[Federal Register Volume 73, Number 33 (Tuesday, February 19, 2008)]
[Notices]
[Pages 9143-9146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-3149]


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LIBRARY OF CONGRESS

Copyright Office

[Docket No. 2008-2]


Review of Copyright Royalty Judges Determination

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice.

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SUMMARY: The Register of Copyrights issues the following determination 
concerning the Copyright Royalty Judges' decisions to include the rate 
for use of the section 112 license for ephemeral recordings within the 
rates and terms of royalty payments under section 114 for the use of 
sound recordings in transmissions made by New Subscription Services, 
Preexisting Subscription Services and Satellite Digital Audio Radio 
Services, and to not set a minimum fee within the section 112 license 
rates for the Satellite Digital Audio Radio Services.

FOR FURTHER INFORMATION CONTACT: Tanya M. Sandros, General Counsel, 
Copyright GC/I&R, P.O. Box 70400, Washington, DC 20024. Telephone: 
(202) 707-8380. Telefax: (202) 707-8366.

SUPPLEMENTARY INFORMATION: 

Background

    The Copyright Royalty Judges are required by 17 U.S.C. 803(b) and 
37 CFR 351 to issue determinations of rates and terms for royalty 
payments due for the public performance of sound recordings in certain 
digital transmissions by licensees in accordance with the provisions of 
17 U.S.C. 114, and the making of certain ephemeral recordings by 
licensees in accordance with the provisions of 17 U.S.C. 112(e).
    The Copyright Royalty Judges recently issued three final 
determinations setting rates and terms for the public performance of a 
sound recording by means of a digital transmission and for the making 
of ephemeral recordings necessary to facilitate those transmissions 
pursuant to 17 U.S.C. 114 and 17 U.S.C. 112(e). On December 19, 2007 
the Copyright Royalty Judges announced the rates and terms applicable 
to Preexisting Satellite Services, 72 FR 71795; on December 20, 2007, 
they announced the rates and terms applicable to New Subscription 
Services, 72 FR 72253; and, on January 24, 2008, they announced the 
rate and terms applicable to Satellite Digital Audio Radio Services. 73 
FR 4080.\1\
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    \1\ On May 1, 2007, the Copyright Royalty Judges announced rates 
and terms applicable to an Eligible Nonsubscription Transmission or 
a Transmission made by a New Subscription Service, herein referred 
to as Webcaster II, 72 FR 24084. [Docket No. CRB 2005-1] While the 
60 day time period allotted under 17 U.S.C. 802(f)(1)(D) for issuing 
a written review for legal error has expired with regard to 
Webcaster II, the same legal error which is addressed herein was 
made in Webcaster II.
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    Under 17 U.S.C. 802(f)(1)(D), the Register of Copyrights may review 
for legal error the resolution by the Copyright Royalty Judges of a 
material question of substantive law under title 17 that underlies or 
is contained in a final determination of the Copyright Royalty Judges. 
If the Register of Copyrights concludes, after taking into 
consideration the views of the participants in the proceeding, that any 
resolution reached by the Copyright Royalty Judges was in material 
error, the Register of Copyrights shall publish such a decision in the 
Federal Register, together with a specific identification of the legal 
conclusion of the Copyright Royalty Judges that is determined to be 
erroneous. The decision of the Register of Copyrights shall be binding 
as precedent upon the Copyright Royalty Judges in subsequent 
proceedings.
    The Register of Copyrights has deemed that the Copyright Royalty 
Judges' publication of Final Rulings regarding New Subscription 
Services (``NSS''), Preexisting Subscription

[[Page 9144]]

Services (``PSS'') and Preexisting Satellite Digital Audio Radio 
Services (``SDARS'') constitute issuance of final determinations as per 
802(f)(1)(D). The Register of Copyrights has reviewed these final 
determinations of rates and terms of royalty payments under sections 
114 and 112. The Register concludes that the Copyright Royalty Judges' 
resolution to include the rate for the section 112 license within the 
rates and terms for the section 114 license constitutes a failure to 
establish a discernable rate for the section 112 license and is 
therefore a legal error. Moreover, this legal error has serious 
ramifications in that the beneficiaries of the section 114 license fees 
are not identical to the beneficiaries of the section 112 license fees. 
The Register also concludes that the Copyright Royalty Judges' failure 
to set a minimum fee within the section 112 license rates for SDARS is 
a legal error.

