[Federal Register Volume 74, Number 27 (Wednesday, February 11, 2009)]
[Rules and Regulations]
[Pages 6832-6834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-2900]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 385

[Docket No. 2006-3 CRB DPRA]


Mechanical and Digital Phonorecord Delivery Rate Determination 
Proceeding

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final rule.

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SUMMARY: The Copyright Royalty Judges are announcing four modifications 
to the royalty terms previously adopted in their final determination of 
rates and terms for the mechanical and digital phonorecord delivery 
statutory license. These modifications are made to more clearly reflect 
the law as stated in the Register of Copyrights' decision of January 
26, 2009.

DATES: Effective Date: March 1, 2009.

FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or 
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658. Telefax: 
(202) 252-3423.

SUPPLEMENTARY INFORMATION: On November 24, 2008, the Copyright Royalty 
Judges (``Judges'') issued their final determination establishing rates 
and terms for the mechanical and digital phonorecord delivery statutory 
license found at 17 U.S.C. 115.\1\ Rates and terms were promulgated for 
the use of musical works in physical phonorecords, permanent downloads, 
ringtones, limited downloads, interactive streaming and incidental 
digital phonorecord deliveries. Rates and terms for the latter three 
categories--limited downloads, interactive streaming and incidental 
digital phonorecord deliveries--were adopted pursuant to an agreement 
reached by all participants in the proceeding and presented to the 
Judges for adoption. After publishing the agreement in the Federal 
Register and allowing interested parties to comment as required by 17 
U.S.C. 801(b)(7)(A), the Judges determined that the same section did 
not allow them to review or reject the agreement, or portions thereof, 
in the absence of an objection from one of the participants to the 
proceeding. Under the Judges' interpretation of the statute, if an 
objection is filed, the Judges may review the agreement for 
reasonableness. However, with no objection tendered, the agreement 
should be adopted in toto.
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    \1\ The Librarian of Congress, pursuant to 17 U.S.C. 803(c)(6), 
published the Judges' determination in the Federal Register on 
January 26, 2009. See 74 FR 4510.
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    On January 26, 2009, the Register of Copyrights published a notice 
in the Federal Register pursuant to 17 U.S.C. 802(f)(1)(D). 74 FR 4537 
(January 26, 2009). That section provides that the ``Register of 
Copyrights may review for legal error the resolution by the Copyright 
Royalty Judges of a material question of substantive law under this 
title that underlies or is contained in a final determination of the 
Copyright Royalty Judges.'' The Register faulted our adoption of the 
participants' agreement of rates and terms for limited downloads, 
interactive streaming and incidental digital phonorecord deliveries, 
concluding that ``it was legal error for the CRJs to conclude that the 
restrictions on its authority to review the reasonableness of specific 
valid terms and rates also precluded its review of the legality of the 
provisions of the agreement as a threshold matter.'' 74 FR at 4540. The 
Register further stated that her ``conclusion is consistent with the 
CRJs' decision that it had the authority to decline to adopt language 
in the participants' agreement that stated that the rates in the 
agreement have no precedential effect and may not be introduced or 
relied upon in any governmental or judicial proceeding.'' Id., citing 
72 FR 61586 (October 31, 2007).\2\
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    \2\ The cited proceeding established the rates and terms for 
preexisting subscription services making digital transmissions of 
sound recordings and ephemeral recordings. Docket No. 2006-1 CRB 
DSTRA. The Judges made two changes to the agreement submitted by the 
parties in that proceeding, changing the numbering of the proposed 
provisions to reflect their ultimate position in Chapter III of 
title 37 of the Code of Federal Regulations, and correcting a 
clerical error in the agreement for the location to submit notices 
of intention to audit preexisting subscription services. The Judges 
also eliminated a provision concerning the experimental and 
precedential effect and use of rates in an agreement in a proceeding 
to adjust the rates and terms for noncommercial educational 
broadcasting services under 17 U.S.C. 118. 72 FR 19138 (April 17, 
2007). We declined to give such a term effect because it was outside 
the scope of our jurisdiction to set rates for the section 118 
license. 72 FR at 19139 (``It is not our task to offer evaluations, 
limitations or characterizations of the rates and terms, or make 
statements about their use or value in proceedings other than this 
one.'').
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    It is evident from the Register's pronouncement that the Copyright 
Act grants the Judges considerably broader authority over review of 
agreements than discerned by the Judges in the statute. The Register 
stated that an agreement must pass a threshold review prior to the 
application of 17 U.S.C. 801(b)(7)(A). The Judges have the authority, 
and in fact the obligation, to review any and all provisions in an 
agreement. Provisions that are deemed legally erroneous may not be part 
of the codification based on the agreement; otherwise their adoption 
results in an error of law. See 74 FR at 4540. The Register stated that 
once the agreement is vetted for errors of law, the remaining portions 
of the agreement may be adopted as the agreement of the participants 
unless, of course, there is an objection from one or more of the 
participants in which case the procedures set forth in section 
801(b)(7)(A) would apply.
    The Register identified four provisions in the agreement adopted in 
the Code of Federal Regulations that contain errors of law. All four 
were in the participants' agreement. First, the Register concluded that 
the second sentence of the definition of an ``interactive stream'' 
contained in Sec.  385.11 of the regulations was in error because it 
altered the statutory terms of the section 115 license regarding what 
constitutes a digital phonorecord delivery.\3\ 74 FR at 4541. That 
sentence

