[Federal Register Volume 63, Number 79 (Friday, April 24, 1998)]
[Notices]
[Pages 20428-20433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10923]


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LIBRARY OF CONGRESS

Copyright Office
[Docket No. 94-3 CARP CD 90-92]


Determination of the Distribution of the 1991 Cable Royalties in 
the Music Category

AGENCY: Copyright Office, Library of Congress.

ACTION: Order.

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SUMMARY: The Librarian of Congress, upon recommendation of the Register 
of Copyrights, is announcing resolution of a Phase II controversy and 
distribution of 1991 cable royalty funds in the music category. The 
Librarian is adopting the determination of the Copyright Arbitration 
Royalty Panel (CARP).

EFFECTIVE DATE: April 24, 1998.

ADDRESSES: The full text of the CARP's report to the Librarian of 
Congress is available for inspection and copying during normal business 
hours in the Office of General Counsel, James Madison Memorial 
Building, Room LM-403, First and Independence Avenue, S.E., Washington, 
D.C. 20540.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
William Roberts, Senior Attorney, P.O. Box 70977, Southwest Station, 
Washington, D.C. 20024. Telephone (202) 707-8380.

SUPPLEMENTARY INFORMATION:

Recommendation of the Register of Copyrights

I. Background

    Section 111 of the Copyright Act, 17 U.S.C., grants a compulsory 
copyright license to cable systems to retransmit the over-the-air 
signals of broadcast stations licensed by the Federal Communications 
Commission. Cable systems submit statements of account and royalty 
payments to the Copyright Office on a semi-annual basis. The royalties 
are deposited with the United States Treasury for subsequent 
distribution to owners of copyrighted works retransmitted by the cable 
systems.
    Distribution of cable royalty fees is conducted in two phases. In 
Phase I, the fees are divided among categories of copyright owners. 
There are currently eight copyright owner claimant groups represented 
in Phase I proceedings: Program Suppliers (movies and syndicated 
television programs); Joint Sports Claimants (sports programs of the 
National Basketball Association, Major League Baseball, the National 
Hockey League, and the National Collegiate Athletic Association); the 
National

[[Page 20429]]

Association of Broadcasters (broadcast stations); the Devotional 
Claimants (religious programming); the Public Broadcasting Service 
(public television); National Public Radio (public radio); the Canadian 
Claimants (Canadian program owners); and the Music Claimants 
(songwriters and music publishers).
    Phase II involves distribution of royalty fees to individual 
copyright owners within a category. This proceeding involves 
distribution to claimants within the music category.
    On October 28, 1996, the Librarian announced the final Phase I 
distribution of cable royalties collected for 1990, 1991 and 1992. Of 
the total royalties collected (more than $500 million), 4.5% of the 
fees for each year was distributed to the music category.1 
61 FR 55653 (October 28, 1996). Music Claimants, consisting of the 
American Society of Composers, Authors, and Publishers (ASCAP), 
Broadcast Music, Inc. (BMI) and SESAC, Inc. (SESAC), represented the 
music category and received the Phase I royalty distribution award. 
Order in Docket No. 93-3 CARP CD 90-92 (August 3, 1995).
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    \1\ The 4.5% figure was achieved through settlement negotiations 
between the Music Claimants and the other seven claimant groups.
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    On February 15, 1996, the Library of Congress published a notice 
requesting interested parties to comment on the existence of Phase II 
controversies for distribution of the 1990-1992 cable royalty funds. 61 
FR 6040 (February 15, 1996). The parties who filed comments and Notices 
of Intent to Participate identified two unsettled categories that would 
require resolution before a CARP. The first controversy involved 
distribution of the 1991 cable royalty fees between James Cannings and 
Can Can Music (Cannings) and the Music Claimants. Music Claimants 
represent all songwriters and music publishers in the music category 
for distribution of the 1991 cable fees, with the exception of 
Cannings. The second controversy involved distribution of the 1990-1992 
cable fees between the National Association of Broadcasters (NAB) and 
the Public Broadcasting Service (PBS). On June 3, 1997, NAB and PBS 
notified the Copyright Office that they had reached settlement 
concerning all matters related to their Phase II dispute over 
distribution of the 1990-1992 royalty funds, thus leaving a single 
dispute for resolution by a CARP.
    On August 28, 1997, the Library convened a CARP to resolve the 
dispute between Cannings and the Music Claimants for distribution of 
the 1991 cable fees. 62 FR 45687 (August 28, 1997). After considering 
the evidence presented by the parties, the CARP delivered its written 
decision to the Librarian, as required by 17 U.S.C. 802(e), on February 
26, 1998. The Panel awarded Cannings $63.74 and awarded the remainder 
of the 1991 fees 2 to the Music Claimants.
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    \2\ The remainder of the fees is 4.5% of the total cable fees 
collected for 1991 minus, of course, Cannings' award.
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    Cannings filed a petition to modify the decision of the CARP, as 
permitted by 37 CFR 251.55(a). The Music Claimants and Broadcast Music, 
Inc. (BMI) filed replies, as permitted by 37 CFR 251.55(b).
    Section 802(f) of the Copyright Act provides that ``[w]ithin 60 
days after receiving the report of a copyright arbitration royalty 
panel * * *, the Librarian of Congress, upon the recommendation of the 
Register of Copyrights, shall adopt or reject the determination of the 
arbitration panel.'' 17 U.S.C. 802(f). Today's order of the Librarian 
fulfills this statutory obligation.

