[Federal Register Volume 72, Number 210 (Wednesday, October 31, 2007)]
[Proposed Rules]
[Pages 61585-61588]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21473]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 382

[Docket No. 2006-1 CRB DSTRA]


Adjustment of Rates and Terms for Preexisting Subscription and 
Satellite Digital Audio Radio Services

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Copyright Royalty Judges are publishing for comment 
proposed regulations that set the rates and terms for the use of sound 
recordings by preexisting subscription services for the period January 
1, 2008, through December 31, 2012.

DATES: Comments and objections, if any, are due no later than November 
30, 2007.

ADDRESSES: Comments and objections may be sent electronically to 
[email protected]. In the alternative, send an original, five copies and an 
electronic copy on a CD either by mail or hand delivery. Please do not 
use multiple means of transmission. Comments and objections may not be 
delivered by an overnight delivery service other than the U.S. Postal 
Service Express Mail. If by mail (including overnight delivery), 
comments and objections must be addressed to: Copyright Royalty Board, 
P.O. Box 70977, Washington, DC 20024-0977. If hand delivered by a 
private party, comments and objections must be brought to the Copyright 
Office Public Information Office, Library of Congress, James Madison 
Memorial Building, Room LM-401, 101 Independence Avenue, SE., 
Washington, DC 20559-6000. If delivered by a commercial courier, 
comments and objections must be delivered between 8:30 a.m. and 4 p.m. 
to the Congressional Courier Acceptance Site located at 2nd and D 
Street, NE., Washington, DC, and the envelope must be addressed to: 
Copyright Royalty Board, Library of Congress, James Madison Memorial 
Building, LM-403, 101 Independence Avenue, SE., Washington, DC 20559-
6000.

FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or 
Gina Giuffreda, Attorney-Advisor, by telephone at (202) 707-7658 or e-
mail at [email protected].

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, including preexisting 
subscription services, to make digital transmissions of a sound 
recording under a compulsory license, provided the services pay a 
reasonable royalty fee and comply with the terms of the license. 
Moreover, these services may

[[Page 61586]]

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. The terms and rates for this 
statutory license have been adjusted periodically by the Librarian of 
Congress and appear in 37 CFR Part 260. However, the Copyright Royalty 
and Distribution Reform Act of 2004, Pub. L. No. 108-419, transferred 
jurisdiction over these rates and terms to the Copyright Royalty Judges 
(``Judges''). 17 U.S.C. 801(b)(1). The current rates applicable to 
preexisting subscription services expire on December 31, 2007.
    On January 9, 2006, pursuant to 17 U.S.C. 803(b)(1)(A)(i)(V), the 
Copyright Royalty Judges published a notice in the Federal Register 
announcing commencement of the proceeding to determine rates and terms 
of royalty payments under sections 114 and 112 for the activities of 
preexisting subscription services \1\ and requesting interested parties 
to submit their petitions to participate. 71 FR 1455 (January 9, 2006). 
Petitions to participate in the proceeding to set these rates and terms 
were received from SoundExchange, Inc. and Music Choice.
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    \1\ The Notice also commenced and requested Petitions to 
Participate for the proceeding to determine rates and terms for 
preexisting satellite digital audio radio services (``SDARS''), as 
required under section 804(b)(3)(B). Unlike the preexisting 
subscription services, the SDARS did not reach a settlement 
regarding rates and terms governing their activities under sections 
112 and 114 and proceeded to a full hearing before the Judges. 
Consequently, those rates and terms will be determined by the Judges 
and also will be contained in proposed Part 382. Today's notice of 
proposed rulemaking discusses only the preexisting subscription 
services.
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    The Judges set the schedule for the proceeding, including the dates 
for the filing of written direct statements as well as the dates for 
oral testimony. Subsequent to the filing of their written direct 
statements, but prior to the oral presentation of witnesses, 
SoundExchange and Music Choice informed the Judges that they had 
``reached a settlement of all issues between them in this proceeding, 
including the rates and terms for the statutory license applicable to 
pre-existing subscription services'' under sections 114 and 112 of the 
Copyright Act for the period from January 1, 2008, through December 31, 
2012. Notice of Settlement at 1 (filed June 12, 2007). They also stated 
that the settlement agreement would be submitted to the Judges ``for 
approval and adoption pursuant to 17 U.S.C. 801(b)(7)(A).'' Id. at 2. 
The settlement agreement, including the proposed rates and terms, was 
filed on October 19, 2007.
    Section 801(b)(7)(A) allows for the adoption of rates and terms 
negotiated by ``some or all of the participants in a proceeding at any 
time during the proceeding'' provided they are submitted to the 
Copyright Royalty Judges for approval. This section provides that in 
such event:

    (i) The Copyright Royalty Judges shall provide to those that 
would be bound by the terms, rates, or other determination set by 
any agreement in a proceeding to determine royalty rates an 
opportunity to comment on the agreement and shall provide to 
participants in the proceeding under section 803(b)(2) that would be 
bound by the terms, rates, or other determination set by the 
agreement an opportunity to comment on the agreement and object to 
its adoption as a basis for statutory terms and rates; and
    (ii) The Copyright Royalty Judges may decline to adopt the 
agreement as a basis for statutory terms and rates for participants 
that are not parties to the agreement, if any participant described 
in clause (i) objects to the agreement and the Copyright Royalty 
Judges conclude, based on the record before them if one exists, that 
the agreement does not provide a reasonable basis for setting 
statutory terms or rates.

17 U.S.C. 801(b)(7)(A). Rates and terms adopted pursuant to this 
provision are binding on all copyright owners of sound recordings and 
preexisting subscription services performing the sound recordings for 
the license period 2008-2012.
    As part of this notice of proposed rulemaking, the Copyright 
Royalty Judges are modifying two aspects of the proposed rates and 
terms. First, the submitted proposal placed the rates and terms in part 
260, which is in Chapter II of 37 CFR. Chapter II contains the 
regulations of the Copyright Office, not the Copyright Royalty Board. 
Therefore, we are changing the numbering of the proposed regulations to 
reflect their proper location in Chapter III of 37 CFR.
    Second, proposed Sec. Sec.  260.5(c) and 260.6(c) (now 382.5(c) and 
382.6(c), respectively) require that interested parties intending to 
conduct an audit of a service or of the entity making the royalty 
payment, respectively, file with the Copyright Office a notice of 
intent to audit. We are changing these provisions to require that such 
notices of intent to audit be filed with the Copyright Royalty Board 
rather than the Copyright Office.
    As discussed above, the public may comment and object to any or all 
of the proposed regulations contained in this notice of proposed 
rulemaking. Those who do comment and object, however, must be prepared 
to participate in further proceedings in this docket to establish rates 
and terms for the activities of preexisting subscription services under 
the sections 112 and 114 licenses.

List of Subjects in 37 CFR Part 382

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

Proposed Regulations

    For the reasons set forth in the preamble, the Copyright Royalty 
Judges propose to add part 382 to Chapter III of title 37 of the Code 
of Federal Regulations to read as follows:

PART 382--RATES AND TERMS FOR PREEXISTING SUBSCRIPTION SERVICES' 
DIGITAL TRANSMISSIONS OF SOUND RECORDINGS AND MAKING OF EPHEMERAL 
PHONORECORDS

Sec.
382.1 General.
382.2 Royalty fees for the digital performance of sound recordings 
and the making of ephemeral phonorecords by preexisting subscription 
services.
382.3 Terms for making payment of royalty fees.
382.4 Confidential information and statements of account.
382.5 Verification of statements of account.
382.6 Verification of royalty payments.
382.7 Unknown copyright owners.

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


Sec.  382.1  General.

    (a) This part 382 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).

[[Page 61587]]

Sec.  382.2  Royalty fees for the digital performance of sound 
recordings and the making of ephemeral phonorecords by preexisting 
subscription services.

