[Federal Register Volume 68, Number 97 (Tuesday, May 20, 2003)]
[Proposed Rules]
[Pages 27506-27513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-12349]



[[Page 27506]]

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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 262

[Docket Nos. 2002-1 CARP DTRA3 and 2001-2 CARP DTNSRA]


Digital Performance Right in Sound Recordings and Ephemeral 
Recordings

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 requesting 
comment on proposed regulations that set rates and terms for the use of 
sound recordings in eligible nonsubscription transmissions and new 
subscription services, other than transmissions made by certain 
noncommercial entities, together with related ephemeral recordings. The 
rates and terms are for the 2003 and 2004 statutory licensing period, 
except in the case of new subscription services in which case the 
license period runs from 1998 through 2004. The agreement published 
herein supersedes the agreement published in the Federal Register on 
May 1, 2003, and parties should only comment on the proposed rates and 
terms set forth in this notice.

DATES: Comments are due no later than June 19, 2003.

ADDRESSES: An original and five copies of any comment shall be 
delivered by hand to: Office of the General Counsel, James Madison 
Memorial Building, Room LM-403. First and Independence Avenue, SE., 
Washington, DC 20559-6000; 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 
(CARP), P.O. Box 70977, Southwest Station, Washington, DC 20024. 
Telephone: (202) 707-8380; Telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION: On May 1, 2003, the Copyright Office 
published a notice in the Federal Register requesting comment on 
proposed regulations that set rates and terms for the use of sound 
recordings in certain eligible nonsubscription transmissions made 
pursuant to sections 114 of the Copyright Act, title 17 of the United 
States Code, during the 2003 and 2004 statutory licensing period, as 
well as for the making of ephemeral recordings necessary for the 
facilitation of such transmissions in accordance with a second 
statutory license set forth in section 112(e). The proposal also 
included rates and terms for the use of sound recordings in 
transmissions made by new subscription services from 1998 through 
December 31, 2004, and the making of the related ephemeral recordings 
under these same statutory licenses. 68 FR 23241 (May 1, 2003). These 
proposed rates and terms were part of a settlement agreement negotiated 
by Sound Exchange, a division of the Recording Industry Association of 
America, Inc., the American Federation of Television and Radio Artists, 
the American Federation of Musicians of the United States and Canada, 
and the Digital Media Association, and were submitted to the Copyright 
Office on April 14, 2003, along with a petition, requesting that the 
Office publish the proposed rates and terms pursuant to Sec.  251.63(b) 
of title 37 of the Code of Federal Regulations, which it did. Id.
    However, the April 14 proposal has been superseded by a second 
proposal which was submitted to the Copyright Office on May 8, 2003. 
The new agreement amends the proposal in the April 14 submission with 
the approval of the parties to the first agreement, who did not 
participate in the new round of negotiations, and includes for the 
first time rates and terms for simulcasts of AM and FM radio broadcast 
programming.\1\ These new rates are the result of an agreement between 
Copyright Owners and Performers and Broadcasters.\2\ The May 8 
agreement also includes proposed rates and terms for the use of sound 
recordings in the reproduction of ephemeral recordings by business 
establishment services. These rates and terms were agreed to by the 
Copyright Owners and Performers and Music Choice, the only business 
establishment service participating in this proceeding, and cover the 
2003 and 2004 statutory license period. As before, the Petitioners 
request that the Office publish the amended proposed rates and terms 
for public comment pursuant to 37 CFR 251.63(b).
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    \1\ Petitioners note that a dispute over the scope of certain 
exemptions to Section 106(6) pertaining to the broadcasters is 
pending in the U.S. Court of Appeals for the Third Circuit, 
Bonneville Int'l Corp. v. Peters, No. 01-CV-408 (E.D. Pa. Aug. 1, 
2001), appeal docketed, No. 01-3720 (3rd Cir. Oct. 1, 2001) and that 
``[n]othing in this Joint Petition is intended to resolve that 
dispute, prejudice the position of any of the parties thereto, or 
imply that any activities determined to be exempt are `covered' by 
the rates and terms set forth herein.'' Petition at 3 n.3 (May 8, 
2003).
    \2\ Those entities who negotiated on behalf of the broadcasters 
include, Bonneville International Corporation, Clear Channel 
Communications, Inc., the National Religious Broadcasters Music 
License Committee, Salem Communications Corporation and Susquehanna 
Radio Corporation.
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    Section 251.63(b) of title 37 of the Code of Federal Regulations 
allows the Librarian to adopt the parties' proposed rates and terms 
without convening a Copyright Arbitration Royalty Panel (``CARP'') for 
this purpose, provided that the proposed rates and 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 adjust 
the rates and terms for use of sound recordings in eligible 
nonsubscription transmissions and new subscription services 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 
filed on May 8 and is publishing for public comment the proposed rates 
and terms embodied in the amended agreement as submitted to the Office 
on May 8. Because this notice includes amendments to the proposal 
published in the May 1 notice, interested parties should comment only 
on the rates and terms published herein and should not comment on those 
published in the May 1 notice. Any party who objects to the amended 
proposed rates and terms set forth herein must file a written objection 
with the Copyright Office and an accompanying Notice of Intent to

[[Page 27507]]

Participate, if the party has not already done so, in accordance with 
the requirements set forth in the Copyright Office's November 20, 2001, 
Notice. See 66 FR 58180, 58181 (November 20, 2001). 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 shall cover the 
period from January 1, 2003, to December 31, 2004, except that the 
period covered for new subscription services runs from October 28, 
1998, to December 31, 2004.

List of Subjects in 37 CFR Part 262

    Copyright, Digital audio transmissions, Performance right, Sound 
recordings.

