. 251.14 by adding a new 
subsection (d) which provides that ``[t]he procedure for closed 
meetings in this section and Sec. 251.15 shall not apply to the 
internal deliberations of arbitrators carried out in furtherance of 
their duties and obligations under this chapter.''
(3) Subpart C--Public Access to and Inspection of Records
    No comments were received regarding subpart C. However, section 
251.22(c) has been amended to delete the Sec. .40 per page charge for 
photocopies of CARP or Copyright Office records. Because such charges 
change from time to time, the section now reads that photocopies are 
available at the ``applicable Office charge.''
(4) Subpart D--Standards of Conduct
    Financial conflict of interests. When we originally proposed 
financial conflict of interest rules, our main concern was with their 
proper scope. Did we propose rules that did not cover enough 
situations, and therefore miss some very real conflicts of interest, 
or, on the other hand, did our proposed rules go too far, and eliminate 
qualified persons for inconsequential reasons? In an effort to reach 
the proper scope, we not only proposed rules, but we also asked for 
comments on certain hypothetical situations that went beyond the scope 
of our proposed rules.
    The Copyright Owners' response reflects the difficulty of drawing 
the proper line. While they offered opinions about the hypothetical 
situations that indicated a belief that our proposed rules did not go 
far enough, ultimately they did not ask to expand the rules, but 
proposed handling the gray area questions on a case-by-case basis, 
using the disclosure procedure to the parties described in section 
251.32(b)(2) as a method to decide whether the conflict is 
disqualifying. The Copyright Owners stated:

     Copyright Owners believe that decisions about the financial 
conflicts of potential arbitrators must be made on a case-by-case 
basis, with no single application of the rules being dispositive on 
a specific case. . . . The screening of arbitrators for any panel 
ought not to occur through rote application of the rules * * * If 
the Librarian finds a question arising as to whether a conflict 
exists as to a particular arbitrator, further information should be 
made available to the parties so that they may determine whether the 
person should be disqualified or whether the potential conflict 
might be waived.

Copyright Owners, comments at 21.
    We agree with the Copyright Owners that this is the proper 
approach. Therefore, we have not modified the scope of the financial 
conflict of interest rules, but we have made a change in the disclosure 
rule, section 251.32(b)(2). Whenever a potential arbitrator has a 
conflict of interest as defined by our rules and has indicated that he 
or she wants this conflict to be disclosed to the parties, or whenever 
a potential arbitrator has an interest beyond the specified scope of 
the rules which raises our concern, section 251.32(b)(2) provides we 
will list these interests anonymously in an order issued to the parties 
to each upcoming proceeding at the time the Librarian establishes for 
precontroversy motions, and we will request that the parties indicate 
within 30 days which conflicts or potential conflicts they believe are 
disqualifying. For those interests within the scope of our conflict of 
interest rules, the indications of the parties will be dispositive. For 
those potential conflicts outside of the scope of our conflict of 
interest rules, the indications of the parties will aid the Librarian 
in his decision.11
---------------------------------------------------------------------------

    \1\1For example, arbitrator X has a spouse who is employed by 
one of the parties to the proceeding. Because that is a interest 
within the scope of our rules, the response of the parties will be 
dispositive. That is, if any one of the parties objects, arbitrator 
X may not serve. On the other hand, if arbitrator X has a parent who 
is employed by one of the parties, that would be an interest outside 
of the scope of our rules. In that case, if one or more of the 
parties objects, that objection will be taken into account when the 
Librarian makes his decision, but the objection will not 
automatically disqualify arbitrator X.
---------------------------------------------------------------------------