II. The Librarian's Scope of Review

    The Librarian of Congress has, in previous proceedings, discussed 
his narrow scope of review of CARP determinations. See 62 FR 55742 
(October 28, 1997) (satellite rate adjustment); 52 FR 6558 (February 
12, 1997) (DART distribution order); 61 FR 55653 (October 28, 1996) 
(cable distribution order). The salient points regarding the scope of 
review, however, merit repeating.
    The Copyright Royalty Tribunal Reform Act of 1993 created a unique 
system of review of a CARP's determination. Typically, an arbitrator's 
decision is not reviewable, but the Reform Act created two layers of 
review that result in final orders: the Librarian and the Court of 
Appeals for the District of Columbia Circuit. Section 802(f) directs 
the Librarian to either accept the decision of the CARP or reject it. 
If the Librarian rejects it, he must substitute his own determination 
``after full examination of the record created in the arbitration 
proceeding.'' Id. If the Librarian accepts it, then the determination 
of the CARP has become the determination of the Librarian. In either 
case, through issuance of the Librarian's Order, it is his decision 
that will be subject to review by the Court of Appeals.
    Section 802(f) of the Copyright Act directs that the Librarian 
shall adopt the report of the CARP ``unless the Librarian finds that 
the determination is arbitrary or contrary to the applicable provisions 
of this title.'' Neither the Reform Act nor its legislative history 
indicates what is meant specifically by ``arbitrary,'' but there is no 
reason to conclude that the use of the term is different from the 
``arbitrary'' standard described in the Administrative Procedure Act, 5 
U.S.C. 706(2)(A).
    Review of the case law applying the APA ``arbitrary'' standard 
reveals six factors or circumstances under which a court is likely to 
find that an agency acted arbitrarily. An agency is generally 
considered to be arbitrary when it:
    (1) Relies on factors that Congress did not intend it to consider;
    (2) Fails to consider entirely an important aspect of the problem 
that it was solving;
    (3) Offers an explanation for its decision that runs counter to the 
evidence presented before it;
    (4) Issues a decision that is so implausible that it cannot be 
explained as a product of agency expertise or a difference of 
viewpoint;
    (5) Fails to examine the data and articulate a satisfactory 
explanation for its action including a rational connection between the 
facts found and the choice made; and
    (6) When the agency's action entails the unexplained discrimination 
or disparate treatment of similarly situated parties.

Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Auto Insurance Co., 463 
U.S. 29 (1983); Celcom Communications Corp. v. FCC, 789 F.2d 67 (D.C. 
Cir. 1986); Airmark Corp. v. FAA, 758 F.2d 685 (D.C. Cir. 1985).
    Given these guidelines for determining when a determination is 
``arbitrary,'' prior decisions of the Court of Appeals for the District 
of Columbia Circuit reviewing the determinations of the former 
Copyright Royalty Tribunal have been consulted. The decisions of the 
Tribunal were reviewed under the ``arbitrary and capricious'' standard 
of 5 U.S.C. 706(2)(A) which, as noted above, appears to be applicable 
to the Librarian's review of the CARP's decision.
    Review of judicial decisions regarding Tribunal actions reveals a 
consistent theme: while the Tribunal was granted a relatively wide 
``zone of reasonableness,'' it was required to articulate clearly the 
rationale for its award of royalties to each claimant. See Recording 
Industry Ass'n of America v. CRT, 662 F.2d 1 (D.C. Cir. 1981); National 
Cable Television Ass'n v. CRT, 689 F.2d 1077 (D.C. Cir. 1982); 
Christian Broad. Network v. CRT, 720 F.2d 1295 (D.C. Cir. 1983); 
National Ass'n of Broadcasters v. CRT, 772 F.2d 922 (D.C. Cir. 1985). 
As one panel of the D.C. Circuit succinctly noted:


[[Page 20430]]


    We wish to emphasize * * * that precisely because of the 
technical and discretionary nature of the Tribunal's work, we must 
especially insist that it weigh all the relevant considerations and 
that it set out its conclusions in a form that permits us to 
determine whether it has exercised its responsibilities lawfully * * 
*

Christian Broad. Network, Inc. v. CRT, 720 F.2d 1295, 1319 (D.C. Cir. 
1983), quoting National Cable Television Ass'n v. CRT, 689 F.2d 1077, 
1091 (D.C. Cir. 1982).
    Because the Librarian is reviewing the CARP decision under the same 
``arbitrary'' standard used by the courts to review the Tribunal, he 
must be presented with a rational analysis of the CARP's decision, 
setting forth specific findings of fact and conclusions of law. This 
requirement of every CARP report is confirmed by the legislative 
history to the Reform Act which notes that a ``clear report setting 
forth the panel's reasoning and findings will greatly assist the 
Librarian of Congress.'' H.R. Rep. No. 286, at 13 (1993). Thus, to 
engage in reasoned decision-making, the CARP must ``weigh all the 
relevant considerations and * * * set out its conclusions in a form 
that permits [a determination of] whether it has exercised its 
responsibilities lawfully.'' National Cable Television Ass'n v. CRT, 
689 F.2d 1077, 1091 (D.C. Cir. 1982). This goal cannot be reached by 
``attempt[ing] to distinguish apparently inconsistent awards with 
simple, undifferentiated allusions to a 10,000 page record.'' Christian 
Broad. Network, Inc. v. CRT, 720 F.2d 1295, 1319 (D.C. Cir. 1983).
    It is the task of the Register to review the report and make her 
recommendation to the Librarian as to whether it is arbitrary or 
contrary to the provisions of the Copyright Act and, if so, whether, 
and in what manner, the Librarian should substitute his own 
determination.

III. Review of the CARP Report

    Section 251.55(a) of the rules provides that ``[a]ny party to the 
proceeding may file with the Librarian of Congress a petition to modify 
or set aside the determination of a Copyright Arbitration Royalty Panel 
within 14 days of the Librarian's receipt of the panel's report of its 
determination.'' 37 CFR 251.55(a). Replies to petitions to modify are 
due 14 days after the filing of petitions. 37 CFR 251.55(b).
    Cannings, who appeared pro se in this proceeding on behalf of 
himself and Can Can Music, filed a petition to modify requesting that 
he be awarded his original claim of $2,400, plus interest. Music 
Claimants opposed Cannings' petition, and requested the Librarian 
affirm the decision of the Panel. BMI also filed a ``supplemental 
reply,'' asking the Librarian to clarify a statement made by the Panel 
in its report.
    Section 251.55 of the rules assists the Register of Copyrights in 
making her recommendation to the Librarian, and the Librarian in 
conducting his review of the CARP's decision by allowing the parties to 
the proceeding to raise specific objections to a CARP's determination. 
As required by section 802(f) of the Copyright Act, if the Librarian 
determines that the Panel in this proceeding has acted arbitrarily or 
contrary to the provisions of the Copyright Act, he must ``after full 
examination of the record created in the arbitration proceeding, issue 
an order setting the * * * distribution of fees.'' 17 U.S.C. 802(f).