    (a) Commencing January 1, 2008, and continuing through December 31, 
2011, 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.
    (b) Commencing January 1, 2012, and continuing through December 31, 
2012, 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 7.5% of such Licensee's monthly 
gross revenues resulting from residential services in the United 
States.
    (c) 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. The annual advance 
payment shall be nonrefundable, but the royalties due and payable for a 
given year or any month therein under paragraphs (a) and (b) of this 
section shall be recoupable against the annual advance payment for such 
year; Provided, however, that any unused annual advance payment for a 
given year shall not carry over into a subsequent year.
    (d) A Licensee shall pay a late fee of 1.5% per month, or the 
highest lawful rate, whichever is lower, for any payment received after 
the due date. Late fees shall accrue from the due date until payment is 
received.
    (e)(1) For purposes of this section, gross revenues shall mean all 
monies derived from the operation of the programming service of the 
Licensee and shall be comprised of the following:
    (i) Monies received by Licensee from Licensee's carriers and 
directly from residential U.S. subscribers for Licensee's programming 
service;
    (ii) Licensee's advertising revenues (as billed), or other monies 
received from sponsors, if any, less advertising agency commissions not 
to exceed 15% of those fees incurred to a recognized advertising agency 
not owned or controlled by Licensee;
    (iii) Monies received for the provision of time on the programming 
service to any third party;
    (iv) Monies received from the sale of time to providers of paid 
programming such as infomercials;
    (v) Where merchandise, service, or anything of value is received by 
Licensee in lieu of cash consideration for the use of Licensee's 
programming service, the fair market value thereof or Licensee's 
prevailing published rate, whichever is less;
    (vi) Monies or other consideration received by Licensee from 
Licensee's carriers, but not including monies received by Licensee's 
carriers from others and not accounted for by Licensee's carriers to 
Licensee, for the provision of hardware by anyone and used in 
connection with the programming service;
    (vii) Monies or other consideration received for any references to 
or inclusion of any product or service on the programming service; and
    (viii) Bad debts recovered regarding paragraphs (e)(1)(i) through 
(vii) of this section.
    (2) Gross revenues shall include such payments as set forth in 
paragraphs (e)(1)(i) through (viii) of this section to which Licensee 
is entitled but which are paid to a parent, subsidiary, division, or 
affiliate of Licensee, in lieu of payment to Licensee but not including 
payments to Licensee's carriers for the programming service. Licensee 
shall be allowed a deduction from ``gross revenues'' as defined in 
paragraph (e)(1) of this section for affiliate revenue returned during 
the reporting period and for bad debts actually written off during 
reporting period.
    (f) During any given payment period, the value of each performance 
of each digital sound recording shall be the same.


Sec.  382.3  Terms for making payment of royalty fees.

    (a) Payment to Collective. All royalty payments shall be made to 
the Collective designated for the collection and distribution of 
royalties for the 2008-2012 time period, which shall be SoundExchange.
    (b) Timing of payment. Payment shall be made on the forty-fifth day 
after the end of each month for that month, commencing with the month 
succeeding the month in which the royalty fees are set.
    (c) Distribution of royalties. (1) The Collective shall promptly 
distribute royalties received from Licensees to copyright owners and 
performers, or their designated agents, that are entitled to such 
royalties. The Collective shall only be responsible for making 
distributions to those copyright owners, performers, or their 
designated agents who provide the Collective with such information as 
is necessary to identify the correct recipient. The Collective shall 
distribute royalties on a basis that values all performances by a 
Licensee equally based upon the information provided under the reports 
of use requirements for Licensees contained in Sec.  370.2 of this 
chapter.
    (2) If the Collective is unable to locate a copyright owner or 
performer entitled to a distribution of royalties under paragraph 
(c)(1) of this section within 3 years from the date of payment by a 
Licensee, such distribution may first be applied to the costs directly 
attributable to the administration of that distribution. The foregoing 
shall apply notwithstanding the common law or statutes of any State.


Sec.  382.4  Confidential information and statements of account.