Proposed Regulation

    In consideration of the foregoing, the Copyright Office proposes 
adding part 262 to 37 CFR to read as follows:

PART 262--RATES AND TERMS FOR CERTAIN ELIGIBLE NONSUBSCRIPTION 
TRANSMISSIONS, NEW SUBSCRIPTION SERVICES AND THE MAKING OF 
EPHEMERAL REPRODUCTIONS

Sec.
262.1 General.
262.2 Definitions.
262.3 Royalty fees for public performance of sound recordings and 
for ephemeral recordings.
262.4 Terms for making payment of royalty fees and statements of 
account.
262.5 Confidential information.
262.6 Verification of statements of account.
262.7 Verification of royalty payments.
262.8 Unclaimed funds.

    Authority: 17 U.S.C. 112(e), 114, 801(b)(1).


Sec.  262.1  General.

    (a) Scope. This part 262 establishes rates and terms of royalty 
payments for the public performance of sound recordings in certain 
digital transmissions by certain Licensees in accordance with the 
provisions of 17 U.S.C. 114, and the making of Ephemeral Recordings by 
certain Licensees in accordance with the provisions of 17 U.S.C. 
112(e), during the period 2003-2004 and in the case of Subscription 
Services 1998-2004 (the ``License Period'').
    (b) Legal compliance. Licensees relying upon the statutory licenses 
set forth in 17 U.S.C. 112 and 114 shall comply with the requirements 
of those sections, the rates and terms of this part and any other 
applicable regulations.
    (c) Relationship to voluntary agreements. Notwithstanding the 
royalty rates and terms established in this part, the rates and terms 
of any license agreements entered into by Copyright Owners and services 
shall apply in lieu of the rates and terms of this part to 
transmissions within the scope of such agreements.


Sec.  262.2  Definitions.

    For purposes of this part, the following definitions shall apply:
    (a) Aggregate Tuning Hours means the total hours of programming 
that the Licensee has transmitted during the relevant period to all 
Listeners within the United States from all channels and stations that 
provide audio programming consisting, in whole or in part, of eligible 
nonsubscription transmissions or noninteractive digital audio 
transmissions as part of a new subscription service, less the actual 
running time of any sound recordings for which the Licensee has 
obtained direct licenses apart from 17 U.S.C. 114(d)(2) or which do not 
require a license under United States copyright law. By way of example, 
if a service transmitted one hour of programming to 10 simultaneous 
Listeners, the service's Aggregate Tuning Hours would equal 10. If 30 
minutes of that hour consisted of transmission of a directly licensed 
recording, the service's Aggregate Tuning Hours would equal 9 hours and 
30 minutes. As an additional example, if one Listener listened to a 
service for 10 hours (and none of the recordings transmitted during 
that time was directly licensed), the service's Aggregate Tuning Hours 
would equal 10.
    (b) Broadcast Simulcast means
    (1) A simultaneous Internet transmission or retransmission of an 
over-the-air terrestrial AM or FM radio broadcast, including one with 
previously broadcast programming substituted for programming for which 
requisite licenses or clearances to transmit over the Internet have not 
been obtained and one with substitute advertisements, and
    (2) An Internet transmission in accordance with 17 U.S.C. 
114(d)(2)(C)(iii) of an archived program, which program was previously 
broadcast over-the-air by a terrestrial AM or FM broadcast radio 
station, in either case whether such Internet transmission or 
retransmission is made by the owner and operator of the AM or FM radio 
station that makes the broadcast or by a third party.
    (c) Business Establishment Service means a service making 
transmissions of sound recordings under the limitation on exclusive 
rights specified by 17 U.S.C. 114(d)(1)(C)(iv).
    (d) Copyright Owner is a sound recording copyright owner who is 
entitled to receive royalty payments made under this part pursuant to 
the statutory licenses under 17 U.S.C. 112(e) or 114.
    (e) Designated Agent is the agent designated by the Librarian of 
Congress as provided in Sec.  262.4(b).
    (f) Ephemeral Recording is a phonorecord created for the purpose of 
facilitating a transmission of a public performance of a sound 
recording under the limitations on exclusive rights specified by 17 
U.S.C. 114(d)(1)(C)(iv) or for the purpose of facilitating a 
transmission of a public performance of a sound recording under a 
statutory license in accordance with 17 U.S.C. 114(f), and subject to 
the limitations specified in 17 U.S.C. 112(e).
    (g) Licensee is a person or entity that
    (1) Has obtained a compulsory license under 17 U.S.C. 114 and the 
implementing regulations therefor to make eligible nonsubscription 
transmissions, or noninteractive digital audio transmissions as part of 
a new subscription service (as defined in 17 U.S.C. 114(j)(8)), or that 
has obtained a compulsory license under 17 U.S.C. 112(e) and the 
implementing regulations therefor to make Ephemeral Recordings for use 
in facilitating such transmissions, or
    (2) Is a Business Establishment Service that has obtained a 
compulsory license under 17 U.S.C. 112(e) and the implementing 
regulations therefor to make Ephemeral Recordings, but not a person or 
entity that:
    (i) Is exempt from taxation under section 501 of the Internal 
Revenue Code of 1986 (26 U.S.C. 501);
    (ii) Has applied in good faith to the Internal Revenue Service for 
exemption from taxation under section 501 of the Internal Revenue Code 
and has a commercially reasonable expectation that such exemption shall 
be granted; or
    (iii) Is a State or possession or any governmental entity or 
subordinate thereof, or the United States or District of Columbia, 
making transmissions for exclusively public purposes.
    (h) Listener is a player, receiving device or other point receiving 
and rendering a transmission of a public performance of a sound 
recording made by a Licensee, irrespective of the number of individuals 
present to hear the transmission.
    (i) Nonsubscription Service means a service making eligible 
nonsubscription transmissions.
    (j) Performance is each instance in which any portion of a sound 
recording is publicly performed to a Listener by means of a digital 
audio transmission or

