[Federal Register Volume 63, Number 30 (Friday, February 13, 1998)]
[Rules and Regulations]
[Pages 7288-7289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3703]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 255

[Docket No. 96-4 CARP DPRA]


Mechanical and Digital Phonorecord Delivery Rate Adjustment 
Proceeding

AGENCY: Copyright Office, Library of Congress.

ACTION: Final regulations.

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SUMMARY: The Copyright Office of the Library of Congress is announcing 
final regulations that became effective on January 1, 1998, adjusting 
royalty rates to be paid under the mechanical compulsory license, 
section 115 of the 1976 Copyright Act, as amended, for use of physical, 
or non-digital, phonorecords. The Office addresses rates for physical 
phonorecord delivery today, and will address rates for digital 
phonorecord delivery in the future.

EFFECTIVE DATE: January 1, 1998.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
Tanya Sandros, Attorney Advisor, Copyright Arbitration Royalty Panel 
(CARP), P.O. Box 70977, Southwest Station, Washington, D.C. 20024. 
Telephone: (202) 707-8380. Fax: (202) 707-8366.

SUPPLEMENTARY INFORMATION:

Background

    The mechanical compulsory license, 17 U.S.C.115, provides a 
mechanism outside the realm of contract for persons who want to make 
and distribute phonorecords of nondramatic musical works that have been 
distributed in the United States by the copyright owner to obtain a 
compulsory license to perform that activity. A person is eligible for 
this compulsory license if: (1) He or she has not been able to serve a 
notice of intention to obtain the license on the copyright owner, and 
(2) a notice of intention has been filed with the Copyright Office. 17 
U.S.C. 115(b)(1).
    Until its demise in 1993, the Copyright Royalty Tribunal had 
authority to adjust the statutory rates for the making and distribution 
of physical phonorecords, and did so in 1987, setting the rates and 
terms for the mechanical compulsory license for at least the next ten 
years. See 52 FR 22637 (June 15, 1987). The Copyright Office currently 
administers the mechanical license, and responsibility for adjusting 
royalty rates rests with Copyright Arbitration Royalty Panels, known as 
CARPs. 17 U.S.C. 801(b)(1), 803. The Copyright Act provides that during 
the tenth calendar year following a ratesetting, any copyright owner or 
user whose royalty rates are specified by the statutory license may 
file a petition requesting an adjustment to the rates and terms. 17 
U.S.C. 803(a)(1), (3).
    On November 1, 1995, Congress passed the Digital Performance Right 
in Sound Recordings Act of 1995 (Digital Performance Act), Pub. L. 104-
39, 109 Stat. 336 (1995), which amended sections 114 and 115 of the 
Copyright Act, and extended the mechanical license to digital 
phonorecord deliveries. The mechanical rate for physical, or non-
digital, phonorecords can be the same as, or different from, the rate 
that applies to digital phonorecord deliveries.
    The legislative history for the Digital Performance Act states 
that: ``Through 1997, the royalty rate payable for digital phonorecord 
delivery shall be the same as for physical phonorecords. After 1997, 
the rates for digital phonorecord delivery will be determined as 
provided by the amended provisions section 115(c)(3) [sic], and need 
not be the same as for the making and distribution of physical 
phonorecords.'' H.R. Rep. No. 274, 104th Cong., 1st Sess. 28 (1995). 
The House Report further recognizes as separate digital and physical 
phonorecord rates, stating: ``The terms and rates shall be established 
[for digital use] according to the same criteria that apply to the 
license for making and distributing physical phonorecords * * *'' Id. 
at 29.
    The most recent royalty rate applicable under 17 U.S.C.115 was 
described in Copyright Office regulations at 37 CFR 255.3(h), as 
follows: ``For every phonorecord made and distributed on or after 
January 1, 1996, the royalty rate payable with respect to each work 
embodied in the phonorecord shall be either 6.95 cents, or 1.3 cents 
per minute of playing time or fraction thereof, whichever amount is 
larger.'' Id. 
    The year 1997 was a window year for commencing a proceeding to 
further adjust the mechanical phonorecord compulsory license royalty 
rates. The Office initiated proceedings to adjust all section 115 rates 
in 1997; however, modifications were made due to requests by the 
interested parties for extra time to negotiate terms for a new rate.
    At this time the Office is announcing final regulations that adjust 
royalty rates for reproduction and distribution of physical 
phonorecords. Rate adjustment for use of digital phonorecords under 
section 115 will be announced in the future. The Office bifurcates this 
procedure in order to finalize the rate adjustment for physical 
phonorecords, and then to consider important legal and policy issues 
brought forward by interested parties that relate to application of 
section 115 rates for digital phonorecord delivery.

History of the Current Proceeding

    On July 17, 1996, the Copyright Office published a notice which, 
among other things, established a schedule for convening a CARP which 
would have set new rates for digital phonorecord deliveries before the 
existing rate expired. See 61 FR 37312 (July 17, 1996). As noted supra, 
1997 also was a window year for adjusting royalty rates for the making 
and distribution of physical phonorecords. The Office requested comment 
from interested parties on the possibility of consolidating the two 
proceedings, and conducting a single CARP to adjust both the physical 
phonorecord and the digital phonorecord delivery rates. See 61 FR 37215 
(July 17, 1996).
    According to the interested parties, consisting of the Recording 
Industry Association of America (RIAA), the National Music Publishers' 
Association, Inc. (NMPA), and the Harry Fox Agency, Inc. (referred to 
together as the Parties), the proposed schedule did not allot 
sufficient time for negotiating a comprehensive joint proposal. 
Therefore, they filed a motion with the Office on November 8, 1996, 
asking the Office to vacate the proposed schedule to allow them time to 
continue their negotiations. The Office granted the Parties' motion and 
rescheduled the proceeding. See 61 FR 65243 (December 11, 1996).

