[Federal Register Volume 69, Number 133 (Tuesday, July 13, 2004)]
[Proposed Rules]
[Pages 42007-42010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15854]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 270

[Docket No. RM 2002-1F]


Notice and Recordkeeping for Use of Sound Recordings Under 
Statutory License

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 proposing 
to amend its regulations to provide for the reporting of uses of sound 
recordings performed by means of digital audio transmissions pursuant 
to statutory license for the period October 28, 1998, through March 31, 
2004.

DATES: Comments are due no later than August 12, 2004.

ADDRESSES: If hand delivered by a private party, an original and five 
copies of any comment should be brought to: Room LM-401 of the James 
Madison Memorial Building and addressed as follows: Office of the 
General Counsel, U.S. Copyright Office, James Madison Memorial 
Building, Room LM-401, 101 Independence Avenue, S.E., Washington, D.C. 
20559-6000. If delivered by a commercial, non-government courier or 
messenger, an original and five copies of any comment must be delivered 
to the Congressional Courier Acceptance Site located at 2nd and D 
Streets, N.E. between 8:30 a.m. and 4 p.m. The envelope should be 
addressed as follows: Copyright Office General Counsel, Room LM-403, 
James Madison Memorial Building, 101 Independence Avenue, S.E., 
Washington, D.C. If sent by mail, an original and five copies of any 
comment should be addressed to: GC/I&R, P.O. Box 70400, Southwest 
Station, Washington D.C. 20024-0400. Comments may not be delivered by 
means of overnight delivery services such as Federal Express, United 
Parcel Service, etc., due to delays in processing receipt of such 
deliveries.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
William J. Roberts, Jr., Senior Attorney, P.O. Box 70977, Southwest 
Station, Washington, DC 20024. Telephone: (202) 707-8380; Telefax: 
(202) 252-3423.

SUPPLEMENTARY INFORMATION:

Background

    The Copyright Act grants copyright owners of sound recordings the 
exclusive right to perform their works publicly by means of digital 
audio transmissions subject to certain limitations and exceptions. 
Among the limitations placed on the performance right for sound 
recordings is a statutory license that permits certain eligible 
subscription, nonsubscription, satellite digital audio radio, and 
business establishment services to perform those sound recordings 
publicly by means of digital audio transmissions. 17 U.S.C. 114.
    Similarly, copyright owners of sound recordings are granted the 
exclusive right to make copies of their works subject to certain 
limitations and exceptions. Among the limitations placed on the 
reproduction right for sound recordings is a statutory license that 
permits certain eligible subscription, nonsubscription, satellite 
digital audio, and business establishment services to make ephemeral 
copies of those sound recordings to facilitate their digital 
transmission. 17 U.S.C. 112(e).
    Both the section 114 and 112 licenses require services to, among 
other things, report to copyright owners of sound recordings on the use 
of their works. Both licenses direct the Librarian of Congress to 
establish regulations to give copyright owners reasonable notice of the 
use of their works and create and maintain records of use for delivery 
to copyright owners. 17 U.S.C. 114(f)(4)(A) and 17 U.S.C. 112(e)(4). 
The purpose of this notice and recordkeeping requirement is to ensure 
that the royalties collected under the statutory licenses are 
distributed to the correct recipients.
    On March 11, 2004, the Copyright Office published interim 
regulations specifying notice and recordkeeping requirements for use of 
sound recordings under the section 112 and 114 licenses. See 69 FR 
11515 (March 11, 2004).\1\ Those interim regulations, however, apply 
only prospectively to the use of sound recordings commencing during the 
second calendar quarter of 2004, leaving the question of what records 
of use must be prescribed for uses of sound recordings from October 28, 
1998 (the date the statutory licenses first became available for 
services other than preexisting subscription services), to March 31, 
2004 (the ``historic period'').\2\
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    \1\ Those regulations did not apply to preexisting subscription 
services, which are defined in section 114 as services that perform 
sound recordings by means of noninteractive audio-only subscription 
digital audio transmissions which were in existence and were making 
such transmissions to the public for a fee on or before July 31, 
1998. 17 U.S.C. 114(j)(11). Requirements for preexisting 
subscriptions services were announced in 1998, See64 FR 34289 (June 
24, 1998), and will not be affected by the rules proposed in this 
notice.
    \2\ The Office noted that the interim regulations also did not 
address the format in which records of use should be preserved 
because of the highly technical nature of delivery of 
data in an electronic format and the widespread disagreement among 
SoundExchange and the users of the statutory licenses over 
formatting. 69 FR at 11517, n.7. As stated on March 11, 
the Office will deal with such requirements in the future.
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    The task of crafting regulations to govern records of prior use is 
complicated by the fact that many services have maintained few or, in 
many instances, no records of such use. As a result, the Office 
published a notice of inquiry seeking public comment on the form and 
content that such regulations should take. 68 FR 58054 (October 8, 
2003). Specifically, the Office sought comment on the following: how it 
should deal with the problem of incomplete or absent records for prior 
uses; whether licensees should be required to report actual performance 
data for the historical period, if available, so that copyright owners 
and performers whose works were performed could be identified; and 
whether any proxies could be used in lieu of incomplete or missing 
prior records, taking into account the attendant costs and who should 
bear such costs. Id.
    Before discussing the comments filed in response to the notice of 
inquiry, the Office notes that as a threshold matter, the National 
Association of Broadcasters (``NAB'') argues that the Office is without 
authority to conduct this phase of the rulemaking as any resultant rule 
would apply retroactively. NAB asserts that neither the ``general 
rulemaking power of the Copyright Office nor the recordkeeping 
rulemaking authority provided in Sections 112 or 114 provides'' the 
express authority to promulgate retroactive rules as required under 
Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988), and 
Motion Picture Association of America, Inc. v. Oman, 969 F.2d 1154 
(D.C. Cir. 1992). NAB comment at 2. Furthermore, if the Office were to 
promulgate such a rule, it would be unenforceable ``as the Copyright 
Office cannot retroactively turn licensed performances into 
infringement.'' Accordingly, NAB argues that ``as a matter of law and 
as a matter of policy,'' the Office should