[[Page 27508]]

retransmission (e.g., the delivery of any portion of a single track 
from a compact disc to one Listener) but excluding the following:
    (1) A performance of a sound recording that does not require a 
license (e.g., the sound recording is not copyrighted);
    (2) A performance of a sound recording for which the service has 
previously obtained a license from the Copyright Owner of such sound 
recording; and
    (3) An incidental performance that both:
    (i) Makes no more than incidental use of sound recordings 
including, but not limited to, brief musical transitions in and out of 
commercials or program segments, brief performances during news, talk 
and sports programming, brief background performances during disk 
jockey announcements, brief performances during commercials of sixty 
seconds or less in duration, or brief performances during sporting or 
other public events and
    (ii) Other than ambient music that is background at a public event, 
does not contain an entire sound recording and does not feature a 
particular sound recording of more than thirty seconds (as in the case 
of a sound recording used as a theme song).
    (k) Performers means the independent administrators identified in 
17 U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C. 
114(g)(2)(D).
    (l) Subscription Service means a new subscription service (as 
defined in 17 U.S.C. 114(j)(8)) making noninteractive digital audio 
transmissions.
    (m) Subscription Service Revenues shall mean all monies and other 
consideration paid or payable, including the fair market value of non-
cash or in-kind consideration paid or payable by third parties, from 
the operation of a Subscription Service, as comprised of the following:
    (1) Subscription fees and other monies and consideration paid for 
access to the Subscription Service by or on behalf of subscribers 
receiving within the United States transmissions made as part of the 
Subscription Service;
    (2) Monies and other consideration (including without limitation 
customer acquisition fees) from audio or visual advertising, 
promotions, sponsorships, time or space exclusively or predominantly 
targeted to subscribers of the Subscription Service, whether
    (i) On or through the Subscription Service media player, or on 
pages accessible only by subscribers or that are predominantly targeted 
to subscribers, or
    (ii) In e-mails addressed exclusively or predominantly to 
subscribers of the Subscription Service, or
    (iii) Delivered exclusively or predominantly to subscribers of the 
Subscription Service in some other manner, in each case less 
advertising agency commissions (not to exceed 15% of those monies and 
other consideration) actually paid to a recognized advertising agency 
not owned or controlled by Licensee;
    (3) Monies and other consideration (including without limitation 
the proceeds of any revenue-sharing or commission arrangements with any 
fulfillment company or other third party, and any charge for shipping 
or handling) from the sale of any product or service directly through 
the Subscription Service media player or through pages or 
advertisements accessible only by subscribers or that are predominantly 
targeted to subscribers (but not pages or advertisements that are not 
predominantly targeted to subscribers), less
    (i) Monies and other consideration from the sale of phonorecords 
and digital phonorecord deliveries of sound recordings,
    (ii) The Licensee's actual, out-of-pocket cost to purchase for 
resale the products or services (except phonorecords and digital 
phonorecord deliveries of sound recordings) from third parties, or in 
the case of products produced or services provided by the Licensee, the 
Licensee's actual cost to produce the product or provide the service 
(but not more than the fair market wholesale value of the product or 
service), and
    (iii) Sales and use taxes, shipping, and credit card and 
fulfillment service fees actually paid to unrelated third parties; 
provided that:
    (A) The fact that a transaction is consummated on a different page 
than the page/location where a potential customer responds to a ``buy 
button'' or other purchase opportunity for a product or service 
advertised directly through such player, pages or advertisements shall 
not render such purchase outside the scope of Subscription Service 
Revenues hereunder, and
    (B) Monies and other consideration paid by or on behalf of 
subscribers for software or any other access device owned by Licensee 
(or any subsidiary or other affiliate of the Licensee, but excluding, 
for the avoidance of doubt, any entity that sells a third-party 
product, whether or not bearing the Licensee's brand) to access the 
Licensee's Subscription Service shall not be deemed part of 
Subscription Service Revenues, unless such software or access device is 
required as a condition to access the Subscription Service and either 
is purchased by a subscriber contemporaneously with or after 
subscribing or has no independent function other than to access the 
Subscription Service;
    (4) Monies and other consideration for the use or exploitation of 
data specifically and separately concerning subscribers or the 
Subscription Service, but not monies and other consideration for the 
use or exploitation of data wherein information concerning subscribers 
or the Subscription Service is commingled with and not separated or 
distinguished from data that predominantly concern nonsubscribers or 
other services; and
    (5) Bad debts recovered with respect to paragraphs (m)(1) through 
(4) of this section; provided that the Subscription Service shall be 
permitted to deduct bad debts actually written off during a reporting 
period.


Sec.  262.3  Royalty fees for public performances of sound recordings 
and for ephemeral recordings.

    (a) Basic royalty rate. Royalty rates and fees for eligible 
nonsubscription transmissions made by Licensees pursuant to 17 U.S.C. 
114(d)(2) during the period January 1, 2003, through December 31, 2004, 
and the making of Ephemeral Recordings pursuant to 17 U.S.C. 112(e) to 
facilitate such transmissions; noninteractive digital audio 
transmissions made by Licensees pursuant to 17 U.S.C. 114(d)(2) as part 
of a new subscription service during the period October 28, 1998, 
through December 31, 2004, and the making of Ephemeral Recordings 
pursuant to 17 U.S.C. 112(e) to facilitate such transmissions; and the 
making of Ephemeral Recordings by Business Establishment Services 
pursuant to 17 U.S.C. 112(e) during the period January 1, 2003, through 
December 31, 2004, shall be as follows:
    (1) Nonsubscription Services. For their operation of 
Nonsubscription Services, Licensees other than Business Establishment 
Services shall, at their election as provided in paragraph (b) of this 
section, pay at one of the following rates:
    (i) Per Performance Option. $0.000762 (0.0762[cent]) per 
Performance for all digital audio transmissions, except that 4% of 
Performances shall bear no royalty to approximate the number of partial 
Performances of nominal duration made by a Licensee due to, for 
example, technical interruptions, the closing down of a media player or 
channel