    There was, however, one area in which the Copyright Owners 
commented that the scope of the conflict of interest rules was too 
broad. Section 251.31(d)(3) imputes the financial interest of the 
arbitrator's general partner to the arbitrator. The Copyright Owners 
believe that section 251.31(d)(3) means that each potential arbitrator 
would have to inquire of each of his/her general partners about their 
personal investments. The Copyright Owners consider this an unworkable 
burden and doubt that any potential arbitrator would be influenced by 
the personal holdings of a general partner, especially if that general 
partner's financial interest is unknown to the arbitrator. The 
Copyright Owners ask that an exception to the rule on imputation of 
interests be made in the case of a general partner's personal financial 
holdings. Copyright Owners, comments at 24-25. We agree, and section 
251.31(d)(3) has been modified to reflect this exception.
    Ex parte communications. In our proposed interim rules, 
distinctions were made among four classes of persons concerning ex 
parte communications: (1) the Librarian of Congress and the Register of 
Copyrights, (2) the selected arbitrators, (3) the listed arbitrators, 
and (4) the Library and Copyright Office personnel. In particular, we 
drew a distinction between selected arbitrators who are subject to a 
total ban on contact between them and interested parties in their 
controversy, and listed arbitrators who are not subject to a total ban 
on contact, but who may not communicate with any interested party about 
the merits of any past, pending, or future proceeding relating to CARP.
    Both the Copyright Owners and James Cannings state that they 
believe no distinction should be made between selected and listed 
arbitrators, and that there should be a total ban on contact with all 
arbitrators. The Copyright Owners argue for the highest standard 
concerning selected and listed arbitrators because of ``the substantial 
financial interests at stake.'' The Copyright Owners, however, would 
mitigate the severity of a total ban to permit nonsubstantive 
pleasantries between arbitrators and parties. Finally, the Copyright 
Owners note that the restrictions concerning arbitrators are against 
contact with any interested ``party'' and would prefer that it be 
changed to ``person'' because of what they believe to be the ambiguous 
meaning of the word ``party.'' Copyright Owners, comments at 15-18.
    Having reviewed the comments of the Copyright Owners and James 
Cannings, we continue to believe that the distinction between selected 
and listed arbitrators is valid. In any given year, 75 persons will be 
listed to be available to serve as arbitrators. A total ban on contact 
with all 75 persons would be unworkable, and unfair to the persons 
offering their services. For the remote chance of being selected, they 
would be giving up a degree of personal freedom, not for any actual 
impropriety but for the avoidance of the appearance of impropriety. 
However, we believe it is fair and highly necessary that listed 
arbitrators understand that they may not engage in any actual 
impropriety, that is, discuss the merits of any royalty proceeding, 
past, present or future. This is a much narrower and more appropriately 
tailored limitation on their activities. Once selected, the total ban 
on contact with the three selected arbitrators is essential. It assures 
fairness to all parties by guaranteeing that no opportunity for 
influence can possibly occur. Procedural requests of the selected 
arbitrators should be routed through Library or Copyright Office 
personnel who are assigned to support the arbitrators.
    We do agree, however, with the Copyright Owners' request that 
innocent pleasantries should not be subject to the total ban, and that 
the word ``party'' should be changed to ``person'' to avoid any 
ambiguity. The changes to section 251.33 have been made accordingly.
    Gifts and other things of monetary value. In our interim rules, we 
make a distinction between selected arbitrators who are subject to a 
total ban on soliciting or accepting gifts or any other thing of 
monetary value from an interested person, and listed arbitrators who 
may solicit or accept gifts of less than $20 per occasion, and not more 
than $50 per year from any one source. We also provide that a listed 
arbitrator may accept a gift beyond the $20-$50 limit where it is clear 
that the gift is motivated by a family relationship or a personal 
friendship rather than the potential of the listed arbitrator to be 
selected.
    The Copyright Owners and James Cannings believe that no distinction 
should be made between selected and listed arbitrators and that they 
should all abide by a total ban on the soliciting or acceptance of any 
gift. The Copyright Owners state that applying the total ban to listed 
arbitrators would ``reduce the perceived opportunities for influencing 
of either listed or selected arbitrators.'' Copyright Owners, comments 
at 18.
    Again, as stated above, we believe that the restrictions on the 
activities of listed arbitrators should be limited to actual 
improprieties only, considering that they may never be selected. 
Requiring listed arbitrators to refuse gifts no matter how small, and 
to avoid normal relations with existing friends and family simply to 
avoid the appearance of impropriety is too great a restriction, and may 
result in various individuals refusing to participate. The exceptions 
for nominally valued gifts and for gifts from existing friends and 
family were derived from the regulations issued by the Office of 
Government Ethics, and represent their line-drawing for thousands of 
compensated government employees who are in a position to confer a 
benefit on a private party (versus listed arbitrators who are neither 
compensated nor in a position to confer a benefit). We do not believe 
that a lunch valued at less than $20 where no discussion of the merits 
of any past, present or future proceeding takes place would result in 
the influencing of any listed arbitrator. Consequently, the distinction 
between selected and listed arbitrators is retained in the final rules.
    Post-arbitration employment restrictions. While we did not receive 
any comments on our rule against arbitrators being employed for three 
years by any party, person or entity with a financial interest in the 
proceeding, we did receive a comment on the hypothetical we posed based 
on this section. The hypothetical asked whether an arbitrator who has 
ruled on a cable rate adjustment may take a cable system as a client 
afterwards if that cable system, although affected by the outcome, had 
neither participated in the proceeding nor authorized anyone else to 
represent it. The Copyright Owners stated that they believed the 
arbitrator could take the cable system as a client, but gave no 
reasons, and prefaced their answers to all the hypotheticals by saying 
they were difficult to answer given the limited facts available. 
Copyright Owners, comments at 22, 24.
    We believe that since we received only one limited comment on this 
hypothetical, we do not have sufficient comments to render a 
conclusion. We reserve judgment until an actual case presents itself. 
In the meantime, the rule is adopted as proposed.
    Remedies. Currently, section 251.39 provides sanctions against 
selected arbitrators, listed arbitrators, and outside parties who 
violate the standards of conduct. The Copyright Owners argue that 
sanctions should also be put in place for Library and Copyright Office 
personnel who violate the standards. Copyright Owners, comments at 24.
    Library of Congress Regulations (LCRs) already set forth sanctions 
for Library and Copyright Office personnel who violate internal 
personnel rules. LCR 2023-1 instructs all staff members to avoid 
actions which might result in or create the appearance of using public 
office for private gain, giving inequitable and improper preferential 
treatment to any person to the prejudice or detriment of others, or 
compromising the independence or impartiality of the Library.
    We believe this applies to the rules on ex parte communications, 
and would cover any disclosure of nonpublic information, even though 
section 251.37 only applies to arbitrators. In addition, however, the 
Library's General Counsel, who serves as the agency's ethics officer, 
has issued a memorandum that will be circulated to all personnel likely 
to have any interaction with a CARP detailing the new situations that 
could arise and how employees should respond to them.
(5) Subpart E--Procedures of Copyright Arbitration Royalty Panels
    a. Formal Hearings. (i) Phase I/Phase II. In the preamble text to 
the Interim Regulations, we asked several questions with regard to the 
procedural division of royalty distribution proceedings. The Copyright 
Royalty Tribunal traditionally divided distribution proceedings into 
two phases: Phase I determined the percentage allocation among the 
categories of claimants, while Phase II resolved disputes within a 
claimant category. The Tribunal practice, however, was just that, and 
was never embodied in the rules. We sought comment on the following:

    Is the procedure of dividing a cable distribution proceeding 
into Phases I and II a precedent that is binding on the Copyright 
Office?
    If not, should it nonetheless be followed?
    If it should be followed, should we adopt rules governing the 
procedure?
    Should those rules include a definition of each of the Phase I 
categories?