Copyright Royalty Judges' Determination Setting Rates and Terms for New 
Subscription Services

    On October 31, 2005, pursuant to section 114(f)(2)(C), XM Satellite 
Radio, Inc. (``XM'') filed a Petition to Initiate and Schedule 
Proceeding for a NSS with the Copyright Royalty Judges. Pursuant to 17 
U.S.C. 804(b)(3)(C)(ii), the Copyright Royalty Judges published a 
notice in the Federal Register on December 5, 2005, announcing 
commencement of the proceeding to set rates and terms for royalty 
payments under sections 114 and 112 for the activities of the new 
subscription service described in the XM Petition and requesting 
interested parties to submit their Petitions to Participate. 70 FR 
72471. Petitions to participate were received from Sirius Satellite 
Radio, Inc. (``Sirius''), XM, MTV Networks (``MTV''), and 
SoundExchange, Inc.
    Subsequent to the presentation of the direct phase of their cases 
and the filing of their written rebuttal statements, but prior to the 
oral presentation of their rebuttal witnesses, the parties informed the 
Copyright Royalty Judges that they had ``reached full agreement on all 
issues in this litigation'' and that ``there are no more issues to 
try.'' Docket No. CRB 2005-5, Transcript of September 10, 2007, at p. 
5. They stated that the settlement agreement would be submitted to the 
Copyright Royalty Judges for approval and adoption pursuant to 17 
U.S.C. 801(b)(7)(A). Id. at 6. The proposed rates and terms codifying 
the settlement agreement were filed on October 30, 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. 17 U.S.C. 801(b)(7)(A). 
Accordingly, on November 9, 2007, the Copyright Royalty Judges 
published a Notice of Proposed Rulemaking (``NPRM'') requesting comment 
on the proposed rates and terms submitted to the Judges. 72 FR 63532. 
Comments were due by December 10, 2007. In response to the NPRM, the 
Copyright Royalty Judges received only one comment, which was submitted 
by SoundExchange, supporting the adoption of the proposed regulations.
    The Copyright Royalty Judges received no objections from a party 
that would be bound by the proposed rates and terms and that would be 
willing to participate in further proceedings. Therefore, on December 
20, 2007, they adopted final regulations which set the rates and terms 
for the use of sound recordings in transmissions made by NSS and for 
the making of ephemeral recordings necessary for the facilitation of 
such transmissions for the period commencing from the inception of the 
NSS through December 31, 2010.
    The Copyright Royalty Judges' rates, which included a non-
refundable annual minimum fee, allocated a single calculation and 
payment for both the public performance of sound recordings by eligible 
digital transmissions made by a Service pursuant to 17 U.S.C. 114, and 
for ephemeral recordings of sound recordings made pursuant to 17 U.S.C. 
112 to facilitate such transmissions. They did not set a separate 
discernible rate for the section 112 license.

Copyright Royalty Judges' Determination Setting Rates and Terms for 
Preexisting Subscription Services and Satellite Digital Audio Radio 
Services