[[Page 42008]]

not issue retroactive regulations. NAB comment at 1; NAB reply at 1. As 
will be discussed below, the Office is not imposing any retroactive 
requirements, but is proposing to use a proxy in lieu of imposing 
reporting requirements on licensees for the historical period. Since 
the Office's proposal does not require a licensee to file or report 
historical data under specific rules, it is not enacting retroactive 
rules. Thus, there is no need to address NAB's argument at this time.

Discussion

    The Office received comments from: the Digital Media Association 
(``DiMA''); Music Choice; Royalty Logic, Inc. (``RLI''); Sirius 
Satellite Radio, Inc. (``Sirius'') and XM Satellite Radio, Inc. (``XM 
Satellite''), jointly; Montpelier Communications LLC d.b.a. Onion River 
Radio (``Montpelier''); SoundExchange, Inc.; the National Association 
of Broadcasters (``NAB''); and Intercollegiate Broadcasting System, 
Inc. (``IBS'') and Harvard Radio Broadcasting Co., Inc. (WHRB [FM]) 
(``Harvard Radio''), jointly. Reply comments were filed by Collegiate 
Broadcasters Inc. (``CBI''); DiMA; NAB; SoundExchange; and IBS and 
Harvard Radio, jointly.
    The comments confirmed that the Office faces a formidable task in 
fashioning regulations governing the reporting of uses of sound 
recordings that have occurred over the last five years that on the one 
hand provide copyright owners and performers with sufficient 
information to identify such use and that on the other hand are not 
overly burdensome to licensees or too costly to either side. After 
careful review and consideration of the comments, the Office concludes 
that there is no effective way to establish reporting requirements for 
the historic period that would achieve this goal by requiring licensees 
to report actual performance data.
    The primary obstacle in achieving this goal is the fact that few, 
if any, records of prior use have been maintained to date and those 
that do exist will be of little or no use in forming the basis of 
distribution of royalties for the historic period. In other words, in 
many instances, the information simply does not exist. Therefore, it 
would make no difference whether services were required to report 
sample data for up to one week per quarter, as suggested by DiMA, 
whether the services report only the information actually available to 
them, as proposed by RLI, or whether the reporting requirements were to 
be of a more comprehensive nature, as advocated by SoundExchange. The 
likelihood of obtaining any useful and meaningful data is small. Even 
assuming that specific reporting requirements for the historic period 
could be imposed, the comments make clear that some services would be 
able to provide reports of prior uses with varying degrees of 
compliance with such requirements while others would not be able to 
provide any reports at all. This creates inequity among the services. 
SeeDiMA comment at 3; SoundExchange reply at 4. In addition, the cost 
and effort that would be required of SoundExchange to process such 
inconsistent data would be disproportionate to the amount of useful 
data that would result. Thus, there simply is no way to fully and 
accurately reflect actual performances for the historical period. Any 
attempt to do so would impose significant costs on the services and 
SoundExchange and ultimately would not result in any meaningful or 
useful data upon which to base a distribution.
    The commenters reached the same conclusion as evidenced by their 
reply comments in which they advocated that a proxy be used in lieu of 
reporting requirements for the historic period. The proxy that emerged 
as the one most favored by the commenters was the data already provided 
by the preexisting subscription services to SoundExchange under the 
regulations announced in 1998 and now codified at 37 CFR 270.2 for 
transmissions made under section 114(f). SoundExchange reply at 3-4; 
DiMA reply at 6; NAB reply at 2. Specifically, SoundExchange would take 
the royalties paid for a given period in the historic timeframe and 
then would ``allocate those royalties according to the same percentages 
used for the allocation of royalties paid by the preexisting 
subscription services for the corresponding period.'' SoundExchange 
comment at 19.
    The commenters identified several advantages to using this proxy. 
First, DiMA notes that the transmissions made by preexisting 
subscription services are the most analogous to the statutorily 
licensed webcaster transmissions, as both offer ``multiple themed and 
genre-based channels, and many channels programming varied styles of 
music within particular genres.'' DiMA reply at 6-7. Similarly, 
SoundExchange points out that ``royalties paid by one class of 
statutory licensee can be matched up with a corresponding period'' from 