IV. Review and Recommendation of the Register of Copyrights

A. Determination of the Panel

    The Panel's report articulates both the legal and factual basis for 
resolving this Phase II proceeding. The Copyright Act does not provide 
standards for determining how cable royalty fees are to be divided 
among various claimants, leaving that task instead to individual CARPs 
acting ``on the basis of a fully documented written record, prior 
decisions of the Copyright Royalty Tribunal, prior copyright 
arbitration panel determinations, and rulings by the Librarian of 
Congress under section 801(c).'' 17 U.S.C. 802(c). After examining the 
``simulated market'' approach utilized by the Phase I CARP to divide 
the cable royalties among the various copyright owner categories, the 
Panel determined that a similar approach was warranted in this 
proceeding. The Panel stated:

    The evidence and arguments presented here focus essentially on 
market value. However, the opportunity for negotiations concerning 
what cable systems [sic] operators would have to pay for those 
segments of programs during which the works of each individual music 
claimant was performed has been superseded by the compulsory 
licensing system. Therefore it will be our task to hypothesize as 
realistic a simulated market for the works of individual music 
claimants as is consistent with the evidence presented.

Panel Report at 7.
    After establishing a ``simulated market'' approach as its legal 
basis for determining the distribution, the Panel examined the factual 
basis for Cannings' and the Music Claimants' claims to the 1991 cable 
royalty fees. The Panel determined Cannings' claim to rest upon a 
single musical composition, ``Misery,'' that was transmitted on two 
occasions in 1991 as part of the ``Joe Franklin Show'' on broadcast 
station WWOR-TV. With respect to the Music Claimants, the Panel 
determined that they represented all other claimants in the music 
category and that, after determining Cannings' share of the royalties, 
all remaining monies belonged to the Music Claimants. Id. at 8.
    After adopting this approach to the distribution, the Panel sought 
a means for determining Cannings' share of the 1991 cable royalties. 
The Panel rejected Cannings' claim of $2,400, which was based upon an 
independent arbitrator's award of $4,800 to Cannings for four 
performances of his musical work ``Reggae Christmas'' on WWOR-TV during 
the 1980's. This private arbitration award was the result of a dispute 
between Cannings and BMI when Cannings was a member of that performing 
rights organization. In making the award, the independent arbitrator 
did not issue a written statement of his findings of facts or 
conclusions, as is required in a CARP proceeding. The Panel stated:

    As a basis for Cannings' claim in this proceeding, the 
arbitration award, confirmed by the court or not, can carry no 
weight. Cannings expressly disavows any claim of collateral 
estoppel, but presents the award ``as precedent to support how to 
calculate his royalty distribution.'' However, we cannot defer to 
the award. To do so would mean abdicating our duty under Sec. 802(c) 
of the copyright law to act ``on the basis of a fully documented 
written record * * *.'' We understand this duty to require our own 
examination and analysis of the evidence presented. While Cannings 
has made certain representations as to what evidence he presented to 
the arbitrator, we have no way of knowing how the arbitrator 
evaluated any of the evidence or what factors he considered in 
arriving at his award. We note, however, that the award was based on 
performances of a different song from the one the performance of 
which is the basis for the claim involved here. Were we privy to the 
arbitrator's analysis, we might legitimately assess its 
persuasiveness for purposes of this proceeding. Absent that, 
deference to his award would require us simply to adopt the 
arbitrator's ultimate valuation of four performances of a Cannings' 
song. This we cannot do.

Id. at 10.
    The Panel also rejected Cannings' own analysis of the distribution 
formula used by BMI to pay its members for performances on network 
television broadcast stations. Cannings presented a distribution 
proposal that purported to adjust for the difference between the number 
of commercial television stations in the country and the number of 
cable systems that carry WWOR-TV. The Panel concluded that Cannings'

