[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Rules and Regulations]
[Pages 39837-39841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16727]


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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: Final rule.

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SUMMARY: The Copyright Office of the Library of Congress is announcing 
final regulations adjusting the royalty rates and terms under the 
Copyright Act for the statutory license for the use of sound recordings 
by preexisting subscription services for the period January 1, 2002 
through December 31, 2007.

DATES: Effective Date: August 4, 2003.
    Applicability Date: The regulations apply to the license period 
January 1, 2002 through December 31, 2007.

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 reproductions to facilitate the digital transmission of the 
sound recording under a second license set forth in section 112(e) of 
the Copyright Act.
    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 and petitions were filed requesting that the 
Librarian of Congress convene a Copyright Arbitration Royalty Panel 
(``CARP'') to determine the rates and terms for both categories of 
preexisting services.
    On January 17, 2003, the Copyright Office received notification of 
a settlement among the parties contesting rates and terms for 
preexisting services and a joint petition requesting the Librarian to 
publish their proposed rates and terms in accordance with Sec.  
251.63(b) of the CARP rules, 37 CFR, which provides that--

[i]n the case of a settlement among the parties to a proceeding, the 
Librarian may, upon the request of the parties, submit the agreed 
upon rate to the public in a notice-and-comment proceeding. The 
Librarian may adopt the rate embodied in the proposed settlement 
without convening an arbitration panel, provided that no opposing 
comment is received by the Librarian from a party with an intent to 
participate in a CARP proceeding.

37 CFR 251.63(b).

    On January 30, 2003, the Copyright Office published a Notice of 
Proposed Rulemaking (``NPRM'') in the Federal Register announcing the 
settlement and proposing the rates and terms for preexisting services. 
68 FR 4744 (January 30, 2003). The NPRM specified that--


[[Page 39838]]


[a]ny 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.

68 FR at 4745. Objections to the proposed rates and terms were due 
by March 3, 2003. On March 3, the Office received an objection from 
Royalty Logic, Inc. (``RLI'').

Resolution of the Objection to the NPRM

1. RLI's Objection

    RLI's March 3, 2003, objection and Notice of Intent to Participate 
represents RLI's second attempt to enter this proceeding. On January 
17, 2003, on the same day that the Copyright Office received 
notification of the settlement of rates and terms for preexisting 
services and 14 months after the Office called for Notices of Intent to 
Participate in this proceeding, RLI filed a motion to accept a late-
filed Notice of Intent to Participate. In an Order issued March 14, 
2003, the Office denied RLI's motion. The Office applied its two-part 
test for considering late-filed Notices of Intent to Participate--the 
disruption to the proceeding by accepting the Notice and whether good 
cause is shown for it being late--and determined that RLI failed both 
prongs of the test. Order in Docket No. 2001-1 CARP DSTRA2 (March 14, 
2003). We now consider whether there are sufficient grounds to accept 
RLI's March 3 objection and its new Notice of Intent to Participate.
    As discussed above, the NPRM required parties filing an objection 
to state their interest in the proceeding and the reasons for their 
challenge. In its March 3 filing, RLI asserts that it is a for-profit 
corporation that administers music licensing royalties on behalf of 
hundreds of radio and television stations and that one of its key 
business objectives ``is to provide these same types of agency services 
to recording labels and performing artists with respect to the 
administration and distribution of royalty payments to be made to them 
pursuant to the statutory licenses under sections 112(e) and 114 of the 
Copyright Act.'' RLI Objection at 2. In order to enter this business, 
RLI states that it is necessary for it to be recognized in the rules 
proposed in the NPRM as a Designated Agent to receive royalties from 
preexisting services, which it currently is not. RLI notes that it is a 
recognized Designated Agent for another statutory license in section 
114 of the Copyright Act for nonsubscription transmission services, see 
37 CFR 260.3(a), but its ``efforts to enroll clients have been 
substantially impeded by its inability to assure clients of RLI's 
ability to administer all license payments to which these clients would 
be entitled.'' Id. at 3. Consequently, RLI objects to the NPRM so that 
further proceedings may be held to include it as a Designated Agent in 
the Copyright Office rules for distribution of royalties collected from 
preexisting subscription services.
    Having offered the reason for its objection, RLI asserts that it 
has an interest in this proceeding because it is an entity that 
distributes royalties, is already a Designated Agent for royalties 
collected from nonsubscription transmission services, and ``has a 
stake'' in this proceeding. Id. at 5. RLI also offers that having 
multiple Designated Agents identified in the regulations is beneficial 
and desirable for copyright owners and performers and will offer them 
an alternative to SoundExchange, the only Designated Agent in the NPRM. 
Id. at 7-9.
    On March 26, 2003, RLI filed a supplement to its March 3, 2003, 
objection to the NPRM. RLI stated that--