the preexisting subscription services, thus providing ``some comfort 
that new releases and popular songs likely to have been performed by 
webcasters . . . would be captured in the reports of use'' of the 
preexisting subscription services. SoundExchange comment at 20. 
Furthermore, the preexisting subscription services ``transmitted a 
diverse number of individual sound recordings'' during the historic 
period so the royalties paid by the licensees here can be allocated 
among many copyright owners and performers. Id.
    Another advantage of using reports of the preexisting subscription 
services as a proxy is that it is cost effective for both licensees and 
copyright owners and performers. Licensees do not have to spend time 
and money to compile information that likely would be incomplete or 
inconsistent. SeeNAB reply at 2. Likewise, since the preexisting 
subscription services have been providing their reports of use to 
SoundExchange in a ``standardized, electronic format'' since 1998, 
these reports have already been ``cleaned up'' and therefore require no 
additional processing by SoundExchange. Consequently, administrative 
costs will be lower, which will result in more money being available 
for distribution. SoundExchange comment at 19; DiMA reply at 7-8.
    Moreover, adoption of the reports provided by the preexisting 
subscription services as a proxy for reporting for the historic period 
would also level the ``reporting playing field'' among licensees so 
that ``certain licensees would not be burdened with having to provide 
reports of use while competitors were permitted to provide no reports 
of use.'' SoundExchange reply at 4. Therefore, this eliminates any 
disproportionate burden on licensees that would result from the 
imposition of reporting requirements for the historic period.
    Finally, use of the reports of the preexisting subscription 
services as a proxy for records of prior use does not impose any 
reporting requirements on licensees for the historic period. DiMA reply 
at 8. Therefore, NAB's concerns about the Office engaging in 
retroactive rulemaking are allayed. Id.
    While the use of reports of the preexisting subscription services 
as a proxy for reporting for the historic period has many advantages, 
the commenters acknowledged the existence of certain disadvantages. For 
instance, while the reports of the preexisting subscription services 
may be a reasonably close approximation of the performances of sound 
recordings for the historic period, it is unavoidable that some 
copyright owners and performers will not receive full compensation for 
use of their works and others will receive no compensation at all if 
their works were performed by webcasters but not by any of the 
preexisting subscription services.

[[Page 42009]]

 SoundExchange comment at 16 n.7, 20; SoundExchange reply at 2; DiMA 
reply at 6. However, there is no good alternative method for 
identifying and accounting for such performances. As a result, the 
commenters felt that the benefits of using the reports of the 
preexisting subscription services as a proxy outweighed the unavoidable 
drawbacks associated with the use of these reports. Id.
    Because there is no feasible way to obtain meaningful and useful 
data through the imposition of reporting requirements, the Office 
agrees with the commenters that use of a proxy in lieu thereof is the 
proper course to take. Furthermore, the Office is persuaded by the 
comments that the reports of the preexisting subscription services 
represent the most appropriate proxy. Therefore, the Office is 
proposing to adopt regulations specifying that the records of use 
submitted by the preexisting subscription services during the period 
between October 28, 1998 and March 31, 2004, shall be considered the 
records of use for all services operating under the section 112(e) and 
section 114 licenses and that no additional records need be filed by 
the nonsubscription services, the satellite digital radio audio 
services or new types of subscription services.
    In so proposing, the Office acknowledges that use of such a proxy, 
indeed any proxy, is far from a perfect solution to the problems posed 
by historical reporting. However, given the futility that would result 
in requiring licensees to report information that most simply do not 
have, the Office must conclude that the perfect solution does not 
exist, and that use of the data from the preexisting subscription 
services is the optimal method to ensure that royalties collected for 
the historic period are equitably distributed to copyright owners and 
performers with minimal delay, cost, and effort. For the reasons set 
forth in the comments, the Office believes that use of the reports of 
the preexisting subscription services as a proxy represents the 
simplest, most practical and most cost-effective solution.