[[Page 20431]]

methodology did not shed light on the market value of musical 
performances on WWOR-TV as retransmitted by cable systems, because 
WWOR-TV is not a network and Cannings did not offer persuasive evidence 
that retransmissions of WWOR-TV are of equal value to retransmissions 
of network stations. Id. at 11.
    The Panel also rejected Cannings' references to his prominence in 
the music industry as evidence of market value, noting that Music 
Claimants presented considerable evidence to rebut such prominence. The 
Panel stated that prominence in the music industry, if any, would only 
have a bearing on market value if such prominence affected a cable 
system's decision to carry WWOR-TV. It concluded that ``Cannings'' pre-
1991 history of four performances on WWOR in six years does not suggest 
that such a consideration played a meaningful part here.'' Id. at 12.
    Finally, the Panel asserted that all of Cannings' approaches are 
flawed because they do not evidence a consideration of the constraints 
imposed on each copyright owner's share by the fixed and finite nature 
of the fund being shared. Rather, Cannings' approach is geared toward 
hypothetical open market negotiations, and thus is not reflective of a 
compulsory license royalty pool. Id. at 12-13.
    The Panel assessed Music Claimants' assertion that Cannings is 
entitled to no more than $9.99 for each of his two performances on 
WWOR-TV. Music Claimants derived this value from a durational analysis 
that extrapolated the value of all musical works aired on WWOR-TV 
during 1991 on a per minute basis. After calculating that each minute 
of music on WWOR-TV was worth $7.49, Music Claimants asserted that each 
performance of ``Misery'' was worth $9.99, because it lasted one minute 
and twenty seconds. The Panel, however, rejected Music Claimants' 
approach:

    The durational analysis is neither one that has been shown to 
have been used for distributions nor is there applicable precedent 
in contested proceedings for adopting such an approach. In fact, 
[Music Claimants] does not endorse this analysis as appropriate for 
resolving any allocation dispute not arising out of the specific 
circumstances of this case, stating rather faintly that where, as 
here, only two performances and a small amount in controversy are 
involved, ``the Panel may use the durational analysis as the basis 
for resolving [the] dispute.''

Id. at 15-16. The Panel also rejected Music Claimants' assertion that 
the 1992-1994 DART distribution proceeding, Docket No. 95-1 CARP DD 92-
94, is precedent for using a durational analysis, noting that the 
mathematical distribution formula used in that proceeding was 
consistent with the Copyright Act's direction to base DART 
distributions upon transmissions and distributions of sound recordings. 
Id. at 17.
    The Panel determined that the best ``simulated market'' for 
determining Cannings' share of the royalties in this proceeding is ``a 
market within which we have evidence that real-life transactions 
occur.'' Id. at 17. The Panel asserted that the only evidence in the 
record of a ``real-life'' market transaction for musical works is the 
methodology used by BMI for paying its affiliated songwriters and 
publishers. BMI paid a distant signal rate of $14.36 to the songwriter 
and to the publisher for a featured performance on WWOR-TV in 1991. The 
Panel determined the two performances of ``Misery'' to be featured 
performances. BMI increased its standard base rate in the third quarter 
of 1991, resulting in additional combined songwriter/publisher rate of 
$3.15. The Panel concluded that Cannings was entitled to $14.36 as a 
songwriter, $14.36 as a music publisher, and the additional combined 
songwriter/publisher rate of $3.15, for each of the performances of 
``Misery'' in 1991. The total of these two performances amounted to 
$63.74, which is what Cannings would have received from BMI had he 
remained a member. Id. at 19. The Panel determined that BMI's own 
distribution methodology was superior to Music Claimants' durational 
analysis, and rejected Music Claimants' contention that Cannings should 
not have his award calculated in accordance with BMI's methodology 
because he rejected it while a member of BMI. Id. at 20.
    In awarding Cannings $63.74, the Panel determined that he was not 
entitled to interest because interest ``has not been awarded in 
previous Phase II proceedings,'' and because the Panel ``found no 
supportable method to award or compute interest, nor has Cannings 
presented adequate grounds for such an award.'' Id. at 21.

