[Federal Register Volume 68, Number 20 (Thursday, January 30, 2003)]
[Proposed Rules]
[Pages 4744-4747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2081]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 260

[Docket No. 2001-1 CARP DSTRA2]


Determination of Reasonable Rates and Terms for the Digital 
Performance of Sound Recordings by Preexisting Subscription Services

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Copyright Office is requesting comment on proposed 
regulations that set rates and terms for the use of sound recordings by 
preexisting subscription services for the period January 1, 2002 
through December 31, 2007.

DATES: Comments are due no later than March 3, 2003.

ADDRESSES: An original and five copies of any comment shall be 
delivered by hand to: Office of the General Counsel, Copyright Office, 
James Madison Building, Room LM-403, First and Independence Avenue, SE. 
Washington, DC; or mailed to: Copyright Arbitration Royalty Panel 
(CARP), P.O. Box 70977, Southwest Station, Washington, DC 20024-0977.

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

SUPPLEMENTARY INFORMATION:

Background

    Section 106(6) of the Copyright Act, title 17 of the United States 
Code, gives a copyright owner of sound recordings an exclusive right to 
perform the copyrighted works publicly by means of a digital audio 
transmission. This right is limited by section 114(d), which allows 
certain non-interactive digital audio services to make digital 
transmissions of a sound recording under a compulsory license, provided 
that the services pay a reasonable royalty fee and comply with the 
terms of the license. Moreover, these services may make any necessary 
ephemeral

[[Page 4745]]

reproductions to facilitate the digital transmission of the sound 
recording under a second license set forth in section 112(e) of the 
Copyright Act.
    The procedure for setting the rates and terms for these two 
statutory licenses is a two-step process. 17 U.S.C. 112(e)(3),(4) and 
(6) and 17 U.S.C. 114(f)(1). The first step requires the Librarian of 
Congress to initiate a voluntary negotiation period to give interested 
parties an opportunity to determine the applicable rates and terms 
through a less formal process. However, if the parties are unable to 
reach an agreement during this period, sections 112(e)(4) and 
114(f)(1)(B) directs the Librarian of Congress to convene a three-
person Copyright Arbitration Royalty Panel (``CARP'') for the purpose 
of determining the rates and terms for the compulsory license upon 
receipt of a petition filed in accordance with 17 U.S.C. 803(a)(1).
    The first proceeding to set rates and terms for the section 114 
license for preexisting subscription services began in 1995 and 
concluded with the issuance of a final rule and order by the Librarian 
of Congress on May 8, 1998. See 63 FR 25394 (May 8, 1998). The parties 
in that proceeding numbered four: the Recording Industry Association of 
America (``RIAA''); Digital Cable Radio Associates, now known as Music 
Choice; DMX Music, Inc. (``DMX''); and Muzak, L.P. (``Muzak'').
    Later that same year, Congress passed the Digital Millennium 
Copyright Act (``DMCA''), amending the section 114 statutory license to 
cover additional transmission services and extending the term of the 
existing section 114 license rate as it applies to preexisting 
subscription services \1\ through December 31, 2001. The DMCA also 
created a new statutory license to allow for the making of ephemeral 
reproductions for the purpose of facilitating certain digital audio 
transmissions, including those made by preexisting subscription 
services.
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    \1\ In the DMCA, Congress recognized two types of subscription 
services that were either in operation on or before July 31, 1998, 
or licensed by the Federal Communications Commission pursuant to a 
satellite digital audio radio service license on or before July 31, 
1998. The former were designated as ``preexisting subscription 
services'' and the latter were termed a ``preexisting satellite 
digital audio radio service.'' See 17 U.S.C. 114(j)(10) and (11).
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    In accordance with the time frame set forth in the law for the 
purpose of setting rates and terms for use of the section 114 license 
by preexisting services, the Copyright Office published a notice in the 
Federal Register on January 9, 2001. 66 FR 1700 (January 9, 2001). This 
notice initiated a six-month negotiation period the purpose of which 
was to provide an opportunity for interested parties to set rates and 
terms for use of the section 114 license as it applied to both the 
preexisting subscription services and the preexisting satellite digital 
audio radio services. Unfortunately, no agreement was reached by the 
end of that period. Consequently, Music Choice and RIAA filed separate 
petitions with the Copyright Office, requesting that the Librarian of 
Congress convene a CARP to determine the rates and terms for both 
categories of preexisting services.
    On November 13, 2001, the Copyright Office initiated the next phase 
of the rate adjustment proceeding with the publication of a notice in 
the Federal Register calling for Notices of Intent to Participate. 66 
FR 58180 (November 13, 2001). Music Choice, DMX, Muzak, RIAA, the 
American Federation of Television and Radio Artists (``AFTRA''), the 
American Federation of Musicians of the United States and Canada 
(``AFM''), XM Satellite Radio, Inc., and Sirius Satellite Radio, Inc. 
filed the requisite notices with the Office, and the Office scheduled 
the 45-day precontroversy discovery period. Initially, it set the date 
for the filing of direct cases for December 2, 2002. Order in Docket 
No. 2001-1 CARP DSTRA2, dated September 12, 2002. However, at the 
request of the parties, the Office readjusted the schedule and set 
February 24, 2003, as the new date for the filing of direct cases. 
Order in Docket No. 2001-1 CARP DSTRA2, dated December 16, 2003. 
However, in light of a petition filed with the Copyright Office, a 
hearing may not be necessary to establish rates and terms for the use 
of sound recordings by the preexisting services.