[[Page 7289]]

    Although the new schedule extended the negotiation period by three 
months, the Parties thought the time still insufficient for conducting 
the necessary negotiations, and requested a meeting with the Office to 
discuss difficulties associated with negotiating rates and terms for 
use of digital technology in an evolving marketplace. The Office 
granted the request and met with the Parties on January 9, 1997. At 
that meeting, the Parties again requested more time to conduct 
negotiations on rates and terms for the section 115 license, having 
acknowledged the need to establish the mechanical rate before they 
attempted to negotiate the rates for the digital delivery of 
phonorecords. The Office agreed to vacate the schedule. See 62 FR 5057 
(February 3, 1997).
    On November 7, 1997, NMPA, RIAA, and the Songwriters' Guild of 
America (SGA) filed a joint petition with the Copyright Office 
outlining a proposal to adjust the physical phonorecord and digital 
phonorecord delivery royalty rates. The Parties to the joint petition, 
having duly filed a proposal concerning the 1997 physical phonorecord 
and digital phonorecord delivery royalty rate adjustments, asked the 
Copyright Office to submit their proposal to a notice-and-comment 
proceeding to promulgate regulations to adjust the proposed rates and 
terms. Accordingly, pursuant to 17 U.S.C. 803(c) and 37 CFR 251.63(b), 
the Copyright Office invited public comment on the proposed rates and 
terms for adjusting the physical phonorecord and digital phonorecord 
delivery royalty rates, and on the regulatory language implementing the 
proposal.1 Comments and Notices of Intent to Participate in 
a CARP proceeding, should it be necessary, were to be submitted to the 
Office by December 29, 1997.
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    \1\ According to 37 CFR 251.63: 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. Id.
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    The Office received four comments in response to its Notice of 
Proposed Rulemaking, including three Notices of Intent to Participate 
in any CARP proceeding which may be instituted in this matter. None of 
these filings contained comments or objections to rates proposed for 
the reproduction and distribution of physical phonorecords under the 
mechanical compulsory license. Because no comments opposing the rates 
for reproduction and distribution of physical phonorecords under 17 
U.S.C.115 were received, the Librarian adopted those rates, effective 
January 1, 1998, but not the rates concerning reproduction and 
distribution of digital phonorecords, as they were previously published 
in the Federal Register. See 62 FR 63506 (December 1, 1997).

List of Subjects in 37 CFR Part 255

    Copyright, Recordings.

    For the reasons set forth above, the Copyright Office amends 37 CFR 
part 255 as follows:

PART 255--ADJUSTMENT OF ROYALTY PAYABLE UNDER COMPULSORY LICENSE 
FOR MAKING AND DISTRIBUTING PHONORECORDS

    1. The authority citation for part 255 continues to read as 
follows:

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


Sec. 255.3  [Amended]

    2. In Sec. 255.3(a), the phrase ``(b), (c), (d), (e), (f), (g), and 
(h)'' is removed and the phrase ``(b) through (m)'' is added after the 
word ``paragraphs''.
    3. In Sec. 255.3(b), the phrase ``(c), (d), (e), (f), (g), and 
(h)'' is removed and the phrase ``(c) through (m)'' is added after the 
word ``paragraphs''.
    4. In Sec. 255.3(c), the phrase ``(d), (e), (f), (g), and (h)'' is 
removed and the phrase ``(d) through (m)'' is added after the word 
``paragraphs''.
    5. In Sec. 255.3(d), the phrase ``(e), (f), (g), and (h)'' is 
removed and the phrase ``(e) through (m)'' is added after the word 
``paragraphs''.
    6. In Sec. 255.3(e), the phrase ``(f), (g), and (h)'' is removed 
and the phrase ``(f) through (m)'' is added after the word 
``paragraphs''.
    7. In Sec. 255.3(f), the phrase ``(g), and (h)'' is removed and the 
phrase ``(g) through (m)'' is added after the word ``paragraphs''.
    8. In Sec. 255.3(g), the phrase ``paragraph (h)'' is removed and 
the phrase ``paragraphs (h) through (m)'' is added after the phrase 
``pursuant to''.
    9. In Sec. 255.3(h), the phrase ``, subject to further adjustment 
pursuant to paragraphs (i) through (m) of this section'' is added after 
the word ``larger''.
    10. Add new paragraphs (i), (j), (k), (l), and (m) to Sec. 255.3 to 
read as follows:


Sec. 255.3  Adjustment of royalty rate.

* * * * *
    (i) For every phonorecord made and distributed on or after January 
1, 1998, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 7.1 cents, or 1.35 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraphs (j) through (m) of this 
section.
    (j) For every phonorecord made and distributed on or after January 
1, 2000, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 7.55 cents, or 1.45 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraphs (k) through (m) of this 
section.
    (k) For every phonorecord made and distributed on or after January 
1, 2002, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 8.0 cents, or 1.55 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraphs (l) through (m) of this 
section.
    (l) For every phonorecord made and distributed on or after January 
1, 2004, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 8.5 cents, or 1.65 cents per minute of 
playing time or fraction thereof, whichever amount is larger, subject 
to further adjustment pursuant to paragraph (m) of this section.
    (m) For every phonorecord made and distributed on or after January 
1, 2006, the royalty rate payable with respect to each work embodied in 
the phonorecord shall be either 9.1 cents, or 1.75 cents per minute of 
playing time or fraction thereof, whichever amount is larger.

    Dated: January 30, 1998.
Marybeth Peters,
Register of Copyrights.

James H. Billington,
Librarian of Congress.
[FR Doc. 98-3703 Filed 2-12-98; 8:45 am]
BILLING CODE 1410-33-P