B. Petitions To Modify

1. Cannings
    Cannings filed a petition to modify the determination of the CARP. 
The Music Claimants did not file a petition to modify, but did file a 
reply to Cannings' petition. In addition, BMI filed what it styled as a 
``supplemental reply'' requesting that the Librarian modify a certain 
statement of the Panel concerning the music durational analysis that 
BMI prepared. The Register recommends that BMI's ``supplemental reply'' 
be stricken as improperly filed.3
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    \3\ The appropriate manner to request modification of a CARP's 
decision or, as in this case, a statement made by the Panel, is to 
file a petition to modify in accordance with Sec. 251.55(a). The 
purpose of replies is to allow parties to respond to assertions and 
arguments made by those submitting petitions to modify. BMI's 
``supplemental reply'' does not challenge an assertion or argument 
raised by Cannings' petition, but rather challenges a statement made 
by the Panel. BMI should, therefore, have filed a petition to 
modify. Because it did not, its ``supplemental reply'' is improperly 
filed.
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    Cannings requests that the Panel's award of $63.74 be overturned 
and that he be awarded his original claim of $2,400, plus interest. The 
principal basis for his request is the circumstances surrounding the 
independent arbitrator's award he received in 1993 from a dispute with 
BMI over four performances of another Cannings' song, ``Reggae 
Christmas,'' on WWOR-TV during the 1980's while he was still a member 
of BMI. Cannings received $4,800 in that arbitration proceeding which, 
according to his calculation, means that a single performance of a 
Cannings work on WWOR-TV is worth a minimum of $1,200. Although 
Cannings cannot point to any written determination of his BMI award 
that explains the arbitrator's reasoning, he argues that the arbitrator 
must have accepted in its entirety as true his evidence and methodology 
for calculating the value of his performances. Cannings' methodology 
consisted of multiplying $1.50, the rate he submitted that BMI assigns 
to featured performances of musical works on network television, times 
3000, the number of cable systems that Cannings alleged to be carrying 
WWOR-TV. He apparently submitted this methodology to the independent 
arbitrator in a June 3, 1993, letter. Cannings asserts that the Panel 
in this proceeding ``suppressed'' the June 3, 1993, letter, even though 
the Panel expressly admitted it into evidence, along with his other 
submissions to the independent arbitrator.
    Cannings challenges the Panel's assertion that it must formulate a 
``simulated market'' in order to calculate the value of his Phase II 
claim. Cannings asserts that the ``simulated market'' approach is 
contrary to CARP precedent, in contravention of 17 U.S.C. 802(c), 
though he offers no explanation as to how or why it is contrary, except 
to note that the Phase I CARP in the 1990-1992 cable distribution 
proceeding used the same approach in determining values for programming

[[Page 20432]]

