[Federal Register Volume 63, Number 247 (Thursday, December 24, 1998)]
[Proposed Rules]
[Pages 71249-71251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34027]


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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: Notice of proposed rulemaking.

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SUMMARY: The Copyright Office of the Library of Congress is submitting 
for public comment proposed regulations which set the royalty rate for 
the delivery of digital phonorecords in general and defer until the 
next scheduled rate adjustment proceeding further consideration of the 
royalty rate for the delivery of a digital phonorecord where the 
reproduction or distribution is incidental to the transmission which 
constitutes a digital phonorecord delivery.

DATES: Comments are due by January 25, 1999.

ADDRESSES: If sent by mail, an original and five copies of comments, 
should be addressed to: Copyright Arbitration Royalty Panel (``CARP''), 
PO Box 70977, Southwest Station, Washington, DC 20024. If hand 
delivered, an original and five copies of comments, should be brought 
to: Office of the Copyright General Counsel, James Madison Memorial 
Building, Room LM-403, First and Independence Avenue, SE., Washington, 
DC 20559-6000.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
Tanya M. Sandros, Attorney Advisor, Copyright Arbitration Royalty Panel 
(``CARP''), PO Box 70977, Southwest Station, Washington, DC 20024. 
Telephone (202) 707-8380. Telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION: 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. Among other things, 
it confirms and clarifies that the scope of the compulsory license to 
make and distribute phonorecords of nondramatic musical compositions 
includes the right to distribute or authorize distribution by means of 
a digital transmission which constitutes a ``digital phonorecord 
delivery.'' 17 U.S.C. 115(c)(3)(A). A ``digital phonorecord delivery'' 
is defined as ``each individual delivery of a phonorecord by digital 
transmission of a sound recording which results in a specifically 
identifiable reproduction by or for any transmission recipient of a 
phonorecord of that sound recording * * *.'' 17 U.S.C. 115(d).
    The Digital Performance Act established that the rate for all 
digital phonorecord deliveries (``DPDs'') made or authorized under a 
compulsory license on or before December 31, 1997, was the same rate in 
effect for the making and distribution of physical phonorecords. 17 
U.S.C. 115(c)(3)(A)(i). For digital phonorecord deliveries made or 
authorized after December 31, 1997, the Digital Performance Act 
established a two-step process for determining the terms and rates. 17 
U.S.C. 115(c)(3)(A)(ii). The first step in the process is a voluntary 
negotiation period initiated by the Librarian of Congress to enable 
copyright owners and users of the section 115 digital phonorecord 
delivery license to negotiate the terms and rates of the license. The 
Librarian initiated this period on July 17, 1996, and directed it to 
end on December 31, 1996. 61 FR 37213 (July 17, 1996).
    The second step of the process is the convening of a Copyright 
Arbitration Royalty Panel (``CARP'') to determine reasonable terms and 
rates for digital phonorecord deliveries for parties not subject to a 
negotiated agreement. In the July 17, 1996, Federal Register notice, 
the Library stated that CARP proceedings would begin, in accordance 
with the rules of 37 CFR part 251, on January 31, 1997. 61 FR 37214 
(July 17, 1996). The Library also directed those parties not subject to 
a negotiated agreement to file their petitions to convene a CARP, as 
required by 17 U.S.C. 115(c)(3)(D), by January 10, 1997, and their 
Notices of Intent to Participate in CARP proceedings by January 17, 
1997. 61 FR 37214-15 (July 17, 1996). In addition, the Library directed 
interested parties to comment by November 8, 1996, on the possibility 
of consolidating the CARP proceeding to determine terms and rates for 
digital phonorecord deliveries with the proceeding to adjust the 
mechanical royalty rate for the making and distributing of physical 
phonorecords. 61 FR 37215 (July 17, 1996).
    On November 8, 1996, the Library received a joint motion from the 
Recording Industry Association of America (``RIAA''), the National 
Music Publishers' Association, Inc. (``NMPA''), and The Harry Fox 
Agency, Inc. (``Harry Fox'') to vacate the scheduled dates appearing in 
the July 17, 1996, Federal Register notice for convening a CARP. The 
Library vacated the schedule on December 11, 1996, and established a 
new precontroversy discovery schedule and date for the filing of 
Notices of Intent to Participate. 61 FR 65243 (December 11, 1996).
    After publication of the new schedule, representatives of the RIAA, 
NMPA and Harry Fox informed the Library that terms and rates for 
digital phonorecord deliveries could be negotiated through voluntary 
agreement and requested that the Library vacate the new schedule to 
allow sufficient time for such negotiations. The Library vacated the 
new schedule on February 3, 1997. 62 FR 5057 (February 3, 1997). In 
time, the parties did reach a voluntary agreement and, pursuant to the 
rules, the Library published the proposed rates and terms for digital 
phonorecord deliveries for public comment. 62 FR 63506 (December 1, 
1997). In that notice of proposed rulemaking, the Library specified 
that any party that objected to the proposed rates and terms was 
required to file a Notice of Intent to Participate and was expected to 
fully participate in a CARP proceeding. 62 FR 63507 (December 1, 
1997).1
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    \1\ On July 1, 1998, the Copyright Office published a notice 
requesting that any other party with an interest in participating in 
a CARP proceeding to establish the rates and terms for digital 
phonorecord deliveries file a Notice of Intent to Participate. 63 FR 
35984 (July 1, 1998). In response to this request, the Office 
received Notices of Intent to Participate from the RIAA, NMPA, Harry 
Fox, the Songwriters Guild of America (``SGA''), the American 
Federation of Television and Radio Artists (``AFTRA''), America 
Online, Inc. (``AOL''), Digital Cable Radio Associates (``DCR''), 
SESAC, Inc., and the American Society for Composers, Authors and 
Publishers (``ASCAP'').
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    Three parties filed comments to the proposed terms and rates, the 
United States Telephone Association (``USTA''), the Coalition of 
Internet Webcasters (``Webcasters''), and Broadcast Music, Inc. 
(``BMI''). USTA and the Webcasters also filed their Notices of Intent 
to Participate because they challenged directly the proposed rates and 
terms for the delivery of incidental digital phonorecord deliveries. 
BMI, on the other hand, did not file a Notice of Intent to Participate