    On January 9, 2006, the Copyright Royalty Judges commenced a 
proceeding to set rates and terms for PSS and SDARS with a request for 
petitions to participate. 73 FR 1455. Seven parties filed petitions to 
participate in this proceeding: SoundExchange, Music Choice, Muzak LLC, 
XM, Sirius, Royalty Logic, Inc., and THP Capstar Acquisition d/b/a DMX 
Music. Prior to the beginning of formal hearings, the Copyright Royalty 
Judges referred a novel material question of substantive law regarding 
the universe of preexisting subscription services to the Register of 
Copyrights.
    On October 20, 2006, the Register of Copyrights transmitted her 
determination on this issue to the Copyright Royalty Judges. 
Subsequently, DMX withdrew from the proceeding on October 20, 2006, and 
Sirius participated in the proceeding solely as a SDARS rather than as 
both a PSS and a SDARS. Royalty Logic, Inc. also withdrew from the 
proceeding on November 21, 2006, and the Copyright Royalty Judges 
dismissed Muzak from the proceedings on January 7, 2007.
    Music Choice, as a PSS, reached a settlement with SoundExchange. 
Their settlement was submitted to the Copyright Royalty Judges and 
published for comment on October 31, 2006. 72 FR 61585. No objections 
were received from a party that would be bound by the proposed rates 
and terms and that would be willing to participate in further 
proceedings. On December 19, 2007, the Copyright Royalty Judges adopted 
final regulations which set the rates and terms for PSS under sections 
114 and 112 for the license period 2008-2012. The rates, which included 
a non-refundable annual advance payment (i.e. a minimum fee), allocated 
a single calculation and payment method for both the public performance 
of sound recordings by eligible digital transmissions made pursuant to 
17 U.S.C. 114, and for ephemeral recordings of sound recordings made 
pursuant to 17 U.S.C. 112 to facilitate such transmissions. The adopted 
settlement did not set a separate discernible rate for the section 112 
license. 73 FR 71795.
    In light of Music Choice's settlement, the only potential licensees 
remaining in the proceeding were the SDARS: XM and Sirius. Hereafter 
the proceeding was referred to as the SDARS proceeding. The remaining 
parties entered into negotiations to set rates and terms for use of the 
section 114 and section 112 statutory licenses but they were unable to 
reach an agreement. Consequently, the Copyright Royalty Judges 
proceeded with hearings to determine the rates and terms that would 
apply to SDARS.
    The standards the Copyright Royalty Judges are to apply in setting 
the rates and terms for SDARS (as well as for PSS) differ between the 
114 and 112 licenses. Section 114(f)(1) requires the Copyright Royalty 
Judges to establish rates and terms for the transmission of the sound 
recordings that are reasonable and that are calculated to achieve four 
specific policy objectives set forth in section 801(b)(1) of the 
copyright law. 17 U.S.C. 114(f)(1), 17 U.S.C. 801(b)(1). On the other 
hand, section 112(e), governing the reproductions made to facilitate 
the transmissions licensed under section 114, requires the Copyright 
Royalty Judges to set rates and terms that most clearly represent those 
``that would have been negotiated

[[Page 9145]]

in the marketplace between a willing buyer and a willing seller,'' and 
to take into account certain factors when making this determination. 17 
U.S.C. 112(e)(4). Additionally, the section 112 license requires that 
``such rates shall include a minimum fee for each type of service 
offered.'' 17 U.S.C. 112(e)(4).
    After considering the evidence in this proceeding and the 
applicable law, the Copyright Royalty Judges announced their final 
determination setting rates and terms for SDARS on January 24, 2008, 
stating that the ``appropriate section 114 performance license rate is 
6.0% of gross revenues for 2007 and 2008, 6.5% for 2009, 7.0% for 2010, 
7.5% for 2011 and 8.0% for 2012 and, further, that the appropriate 
section 112 reproduction license rate is deemed to be embodied in the 
section 114 license rate.'' 73 FR at 4084. However, the Copyright 
Royalty Judges did not determine a separate rate for the section 112 
license or determine what portion of the Section 114 license fee, if 
any, should be deemed to be attributable to the section 112 license. In 
other words, they did not set a discernible rate for section 112. 
Additionally, the Copyright Royalty Judges did not set a minimum fee 
for the SDARS section 112 license.