Parties Affected

    When the Copyright Office issued interim regulations governing the 
notice and recordkeeping regulations on a prospective basis, it 
rejected a request that those regulations not be applicable to the 
preexisting satellite digital audio radio services which had reached an 
agreement with SoundExchange. See69 FR 11515, 11517 (March 11, 2004). 
Sirius, XM Satellite and SoundExchange make the same request here that 
any regulations governing prior uses not apply to preexisting satellite 
digital audio radio services because of an agreement between those 
services and SoundExchange ``address[ing] prospective and retroactive 
notice and recordkeeping requirements.'' Sirius/XM Satellite comment at 
1; SoundExchange reply at 3-4.
    The Office again denies this request for the reasons set forth in 
the March 11 Federal Register document, specifically that ``it is the 
Library's responsibility, and the Library's alone'' to promulgate 
notice and recordkeeping requirements for all services, including the 
preexisting satellite digital audio radio services that operate under 
sections 112 and 114. 69 FR at 11518 citing Letter to RIAA, AFM, AFTRA, 
XM Satellite, and Sirius from the Copyright Office at 1-2 (May 8, 
2003). The Office reiterates that the parties to this agreement could 
have requested that the Office adopt the agreed-upon terms regarding 
historical reporting, but they did not do so. 69 FR at 11518. 
Consequently, the proposed regulation governing prior uses will apply 
to preexisting satellite digital audio services,\3\ as well as to non-
subscription services, business establishment services, and new 
subscription services. We once again note that presumably no copyright 
owner or performer who is a party to the negotiated agreement would be 
in a position to complain of the failure by a service that is also a 
party to the agreement to comply with the proposed regulation announced 
today, assuming that the regulation is adopted as final. Id.
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    \3\ The Office notes that currently no statutory rate exists for 
transmissions made by preexisting satellite digital audio radio 
services. Therefore, conceivably a question could be raised whether 
any royalties paid by such services are covered by the license. The 
Office takes no position, however, regarding the status of these 
royalties.
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    Moreover, the proposed regulation announced today will not apply to 
those entities, such as Montpelier, IBS/Harvard Radio, and CBI, who are 
signatories to either of the agreements published by the Office on 
December 24, 2002, (67 FR 78510), or June 11, 2003, (68 FR 35008), in 
accordance with the Small Webcaster Settlement Act of 2002, Public Law 
107-321, 116 Stat. 2780.\4\ See also 69 FR at 11517 (March 11, 2004). 
The proposed regulations will also not apply to the three preexisting 
subscription services because they have already reported their records 
of use for the relevant license period under the notice and 
recordkeeping requirements set forth in Sec.  270.2. See69 FR at 11517 
(March 11, 2004).\5\
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    \4\ The Small Webcaster Settlement Act provided in pertinent 
part that SoundExchange could enter into agreements with small 
commercial webcasters and noncommercial webcasters that would, among 
other things, provide that for a period ending on December 31, 2004, 
small commercial webcasters and noncommercial webcasters would be 
governed by notice and recordkeeping provisions other than those 
established by the Library of Congress.
    \5\ Music Choice has also asked the Office to apply the same 
notice and recordkeeping requirements to any eligible subscription, 
satellite digital audio, business establishment or new subscription 
services operated by a pre-existing subscription service. Since the 
adopted rules apply to all licensees who were operating under the 
section 112(e) and section 114 statutory licenses prior to the 
second calendar quarter of 2004, its request is moot with respect to 
the historical time period. Moreover, consideration of the request 
on a going forward basis has already been addressed. In the Office's 
earlier notice announcing its interim regulations, it stated that 
the recordkeeping interim regulations announced today 
will not apply to preexisting subscription services, thus 
making it clear that preexisting subscription services are the only 
services not covered by the interim regulations. 69 FR at 11518.
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Designated Agents