[t]he reason for this Supplement is to inform the Copyright Office 
that RLI has signed affiliate agreements with copyright owners and 
performers who wish RLI to serve as their Designated Agent for all 
Section 112 and 114 statutory licenses, and therefore object to the 
proposed settlement insofar as it would fail to designate RLI for 
the collection and distribution of statutory license royalties for 
the pre-existing subscription services.

RLI Supplement at 1. RLI went on to state that it had ``signed 
affiliation agreements, effective January 1, 2003, with numerous 
copyright owners and performers,'' although it declined to identify any 
of these owners and performers by name. Id. at 2. RLI concluded that if 
the NPRM were adopted, the copyright owners and performers that it now 
represents would be denied from collecting their preexisting 
subscription service royalties through RLI and would be forced to deal 
solely with SoundExchange, the only Designated Agent in the NPRM.
    The Recording Industry Association of America, Inc., and, jointly, 
the American Federation of Musicians of the United States and Canada 
and the American Federation of Television and Radio Artists opposed 
RLI's March 26 supplement.

2. RLI's Interest in This Proceeding

    The consequences of an objection to a proposal of rates published 
under Sec.  251.63(b) of the CARP rules are considerable; the Librarian 
will not adopt the proposed rates and terms and will schedule a CARP 
proceeding to resolve the matter. However, because a challenge is 
lodged does not necessarily mean that a CARP must be convened. The 
Librarian must evaluate the sufficiency of the objection to determine 
whether the objecting party (1) has a significant interest in the 
establishment of the rates and terms and (2) has asserted objections to 
the proposed rates and terms that can be resolved in a CARP proceeding.
    The first requirement, that an objecting party have a significant 
interest in the rates and terms to be established, is derived from the 
language of the Copyright Act. Section 803(a)(1) of the Act provides 
that rate proceedings for certain statutory licenses in the Act-
particularly sections 112 and 114 which are at issue in this 
proceeding-begin with the submission of a petition to the Librarian of 
Congress. In other words, one or more parties may request the Librarian 
to invoke the CARP process to establish rates and terms by filing a 
petition or petitions. For each petition received, the statute requires 
that the ``Librarian of Congress shall, upon the recommendation of the 
Register of Copyrights, make a determination as to whether the 
petitioner has such a significant interest in the royalty rate in which 
an adjustment is requested.'' 17 U.S.C. 803(a)(1). Although there is no 
legislative history as to what constitutes a ``significant interest,'' 
the requirement of such makes a great deal of sense. Rate proceedings 
before a CARP are lengthy, complex, and expensive. It would make no 
sense to allow an entity with a tentative or collateral interest in the 
rates to invoke a CARP proceeding; in order to initiate the proceeding, 
a party should at a minimum have a significant interest in the rates 
and terms to be established.
    While section 803(a)(1) addresses petitions to initiate rate 
proceedings, there is no similar provision in the Copyright Act related 
to challenges of proposed rates and terms that are the result of 
settlement reached by participants in a CARP proceeding. The Copyright 
Office developed Sec.  251.63(b) of the CARP rules to address 
circumstances where, due to a settlement, a CARP is no longer 
necessary. Although Sec.  251.63(b) is a rule and not a statutory 
provision, it has the specific endorsement of the 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

[[Page 39839]]