Joint Petition for Adjustment of Rates and Terms Applicable to 
Preexisting Subscription Services

    On January 17, 2003, RIAA, AFTRA, AFM, Music Choice, DMX Music, 
Inc. and Muzak, LLC (collectively, ``Petitioners'') filed a joint 
petition for adjustment of rates and terms for statutory licenses 
applicable to preexisting subscription services and a request for an 
immediate stay of the obligation to file direct cases on February 24, 
2002.\2\ Having reached agreement on the rates and terms for the use of 
sound recordings by preexisting services for the period January 1, 
2002, through December 31, 2007, the petitioners request that the 
Office publish the proposed rates and terms for public comment in lieu 
of convening a CARP to determine the rates and terms for this period.
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    \2\ The request for an immediate stay of the petitioners' 
obligation to file direct cases on February 24, 2002, will be 
addressed in a separate order.
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    Pursuant to Sec.  251.63(b) of title 37 of the Code of Federal 
Regulations, the Librarian can adopt the parties' proposed terms 
without convening a CARP, provided that the proposed terms are 
published in the Federal Register and no interested party with an 
intent to participate in the proceeding files a comment objecting to 
the proposed terms. In other words, unless there is an objection from a 
person with a significant interest in the proceeding who is prepared 
and eligible to participate in a CARP proceeding, the purpose of which 
is to adopt rates and terms for preexisting subscription services that 
use sound recordings to make digital audio transmissions pursuant to 
the section 112 and section 114 statutory licenses, the Librarian can 
adopt the rates and terms in the proposed settlement in final 
regulations without convening a CARP. This procedure to adopt 
negotiated rates and terms in the case where an agreement has been 
reached has been specifically endorsed by Congress.

    If an agreement as to rates and terms is reached and there is no 
controversy as to these matters, it would make no sense to subject 
the interested parties to the needless expense of an arbitration 
proceeding conducted under (section 114(f)(2) (1995)). Thus, it is 
the Committee's intention that in such a case, as under the 
Copyright Office's current regulations concerning rate adjustment 
proceedings, the Librarian of Congress should notify the public of 
the proposed agreement in a notice-and-comment proceeding and, if no 
opposing comment is received from a party with a substantial 
interest and an intent to participate in an arbitration proceeding, 
the Librarian of Congress should adopt the rates embodied in the 
agreement without convening an arbitration panel.

S. Rep. No. 104-128, at 29 (1995)(citations omitted).
    Accordingly, the Copyright Office is granting the joint petition 
and is publishing for public comment the proposed rates and terms 
embodied in the January 17, 2003, joint petition. Any party who objects 
to the proposed rates and terms set forth herein 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

[[Page 4746]]

publication of a final rule, and shall cover the period from January 1, 
2002, to December 31, 2007.