[[Page 27509]]

switching; Provided that this provision is not intended to imply that 
permitting users of a service to ``skip'' a recording is or is not 
permitted under 17 U.S.C. 114(d)(2). For the avoidance of doubt, this 
4% exclusion shall apply to all Licensees electing this payment option 
irrespective of the Licensee's actual experience in respect of partial 
Performances.
    (ii) Aggregate Tuning Hour Option.--(A) Non-Music Programming. 
$0.000762 (0.0762[cent]) per Aggregate Tuning Hour for programming 
reasonably classified as news, talk, sports or business programming.
    (B) Broadcast Simulcasts. $0.0088 (0.88[cent]) per Aggregate Tuning 
Hour for Broadcast Simulcast programming not reasonably classified as 
news, talk, sports or business programming.
    (C) Other Programming. $0.0117 (1.17[cent]) per Aggregate Tuning 
Hour for programming other than Broadcast Simulcast programming and 
programming reasonably classified as news, talk, sports or business 
programming.
    (2) Subscription Services. For their operation of Subscription 
Services, Licensees other than Business Establishment Services shall, 
at their election as provided in paragraph (b) of this section, pay at 
one of the following rates:
    (i) Per Performance Option. $0.000762 (0.0762[cent]) per 
Performance for all digital audio transmissions, except that 4% of 
Performances shall bear no royalty to approximate the number of partial 
Performances of nominal duration made by a Licensee due to, for 
example, technical interruptions, the closing down of a media player or 
channel switching; Provided that this provision is not intended to 
imply that permitting users of a service to ``skip'' a recording is or 
is not permitted under 17 U.S.C. 114(d)(2). For the avoidance of doubt, 
this 4% exclusion shall apply to all Licensees electing this payment 
option irrespective of the Licensee's actual experience in respect of 
partial performances.
    (ii) Aggregate Tuning Hour Option.--(A) Non-Music Programming. 
$0.000762 (0.0762[cent]) per Aggregate Tuning Hour for programming 
reasonably classified as news, talk, sports or business programming.
    (B) Broadcast Simulcasts. $0.0088 (0.88[cent]) per Aggregate Tuning 
Hour for Broadcast Simulcast programming not reasonably classified as 
news, talk, sports or business programming.
    (C) Other Programming. $0.0117 (1.17[cent]) per Aggregate Tuning 
Hour for programming other than Broadcast Simulcast programming and 
programming reasonably classified as news, talk, sports or business 
programming.
    (iii) Percentage of Subscription Service Revenues Option. 10.9% of 
Subscription Service Revenues, but in no event less than 27[cent] per 
month for each person who subscribes to the Subscription Service for 
all or any part of the month or to whom the Subscription Service 
otherwise is delivered by Licensee without a fee (e.g., during a free 
trial period), subject to the following reduction associated with the 
transmission of directly licensed sound recordings (if applicable). For 
any given payment period, the fee due from Licensee shall be the amount 
calculated under the formula described in the immediately preceding 
sentence multiplied by the following fraction: the total number of 
Performances (as defined under Sec.  262.2(j), which excludes directly 
licensed sound recordings) made by the Subscription Service during the 
period in question, divided by the total number of digital audio 
transmissions of sound recordings made by the Subscription Service 
during the period in question (inclusive of Performances and equivalent 
transmissions of directly licensed sound recordings). Any Licensee 
paying on such basis shall report to the Designated Agent on its 
statements of account the pertinent music use information upon which 
such reduction has been calculated. This option shall not be available 
to a Subscription Service where--
    (A) A particular computer software product or other access device 
must be purchased for a separate fee from the Licensee as a condition 
of receiving transmissions of sound recordings through the Subscription 
Service, and the Licensee chooses not to include sales of such software 
product or other device to subscribers as part of Subscription Service 
Revenues in accordance with Sec.  262.2(m)(3), or
    (B) The consideration paid or given to receive the Subscription 
Service also entitles the subscriber to receive or have access to 
material, products or services other than the Subscription Service (for 
example, as in the case of a ``bundled service'' consisting of access 
to the Subscription Service and also access to the Internet in 
general). In all events, in order to be eligible for this payment 
option, a Licensee may not engage in pricing practices whereby the 
Subscription Service is offered to subscribers on a ``loss leader'' 
basis or whereby the price of the Subscription Service is materially 
subsidized by payments made by the subscribers for other products or 
services.
    (3) Business Establishment Services. For the making of any number 
of Ephemeral Recordings in the operation of a service pursuant to the 
limitation on exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv), 
a Licensee that is a Business Establishment Service shall pay 10% of 
such Licensee's ``Gross Proceeds'' derived from the use in such service 
of musical programs that are attributable to copyrighted recordings. 
``Gross Proceeds'' as used in paragraph (a)(3) of this section means 
all fees and payments, including those made in kind, received from any 
source before, during or after the License Period that are derived from 
the use of copyrighted sound recordings pursuant to 17 U.S.C. 112(e) 
for the sole purpose of facilitating a transmission to the public of a 
performance of a sound recording under the limitation on exclusive 
rights specified in 17 U.S.C. 114(d)(1)(C)(iv). The attribution of 
Gross Proceeds to copyrighted recordings may be made on the basis of:
    (i) For classical programs, the proportion that the playing time of 
copyrighted classical recordings bears to the total playing time of all 
classical recordings in the program, and
    (ii) For all other programs, the proportion that the number of 
copyrighted recordings bears to the total number of all recordings in 
the program.
    (b) Election process. A Licensee other than a Business 
Establishment Service shall elect the particular Nonsubscription 
Service and/or Subscription Service royalty rate categories it chooses 
(that is, among paragraph (a)(1)(i) or (ii) of this section and/or 
paragraph (a)(2)(i), (ii) or (iii) of this section) for the License 
Period by no later than [the date 30 days after these rates and terms 
are adopted by the Librarian of Congress and published in the Federal 
Register.] Notwithstanding the preceding sentence, where a Licensee has 
not previously provided a Nonsubscription Service or Subscription 
Service, as the case may be, the Licensee may make its election by no 
later than thirty (30) days after the new service first makes a digital 
audio transmission of a sound recording under the 17 U.S.C. 114 
statutory license. Each such election shall be made by notifying the 
Designated Agent in writing of such election, using an election form 
provided by the Designated Agent. A Licensee that fails to make a 
timely election shall pay royalties as provided in paragraphs (a)(1)(i) 
and (a)(2)(i) of this section, as applicable. Notwithstanding the 
foregoing, a Licensee eligible to make royalty payments under an 
agreement entered into pursuant to the Small Webcaster