categories. Cannings also challenges the Panel's statement that BMI's 
distribution methodology is a potential model for determining the 
simulated market. Cannings argues that in making this statement, the 
Panel acknowledged that BMI's methodology did not provide the complete 
picture of a simulated market, and therefore should not be used at all.
    Cannings submits that the Panel should not have used BMI's 
distribution methodology because the independent arbitrator did not use 
it in the 1993 distribution proceeding. He states that the $4,800 he 
received from the arbitrator is the only credible evidence of market 
value in this proceeding. In addition, Cannings asserts that $1.50 was 
not BMI's rate for a feature performance on a commercial station in 
1991, though he does not state what he believes the rate to have been. 
Cannings does state that the $1.50 rate includes BMI's administrative 
costs and that, because he no longer is a BMI member, the rate should 
be adjusted upwards. Cannings, however, does not state what the proper 
rate should be.
    With respect to the Panel's determination not to award Cannings 
interest on his claim, Cannings asserts that 17 U.S.C. 111(d)(2) 
provides that he is entitled to interest. Cannings also cites the 
provision of the Copyright Office distribution order (which distributed 
the Phase I monies to the Music Claimants after they notified the 
Office that they had reached settlement with the other Phase I parties) 
that states that as a condition of the distribution, Music Claimants 
agree to return any overpaid amounts with interest. Regarding 
calculation of the proper amount of interest owed, Cannings submits 
that he asked the Panel to award him interest from the date of initial 
investment with the U.S. Treasury of the 1991 cable funds by the 
Copyright Office, and that he provided the Panel with an ``Interest 
Rate Table'' obtained from the Copyright Office for each deposit of 
1991 cable royalties made with the Treasury.
    Finally, Cannings alleges that he was a victim of racial bias and 
discrimination in this proceeding because he is black and is a pro se 
litigant. He describes the chairperson of the Panel as acting 
``impetuously'' toward him in the prehearing conference. No other facts 
or circumstances are offered as evidence of discrimination or bias.
2. Music Claimants Reply
    Music Claimants assert that the award to Cannings is proper and 
clearly fits within the ``zone of reasonableness'' afforded CARP 
decisions.
    Music Claimants state that the Panel properly rejected reliance 
upon the independent arbitration award because that private arbitration 
did not set a rate for distant signal performances on WWOR, but rather 
was a private contractual proceeding between BMI and Mr. Cannings 
brought pursuant to Mr. Cannings' BMI affiliation agreement. Music 
Claimants assert that the BMI arbitration is not recognized precedent 
in CARP proceedings and that to have blindly followed it would amount 
to an abdication of the Panel's responsibility to determine the correct 
distribution in this proceeding.
    Music Claimants assert that Cannings' methodology for calculating 
the value of his two performances on WWOR-TV is fatally flawed and 
discriminatory, because it would result in the value of a Cannings 
performance being nearly forty times the value of an identically 
situated BMI affiliate whose work was performed on WWOR-TV. Music 
Claimants also state that the BMI distribution methodology used by the 
Panel in this proceeding is an accurate representation of market rate, 
and that it was correct for the Panel to use the distribution formula 
in determining the ``simulated market'' for works in this proceeding.
    With respect to interest, Music Claimants argue that the Panel 
correctly refused him an interest award because Cannings failed to 
present credible evidence of entitlement. The Copyright Office 
``Interest Rate Table'' submitted by Cannings is interest charged to 
cable operators for late compulsory license payments, not interest paid 
to individual copyright claimants in Phase II proceedings.
    Finally, Music Claimants state that Cannings' charges of bias and 
discrimination are outrageous and unsupportable.
C. Review of the Panel's Determination
    After reviewing the Panel's report and record in this proceeding, 
the Register concludes that the Panel did not act arbitrarily or 
contrary to the provisions of the Copyright Act in determining the 
value of Cannings' Phase II cable royalty claim as $63.74. 
Consequently, the Register recommends that the Librarian affirm the 
$63.74 award to Cannings, and directs the Music Claimants to pay him 
that amount.
1. The Value of Cannings' Claim
    As summarized above, the centerpiece of Cannings' claim for $2,400 
in Phase II cable royalties is the BMI arbitration proceeding involving 
a total of four performances of ``Reggae Christmas'' on WWOR-TV during 
the 1980's. The Panel rejected the BMI arbitration award as evidence of 
the value of a Cannings performance under the section 111 compulsory 
license because the BMI award was issued without explanation, was not a 
CARP or Copyright Royalty Tribunal proceeding, and involved a different 
musical work. The Register finds this determination of the Panel to be 
neither arbitrary nor contrary to the provisions of the Copyright Act. 
Private arbitration awards have no precedential weight in CARP 
proceedings. See 17 U.S.C. 802(c) (only prior CARP and Copyright 
Royalty Tribunal decisions, and rulings of the Librarian, have 
precedential value). The BMI arbitration award, and the circumstances 
surrounding it, are therefore probative in this proceeding only to the 
extent that the award sheds light on the value of two performances of 
``Misery'' in 1991 on WWOR-TV. The Panel was well within its discretion 
to reject the BMI arbitration award as evidence, particularly where it 
involved a different work, performed in different years, and was made 
without any written explanation.4
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    \4\ Cannings' assertion in his petition to modify that the 
evidence he submitted to the independent arbitrator was 
``suppressed'' in this proceeding is belied by the fact that the 
Panel did accept Cannings' evidentiary submissions on the BMI 
arbitration and addressed them in its decision. See Panel Report at 
9-10.
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    The Panel did not act arbitrarily or contrary to the Copyright Act 
by adopting the approach of a ``simulated market'' in valuating 
Cannings'' claim. The Copyright Act does not offer guidance as to how 
cable compulsory license revenues are to be divided among copyright 
owners. The Phase I CARP for the distribution of 1991 cable royalties 
used a ``simulated market'' approach in dividing the royalties among 
Phase I claimants and, contrary to Cannings' assertion, there is no 
prohibition on the use of that approach in Phase II proceedings. In 
fact, while not describing it as such, the Copyright Royalty Tribunal 
took a decidedly marketplace value approach in making its cable Phase 
II awards. See e.g., 53 FR 7132 (March 4, 1988) (1985 cable Phase II).
    The Panel selected BMI's internal distribution methodology as the 
best evidence of a simulated market in valuing the retransmission of 
musical works by cable systems. Cannings contends that the only 
evidence in the record of an actual marketplace transaction involving 
his works is the BMI arbitration award. Arbitration awards are not 
direct evidence of