    (a) For purposes of this part, confidential information shall 
include statements of account and any information pertaining to the 
statements of account designated as confidential by the nonexempt 
preexisting subscription service filing the statement. Confidential 
information shall also include any information so designated in a 
confidentiality agreement which has been duly executed between a 
nonexempt preexisting subscription service and an interested party, or 
between one or more interested parties; Provided that all such 
information shall be made available, for the verification proceedings 
provided for in Sec. Sec.  382.5 and 382.6.
    (b) Nonexempt preexisting subscription services shall submit 
monthly statements of account on a form provided by the Collective and 
the monthly royalty payments.
    (c) A statement of account shall include only such information as 
is necessary to verify the accompanying royalty payment. Additional 
information beyond that which is sufficient to verify the calculation 
of the royalty fees shall not be included on the statement of account.
    (d) Access to the confidential information pertaining to the 
royalty payments shall be limited to:
    (1) Those employees, agents, consultants and independent 
contractors of the Collective, 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

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during the ordinary course of employment, require access to the 
records; and
    (2) An independent and qualified auditor who is not an employee or 
officer of a sound recording copyright owner or performing artist, but 
is authorized to act on behalf of the interested copyright owners with 
respect to the verification of the royalty payments.
    (3) Copyright owners and performers whose works have been used 
under the statutory licenses set forth in 17 U.S.C. 112(e) and 114(f) 
by the Licensee whose Confidential Information is being supplied, or 
agents thereof, subject to an appropriate confidentiality agreement, 
provided that the sole confidential information that may be shared 
pursuant to this paragraph (d)(3) are the monthly statements of 
accounts that accompany royalty payments.
    (e) The Collective 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 
Collective or such person.
    (f) Books and records relating to the payment of the license fees 
shall be kept in accordance with generally accepted accounting 
principles for a period of three years. These records shall include, 
but are not limited to, the statements of account, records documenting 
an interested party's share of the royalty fees, and the records 
pertaining to the administration of the collection process and the 
further distribution of the royalty fees to those interested parties 
entitled to receive such fees.


Sec.  382.5  Verification of statements of account.

    (a) General. This section prescribes general rules pertaining to 
the verification of the statements of account by interested parties 
according to terms promulgated by the Copyright Royalty Board.
    (b) Frequency of verification. Interested parties may conduct a 
single audit of a nonexempt preexisting subscription service during any 
given calendar year.
    (c) Notice of intent to audit. Interested parties must submit a 
notice of intent to audit a particular service with the Copyright 
Royalty Board, 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 
intent to audit shall also be served at the same time on the party to 
be audited.
    (d) Retention of records. The party requesting the verification 
procedure shall retain the report of the verification for a period of 
three 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 auditor, shall serve as an acceptable verification 
procedure for all parties.
    (f) Costs of the verification procedure. The interested parties 
requesting the verification procedure shall pay for the cost of the 
verification procedure, unless an independent auditor concludes that 
there was an underpayment of five (5) percent or more; in which case, 
the service which made the underpayment shall bear the costs of the 
verification procedure.
    (g) Interested parties. For purposes of this section, interested 
parties are those copyright owners who are entitled to receive royalty 
fees pursuant to 17 U.S.C. 114(g), their designated agents, or the 
Collective.


Sec.  382.6  Verification of royalty payments.

    (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 the 
Copyright Royalty Board.
    (b) Frequency of verification. Interested parties may conduct a 
single audit of the Collective 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 Royalty Board, 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.
    (d) Retention of records. The interested party requesting the 
verification procedure shall retain the report of the verification for 
a period of three 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 auditor, shall serve as an acceptable verification 
procedure for all interested parties.
    (f) Costs of the verification procedure. The interested parties 
requesting the verification procedure shall pay for the cost of the 
verification procedure, unless an independent auditor concludes that 
there was an underpayment of five (5) percent or more, in which case, 
the entity which made the underpayment shall bear the costs of the 
verification procedure.
    (g) Interested parties. For purposes of this section, interested 
parties are those who are entitled to receive royalty payments pursuant 
to 17 U.S.C. 114(g)(2), or their designated agents.


Sec.  382.7  Unknown copyright owners.

    If the Collective is unable to identify or locate a copyright owner 
or performer who is entitled to receive a royalty distribution under 
this part, the Collective shall retain the required payment in a 
segregated trust account for a period of 3 years from the date of 
distribution. No claim to such distribution shall be valid after the 
expiration of the 3-year period. After expiration of this period, the 
Collective 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: October 26, 2007.
James Scott Sledge,
Chief Copyright Royalty Judge.
[FR Doc. E7-21473 Filed 10-30-07; 8:45 am]
BILLING CODE 1410-72-P