[[Page 27510]]

Settlement Act of 2002 may elect to make payments under such agreement 
as specified in such agreement.
    (c) Ephemeral Recordings. The royalty payable under 17 U.S.C. 
112(e) for any reproduction of a phonorecord made by a Licensee other 
than a Business Establishment Service during the License Period, and 
used solely by the Licensee to facilitate transmissions for which it 
pays royalties as and when provided in this section and Sec.  262.4 
shall be deemed to be included within, and to comprise 8.8% of, such 
royalty payments. The royalty payable under 17 U.S.C. 112(e) for the 
reproduction of phonorecords by a Business Establishment Service shall 
be as set forth in paragraph (a)(3) of this section.
    (d) Minimum fee.--(1) Business Establishment Services. Each 
Licensee that is a Business Establishment Service shall pay a minimum 
fee of $10,000 for each calendar year in which it makes Ephemeral 
Recordings for use to facilitate transmissions under the limitation on 
exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv), whether or 
not it does so for all or any part of the year.
    (2) Other Services. Each Licensee other than a Business 
Establishment Service shall pay a minimum fee of $2,500, or $500 per 
channel or station (excluding archived programs, but in no event less 
than $500 per Licensee), whichever is less, for each calendar year in 
which it makes eligible nonsubscription transmissions, noninteractive 
digital audio transmissions as part of a new subscription service or 
Ephemeral Recordings for use to facilitate such transmissions, whether 
or not it does the foregoing for all or any part of the year; except 
that the minimum annual fee for a Licensee electing to pay under 
paragraph (a)(2)(iii) of this section shall be $5,000.
    (3) In General. These minimum fees shall be nonrefundable, but 
shall be fully creditable to royalty payments due under paragraph (a) 
of this section for the same calendar year (but not any subsequent 
calendar year).
    (e) Continuing Obligation. For the limited purpose of the period 
immediately following the License Period, and on an entirely without 
prejudice and nonprecedential basis relative to other time periods and 
proceedings, if successor statutory royalty rates for Licensees for the 
period beginning January 1, 2005, have not been established by January 
1, 2005, then Licensees shall pay to the Designated Agent, effective 
January 1, 2005, and continuing for the period through April 30, 2005, 
or until successor rates and terms are established, whichever is 
earlier, an interim royalty pursuant to the same rates and terms as are 
provided for the License Period. Such interim royalties shall be 
subject to retroactive adjustment based on the final successor rates. 
Any overpayment shall be fully creditable to future payments, and any 
underpayment shall be paid within thirty days after establishment of 
the successor rates and terms, except as may otherwise be provided in 
the successor terms. If there is a period of such interim payments, 
Licensees shall elect the particular royalty rate categories it chooses 
for the interim period as described in paragraph (b) of this section, 
except that the election for a service that is in operation shall be 
made by no later than January 15, 2005.
    (f) Other royalty rates and terms. This part 262 does not apply to 
persons or entities other than Licensees, or to Licensees to the extent 
that they make other types of transmissions beyond those set forth in 
paragraph (a) of this section. For transmissions other than those 
governed by paragraph (a) of this section, or the use of Ephemeral 
Recordings to facilitate such transmissions, persons making such 
transmissions must pay royalties, to the extent (if at all) applicable, 
under 17 U.S.C. 112(e) and 114 or as prescribed by other law, 
regulation or agreement.


Sec.  262.4  Terms for making payment of royalty fees and statements of 
account.