[[Page 71250]]

because it limited its comments to a request for an amendment to the 
proposed regulations which would ``state that nothing herein affects 
the public performance right under 17 U.S.C. 106(4).'' BMI comment at 
3.
    These comments served to identify heretofore unknown parties who 
have a significant interest in the setting of the rates and terms for 
the delivery of digital phonorecord deliveries. Consequently, the 
parties entered a new round of negotiations in an attempt to resolve 
the noted concerns and reach a voluntary agreement.
    On October 14, 1998, the NMPA, SGA, and RIAA submitted a memorandum 
to the Copyright Office requesting that it adopt the unopposed rate for 
the delivery of digital phonorecords in general and the schedule for 
future rate adjustment proceedings set forth in the November 5, 1997, 
petition, and that it either adopt the proposed rates and terms for 
incidental digital phonorecord deliveries set forth in the proposed 
regulations or sever and defer further consideration of these rates and 
terms until the next rate adjustment proceeding. The Copyright Office 
then offered the parties who had filed a Notice of Intent to 
Participate an opportunity to comment on the memorandum. See Order, 
Docket No. 96-4 CARP DPRA (October 16, 1998).
    USTA responded that its concerns were fully addressed by the 
memorandum; and the three performing rights organizations, ASCAP, BMI, 
and SESAC, filed a joint comment which generally supported the 
recommendations outlined in the NMPA/SGA/RIAA memorandum, provided that 
the final regulations included a provision recognizing that the section 
115 license does not affect in any way the public performance rights 
granted under 17 U.S.C. 106(4). Similarly, the Webcasters filed 
comments which supported the adoption of the rate and terms for digital 
phonorecord deliveries in general and the suggestion to sever and defer 
further consideration of rates and terms for incidental DPDs until the 
next rate adjustment proceeding with two modifications. First, the 
Webcasters sought an amendment to the proposed rules that would allow a 
party to petition the Copyright Office for a proceeding to set a rate 
for the transmission of an incidental digital phonorecord delivery 
prior to the next scheduled date. Second, the Webcasters requested that 
no rate be set for the incidental DPDs prior to the completion of a 
study required by Congress under section 104 of the Digital Millennium 
Copyright Act of 1998 (``DMCA''), subject to the right to petition for 
an interim rate adjustment proceeding.
    In reply comments, NMPA/SGA/RIAA agreed to the ASCAP/BMI/SESAC 
suggestion for a clarification and the Webcasters' suggestion for a 
right to petition for a rate adjustment proceeding for incidental DPDs 
during the interim period. However, they did not support the 
Webcasters' request to postpone the rate adjustment proceeding for 
incidental DPDs until the Office completes its study on the operation 
of sections 109 and 117 of the Copyright Act, 17 U.S.C., as effected by 
Title I of the DMCA.
    On December 4, 1998, the NMPA/SGA/RIAA submitted a joint petition 
for adjustment of digital phonorecord delivery royalty rates, 
incorporating the proposed modifications except for the suggestion to 
postpone the rate adjustment proceeding until the completion of the 
study. The petition was filed pursuant to 17 U.S.C. 115(c) and 803(a) 
and 37 CFR 251.63(b). Section 251.63(b) allows the Librarian, at the 
request of the parties, to adopt rates and terms embodied in a proposed 
settlement without convening an arbitration panel, once the Librarian 
conducts a notice-and-comment proceeding so long as no party with an 
intent to participate in a CARP proceeding files a substantive comment 
opposing the proposed regulations. See e.g., 62 FR 63502 (December 1, 
1997) (proposing regulations setting rates and terms for the section 
118 license).
    Accordingly, the Copyright Office is publishing for public comment 
the rates and terms embodied in the December 4, 1998, joint petition. 
Any party who objects to the proposed rates and terms for digital 
phonorecord deliveries must file a written objection with the Copyright 
Office and an accompanying Notice of Intent to Participate, if the 
party has not already done so. The content of the written challenge 
should describe the party's interest in the proceeding, the proposed 
rule the party finds objectionable, and the reasons for the challenge. 
If no comments are received, the regulations shall become final upon 
publication of a final rule, and pursuant to proposed Secs. 255.5(b) 
and 255.7 will cover the period from January 1, 1998, to January 1, 
2001. See 17 U.S.C. 115(c)(3)(A).