59 FR at 23976-23976 (1994).
    Copyright Owners urge that, regardless of the binding effect of the 
former Tribunal's practice on the Office, the division of proceedings 
into Phase I and Phase II should continue in order to prevent chaos in 
the distribution process. Copyright Owners, comments at 13. They note 
that Phase I claimant categories offer two primary benefits to the 
distribution process. First, by allowing each claimant category to 
collect the total royalty awarded to it and distribute that total to 
its individual claimants, the ``process frees the Copyright Office from 
the expense of mailing hundreds of distribution checks to individual 
claimants each time a distribution is made.'' Id. at 14. Second, the 
grouping together of claimants into categories reduces Phase I 
litigation to less than ten parties, rather than hundreds of individual 
claimants. Id. ``In short, the established Phase I/Phase II divisions 
provide very strong procedural and organizational efficiencies that 
have worked well in the past and should be continued in the future.'' 
Id.
    Copyright Owners urge the Office to adopt procedures governing 
Phase I/Phase II proceedings that would allow for separate hearings of 
Phase I and Phase II proceedings, but offer no comment or suggestion as 
to what those rules should be. Id. at 14-15. They also believe that 
definitions of Phase I categories should be available to arbitrators, 
but not included in these rules because ``it could create unnecessary 
rigidity that would fail to accommodate changing conditions.'' Id. at 
15. Copyright Owners therefore suggest that parties provide a 
stipulated set of program definitions to arbitrators at the start of 
each distribution proceeding. Id.
    The Copyright Office believes that the division of distribution 
proceedings into Phase I and Phase II categories provides an efficient 
manner for conducting such proceedings, and therefore will retain the 
use of the categories. In dividing distribution proceedings into Phase 
I and Phase II categories, we will look to Tribunal precedent for 
guidance, as well as the exigencies of each individual case. For these 
reasons, we do not believe that it is necessary to adopt separate 
procedures for Phase I and Phase II proceedings, as is suggested by 
Copyright Owners. The Copyright Royalty Tribunal functioned for fifteen 
years without separate rules for each type of proceeding, and exercised 
its discretion to divide each distribution into Phase I and Phase II 
categories on a case-by-case basis. The procedural rules of the 
subchapter applicable to distribution proceedings apply with equal 
basis to each controversy, regardless of whether it is Phase I or Phase 
II, and therefore do not require separate sets of rules. Furthermore, 
it is the Librarian who shall determine the number and category of 
controversies in each distribution proceeding, and submit each 
controversy or controversies to one or more CARPs as is appropriate. 
Copyright Owners are therefore correct in their assertion, see comments 
at 14-15, that the nature and extent of controversies in one royalty 
distribution proceeding may require the convocation of more than one 
CARP for resolution. Thus, for example, a CARP may be convened to 
resolve controversies in Phase I, and another may be required at a 
later date to resolve controversies in Phase II. The only way to make 
such determinations is on a case-by-case basis, as was done by the 
former Tribunal, and the Office therefore heeds the advice of Copyright 
Owners by declining to adopt rules governing the identification and 
classification of Phase I/Phase II procedures which could ``create 
unnecessary rigidity that would fail to accommodate changing 
conditions.'' Copyright Owners, comments at 15.
    The Copyright Office also accepts Copyright Owners' suggestion of 
allowing parties to a proceeding to stipulate the definitions of Phase 
I categories and programs to the arbitrators in that proceeding. In 
order to allow arbitrators a sufficient amount of time to become 
familiar with the definitions, the Librarian will, in the notice 
establishing the 45-day precontroversy discovery period, instruct the 
parties to the proceeding to stipulate a complete set of definitions by 
the end of the precontroversy discovery period. If the parties are 
unable to reach agreement by that date, the Copyright Office will, in 
accordance with our authority to provide support to the CARPs under 17 
U.S.C. 801(d), provide the arbitrators with the necessary definitions 
of Phase I categories and programs to allow them to accomplish their 
task.
    (ii) Paper proceedings. Section 251.41(b) permits the parties to a 
proceeding to petition the Librarian to have their controversy decided 
solely on the submission of written pleadings. The petition may be 
granted if ``(1) there is no genuine issue as to any material fact, or 
(2) all parties to the controversy agree with the petition.'' 59 FR 
23976 (1994).
    Copyright Owners believe that Sec. 251.41(b)(2) is in need of 
clarification. They note:

    As currently drafted, Section 251.41(b)(2) allows rulings only 
in uncontested cases where ``all parties to the controversy agree 
with the petition.'' Of course, if all parties agree with the 
petition, then there would be no need for a ruling.
    Copyright Owners believe that Section 251.41(b)(2) was intended 
to allow ruling where all parties agree with the request that the 
issue be decided by petition, regardless of whether they agree with 
the merits of the petition.

Copyright Owners, comments at 31.
    Copyright Owners' point is well taken. The intention of the rule is 
to allow the parties to a proceeding to petition the Librarian and 
dispense with formal proceedings. The CARP panel would then decide the 
controversy or rate adjustment on the basis of written pleadings only, 
i.e., a ``paper'' proceeding. In deciding whether to allow a paper 
proceeding before a CARP, the petition must demonstrate that (1) there 
is no genuine issue of material fact involved in the proceeding (not 
the petition), or else 2) the parties unamimously agree that they wish 
to have a paper proceeding. If either one of these factors is properly 
represented in the petition, the Librarian may (not must) grant the 
petition, or can designate the issue of whether a paper proceeding 
would be proper to the CARP. Section 251.41(b)(2) is only intended to 
allow the Librarian to decide if a paper proceeding before a CARP would 
be appropriate; it is not designed to allow the Librarian to decide the 
merits of a paper proceeding or the case. To clarify the intention of 
the rule, we are amending it.
    b. Conduct of hearings: Role of arbitrators. Section 251.46(b) 
provides that ``Only the arbitrators of a CARP, or counsel as provided 
in this chapter, shall question witnesses.'' James Cannings argues that 
the rule, as drafted, precludes parties from appearing pro se before 
the CARPs, since only the CARPs and ``counsel'' can question witnesses. 
Cannings, comments at 2.
    Section 251.46(b) does not prohibit pro se representation in a CARP 
proceeding. A pro se litigant acts as his own counsel, and is entitled 
to question witnesses in the same manner as parties represented by 
counsel. No amendment to Sec. 251.46(b) is necessary.
    c. Witnesses and Counsel. Copyright Owners suggest that there may 
be some confusion with the drafting of Sec. 251.47. Subsection (l) 
provides:

    A CARP will encourage individuals or groups with the same or 
similar interests in a proceeding to select a single representative 
to conduct their examination and cross-examination for them. 
However, if there is no agreement on the selection of a 
representative, each individual or group will be allowed to conduct 
its own examination and cross examination, but only on issues 
affecting its particular interests, provided that the questioning is 
not repetitious or cumulative of the questioning of other parties 
within the group.

59 FR 23989 (1994).
    Copyright Owners believe that, as currently drafted, the subsection 
``seems to require that all parties with a similar interest accede to a 
single counsel for examination or cross-examination of all witnesses. 
It is unlikely that parties would agree to such a broad transfer.'' 
Copyright Owners, comments at 32. Copyright Owners therefore suggest 
that the phrase ``of any given witness'' be added each time after the 
word ``cross-examination'' to clarify that agreements between parties 
of similar interest to utilize one representative for questioning 
applies only to individual witnesses, and not across the board for an 
entire proceeding. Id.
    We do not perceive the confusion expressed by Copyright Owners and 
believe that subsection (l), as drafted, permits parties with similar 
interest to agree to one representative for examining and cross-
examining either one witness or as many as the agreement allows. 
Nevertheless, in the interest of clarity, we are adopting Copyright 
Owners' suggested amendment.
    d. Transcript and Record. In our discussion of Sec. 251.49 in the 
Interim Regulations, we solicited comments on whether the hearing 
sessions should be recorded on video as well as audio tape. We noted 
that videotaping would add to the cost of the proceeding, but it would 
also:

    ``(1) Ensur[e] the accuracy of the official transcript, (2) 
allow[] the arbitrators to reach a better decision by helping them 
to review the case more accurately, and (3) afford[] arbitrators who 
missed any portion of the proceeding, because of illness or because 
they were appointed after the proceeding had begun, an opportunity 
to make up for their absences.