    (a) Payment to designated agent. A Licensee shall make the royalty 
payments due under Sec.  262.3 to the Designated Agent.
    (b) Designation of agent and potential successor designated 
agents.--(1) Until such time as a new designation is made, 
SoundExchange, presently an unincorporated division of the Recording 
Industry Association of America, Inc. (``RIAA''), is designated as the 
Designated Agent to receive statements of account and royalty payments 
from Licensees due under Sec.  262.3 and to distribute such royalty 
payments to each Copyright Owner and Performer entitled to receive 
royalties under 17 U.S.C. 112(e) or 114(g). SoundExchange shall 
continue to be designated after its separate incorporation.
    (2) If SoundExchange should fail to incorporate by July 1, 2003, 
dissolve or cease to be governed by a board consisting of equal numbers 
of representatives of Copyright Owners and Performers, then it shall be 
replaced by successor entities upon the fulfillment of the requirements 
set forth in paragraphs (b)(2)(i) and (ii) of this section.
    (i) By a majority vote of the nine copyright owner representatives 
on the SoundExchange Board as of the last day preceding the condition 
precedent in paragraph (b)(2) of this section, such representatives 
shall file a petition with the Copyright Office designating a successor 
Designated Agent to distribute royalty payments to Copyright Owners and 
Performers entitled to receive royalties under 17 U.S.C. 112(e) or 
114(g) that have themselves authorized such Designated Agent.
    (ii) By a majority vote of the nine performer representatives on 
the SoundExchange Board as of the last day preceding the condition 
precedent in paragraph (b)(2) of this section, such representatives 
shall file a petition with the Copyright Office designating a successor 
Designated Agent to distribute royalty payments to Copyright Owners and 
Performers entitled to receive royalties under 17 U.S.C. 112(e) or 
114(g) that have themselves authorized such Designated Agent.
    (iii) The Copyright Office shall publish in the Federal Register 
within thirty days of receipt of a petition filed under paragraph 
(b)(2)(i) or (ii) of this section an order designating the Designated 
Agents named in such petitions. Nothing contained in this section shall 
prohibit the petitions filed under paragraphs (b)(2)(i) and (ii) of 
this section from naming the same successor Designated Agent.
    (3) If petitions are filed under paragraphs (b)(2)(i) and (ii) of 
this section, then, following the actions of the Copyright Office in 
accordance with paragraph (b)(2)(iii) of this section:
    (i) Each of the successor entities shall have all the rights and 
responsibilities of a Designated Agent under this part 262, except as 
specifically set forth in this paragraph (b)(3).
    (ii) Licensees shall make their royalty payments to the successor 
entity named by the copyright owner representatives under paragraph 
(b)(2)(i) of this section (the ``Receiving Agent'') and shall provide 
statements of account on a form prepared by the Receiving Agent. 
Licensees shall submit a copy of each statement of account to the 
collective named by the performer representatives under paragraph 
(b)(2)(ii) of this section at the same time such statement of account 
is delivered to the Receiving Agent.
    (iii) The Designated Agents shall agree between themselves 
concerning responsibility for distributing royalty payments to 
Copyright Owners and Performers that have not themselves authorized 
either Designated Agent. The

[[Page 27511]]

Designated Agents also shall agree to a corresponding methodology for 
allocating royalty payments between them using the information provided 
by the Licensee pursuant to the regulations governing records of use of 
performances for the period for which the royalty payment was made. 
Such methodology shall value all performances equally. Within 30 days 
after their agreement concerning such responsibility and methodology, 
the Designated Agents shall inform the Register of Copyrights thereof.
    (iv) With respect to any royalty payment received by the Receiving 
Agent from a Licensee, a designation by a Copyright Owner or Performer 
of a Designated Agent must be made no later than 30 days prior to the 
receipt by the Receiving Agent of that royalty payment.
    (v) The Receiving Agent shall promptly allocate the royalty 
payments it receives between the two Designated Agents in accordance 
with the agreed methodology. A final adjustment, if necessary, shall be 
agreed and paid or refunded, as the case may be, between the Receiving 
Agent and the collectives named under paragraph (b)(2) of this section 
for each calendar year no later than 180 days following the end of each 
calendar year. The Designated Agents shall agree on a reasonable basis 
for the sharing on a pro-rata basis of any costs associated with the 
allocations set forth in paragraph (b)(3)(iii) of this section.
    (vi) If a Designated Agent is unable to locate a Copyright Owner or 
Performer that the Designated Agent otherwise would be required to pay 
under this paragraph (b) within 3 years from the date of payment by 
Licensee, such Copyright Owner's or Performer's share of the payments 
made by Licensees may first be applied to the costs directly 
attributable to the administration of the royalty payments due such 
Copyright Owners and Performers by that Designated Agent and shall 
thereafter be allocated between the Designated Agents on a pro rata 
basis (based on distributions to entitled parties) to offset any costs 
permitted to be deducted by a designated agent under 17 U.S.C. 
114(g)(3). The foregoing shall apply notwithstanding the common law or 
statutes of any State.
    (c) Monthly payments. A Licensee shall make any payments due under 
Sec.  262.3(a) by the 45th day after the end of each month for that 
month, except that payments due under Sec.  262.3(a) for the period 
from the beginning of the License Period through the last day of the 
month in which these rates and terms are adopted by the Librarian of 
Congress and published in the Federal Register shall be due 45 days 
after the end of such period. All monthly payments shall be rounded to 
the nearest cent.
    (d) Minimum payments. A Licensee shall make any payment due under 
Sec.  262.3(d) by January 31 of the applicable calendar year, except 
that:
    (1) Payment due under Sec.  262.3(d) for 2003, and in the case of a 
Subscription Service any earlier year, shall be due 45 days after the 
last day of the month in which these rates and terms are adopted by the 
Librarian of Congress and published in the Federal Register; and
    (2) Payment for a Licensee that has not previously made eligible 
nonsubscription transmissions, noninteractive digital audio 
transmissions as part of a new subscription service or Ephemeral 
Recordings pursuant to licenses under 17 U.S.C. 114(f) and/or 17 U.S.C. 
112(e) shall be due by the 45th day after the end of the month in which 
the Licensee commences to do so.
    (e) Late payments. A Licensee shall pay a late fee of 0.75% per 
month, or the highest lawful rate, whichever is lower, for any payment 
received by the Designated Agent after the due date. Late fees shall 
accrue from the due date until payment is received by the Designated 
Agent.
    (f) Statements of account. For any part of the period beginning on 
the date these rates and terms are adopted by the Librarian of Congress 
and published in the Federal Register and ending on December 31, 2004, 
during which a Licensee operates a service, by 45 days after the end of 
each month during the period, the Licensee shall deliver to the 
Designated Agent a statement of account containing the information set 
forth in this paragraph (f) on a form prepared, and made available to 
Licensees, by the Designated Agent. If a payment is owed for such 
month, the statement of account shall accompany the payment. A 
statement of account shall include only the following information:
    (1) Such information as is necessary to calculate the accompanying 
royalty payment, or if no payment is owed for the month, to calculate 
any portion of the minimum fee recouped during the month, including, as 
applicable, the Performances, Aggregate Tuning Hours (to the nearest 
minute) or Subscription Service Revenues for the month;
    (2) The name, address, business title, telephone number, facsimile 
number, electronic mail address and other contact information of the 
individual or individuals to be contacted for information or questions 
concerning the content of the statement of account;
    (3) The handwritten signature of:
    (i) The owner of the Licensee or a duly authorized agent of the 
owner, if the Licensee is not a partnership or a corporation;
    (ii) A partner or delegee, if the Licensee is a partnership; or
    (iii) An officer of the corporation, if the Licensee is a 
corporation;
    (4) The printed or typewritten name of the person signing the 
statement of account;
    (5) The date of signature;
    (6) If the Licensee is a partnership or a corporation, the title or 
official position held in the partnership or corporation by the person 
signing the statement of account;
    (7) A certification of the capacity of the person signing; and
    (8) A statement to the following effect:

    I, the undersigned owner or agent of the Licensee, or officer or 
partner, if the Licensee is a corporation or partnership, have 
examined this statement of account and hereby state that it is true, 
accurate and complete to my knowledge after reasonable due 
diligence.

    (g) Distribution of payments.--(1) The Designated Agent shall 
distribute royalty payments directly to Copyright Owners and 
Performers, according to 17 U.S.C. 114(g)(2); Provided that the 
Designated Agent shall only be responsible for making distributions to 
those Copyright Owners and Performers who provide the Designated Agent 
with such information as is necessary to identify and pay the correct 
recipient of such payments. The agent shall distribute royalty payments 
on a basis that values all performances by a Licensee equally based 
upon the information provided by the Licensee pursuant to the 
regulations governing records of use of sound recordings by Licensees; 
Provided, however, Performers and Copyright Owners that authorize the 
Designated Agent may agree with the Designated Agent to allocate their 
shares of the royalty payments made by any Licensee among themselves on 
an alternative basis. Parties entitled to receive payments under 17 
U.S.C. 114(g)(2) may agree with the Designated Agent upon payment 
protocols to be used by the Designated Agent that provide for 
alternative arrangements for the payment of royalties consistent with 
the percentages in 17 U.S.C. 114(g)(2).
    (2) The Designated Agent shall inform the Register of Copyrights 
of:
    (i) Its methodology for distributing royalty payments to Copyright 
Owners and Performers who have not themselves authorized the Designated 
Agent (hereinafter ``nonmembers''), and any amendments thereto, within 
60 days of adoption and no later than 30

[[Page 27512]]

days prior to the first distribution to Copyright Owners and Performers 
of any royalties distributed pursuant to that methodology;
    (ii) Any written complaint that the Designated Agent receives from 
a nonmember concerning the distribution of royalty payments, within 60 
days of receiving such written complaint; and
    (iii) The final disposition by the Designated Agent of any 
complaint specified by paragraph (g)(2)(ii) of this section, within 60 
days of such disposition.
    (3) A Designated Agent may request that the Register of Copyrights 
provide a written opinion stating whether the Designated Agent's 
methodology for distributing royalty payments to nonmembers meets the 
requirements of this section.
    (h) Permitted deductions. The Designated Agent may deduct from the 
payments made by Licensees under Sec.  262.3, prior to the distribution 
of such payments to any person or entity entitled thereto, all incurred 
costs permitted to be deducted under 17 U.S.C. 114(g)(3); Provided, 
however, that any party entitled to receive royalty payments under 17 
U.S.C. 112(e) or 114(g) may agree to permit the Designated Agent to 
make any other deductions.
    (i) Retention of records. Books and records of a Licensee and of 
the Designated Agent relating to the payment, collection, and 
distribution of royalty payments shall be kept for a period of not less 
than 3 years.


Sec.  262.5  Confidential information.

    (a) Definition. For purposes of this part, ``Confidential 
Information'' shall include the statements of account, any information 
contained therein, including the amount of royalty payments, and any 
information pertaining to the statements of account reasonably 
designated as confidential by the Licensee submitting the statement.
    (b) Exclusion. Confidential Information shall not include documents 
or information that at the time of delivery to the Receiving Agent or a 
Designated Agent are public knowledge. The Designated Agent that claims 
the benefit of this provision shall have the burden of proving that the 
disclosed information was public knowledge.
    (c) Use of Confidential Information. In no event shall the 
Designated Agent use any Confidential Information for any purpose other 
than royalty collection and distribution and activities directly 
related thereto; Provided, however, that the Designated Agent may 
disclose to Copyright Owners and Performers Confidential Information 
provided on statements of account under this part in aggregated form, 
so long as Confidential Information pertaining to any individual 
Licensee cannot readily be identified, and the Designated Agent may 
disclose the identities of services that have obtained licenses under 
17 U.S.C. 112(e) or 114 and whether or not such services are current in 
their obligations to pay minimum fees and submit statements of account 
(so long as the Designated Agent does not disclose the amounts paid by 
the Licensee).
    (d) Disclosure of Confidential Information. Except as provided in 
paragraph (c) of this section and as required by law, access to 
Confidential Information shall be limited to:
    (1) Those employees, agents, attorneys, 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 related 
thereto, who are not also employees or officers of a Copyright Owner or 
Performer, and who, for the purpose of performing such duties during 
the ordinary course of their work, require access to the records;
    (2) An independent and qualified auditor, subject to an appropriate 
confidentiality agreement, who is authorized to act on behalf of the 
Designated Agent with respect to the verification of a Licensee's 
statement of account pursuant to Sec.  262.6 or on behalf of a 
Copyright Owner or Performer with respect to the verification of 
royalty payments pursuant to Sec.  262.7;
    (3) The Copyright Office, in response to inquiries concerning the 
operation of the Designated Agent;
    (4) In connection with future Copyright Arbitration Royalty Panel 
proceedings under 17 U.S.C. 114(f)(2) and 112(e), and under an 
appropriate protective order, attorneys, consultants and other 
authorized agents of the parties to the proceedings, Copyright 
Arbitration Royalty Panels, the Copyright Office or the courts; and
    (5) In connection with bona fide royalty disputes or claims that 
are the subject of the procedures under Sec.  262.6 or Sec.  262.7, and 
under an appropriate confidentiality agreement or protective order, the 
specific parties to such disputes or claims, their attorneys, 
consultants or other authorized agents, and/or arbitration panels or 
the courts to which disputes or claims may be submitted.
    (e) Safeguarding of Confidential Information. The Designated Agent 
and any person identified in paragraph (d) of this section shall 
implement procedures to safeguard all Confidential Information using a 
reasonable standard of care, but no less than the same degree of 
security used to protect Confidential Information or similarly 
sensitive information belonging to such Designated Agent or person.