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 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) (emphasis added). 
Plainly, for the same reasons that the Librarian must determine whether 
a petitioner for a rate proceeding has a significant interest in the 
rates and terms, Congress recognized that a party challenging proposed 
rates and terms that are the product of a settlement must likewise have 
a significant, or substantial, interest. Consequently, when the Office 
published the NPRM in this proceeding, it required any party filing 
objections to identify its specific interest in the rates and terms to 
be adjusted to enable the Librarian to determine whether it has a 
significant (substantial) interest. See 68 FR at 4745 (``[U]nless 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 Librarian can adopt the rates and terms in the 
proposed settlement in final regulations without convening a CARP'').
    The question then remains: what is a significant or substantial 
interest in a rate proceeding? The inquiry is a factual one and 
determinations must be made on a case-by-case basis. Clearly, a 
copyright owner whose works are being used under a statutory license 
has a significant interest in a rate setting or adjustment of that 
license, as does the person or entity using those works under the 
statutory license. Order in Docket No. 99-6 CARP DTRA (June 21, 2000). 
An entity that collects the royalties generated under a statutory 
license on behalf of certain copyright owners whose works are used can 
have a specific interest in a rate proceeding, but only to the extent 
that such entity is fully authorized by, and acts on the behalf of, 
those copyright owners to represent their interests in the rate 
proceeding. It is through the authorization of these copyright owners, 
however, and not because of its business or personal interest, that a 
royalty collection entity gains a specific interest in a rate 
proceeding.
    Likewise, an entity that represents users of copyrighted works can 
have a specific interest in a rate proceeding, but only gains that 
specific interest from the authorization of the users it represents. A 
person or entity that is not a user of a statutory license but 
expresses a vague or unspecified desire to form a business that would 
make use of the license or that would benefit indirectly from another's 
use does not have a specific interest. Order in Docket No. 99-6 CARP 
DTRA at 2 (June 21, 2000) (``Glaser's interest in what the fees will be 
is general in that it may affect the profitability of his other 
businesses, but it is not specific to his person or to his role as a 
representative of these other businesses.''). And a person or entity 
that proposes or objects to a rate proceeding solely on the basis of 
espoused public policy or consumer interest concerns does not have a 
specific interest.
    The NPRM in this proceeding specified that parties objecting to the 
proposed rates and terms identify their interest in the proceeding no 
later than March 3, 2003. Review of RLI's March 3, 2003, filing reveals 
that RLI did not represent any copyright owners entitled to collect 
royalties from preexisting subscription services under the section 112 
and 114 licenses. Rather, it states that its ``key business objective'' 
is to distribute such royalties in the future and that its 
participation in this proceeding is necessary to attaining that 
objective. RLI Objection at 2. This is confirmed in the March 26, 2003, 
``supplement'' to its objection where RLI states that it is ``pleased 
to inform the Copyright Office'' that it had entered into affiliation 
agreements with unspecified copyright owners and performers whose works 
it purports are used under the section 112 and 114 licenses. RLI 
Supplement at 2.\1\ Since RLI did not represent copyright owners 
entitled to royalties from preexisting subscription services under the 
section 112 and 114 licenses at the time that it filed its objection, 
and did not have authorization from any copyright owners eligible to 
receive such royalties to lodge the objection and participate in a CARP 
proceeding on their behalf, RLI does not have a specific interest in 
this rate adjustment proceeding.
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    \1\ RLI also faxed replies on April 11 and April 24, 2003, to 
the objections lodged against its March 26 Supplement. Permission 
was not sought to submit these replies and they are therefore not 
considered. Moreover, unless otherwise directed by the Librarian, 
the rules do not provide for the submission of any pleading by 
facsimile transmission. 37 CFR 251.44(a).
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    Moreover, even if the information in RLI's March 26 ``supplement'' 
were accurate as of March 3, RLI does not even purport to assert that 
any copyright owners have authorized RLI to represent them in a CARP 
proceeding or even to object to the proposed rates and terms on their 
behalf. RLI states its belief that ``[b]y affiliating with RLI and 
electing to receive their royalties from an agent other than 
SoundExchange, RLI's client performers and copyright owners are 
expressing their opposition, through RLI, to the proposed settlement.'' 
Supplement at 3 (emphasis added). But it is hardly self-evident that 
the act of affiliating with RLI and electing to use RLI as their agent 
to receive royalties constituted an authorization by those unidentified 
copyright owners for RLI to express opposition on their behalf to the 
proposed rates and terms or to participate in a CARP on their behalf. 
Indeed, RLI has failed even to identify a single copyright owner whom 
it represents in asserting its objection to the proposed rates and 
terms. If RLI wishes to participate in a CARP as a representative of 
copyright owners, it must identify the copyright owners whom it 
represents.
    RLI also argues that copyright owners and performers should be 
given a ``competitive choice among agents for the distribution of sound 
recording performance royalties,'' Objection at 7, and that in amending 
17 U.S.C. 114(g) in the Small Webcaster Settlement Act of 2002, Pub. L. 
107-321, Congress (1) ``acknowledged and contemplated that more than 
one entity could serve as a Designated Agent in competition with 
SoundExchange,'' and (2) provided that ``performers and copyright 
owners have the absolute right to choose a Designated Agent other than 
SoundExchange so as to avoid the recoupment of historical litigation 
and other costs.'' Id. at 8 (footnote omitted).
    These arguments do not compel the conclusion that RLI has standing 
to block a settlement and force the determination of rates and terms to 
be made by a CARP. The fact that more than one entity could serve as 
Designated Agents does not mean that there necessarily ought to be more 
than one Designated Agent,\2\ or that an aspiring candidate for 
designation has sufficient interest to participate in its own right in 
a CARP proceeding. The fact that Congress has recognized that