59 FR at 23977 (1994).
    Copyright Owners are opposed to the videotaping of proceedings, 
arguing that they ``do not believe that any advantage derived from 
videotaping would be worth the considerable expense and difficulty 
associated with video recording.'' Copyright Owners, comments at 29. 
They also note that videotaping ``could, in fact, have the unintended 
and perverse effect of increasing the number of hearing days missed by 
an arbitrator who considers seeing a taped performance as equivalent to 
being present during the live presentation.'' Id.
    For these reasons, we will not videotape distribution or rate 
adjustment proceedings, unless the parties to a particular proceeding 
unanimously ask us to do so.
(6) Rate Adjustment Proceedings
    Settlements.
    (i) Settlement period. Section 251.63 provides a 30-day period 
before commencement of a rate adjustment proceeding to allow for 
consideration of the rate adjustment petition and, more significantly, 
to give the parties an opportunity to settle their differences. We are 
amending this section to make it clear that the Librarian shall 
designate this 30-day period prior to, and separate from, the 45-day 
period for precontroversy discovery. We are also amending Sec. 251.64 
to reflect that the arbitration proceedings will commence after both 
the 30-day period for settling rate differences, and the 45-day period 
for precontroversy discovery.
    (ii) Universal Settlements. In the Interim Regulations, we asked 
two questions related to settlement of rate adjustments:

    If a settlement is reached, would it be a useful alternative to 
the convening of a CARP for the Library/Office to propose the 
agreed-upon rate to the public in a notice-and-comment proceeding?
    Does the Librarian have the authority to adopt such a procedure, 
or would the convening of a CARP be required?

59 FR 23978 (1994).
    RIAA12 and Copyright Owners believe that in the case of a 
universal settlement a CARP would have no authority over a proceeding. 
The Office would therefore be responsible for amending the rules, after 
a public notice-and-comment period, to reflect the agreed upon rate. 
RIAA/AARC, comments at 8; Copyright Owners, reply comments at 6. RIAA 
argues that the CARPs' authority is limited to controversies over 
royalty rates; if there is no controversy because there has been a 
settlement, then there is no CARP authority. RIAA/AARC, comments at 8-9 
[(citing our NPRM, 59 FR 2553 (1994)]. Copyright Owners note that 
convening a CARP after settlement has been reached ``would make no 
sense'' and ``would subject the owner/user participants to needless 
expense.'' Copyright Owners, reply comments at 6-7. A public notice-
and-comment period ``should provide the Librarian with an adequate 
record on which to determine whether to amend the regulations 
consistent with the terms of the settlement.'' Id. at 8.
---------------------------------------------------------------------------

    \1\2AARC took no position on this particular issue involving 
rate adjustment proceedings.
---------------------------------------------------------------------------

    NMPA/HFA believes that the rules should provide the parties to a 
rate adjustment proceeding with the option of either having a CARP 
convened, or submitting the agreed upon rate to a public notice-and-
comment proceeding. NMPA/HFA, comments at 2. NMPA/HFA believes that the 
statutory authority to provide such procedures ``can be fairly implied 
from the Reform Act's direction that the Librarian adopt procedures and 
regulations relating to CARP proceedings and the Reform Act's express 
grant of authority to the Librarian to make the final determination in 
rate adjustment proceedings.'' Id. at 3.
    We agree with Copyright Owners that it would make little sense to 
go through the time and expense of convening a CARP solely for the 
purpose of approving a settlement agreement. Without deciding the issue 
of whether a CARP would have jurisdiction in such cases, we are 
amending Sec. 251.63 by adding a new subsection:

    (b) In the case where a settlement is reached as to the 
appropriate royalty rate, the Librarian may, upon the request of the 
settling parties, submit the agreed upon rate to the public in a 
notice-and-comment proceeding. The Librarian may adopt the rate 
embodied in the proposed settlement without convening an arbitration 
panel, provided that no opposing comment is received by the 
Librarian from a party with an intent to participate in a CARP 
proceeding.
(7) Part 252--Filing of Claims to Cable Royalties
    Compliance with statutory dates. Section 252.4 describes the 
circumstances under which a claim to cable copyright royalties must be 
filed in order to be considered timely.
    (i) Delivery of claims. We are amending Sec. 252.4(a) to adjust for 
some of the difficulties faced by the Copyright Office in receiving 
cable royalty claims on a timely basis. Unlike the CRT, the Copyright 
Office and the Library of Congress are large institutions receiving a 
tremendous amount of mail each day, only a small percentage of which 
involves CARP matters. For the July 1994 filing period, we experienced 
difficulties with cable and satellite claims arriving at different 
locations of the Library by many different means of delivery (U.S. 
mail, messenger service, private mail carrier delivery). In order to 
assure that claims arrive during the statutorily prescribed time 
period, we are amending Sec. 252.4(a) to specify the two methods by 
which claims may be delivered to the Copyright Office. The first method 
is by mailing the claim to the official CARP address with the U.S. 
Postal Service, proper postage attached, so that when the claim arrives 
at the Copyright Office, it bears a July U.S. postmark. The second 
method is hand delivery to the Office of the Register of Copyrights, 
located in Room 403 of the James Madison Building, 101 Independence 
Avenue SE., Washington, DC 20540, during normal business hours in the 
month of July. Such hand delivery may be done by the claimant itself, 
or by the claimant's agent, or by a private delivery carrier (ex. 
Federal Express, DHL, messenger service) or other such manner. Hand 
delivery of claims to the mail receiving area of the Library of 
Congress, or to other locations in either the Library or the Copyright 
Office, is not compliance with the regulation. Claims which are hand 
delivered to other locations in the Library or Copyright Office will be 
dismissed if the Office cannot conclusively determine that the claim 
was physically located on Library and/or Copyright Office premises 
during the month of July.
    (ii) U.S. postmark. Canadian claimants challenge the requirement in 
Sec. 252.4(a)(2) that mailed claims must bear a July U.S. postmark. We 
took this provision directly from the Copyright Royalty Tribunal's 
rules. See 59 FR 23979 (1994). Canadian Claimants acknowledge that they 
did not object to the Tribunal's initial adoption of U.S. postmark 
requirement, but state that they have experienced ``difficulties'' with 
the requirement since its adoption, although they do not precisely 
state what those ``difficulties'' are.13 Canadian Claimants, 
comments at 2. They therefore urge the Office to accept both Canadian 
and U.S. postmarks. Id.
---------------------------------------------------------------------------

    \1\3Canadian Claimants state earlier in their comment that their 
membership changes from year to year and that produces ``the 
constant presence of new claimants who are unaware of the filing 
requirements and appear on the scene at (or shortly after) the last 
moment  * * *'' Id. Presumably it is the last minute identification 
of Canadian copyright owners eligible for cable royalties that 
produces the ``difficulties.''
---------------------------------------------------------------------------