[[Page 20433]]

marketplace value. If arbitrations are surrogates for marketplace value 
at all, it is only because they become necessary where the market has 
failed--i.e. the buyer and seller are unable to negotiate the 
compensation paid. BMI's distribution methodology represents a 
consensus approach endorsed by thousands of BMI's songwriter and music 
publisher members. While there are undoubtably disgruntled BMI members 
who feel, like Cannings, that the compensation paid is too low, this is 
not conclusive evidence that BMI's distribution methodology is not 
probative evidence of the market value of cable retransmissions of 
musical works. The Panel was well within its discretion to credit BMI's 
distribution methodology and adopt its approach.
    With respect to Cannings' allegations of racial bias and 
discrimination, Cannings has offered no evidence in support of these 
contentions, and the Register cannot find any evidence in the record 
suggesting bias or discriminatory action. Cannings' charge of 
``impetuous'' behavior on the part of the Chairman of the Panel towards 
him during the pre-hearing conference neither proves nor suggests 
improper behavior, and there is no supportable reason for overturning 
the decision of the Panel on these grounds. If anything, the Panel was 
exceedingly flexible and accommodating in allowing Cannings to make his 
case in this proceeding.
    In summary, the Register determines that the Panel did not act 
arbitrarily or contrary to the Copyright Act in valuing Cannings' Phase 
II claim at $63.74, and recommends that the Librarian adopt this 
determination.
2. Interest on Cannings' Award
    Cannings requested that he be awarded interest on his claim, 
calculated from deposit of the 1991 cable royalties. Music Claimants 
assert that Cannings is not entitled to interest. The Panel did not 
award interest because it could not find any Copyright Royalty Tribunal 
precedent for doing so, and it could not find any ``supportable method 
to award or compute interest.'' Panel Report at 21.
    The Register determines that it was reasonable for the Panel not to 
award Cannings interest on his claim. Under Tribunal precedent, 
copyright owners were not entitled to a distribution of royalties, or 
any interest that had accrued on those royalties, until the Tribunal 
affirmatively determined their entitlement. See 50 FR 6028 (February 
13, 1985) (1979-82 cable distribution) (Tribunal not ``responsible for 
time value lost on an allocation which had not yet been determined''); 
53 FR 7132 (March 4, 1988) (1985 Phase II cable distribution) (no 
interest given on dollar award to Asociacion de Compositores y Editores 
de Musica Latinoamericana). Consequently, there are no established 
grounds or methodology for awarding interest. Because there is no 
requirement that the Panel assess interest in this proceeding, the 
Register cannot conclude that the Panel acted arbitrarily or contrary 
to the Copyright Act by not awarding Cannings interest on his claim.
3. Award to Cannings
    By Order dated August 3, 1995, the Copyright Office distributed the 
full amount of the music category's Phase I entitlement (4.5% of the 
total 1991 cable royalties) to the Music Claimants. Order in Docket No. 
94-3 CARP CD 90-92). As a result, there were no funds retained to 
satisfy any Phase II award against the Music Claimants' royalties. 
However, the Order required reimbursement should an overpayment of 
royalties occur. The Music Claimants were overpaid $63.74, the amount 
of Cannings' award. The Register recommends that, in affirming the 
Panel's award, the Librarian order Music Claimants to pay Cannings 
$63.74 in satisfaction of his claim.

V. Order of the Librarian

    Having duly considered the recommendation of the Register of 
Copyrights regarding the Report of the Copyright Arbitration Royalty 
Panel in the matter of the Phase II controversy for the distribution of 
1991 cable royalty fees, 17 U.S.C. 111, the Librarian of Congress fully 
endorses and adopts her recommendation to accept the Panel's 
determination. The Librarian also dismisses the ``supplemental reply'' 
of BMI as untimely.
    The Librarian orders that Music Claimants submit payment to James 
Cannings in the amount of $63.74, no later than May 15, 1998.

    Dated: April 20, 1998.
Marybeth Peters,
Register of Copyrights.

    Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 98-10923 Filed 4-23-98; 8:45 am]
BILLING CODE 1410-33-P