[[Page 39840]]

there have been and may continue to be more than one Designated Agent 
also does not mean that this is a necessary or even a desirable 
outcome. On the other hand, it could be that when Congress, in the 
Small Webcaster Settlement Act, amended the law to permit SoundExchange 
to deduct costs incurred in licensing rights under section 114 or to 
deduct costs incurred as a participant in a CARP proceeding from the 
royalties that it distributes to copyright owners and performers,\3\ it 
also included the provision denying SoundExchange that right with 
respect to ``copyright owners and performers who have elected to 
receive royalties from another designated agent,'' 17 U.S.C. 114(g)(3), 
in order to give copyright owners and performers a means to avoid being 
subject to recoupment of SoundExchange's litigation and other costs. 
Such a provision may have been intended to deter SoundExchange from 
making excessive deductions, in light of the fact that copyright owners 
and performers could elect to receive their royalties from an 
alternative Designated Agent if they were dissatisfied with the extent 
of SoundExchange's deductions. But even if that is so, it would not 
give RLI standing to participate on its own behalf in a CARP in order 
to seek designation as an agent. Instead, it would give a copyright 
owner or performer entitled to participate in the CARP the power to 
seek the designation of RLI or some other entity as an alternative 
Designated Agent.\4\
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    \2\ Indeed, we have expressed skepticism about the benefit of 
the two-tier structure involving a Receiving Agent and more than one 
Designated Agent, which adds expense and administrative burdens to a 
process the purpose of which is to make prompt, efficient, and fair 
payments of royalties to copyright owners and performers with a 
minimum of expense. See Determination of Reasonable Rates and Terms 
for the Digital Performance of Sound Recordings and Ephemeral 
Recordings; Final Rule, 67 FR 45239, 45267 n.46 (July 8, 2003).
    \3\ SoundExchange had sought the power to make such deductions 
in the previous CARP proceeding setting rates and terms for eligible 
nonsubscription services, but the Librarian, on the recommendation 
of the Register, rejected the CARP's terms that would have permitted 
such deductions. See Determination of Reasonable Rates and Terms for 
the Digital Performance of Sound Recordings and Ephemeral 
Recordings; Final Rule, 67 FR 45239, 45269 (July 8, 2003)(noting 
that ``[s]uch activity is beyond the scope of collection and 
distribution of royalties.'').
    \4\ In fact, it is not clear that RLI needs to participate in a 
CARP proceeding or be named in a negotiated settlement in order to 
act as a designated agent for purposes of collecting royalty fees on 
behalf of copyright owners and performers who are entitled to 
receive funds collected pursuant to the section 112 and section 114 
licenses. Section 112(e)(2) and section 114(e) of the Copyright Act 
both expressly provide that a copyright owner of a sound recording 
may designate common agents to negotiate, agree to, pay, or receive 
royalty payments. Under these provisions, it is plausible that a 
copyright owner or performer could designate any agent of his or her 
choosing (including RLI)--whether or not that agent had been 
formally designated in the CARP proceeding-to receive royalties from 
the licensing of digital transmissions and, by doing so, limit the 
costs of such agents to those specified in section 114(g)(4), as 
amended by the Small Webcaster Settlement Act of 2002.
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3. Determination

    For the reasons stated above, the Librarian of Congress determines 
that RLI does not have a specific interest in the rates and terms 
proposed in this NPRM and consequently does not have standing to 
require the convocation of a CARP. RLI's objection is therefore 
dismissed. Since there were no other objections filed, the Librarian is 
adopting the proposed rates and terms announced in the NPRM as final.
    The following rates and terms for the use of sound recordings by 
preexisting subscription services under the section 112(e) and section 
114 licenses of the Copyright Act shall be effective for the period 
January 1, 2002 through December 31, 2007.