    We discussed in the Interim Regulations the Copyright Owners' 
request that we allow July mailings from Canadian and Mexican post 
offices. See 59 FR 23979 (1994). We declined the request, but stated 
that ``we invite them [Copyright Owners], and any other interested 
parties, to provide further information and comments on the question.'' 
Id. Our request for further information emanates from our concern with 
compliance with the statute. The statutory requirement for filing cable 
claims is clearly spelled out in 17 U.S.C. 111(d)(4)(A): ``During the 
month of July in each year, every person claiming to be entitled to 
compulsory license fees for secondary transmissions shall file a claim 
with the Librarian of Congress  * * *'' The statute requires that the 
claim be with the Librarian during the month of July, arguably meaning 
in his possession. However, we accept the submission of a claim to the 
U.S. Postal Service, as statutorily sufficient, providing it bears a 
July U.S. postmark. The postmark is an acknowledgment that the claim 
was validly tendered with the U.S. Government in the month of July.
    Our concern with allowing Canadian and Mexican postmarks is that 
those marks would not necessarily prove compliance with the statute. 
Neither the Canadian nor the Mexican postal service is part of the U.S. 
Government. Furthermore, if we were to allow Canadian and Mexican 
postmarks, we would have to allow national postmarks from all 
countries, since there are some copyright owners of cable retransmitted 
programming that do not reside in the United States, Canada or Mexico.
    Copyright Owners and Canadian Claimants' desire for allowing 
Canadian and Mexican postmarks appears to be motivated by the desire 
ostensibly to add a few more days to the claim period. We, however, 
agree with what the Tribunal said in 1989 when it adopted the July U.S. 
postmark requirement:

    The Tribunal does not believe that our insistence that either a 
claim be received in our office during July or that it bear a July 
U.S. postmark is too restrictive. The claim itself is easy to 
prepare. No government forms are necessary. The information that is 
required can be put on one page. Further, the claimant has six 
months from the close of the calendar year to prepare it, and the 
entire month of July to submit it to the Tribunal. Our proposed rule 
provides a bright line test which should end all questions of fact 
regarding the timeliness of the claim.

54 FR 12614, 12615 (1989). For these reasons, we are not adopting the 
Canadian Claimants' suggestion.
    (iii) Proving mailed claims. Section 252.4(e) provides in the 
pertinent part that:

    In the event that a properly addressed and mailed claim is not 
timely received by the Copyright Office, a claimant may nonethe less 
prove that the claim was properly mailed if it was sent by certified 
mail return receipt requested, and the claimant can provide the 
receipt.

59 FR 23993 (1994).
    Copyright Owners believe that this provision, as drafted, could 
cause some confusion. Copyright Owners, reply comments at 8. They note 
that there are two receipts associated with certified mail--the one 
given the sender by the Post Office and the one signed by the 
receptionist and returned to the sender--and that subsection (e) does 
not identify which receipt is acceptable proof. Copyright Owners, 
however, state that our discussion of the provision in the Interim 
Regulations makes it clear that either receipt would be acceptable. See 
59 FR 23980 (1994). (``If the claim was sent by certified mail, return 
receipt requested, we will accept the claim if the claimant can produce 
the receipt showing that it was properly mailed.'') In order to clear 
up any possible ambiguity in the regulation, the Copyright Owners 
propose that we amend subsection (e) to read:

    In the event that a properly addressed and mailed claim is not 
timely received by the Copyright Office, a claimant may nonetheless 
prove that the claim was properly mailed if it was sent by certified 
mail return receipt requested, and the claimant can provide the 
receipt showing that it was properly mailed or timely received.

Copyright Owners, reply comments at 9. We are adopting the Copyright 
Owners' suggestion.
(8) Part 257--Filing of Claims to Satellite Carrier Royalty Fees
    Part 257 remains unchanged, except that we amend Sec. 257.4(a) 
regarding timely filing of claims, discussed above, and accept 
Copyright Owners proposed amendment regarding the proving of mailed 
satellite carrier royalty claims through the use of certified mail 
return receipt requested. Sec. 257.4 (e). We are also retaining the 
requirement of a U.S. postmark for satellite carrier claims, 
Sec. 257.4(a)(2), for the same reasons we are retaining the requirement 
for cable claims.
(9) Part 259--Filing of Claims to Digital Audio Recording Devices and 
Media Royalty Payments
    Consistent with our decision concerning joint claims for cable and 
satellite carriers, Sec. 259.3 is amended to require that joint 
claimants to the DART fund include a list of all their joint claimants 
when the claim is filed, except, as discussed above, the performing 
rights societies will receive no exemption from this requirement. 
Performing rights societies will have to list the members and 
affiliates they have signed to represent in DART as part of their 
filing a claim. As a result, the current Sec. 259.3(d), which allows 
joint claimants to lump their claims together after the claim period, 
and the current Sec. 259.3(f) which provides that the Office may 
require the productions of the list after the claim period ends, are 
deleted. As a practical matter, joint claimants who decide after the 
claim period to join together will simply report to the Office that 
they have settled, and no need to consolidate their claim exists.
    In addition, we amend Sec. 259.5(a) regarding timely delivery of 
claims and accept the Copyright Owners' proposed amendment of 
Sec. 259.5(e) regarding the proving of mailed DART claims through the 
use of certified mail return receipt requested.

List of Subjects

37 CFR Part 251

    Administrative practice and procedure, Hearing and appeal 
procedures.

37 CFR Part 252

    Cable television, Claims, Copyright.

37 CFR Part 253

    Copyright, Music, Radio, Rates, Television.

37 CFR Part 257

    Cable television, Claims.

37 CFR Part 259

    Claims, Copyright, Digital audio recording devices and media.

Final Regulations

    For the reasons set out in the preamble, 37 CFR chapter II is 
amended as follows:

PART 251--COPYRIGHT ARBITRATION ROYALTY PANEL RULES OF PROCEDURE

    1. The authority citation for part 251 continues to read as 
follows:

    Authority: 17 U.S.C. 801-803.

Subpart A--Organization

    2. In section 251.2, paragraph (f) is added to read as follows:


Sec. 251.2  Purpose of Copyright Arbitration Royalty Panels.

* * * * *
    (f) To adjust royalty rates for the satellite carrier compulsory 
license in accordance with 17 U.S.C. 119(c).


Sec. 251.3  [Amended]

    3. Section 251.3(a) is amended by removing ``, on or before May 6, 
1994, and before January 1 of each year thereafter,'' and adding 
``before January 1 of each year''.
    3a. Section 251.3(b) is amended by removing ``After May 6, 1994, 
and after January 1, of each year thereafter,'' and adding ``After 
January 1 of each year,''.


Sec. 251.4  [Amended]

    4. Section 251.4(a) is amended by removing ``30-day period 
specified in Sec. 251.63'' and adding ``45-day period specified in 
Sec. 251.45(b)(2)(i)''.
    4a. Section 251.4(b) is amended by removing ``30-day time period 
specified in Sec. 251.45(a)'' and adding ``45-day period specified in 
Sec. 251.45(b)(1)(i)''.