    SoundExchange was designated by the Librarian of Congress as the 
Receiving Agent to receive statements of account and royalty payments 
from licensees for the license period October 28, 1998, through 
December 31, 2002. 37 CFR 261.4(b). Additionally, the Librarian 
designated SoundExchange and RLI as Designated Agents to distribute 
said royalty payments to copyright owners and performers. Id. However, 
RLI would serve as a designated agent only for those copyright owners 
and performers who expressly elected RLI as their agent for the 
distribution of royalties. 37 CFR 261.4(c). In order to make such 
election, a copyright owner or performer had to notify SoundExchange in 
writing of his or her desire to elect RLI as their designated agent by 
``no later than thirty days prior to the receipt by the Receiving Agent 
of that royalty payment.'' Id. Otherwise, SoundExchange would be the 
default designated agent. Id.
    It is the Office's understanding that no copyright owners or 
performers have elected RLI as their designated agent in accordance 
with Sec.  261.4(c). If that understanding is incorrect, SoundExchange 
and RLI are requested to correct it in their comments to this notice of 
proposed rulemaking. In the meantime, the Office presumes that such an 
election of RLI as a designated agent has not been made and therefore 
the proposed regulation does not require SoundExchange to provide to 
RLI any data from the preexisting subscription services.

Limitation of Liability

    In its comments, SoundExchange requested that in the event the 
Office

[[Page 42010]]

decided to use the reports of the preexisting subscription services as 
a proxy for historical reporting, the Office should also adopt 
regulations ``holding SoundExchange harmless from any under- or over- 
payments resulting from the use of such data for distribution 
purposes.'' SoundExchange comment at 20. The Copyright Office does not 
have the power to excuse SoundExchange, or anyone else, from liability 
for a breach of a legal obligation. See67 FR 45239, 45269 (July 8, 
2002). Therefore, we cannot comply with SoundExchange's request. 
However, we believe that regulations already exist that provide 
SoundExchange with the reassurance it seeks. Specifically, Sec. Sec.  
261.4(h) and 262.4(g) require that the designated agent distribute 
royalty payments on a basis that values all performances equally based 
upon information obtained pursuant to regulations governing records of 
use. Because the rules proposed today would provide that the reports of 
the preexisting subscription services shall constitute the records of 
use for the other services for the historic period, SoundExchange may-
indeed, it has no choice but to-rely on those reports in making its 
distributions.\6\
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    \6\ Because the Librarian's decision setting rates and terms for 
the license period from October 28, 1998 through December 31, 2002 
is the subject of an appeal pending before the United States Court 
of Appeals for the District of Columbia Circuit, the only royalties 
from the historic period that can be distributed prior to the 
resolution of that appeal are those collected for the period from 
January 1, 2003 through March 31, 2004, a period for which final 
rates and terms have been established. See 69 FR 5693 (February 6, 
2004).
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Comments on the Proposed Regulation

    Any party objecting to the proposal to use the reports of the 
preexisting subscription services as a proxy for reporting requirements 
for the historic period is requested to set forth in detail how the 
Office can obtain more accurate information for the historic period and 
respond to NAB's argument that the Copyright Office does not have the 
authority to promulgate retroactive recordkeeping regulations.

List of Subjects

    Copyright, Sound recordings.

Proposed Regulation

    In consideration of the foregoing, the Copyright Office proposes to 
amend part 270 of 37 CFR to read as follows:
    1. The authority citation for part 270 continues to read as 
follows:

    Authority: 17 U.S.C. 702.

PART 270--NOTICE AND RECORDKEEPING REQUIREMENTS FOR STATUTORY 
LICENSEES

    2. Part 270 is proposed to be amended as follows:
    a. By redesignating Sec.  270.4 as Sec.  270.5; and
    b. By adding a new Sec.  270.4 to read as follows:


Sec.  270.4  Reports of use of sound recordings under statutory license 
prior to April 1, 2004.

    (a) General. This section prescribes the rules which govern reports 
of use of sound recordings by nonsubscription transmission services, 
preexisting satellite digital audio radio services, new subscription 
services, and business establishment services under section 112(e) or 
section 114(d)(2) of title 17 of the United States Code, or both, for 
the period from October 28, 1998, through March 31 , 2004.
    (b) Reports of use. Reports of use filed by preexisting 
subscription services for transmissions made under 17 U.S.C. 114(f) 
pursuant to Sec.  270.2 for use of sound recordings under section 
112(e) or section 114(d)(2) of title 17 of the United States Code, or 
both, for the period October 28, 1998, through March 31, 2004, shall 
serve as the reports of use for nonsubscription transmission services, 
preexisting satellite digital audio radio services, new subscription 
services, and business establishment services for their use of sound 
recordings under section 112(e) or section 114(d)(2) of title 17 of the 
United States Code, or both, for the period from October 28, 1998, 
through March 31, 2004.

    Dated: July 8, 2004
Marybeth Peters,
Register of Copyrights.
[FR Doc. 04-15854 Filed 7-12-04; 8:45 am]
BILLING CODE 1410-33-S