List of Subjects in 37 CFR Part 260

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

Final Regulation

0
In consideration of the foregoing, the Copyright Office amends part 260 
of 37 CFR as follows:

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

0
1. The authority citation for part 260 continues to read as follows:

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

0
2. The heading of Part 260 is revised to read as set forth above.

0
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).

0
4. Section 260.2 is amended as follows:
0
a. By revising the section heading;
0
b. By revising paragraphs (a) and (b);
0
c. By redesignating paragraph (c) as paragraph (e), and adding a new 
paragraph (c);
0
d. By adding a new paragraph (d);
0
e. In redesignated paragraph (e)(1)(ii) by adding ``a'' before 
``recognized advertising agency';
0
f. In redesignated paragraphs (e)(1)(iii) and (vi), by removing 
``Programming Service'' and adding ``programming service'' in its 
place;
0
g. In redesignated paragraphs (e)(1)(viii) and (e)(2), by removing 
``(c)'' and adding ``(e)'' in its place; and
0
h. By adding a new paragraph (f).
    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 August 20, 
2003. 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

[[Page 39841]]

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.
* * * * *
    (f) During any given payment period, the value of each performance 
of each digital sound recording shall be the same.

0
5. Section 260.3 is amended as follows:
0
a. In paragraph (b), by removing ``twentieth'' and adding ``forty-
fifth'' in its place;
0
b. By revising paragraphs (c), (d) and (e); and
0
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.

* * * * *
    (c) The agent designated to receive the royalty payments and the 
statements of account shall have the responsibility of making further 
distribution of these fees to those parties entitled to receive such 
payment according to the provisions set forth at 17 U.S.C. 114(g).
    (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 July 31, 2003, to the Designated Agent, less any amounts 
previously paid by such period to the Recording Industry Association of 
America, Inc., or SoundExchange by September 15, 2003.
0
6. Section 260.4 is amended as follows:
0
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
0
b. By revising paragraphs (d)(1) and (e).
    The revisions to Sec.  260.4 read as follows:


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]

0
7. Section 260.5(b) is amended by removing ``nonexempt subscription 
digital transmission service'' and adding ``nonexempt preexisting 
subscription service'' in its place.

0
8. Section 260.6 (revised at 68 FR 36470, June 18, 2003, to become 
effective July 18, 2003) is amended as follows:
0
a. By revising paragraphs (a), (b) and (c);
0
b. In paragraph (f), by removing ``designated agent'' and adding 
``entity which made the underpayment'' in its place; and
0
c. In paragraph (g), by removing ``individuals or entities''.
    The revisions to Sec.  260.6 read as follows:


Sec.  260.6  Confidential information and statements of account.

    (a) General. This section prescribes general rules pertaining to 
the verification of the payment of royalty fees to those parties 
entitled to receive such fees, according to terms promulgated by a duly 
appointed copyright arbitration royalty panel, under its authority to 
set reasonable terms and rates pursuant to 17 U.S.C. 114 and 801(b)(1), 
and the Librarian of Congress under his authority pursuant to 17 U.S.C. 
802(f).
    (b) Frequency of verification. Interested parties may conduct a 
single audit of the entity making the royalty payment during any given 
calendar year.
    (c) Notice of intent to audit. Interested parties must submit a 
notice of intent to audit the entity making the royalty payment with 
the Copyright Office, which shall publish in the Federal Register a 
notice announcing the receipt of the notice of intent to audit within 
30 days of the filing of the interested parties' notice. Such 
notification of interest shall also be served at the same time on the 
party to be audited.
* * * * *


Sec.  260.7  [Amended]

0
9. Section 260.7 (amended at 68 FR 36470, June 18, 2003, to become 
effective July 18, 2003) is amended as follows:
    (a) By adding ``collecting'' before ``agent'' the first time it 
appears;
    (b) By removing ``designated'' the second and third time it appears 
and adding ``collecting'' in its place; and
    (c) 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: June 16, 2003.
Marybeth Peters,
Register of Copyrights.
James H. Billington,
The Librarian of Congress.
[FR Doc. 03-16727 Filed 7-2-03; 8:45 am]
BILLING CODE 1410-33-P