Review of Copyright Royalty Judges' Determinations

    In accordance with the authority granted to the Register of 
Copyrights under 17 U.S.C. 802(f)(1)(D), the Register of Copyrights has 
reviewed for legal error the determinations of the Copyright Royalty 
Judges setting rates and terms for use of the sections 112 and 114 
statutory licenses by NSS, PSS, and SDARS. The Register concludes that 
the Copyright Royalty Judges did not determine rates for the section 
114 and 112 licenses and that this resolution constitutes an error on a 
material question of substantive law under title 17 in each of the 
above-referenced determinations. Further, the Register concludes that 
the Copyright Royalty Judges' determination of rates for SDARS did not 
include a minimum fee for the section 112 license and that this 
resolution was also in material error.
    It is not that the Copyright Royalty Judges failed to recognize the 
need to set a rate for the section 112 license or include a minimum 
fee. The January 24, 2007 Order acknowledges the Copyright Royalty 
Judges' responsibility to set these rates for the section 112 license. 
73 FR at 4084 and 4098. Even so, the Copyright Royalty Judges chose not 
to set a specific rate for the section 112 license, citing the paucity 
of evidence in the record for the SDARS proceeding that could be used 
to determine the value of the license. In that case, the Copyright 
Royalty Judges were presented with two proposals. According to the 
final order, SoundExchange suggested ``combining the Section 112 and 
114 rates over the license period by allocating 8.8% of the combined 
fee owed by the SDARS towards the 112 charge.'' 73 FR at 4098. The 
SDARS agreed in principle but they suggested that the section 112 
license has no separate value. However, the Copyright Royalty Judges 
rejected both proposals, finding that neither proposal was supported by 
record evidence. Id
    The Copyright Royalty Judges declined to accept that 8.8% of the 
rate for the performance of the sound recording represents the 
valuation of the right to make reproductions of the sound recordings 
under the section 112 license. Instead, they concluded that 
``SoundExchange's valuation of 8.8% is nothing more than an effort to 
preserve a belief that the section 112 license has some value by 
perpetuating the number adopted in the first webcasting proceeding.'' 
Id The Copyright Royalty Judges then characterized the section 112 
license as ``an add-on to the securing of the performance rights 
granted by the Section 114 license,'' and determined that the rate for 
the section 112 license rate is embodied in the rate for the section 
114 license, just as they did in Webcaster II.\2\ Id. However, the 
Copyright Royalty Judges did not identify any particular percentage of 
the section 114 license fee as representing the value of the section 
112 license.
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    \2\ In Webcaster II the Copyright Royalty Judges, for the first 
time, announced rates and terms of royalty payments under sections 
114 and 112 for the use of sound recordings in transmissions. 72 FR 
24084. [Docket No. CRB 2005-1]
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    There is also sparse evidence or analysis regarding the decision to 
include rates for the section 112 license within the rates and terms 
for the section 114 license in either the December 19, 2007 Final Rule 
for PSS or the December 20, 2007 Final Rule for NSS, since both 
determinations were the result of negotiated settlements. Settlements, 
however, are not accepted in a vacuum. Section 801(b)(7)(A) allows for 
the adoption of rates and terms negotiated by ``some or all the 
participants in a proceeding at any time during the proceeding'' 
provided they are submitted to the Copyright Royalty Judges for 
approval. 17 U.S.C. 801(b)(7)(A). The Copyright Royalty Judges have the 
authority to accept or reject the settlement and it is the resulting 
Final Order which is then subject to review by the Register. 17 U.S.C. 
802(f)(1)(D). In fact, in their October 31, 2007 NPRM announcing 
negotiated rates and terms for PSS, the Copyright Royalty Judges 
exercised their authority to accept or reject the proposed settlement 
by including two modifications to the negotiated proposal before 
publishing it for comment. 73 FR 61586.
    The negotiated settlements establishing rates and terms for both 
PSS and NSS, and their approval by the Copyright Royalty Judges, 
followed the previous conclusion in Webcaster II regarding inclusion of 
the section 112 license within the section 114 license as a single 
rate. Thus, the Webcaster II conclusion on this matter likely underlies 
the parties' settlement just as it did the January 24, 2007 Order for 
the SDARS. Therefore, the Register reviews the analysis and resolution 
on this matter as contained in Webcaster II.
    In Webcaster II, the Copyright Royalty Judges rejected the proposal 
put forward by SoundExchange and agreed to by the Digital Media 
Association, which sought to carry forward the combination of sections 
112 and 114 rates from the prior license period. This proposal included 
the ``deeming'' of 8.8% of the total fee owed by Services as 
constituting the section 112 charge. 72 FR 24101. The Copyright Royalty 
Judges declined to ascribe any particular percentage of the section 114 
royalty as representative of the value of the section 112 license.
    The Copyright Royalty Judges made this decision based on the view 
that ``SoundExchange's evaluation of 8.8% is not a rate.'' Id 
Additionally, they noted that ``the paucity of the record prevents us 
from determining that 8.8% of the section 114 royalties is either the 
value of or the rate for the section 112 license'' and that ``the 
record demonstrates that * * * copyright owners and performers are 
unable to secure separate fees for the section 112 license.'' 72 FR 
24101-24102.
    The Register observes that the parties' failure to provide 
sufficient evidence to set a rate does not dispatch the Copyright 
Royalty Judges' statutory obligations. The Register notes that Congress 
allows the Copyright Royalty Judges to consider a broad array of 
information in determining the separate rates for the section 112 
license that most clearly represent the fees that would have been 
negotiated in the marketplace between a willing buyer and a willing 
seller. In making these determinations, the Copyright Royalty Judges 
are to consider economic, competitive, and programming information 
presented by the parties, and they may consider voluntary license 
agreements negotiated under section 112. 17 U.S.C. 112(e)(4). 
Furthermore,