List of Subjects in 37 CFR Part 260

    Copyright, Digital Audio Transmissions, Performance Right, Sound 
Recordings.

Proposed Regulation

    In consideration of the foregoing, the Copyright Office proposes 
amending part 260 of 37 CFR as follows:

PART 260--USE OF SOUND RECORDINGS IN A DIGITAL PERFORMANCE

    1. The authority citation for part 260 continues to read as 
follows:

    Authority: 17 U.S.C. 114, 801(b)(1)

    2. The heading of Part 260 is revised as follows:

PART 260--RATES AND TERMS FOR PREEXISTING SUBSCRIPTION SERVICES' 
DIGITAL TRANSMISSIONS OF SOUND RECORDINGS AND THE MAKING OF 
EPHEMERAL PHONORECORDS

    3. Section 260.1 is revised to read as follows:


Sec.  260.1  General

    (a) This part 260 establishes rates and terms of royalty payments 
for the public performance of sound recordings by nonexempt preexisting 
subscription services in accordance with the provisions of 17 U.S.C. 
114(d)(2), and the making of ephemeral phonorecords in connection with 
the public performance of sound recordings by nonexempt preexisting 
subscription services in accordance with the provisions of 17 U.S.C. 
112(e).
    (b) Upon compliance with 17 U.S.C. 114 and the terms and rates of 
this part, nonexempt preexisting subscription services may engage in 
the activities set forth in 17 U.S.C. 114(d)(2).
    (c) Upon compliance with 17 U.S.C. 112(e) and the terms and rates 
of this part, nonexempt preexisting subscription services may engage in 
the activities set forth in 17 U.S.C. 112(e) without limit to the 
number of ephemeral phonorecords made.
    (d) For purposes of this part, Licensee means any preexisting 
subscription service as defined in 17 U.S.C. 114(j)(11).
    4. Section 260.2 is amended as follows:
    a. By revising the section heading;
    b. By revising paragraphs (a) and (b);
    c. By redesignating paragraph (c) as paragraph (e), and adding a 
new paragraph (c);
    d. By redesignating paragraph (d) as paragraph (f), and adding a 
new paragraph (d);
    e. In redesignated paragraph (e)(1)(ii) by adding ``a'' before 
``recognized advertising agency'';
    f. In redesignated paragraphs (e)(1)(iii) and (vi), by removing 
``Programming Service'' and adding ``programming service'' in its 
place; and
    g. In redesignated paragraphs (e)(1)(viii) and (e)(2), by removing 
``(c)'' and adding ``(e)'' in its place.
    The additions and revisions to Sec.  260.2 read as follows:


Sec.  260.2  Royalty fees for the digital performance of sound 
recordings and the making of ephemeral phonorecords by preexisting 
subscription services.

    (a) Commencing January 1, 2002 and continuing through December 31, 
2003, a Licensee's monthly royalty fee for the public performance of 
sound recordings pursuant to 17 U.S.C. 114(d)(2) and the making of any 
number of ephemeral phonorecords to facilitate such performances 
pursuant to 17 U.S.C. 112(e) shall be 7.0% of such Licensee's monthly 
gross revenues resulting from residential services in the United 
States.
    (b) Commencing January 1, 2004 and continuing through December 31, 
2007, a Licensee's monthly royalty fee for the public performance of 
sound recordings pursuant to 17 U.S.C. 114(d)(2) and the making of any 
number of ephemeral phonorecords to facilitate such performances 
pursuant to 17 U.S.C. 112(e) shall be 7.25% of such Licensee's monthly 
gross revenues resulting from residential services in the United 
States.
    (c) Commencing in the year 2003 and continuing through the year 
2007, each Licensee making digital performances of sound recordings 
pursuant to 17 U.S.C. 114(d)(2) and ephemeral phonorecords pursuant to 
17 U.S.C. 112(e) shall make an advance payment of $100,000 per year, 
payable no later than January 20th of each year; Provided, however, 
that for 2003, the annual advance payment shall be due on [the 20th day 
following the month in which these rates and terms are published in the 
Federal Register notice as a final rule]. The annual advance payment 
shall be nonrefundable, but the royalties due and payable for a given 
year or any month therein under paragraphs (a) and (b) of this section 
shall be recoupable against the annual advance payment for such year; 
Provided, however, that any unused annual advance payment for a given 
year shall not carry over into a subsequent year.
    (d) A Licensee shall pay a late fee of 1.5% per month, or the 
highest lawful rate, whichever is lower, for any payment received after 
the due date. Late fees shall accrue from the due date until payment is 
received.
* * * * *
    5. Section 260.3 is amended as follows:
    a. In paragraph (b), by removing ``twentieth'' and adding ``forty-
fifth'' in its place;
    b. By revising paragraphs (d) and (e); and
    c. By adding a new paragraph (f).
    The additions and revisions to Sec.  260.3 read as follows:


Sec.  260.3  Terms for making payments of royalty fees.

* * * * *
    (d) The designated agent may deduct from any of its receipts paid 
by Licensees under Sec.  260.2, prior to the distribution of such 
receipts to any person or entity entitled thereto, the reasonable costs 
permitted to be deducted under 17 U.S.C. 114(g)(3); Provided, however, 
that the parties entitled to receive royalty payments according to the 
provisions set forth at 17 U.S.C. 114(g)(1) & (2) who have authorized a 
designated agent may agree to deduct such other costs agreed to by such 
other parties and the designated agent.
    (e) Until such time as a new designation is made, SoundExchange, 
which initially is an unincorporated division of the Recording Industry 
Association of America, Inc., shall be the agent receiving royalty 
payments and statements of account and shall continue to be designated 
if it should be separately incorporated.
    (f) A Licensee shall make any payments due under Sec.  260.2(a) for 
digital transmissions or ephemeral phonorecords made between January 1, 
2002, and [last day of the month in which these rates and terms are 
published in the Federal Register as a final rule] 2003, to the 
Designated Agent, less any amounts previously paid by such period to 
the Recording Industry Association of America, Inc., or SoundExchange 
by [the 45th day following the month in which these rates and terms are 
published in the Federal Register notice as a final rule].
    6. Section 260.4 is amended as follows:
    a. In paragraphs (a) and (b), by removing ``nonexempt subscription 
digital transmission service'' in each place it appears and adding 
``nonexempt preexisting subscription service'' in its place; and
    b. By revising paragraphs (d)(1) and (e).
    The revisions to Sec.  260.4 read as follows:

[[Page 4747]]

Sec.  260.4  Confidential information and statements of account.

* * * * *
    (d)(1)Those employees, agents, consultants and independent 
contractors of the designated agent, subject to an appropriate 
confidentiality agreement, who are engaged in the collection and 
distribution of royalty payments hereunder and activities directly 
related hereto, who are not also employees or officers of a sound 
recording copyright owner or performing artist, and who, for the 
purpose of performing such duties during the ordinary course of 
employment, require access to the records; and
* * * * *
    (e) The designated agent or any person identified in paragraph (d) 
of this section shall implement procedures to safeguard all 
confidential financial and business information, including, but not 
limited to royalty payments, submitted as part of the statements of 
account, using a reasonable standard of care, but no less than the same 
degree of security used to protect confidential financial and business 
information or similarly sensitive information belonging to the 
designated agent or such person.
* * * * *


Sec.  260.5  [Amended]

    7. Section 260.5(b) is amended by removing ``nonexempt subscription 
digital transmission service'' and adding ``nonexempt preexisting 
subscription service'' in its place.


Sec.  260.6  [Amended]

    8. Section 260.6(g) is amended by removing ``copyright owners''.


Sec.  260.7  [Amended]

    9. Section 260.7 is amended by removing ``the cost of the 
administration of the collection and distribution of the royalty fees' 
and adding ``any costs deductible under 17 U.S.C. 114(g)(3)'' in its 
place.

    Dated: January 24, 2003.
David O. Carson,
General Counsel.
[FR Doc. 03-2081 Filed 1-29-03; 8:45 am]
BILLING CODE 1410-33-P