Subpart B--Public Access to Copyright Arbitration Royalty Panel 
Meetings

    5. In Sec. 251.11, paragraph (b) is amended by revising the second 
sentence to read as follows:


Sec. 251.11  Open meetings.

* * * * *
    (b) * * * Such announcement shall state the times, dates, and place 
of the meetings, the testimony to be heard, whether any of the 
meetings, or any portion of a meeting, is to be closed, and, if so, 
which ones, and the name and telephone number of the person to contact 
for further information.
* * * * *
    6. In Sec. 251.13, the introductory text is revised to read as 
follows:


Sec. 251.13  Closed Meetings.

    In the following circumstances, a Copyright Arbitration Royalty 
Panel may close meetings, or any portion of a meeting, or withhold 
information from the public:
* * * * *
    7. In Sec. 251.14, paragraph (d) is added to read as follows:


Sec. 251.14  Procedure for closed meetings.

* * * * *
    (d) The procedure for closed meetings in this section and in 
Sec. 251.15 shall not apply to the internal deliberations of 
arbitrators carried out in furtherance of their duties and obligations 
under this chapter.

Subpart C--Public Access to and Inspection of Records


Sec. 251.22  [Amended]

    8. Section 251.22(c) is amended by removing ``$0.40 per page'' and 
adding ``the applicable Office charge''.

Subpart D--Standards of Conduct

    9. Section 251.31 is amended by revising paragraph (d) to read as 
follows:


Sec. 251.31  Financial interests.

* * * * *
    (d) For the purposes of this section, the financial interests of 
the following persons will serve to disqualify the selected arbitrator 
to the same extent as if they were the arbitrator's own interests:
    (1) The arbitrator's spouse;
    (2) The arbitrator's minor child;
    (3) The arbitrator's general partner, except that the personal 
financial holdings, including stock and bond investments, of such 
partner will not serve to disqualify the selected arbitrator; or
    (4) An organization or entity for which the arbitrator serves as 
officer, director, trustee, general partner or employee.
    10. Section 251.32 is amended by revising paragraph (b) to read as 
follows:


Sec. 251.32  Financial disclosure statement.

* * * * *
    (b) If any conflicts do exist, the Librarian shall not choose that 
person for the proceeding for which he or she has the financial 
conflict, except--
    (1) The listed arbitrator may divest himself or herself of the 
interest that caused the disqualification, and become qualified to 
serve; or
    (2) The listed arbitrator may offer to disclose on the record the 
conflict of interest causing disqualification. In such instances:
    (i) The Librarian shall publish a list detailing the conflicts of 
interest the listed arbitrators have offered to disclose, and any other 
matters which, although outside of the scope of the restrictions of 
Sec. 251.31, nevertheless, in the view of the Librarian, raise 
sufficient concerns to warrant disclosure to the affected parties;
    (ii) Such list shall be published in the order establishing the 
period for precontroversy motions (see, Sec. 251.45(b));
    (iii) Such list shall contain the matters of concern, but shall not 
contain the names of the listed arbitrators.
    (iv) Any party to the proceeding for which the listed arbitrator is 
being considered may interpose within the 45-day period described in 
Sec. 251.45(b) an objection to that arbitrator being selected. If the 
objection is raised to a matter found to be within the scope of 
Sec. 251.31, the objection will serve automatically to disqualify the 
arbitrator. If the objection is raised to a matter found to be outside 
the scope of Sec. 251.31, the objection will be taken into account when 
the Librarian makes his or her selection, but will not serve 
automatically to disqualify the arbitrator.
* * * * *
    11. Section 251.33(b) is revised to read as follows:


Sec. 251.33  Ex parte communications.

* * * * *
    (b) Selected arbitrators. No interested person shall engage in, or 
cause someone else to engage in, ex parte communications with the 
selected arbitrators in a proceeding for any reason whatsoever from the 
time of their selection to the time of the submission of their report 
to the Librarian, and, in the case of a remand, from the time of their 
reconvening to the time of their submission of their report to the 
Librarian. Incidental communications unrelated to any proceeding, such 
as an exchange of pleasantries, shall not be deemed to constitute an ex 
parte communication.
* * * * *


Sec. 251.33  [Amended]

    12. Section 251.33(c) is amended by removing ``party'' and adding 
``person''.

Subpart E--Procedures of Copyright Arbitration Royalty Panels

    13. In Sec. 251.41, paragraph (b) is revised to read as follows:


Sec. 251.41  Formal hearings.

* * * * *
    (b) During the 45-day period specified in Sec. 251.45(b)(1)(i) for 
distribution proceedings, or during the 45-day period specified in 
Sec. 251.45(b)(2)(i) for rate adjustment proceedings, as appropriate, 
any party may petition the Librarian of Congress to dispense with 
formal hearings, and have the CARP decide the controversy or rate 
adjustment on the basis of written pleadings. The petition may be 
granted if--
    (1) The controversy or rate adjustment, as appropriate, does not 
involve any genuine issue of material fact; or
    (2) All parties to the proceeding agree, in writing, that a grant 
of the petition is appropriate.
    14. In Sec. 251.43, paragraph (a) is revised to read as follows:


Sec. 251.43  Written cases.

    (a) All parties who have filed a notice of intent to participate in 
the hearing shall file written direct cases with the Copyright 
Arbitration Royalty Panel, and with other parties in the manner in 
which the Librarian of Congress shall direct in accordance with 
Sec. 251.45(b).
* * * * *
    15. Section 251.45 is amended by revising the section heading and 
paragraphs (a)-(c) to read as follows:


Sec. 251.45  Discovery and prehearing motions.