Sec.  262.6  Verification of statements of account.

    (a) General. This section prescribes procedures by which the 
Designated Agent may verify the royalty payments made by a Licensee.
    (b) Frequency of verification. The Designated Agent may conduct a 
single audit of a Licensee, upon reasonable notice and during 
reasonable business hours, during any given calendar year, for any or 
all of the prior 3 calendar years, but no calendar year shall be 
subject to audit more than once.
    (c) Notice of intent to audit. The Designated Agent must file with 
the Copyright Office a notice of intent to audit a particular Licensee, 
which shall, within 30 days of the filing of the notice, publish in the 
Federal Register a notice announcing such filing. The notification of 
intent to audit shall be served at the same time on the Licensee to be 
audited. Any such audit shall be conducted by an independent and 
qualified auditor identified in the notice, and shall be binding on all 
parties.
    (d) Acquisition and retention of records. The Licensee shall use 
commercially reasonable efforts to obtain or to provide access to any 
relevant books and records maintained by third parties for the purpose 
of the audit and retain such records for a period of not less than 
three years. The Designated Agent shall retain the report of the 
verification for a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent and qualified auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to the 
Designated Agent, except where the auditor has a reasonable basis to 
suspect fraud and disclosure would, in the reasonable opinion of the 
auditor, prejudice the investigation of such suspected fraud, the 
auditor shall review the tentative written findings of the audit with 
the appropriate agent or employee of the Licensee being audited in 
order to remedy any factual errors and clarify

[[Page 27513]]

any issues relating to the audit; Provided that the appropriate agent 
or employee of the Licensee reasonably cooperates with the auditor to 
remedy promptly any factual errors or clarify any issues raised by the 
audit.
    (g) Costs of the verification procedure. The Designated Agent shall 
pay the cost of the verification procedure, unless it is finally 
determined that there was an underpayment of 10% or more, in which case 
the Licensee shall, in addition to paying the amount of any 
underpayment, bear the reasonable costs of the verification procedure.


Sec.  262.7  Verification of royalty payments.

    (a) General. This section prescribes procedures by which any 
Copyright Owner or Performer may verify the royalty payments made by 
the Designated Agent; Provided, however, that nothing contained in this 
section shall apply to situations where a Copyright Owner or a 
Performer and the Designated Agent have agreed as to proper 
verification methods.
    (b) Frequency of verification. A Copyright Owner or a Performer may 
conduct a single audit of the Designated Agent upon reasonable notice 
and during reasonable business hours, during any given calendar year, 
for any or all of the prior 3 calendar years, but no calendar year 
shall be subject to audit more than once.
    (c) Notice of intent to audit. A Copyright Owner or Performer must 
file with the Copyright Office a notice of intent to audit the 
Designated Agent, which shall, within 30 days of the filing of the 
notice, publish in the Federal Register a notice announcing such 
filing. The notification of intent to audit shall be served at the same 
time on the Designated Agent. Any such audit shall be conducted by an 
independent and qualified auditor identified in the notice, and shall 
be binding on all Copyright Owners and Performers.
    (d) Acquisition and retention of records. The Designated Agent 
shall use commercially reasonable efforts to obtain or to provide 
access to any relevant books and records maintained by third parties 
for the purpose of the audit and retain such records for a period of 
not less than 3 years. The Copyright Owner or Performer requesting the 
verification procedure shall retain the report of the verification for 
a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent and qualified auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to a Copyright 
Owner or Performer, except where the auditor has a reasonable basis to 
suspect fraud and disclosure would, in the reasonable opinion of the 
auditor, prejudice the investigation of such suspected fraud, the 
auditor shall review the tentative written findings of the audit with 
the appropriate agent or employee of the Designated Agent in order to 
remedy any factual errors and clarify any issues relating to the audit; 
Provided that the appropriate agent or employee of the Designated Agent 
reasonably cooperates with the auditor to remedy promptly any factual 
errors or clarify any issues raised by the audit.
    (g) Costs of the verification procedure. The Copyright Owner or 
Performer requesting the verification procedure shall pay the cost of 
the procedure, unless it is finally determined that there was an 
underpayment of 10% or more, in which case the Designated Agent shall, 
in addition to paying the amount of any underpayment, bear the 
reasonable costs of the verification procedure.


Sec.  262.8  Unclaimed funds.

    If a Designated Agent is unable to identify or locate a Copyright 
Owner or Performer who is entitled to receive a royalty payment under 
this part, the Designated Agent shall retain the required payment in a 
segregated trust account for a period of 3 years from the date of 
payment. No claim to such payment shall be valid after the expiration 
of the 3-year period. After the expiration of this period, the 
Designated Agent may apply the unclaimed funds to offset any costs 
deductible under 17 U.S.C. 114(g)(3). The foregoing shall apply 
notwithstanding the common law or statutes of any State.

    Dated: May 12, 2003.
David O. Carson,
General Counsel.
[FR Doc. 03-12349 Filed 5-19-03; 8:45 am]
BILLING CODE 1410-33-P