List of Subjects in 37 CFR Part 255

    Copyright, Recordings.

    For the reasons set forth in the preamble, the Library proposes to 
amend 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.

    2. Revise Sec. 255.5 to read as follows:


Sec. 255.5  Royalty rate for digital phonorecord deliveries in general.

    (a) For every digital phonorecord delivery made on or before 
December 31, 1997, 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.
    (b) For every digital phonorecord delivery made on or after January 
1, 1998, except for digital phonorecord deliveries where the 
reproduction or distribution of a phonorecord is incidental to the 
transmission which constitutes the digital phonorecord delivery, as 
specified in 17 U.S.C. 115(c)(3)(C) and (D), the royalty rate payable 
with respect to each work embodied in the phonorecord shall be the 
royalty rate prescribed in Sec. 255.3 for the making and distribution 
of a phonorecord made and distributed on the date of the digital 
phonorecord delivery (the ``Physical Rate''). In any future proceeding 
under 17 U.S.C. 115(c)(3)(C) or (D), the royalty rates payable for a 
compulsory license for digital phonorecord deliveries in general shall 
be established de novo, and no precedential effect shall be given to 
the royalty rate payable under this paragraph for any period prior to 
the period as to which the royalty rates are to be established in such 
future proceeding.
    3. Add Sec. 255.6 through Sec. 255.8 to read as follows:


Sec. 255.6  Royalty rate for incidental digital phonorecord deliveries.

    The royalty rate for digital phonorecord deliveries where the 
reproduction or distribution of a phonorecord is incidental to the 
transmission which constitutes a digital phonorecord delivery, as 
specified in 17 U.S.C. 115(c)(3)(C) and (D), is deferred for 
consideration until the next digital phonorecord delivery rate 
adjustment proceeding pursuant to the schedule set forth in Sec. 255.7; 
provided, however, that any owner or user of a copyrighted work with a 
significant interest in such royalty rate, as provided in 17 U.S.C. 
803(a)(1), may petition the Librarian of Congress to establish a rate 
prior to the commencement of the next digital

[[Page 71251]]

phonorecord delivery rate adjustment proceeding. In the event such a 
petition is filed, the Librarian of Congress shall proceed in 
accordance with 17 U.S.C. 115(c)(3)(D), and all applicable regulations, 
as though the petition had been filed in accordance with 17 U.S.C. 
803(a)(1).


Sec. 255.7  Future Proceedings.

    The procedures specified in 17 U.S.C. 115(c)(3)(C) shall be 
repeated in 1999, 2001, 2003, and 2006 so as to determine the 
applicable rates and terms for the making of digital phonorecord 
deliveries during the periods beginning January 1, 2001, 2003, 2005, 
and 2008. The procedures specified in 17 U.S.C. 115(c)(3)(D) shall be 
repeated, in the absence of license agreements negotiated under 17 
U.S.C. 115(c)(3)(B) and (C), upon the filing of a petition in 
accordance with 17 U.S.C. 803(a)(1), in 2000, 2002, 2004, and 2007 so 
as to determine new rates and terms for the making of digital 
phonorecord deliveries during the periods beginning January 1, 2001, 
2003, 2005, and 2008. Thereafter, the procedures specified in 17 U.S.C. 
115(c)(3)(C) and (D) shall be repeated in each fifth calendar year. 
Notwithstanding the foregoing, different years for the repeating of 
such proceedings may be determined in accordance with 17 U.S.C. 
115(c)(3)(C) and (D).


Sec. 255.8  Public performances of sound recordings and musical works.

    Nothing in this part annuls or limits the exclusive right to 
publicly perform a sound recording or the musical work embodied 
therein, including by means of a digital transmission, under 17 U.S.C. 
106(4) and 106(6).

    Dated: December 18, 1998.
Marybeth Peters,
Register of Copyrights.

    Approved by:
James H. Billington,
The Librarian of Congress.
[FR Doc. 98-34027 Filed 12-23-98; 8:45 am]
BILLING CODE 1410-33-P