[[Page 9146]]

the Copyright Royalty Judges have been granted subpoena powers to 
compel participants or witnesses to appear and give testimony. See 17 
U.S.C. 803(b)(6)(C)(ix).
    Moreover, there is a practical reason for making this 
determination. The requirement in section 112(e)(4) to determine rates 
is logical in that the two licenses involve different rights. The 
section 112 statutory license applies to reproductions, while the 
section 114 statutory license applies to public performances. Moreover, 
the beneficiaries of the section 114 license are not identical to the 
beneficiaries of the section 112 license. Royalties collected under 
section 114 are paid to the performers and the copyright owners of the 
sound recordings, i.e., usually the record companies; whereas, the 
royalties collected pursuant to the section 112 license are not paid to 
performers. Without separate rates for both the section 114 and 112 
licenses, SoundExchange is unable to allocate properly the funds it 
collects as the Designated Agent and fulfill both its responsibility to 
distribute receipts to stakeholders of the public performance right 
under section 114(g) as well as its responsibility to distribute 
receipts to separate stakeholders of the reproduction right under 
section 112.
    Consequently, the Register finds that the Copyright Royalty Judges' 
resolution to include rates for the section 112 license within rates 
and terms for the section 114, without specifying what percentage, if 
any, is attributable to the section 112 license, does not fulfill the 
Copyright Royalty Judges' responsibility to determine the value of the 
section 112 license for ephemeral copies. Both the text and the 
legislative history of section 112 indicate Congress' view that the 
rate setting body must determine the value of the section 112 license. 
See 17 U.S.C. 112(e)(3) (requiring reasonable rates and terms of 
royalty payments for the activities specified by paragraph (1) which 
shall include a minimum fee for each type of service offered by 
transmitting organizations); DMCA Conf. Rpt., 105-796, at 89-91; DMCA 
Section-by-Section Analysis at 52-53, 61-62.

Conclusion

    Having reviewed the resolution by the Copyright Royalty Judges for 
legal error, the Register of Copyrights hereby concludes that in 
setting rates for the section 112 and 114 statutory licenses, the 
Copryight Royalty Judges must establish separate values for each of the 
two licenses and that rates for the section 112 license shall include a 
minimum fee.\3\ Pursuant to the requirements established in 
802(f)(1)(D), the Register issues this written decision not later than 
60 days after the dates on which the final determinations by the 
Copyright Judges were issued. This decision shall be binding as 
precedent upon the Copyright Royalty Judges in subsequent proceedings.
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    \3\ The Register, however, takes no position on what the value 
of the minimum fee should be, or whether it could be a fee of zero.

    Dated: February 14, 2008.
Marybeth Peters,
Register of Copyrights.
 [FR Doc. E8-3149 Filed 2-15-08; 8:45 am]
BILLING CODE 1410-30-P