    (a) Request for comment, notice of intention to participate. In the 
case of a royalty fee distribution proceeding, the Librarian of 
Congress shall, after the time period for filing claims, publish in the 
Federal Register a notice requesting each claimant on the claimant list 
to negotiate with each other a settlement of their differences, and to 
comment by a date certain as to the existence of controversies with 
respect to the royalty funds described in the notice. Such notice shall 
also establish a date certain by which parties wishing to participate 
in the proceeding must file with the Librarian a notice of intention to 
participate. In the case of a rate adjustment proceeding, the Librarian 
of Congress shall, after receiving a petition for rate adjustment filed 
under Sec. 251.62, or, in the case of noncommercial educational 
broadcasting and satellite carrier, prior to the commencement of 
proceedings, publish in the Federal Register a notice requesting 
interested parties to comment on the petition for rate adjustment. Such 
notice shall also establish a date certain by which parties wishing to 
participate in the proceeding must file with the Librarian a notice of 
intention to participate.
    (b) Precontroversy discovery, filing of written cases, scheduling. 
(1)(i) In the case of a royalty fee distribution proceeding, the 
Librarian of Congress shall, after the filing of comments and notices 
described in paragraph (a) of this section, designate a 45-day period 
for precontroversy discovery and exchange of documents. The period will 
begin with the exchange of written direct cases among the parties to 
the proceeding. Each party to the proceeding must serve a complete copy 
of its written direct case on each of the parties to the proceeding no 
later than the first day of the 45-day period. At any time during the 
45-day period, parties to the proceeding may file with the Librarian 
prehearing motions and objections, including petitions to dispense with 
formal hearings under Sec. 251.41(b), and objections to arbitrators 
appearing on the arbitrator list under Sec. 251.4. Replies to motions, 
petitions, and objections must be filed with the Librarian seven days 
from the filing of such motions, petitions, and objections with the 
Librarian.
    (ii) Subject to Sec. 251.72, the Librarian shall establish, prior 
to the commencement of the 45-day period, the date on which arbitration 
proceedings will be initiated.
    (2) (i) In the case of a rate adjustment proceeding, the Librarian 
of Congress shall, after the filing of comments and notices described 
in paragraph (a) of this section, designate a 45-day period for 
precontroversy discovery and exchange of documents. The period will 
begin with the exchange of written direct cases among the parties to 
the proceeding. Each party to the proceeding must serve a complete copy 
of its written direct case on each of the parties to the proceeding no 
later than the first day of the 45-day period. At any time during the 
45-day period, parties to the proceeding may file with the Librarian 
prehearing motions and objections, including petitions to dispense with 
formal hearings under Sec. 251.41(b), and objections to arbitrators 
appearing on the arbitrator list under Sec. 251.4. Replies to motions, 
petitions and objections must be filed with the Librarian seven days 
from the filing of such motions, petitions, and objections with the 
Librarian.
    (ii) Subject to Sec. 251.64, the Librarian shall establish, prior 
to the commencement of the 45-day period, the date on which arbitration 
proceedings will be initiated.
    (c) Discovery and motions filed with a Copyright Arbitration 
Royalty Panel. (1) A Copyright Arbitration Royalty Panel shall 
designate a period following the filing of written direct and rebuttal 
cases with it in which parties may request of an opposing party 
nonprivileged underlying documents related to the written exhibits and 
testimony.
    (2) After the filing of written cases with a CARP, any party may 
file with a CARP objections to any portion of another party's written 
case on any proper ground including, without limitation, relevance, 
competency, and failure to provide underlying documents. If an 
objection is apparent from the face of a written case, that objection 
must be raised or the party may thereafter be precluded from raising 
such an objection.
* * * * *


Sec. 251.47  [Amended]

    15. Section 251.47(l) is amended by removing ``for them'' and 
adding ``of any given witness'' after the word ``cross-examination'' 
each place it appears.
    16. Section 251.51 is amended by revising the section heading to 
read as follows:


Sec. 251.51  Closing the record.

* * * * *


Sec. 251.52  [Amended]

    17. Section 251.52(c) is amended by removing ``an applicant'' in 
the third sentence and adding ``a party''.


Sec. 251.53  [Amended]

    18. Section 251.53(a) is amended by adding ``and any replies 
thereto'' after ``conclusions of law'' in the first sentence.


Sec. 251.54  [Amended]

    19. Section 251.54(a) is amended by removing ``After the submission 
of the panel's report to the Librarian of Congress, the'' and adding 
``The''.
    20. In section 251.54(c), the third sentence is removed.

Subpart F--Rate Adjustment Proceedings

    21. In section 251.60, the first sentence is revised to read as 
follows:


Sec. 251.60  Scope.

    This subpart governs only those proceedings dealing with royalty 
rate adjustments affecting cable (17 U.S.C. 111), the production of 
phonorecords (17 U.S.C. 115), performances on coin-operated phonorecord 
players (jukeboxes) (17 U.S.C. 116), noncommercial educational 
broadcasting (17 U.S.C. 118) and satellite carriers (17 U.S.C. 119). * 
* *.
    22. In section 251.61, paragraph (d) is added to read as follows:


Sec. 251.61  Commencement of adjustment proceedings.

* * * * *
    (d) In the case of the satellite carrier compulsory license, rate 
adjustment proceedings shall commence on January 1, 1997, in accordance 
with 17 U.S.C. 119(c)(3)(A), for satellite carriers who are not parties 
to a voluntary agreement filed with the Copyright Office in accordance 
with 17 U.S.C. 119(c)(2).
    23. Section 251.63 is revised to read as follows:


Sec. 251.63  Consideration of petition; settlements.

    (a) To allow time for the parties to settle their differences 
regarding rate adjustments, the Librarian of Congress shall, after the 
filing of a petition under Sec. 251.62 and before the 45-day period 
specified in Sec. 251.45(b)(2)(i), designate a 30-day period for 
consideration of their settlement. The Librarian shall cause notice of 
the dates for that period to be published in the Federal Register.
    (b) In the case of a settlement among the parties to a proceeding, 
the Librarian may, upon the request of the parties, submit the agreed 
upon rate to the public in a notice-and-comment proceeding. The 
Librarian may adopt the rate embodied in the proposed settlement 
without convening an arbitration panel, provided that no opposing 
comment is received by the Librarian from a party with an intent to 
participate in a CARP proceeding.
    24. In Sec. 251.64, the first sentence and third sentences are 
revised to read as follows:


Sec. 251.64  Disposition of petition; initiation of arbitration 
proceeding.

    After the end of the 45-day precontroversy discovery period, and 
after the Librarian has ruled on all motions and objections filed under 
Sec. 251.45, the Librarian will determine the sufficiency of the 
petition, including, where appropriate, whether one or more of the 
petitioners' interests are ``significant.'' * * * The same declaration 
and notice of initiation shall be made for noncommercial educational 
broadcasting and the satellite carrier compulsory license in accordance 
with 17 U.S.C. 118 and 119, respectively. * * *
    25. Section 251.65 is revised to read as follows:


Sec. 251.65  Deduction of costs of rate adjustment proceedings.

    In accordance with 17 U.S.C. 802(h)(1), the Librarian of Congress 
and the Register of Copyrights may assess the reasonable costs incurred 
by the Library of Congress and the Copyright Office as a result of the 
rate adjustment proceedings directly to the parties participating in 
the proceedings.


Sec. 3251.7  [Removed]


Secs. 251.73 and 251.74  [Redesignated as Secs. 251.72 and 251.73]

    26. Section 251.72 is removed and Secs. 251.73 and 251.74 are 
redesignated as Secs. 251.72 and 251.73.

PART 252--FILING OF CLAIMS TO CABLE ROYALTY FEES

    27. The authority citation for part 252 continues to read as 
follows:

    Authority: 17 U.S.C. 111(d)(4), 801, 803.

    28. Section 252.3(a)(3) and (4) are revised, and paragraph (d) is 
removed as follows:


Sec. 252.3  Content of claims.

    (a) * * *
    (3) If the claim is a joint claim, a concise statement of the 
authorization for the filing of the joint claim, and the name of each 
claimant to the joint claim. For this purpose, a performing rights 
society shall not be required to obtain from its members or affiliates 
separate authorizations, apart from their standard membership affiliate 
agreements, or to list the name of each of its members or affiliates in 
the joint claim.
    (4) For individual claims, a general statement of the nature of the 
claimant's copyrighted works and identification of at least one 
secondary transmission by a cable system of such works establishing a 
basis for the claim. For joint claims, a general statement of the 
nature of the joint claimants' copyrighted works and identification of 
at least one secondary transmission of one of the joint claimants' 
copyrighted works by a cable system establishing a basis for the joint 
claim.
* * * * *
    29. Section 252.4(a) and (e) are revised to read as follows:


Sec. 252.4  Compliance with statutory dates.

    (a) Claims filed with the Copyright Office shall be considered 
timely filed only if: (1) They are hand delivered, either by the 
claimant, the claimant's agent, or a private delivery carrier, to: 
Office of the Register of Copyrights, Room 403, James Madison Memorial 
Building, 101 Independence Avenue, SE., Washington, DC 20540, during 
normal business hours during the month of July; or
    (2) They are addressed to: Copyright Arbitration Royalty Panel, 
P.O. Box 70977, Southwest Station, Washington, DC 20024, and are 
deposited with sufficient postage with the United States Postal Service 
and bear a July U.S. postmark.
* * * * *
    (e) In the event that a properly addressed and mailed claim is not 
timely received by the Copyright Office, a claimant may nonetheless 
prove that the claim was properly mailed if it was sent by certified 
mail return receipt requested, and the claimant can provide the receipt 
showing that it was properly mailed or timely received. No affidavit of 
an officer or employee of the claimant, or of a U.S. postal worker will 
be accepted as proof in lieu of the receipt.

PART 253--USE OF CERTAIN COPYRIGHTED WORKS IN CONNECTION WITH 
NONCOMMERCIAL EDUCATIONAL BROADCASTING

    30. The authority citation for part 253 continues to read as 
follows:

    Authority: 17 U.S.C. 118, 801(b)(1) and 803.


Sec. 253.10  [Amended]

    31. Section 253.10 is amended by removing ``Copyright Office'' each 
place it appears and adding ``Librarian of Congress''.

PART 257--FILING OF CLAIMS TO SATELLITE CARRIER ROYALTY FEES

    32. The authority citation for part 257 continues to read as 
follows:

    Authority: 17 U.S.C. 119(b)(4).

    33. Section 257.3(a) (3) and (4) are revised, and paragraph (d) is 
removed as follows:


Sec. 257.3  Content of claims.

    (a) * * *
    (3) If the claim is a joint claim, a concise statement of the 
authorization of the filing of the joint claim, and the name of each 
claimant to the joint claim. For this purpose, a performing rights 
society shall not be required to obtain from its members or affiliates 
separate authorizations, apart from their standard membership or 
affiliate agreements, or to list the name of each of its members or 
affiliates in the joint claim.
    (4) For individual claims, a general statement of the nature of the 
claimant's copyrighted works and identification of at least one 
secondary transmission by a satellite carrier of such works 
establishing a basis for the claim. For joint claims, a general 
statement of the nature of the joint claimants' copyrighted works and 
identification of at least one secondary transmission of one of the 
joint claimants' copyrighted works by a satellite carrier establishing 
a basis for the joint claim.
* * * * *
    34. Section 257.4 (a) and (e) are revised to read as follows:


Sec. 257.4  Compliance with statutory dates.

    (a) Claims filed with the Copyright Office shall be considered 
timely filed only if: (1) They are hand delivered, either by the 
claimant, the claimant's agent, or a private delivery carrier, to: 
Office of the Register of Copyrights, Room 403, James Madison Memorial 
Building, 101 Independence Avenue, SE., Washington, DC 20540, during 
normal business hours during the month of July; or
    (2) They are addressed to: Copyright Arbitration Royalty Panel, 
P.O. Box 70977, Southwest Station, Washington, DC 20024, and are 
deposited with sufficient postage with the United States Postal Service 
and bear a July U.S. postmark.
* * * * *
    (e) In the event that a properly addressed and mailed claim is not 
timely received by the Copyright Office, a claimant may nonetheless 
prove that the claim was properly mailed if it was sent by certified 
mail return receipt requested, and the claimant can provide the receipt 
showing that it was properly mailed or timely received. No affidavit of 
an officer or employee of the claimant, or of a U.S. postal worker will 
be accepted as proof in lieu of the receipt.

PART 259--FILING OF CLAIMS TO DIGITAL AUDIO RECORDING DEVICES AND 
MEDIA ROYALTY PAYMENTS

    35. The authority citation for part 259 continues to read as 
follows:

    Authority: 17 U.S.C. 1007(a)(1).

    36. In Section 259.3, paragraph (d) is revised, and paragraph (f) 
is removed as follows:


Sec. 259.3  Content of claims.

* * * * *
    (d) If the claim is a joint claim, a concise statement of the 
authorization for the filing of the joint claim, and the name of each 
claimant to the joint claim.
* * * * *
    37. Sections 259.5 (a) and (e) are revised to read as follows:


Sec. 259.5  Compliance with statutory dates.

    (a) Claims filed with the Copyright Office shall be considered 
timely filed only if:
    (1) They are hand delivered, either by the claimant, the claimant's 
agent, or a private delivery carrier, to: Office of the Register of 
Copyrights, Room 403, James Madison Memorial Building, 101 Independence 
Avenue SE., Washington, DC 20540, during normal business hours during 
the month of January or February; or
    (2) They are addressed to: Copyright Arbitration Royalty Panel, 
P.O. Box 70977, Southwest Station, Washington, DC 20024, and are 
deposited with sufficient postage with the United States Postal Service 
and bear a January or February U.S. postmark.
* * * * *
    (e) In the event that a properly addressed and mailed claim is not 
timely received by the Copyright Office, a claimant may nonetheless 
prove that the claim was properly mailed if it was sent by certified 
mail return receipt requested, and the claimant can provide the receipt 
showing that it was properly mailed or timely received. No affidavit of 
an officer or employee of the claimant, or of a postal worker will be 
accepted as proof in lieu of the receipt.

    Dated: November 29, 1994.
Marybeth Peters,
Register of Copyrights.

    Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 94-30045 Filed 12-6-94; 8:45 am]
BILLING CODE 1410-33-P