[[Page 6833]]

provides that ``[a]n interactive stream is an incidental digital 
phonorecord delivery under 17 U.S.C. 115(c)(3)(C) and (D).'' Second, 
the Register determined that Sec.  385.14(e) of the regulations, which 
establishes a promotional royalty rate for promotional interactive 
streams and limited downloads offered in the context of a free trial 
period for a digital music subscription service, amounts to 
impermissible retroactive rulemaking. Id. at 4542. Third, the Register 
concluded that Sec.  385.15 of the regulations, which addresses the 
timing of royalty payments, was violative of the provisions of 17 
U.S.C. 115(c)(5). Id. Fourth, the Register found error with the final 
sentence of Sec.  385.14(a)(4), which provides that ``For the avoidance 
of doubt, however, except as provided in paragraph (a) of this section, 
statements of account under 17 U.S.C. 115 need not reflect interactive 
streams or limited downloads subject to the promotional royalty rate.'' 
She determined that this sentence is contrary to her authority to 
prescribe regulations for statements of account under the section 115 
license. Id. at 4543.
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    \3\ The Register asserts the faulty provision contained in the 
Sec.  385.11 definition of an ``interactive stream'' is the product 
of the Judges' failure to refer to her under 17 U.S.C. 802(f)(1)(B) 
the question of what constitutes a digital phonorecord delivery as 
defined in 17 U.S.C. 115(d), 74 FR at 4539 (``Failure to refer the 
question of what constitutes a DPD to the Register has led to the 
adoption of a regulation that, on its face, overstates the scope of 
the section 115 license with respect to interactive streams''), 
leading her to conclude that there are two errors of law on the same 
matter. Id. (``The CRJs' failure to refer a novel material question 
of substantive law is itself an erroneous legal resolution of `a 
material question of substantive law under [title 17] that underlies 
or is contained in a final determination of the [CRJs],' '' citing 
17 U.S.C. 802(f)(1)(D)). As discussed infra, we are removing the 
second sentence from the definition of an interactive stream 
contained in Sec.  385.11 of the regulations. We cannot discern 
authority in the cited section 802(f)(1)(D), or any other section of 
the Copyright Act, that a procedural decision--to refer or not to 
refer--is itself an error of substantive law, particularly where the 
procedural matter is neither contained in nor underlies our final 
determination.
    The statutory scheme embodied in 17 U.S.C. 801 et seq., 
specifically limits the participation of the Register in a rate-
setting proceeding to certain questions of ``substantive law.'' 17 
U.S.C. 802(f)(1)(A), (B), (D). A decision whether or not to refer a 
matter for review by the Register is one of procedure and, thus, not 
reviewable by the Register under the Act. Therefore, the error of 
law that underlies and is indeed contained in our final 
determination is the second sentence of the definition of an 
interactive stream as codified in Sec.  385.11 of the regulations, 
which is being removed in this amendment to the determination.
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    Given the Register's legal determination that the Copyright Royalty 
Judges have broader powers of review of agreements submitted in royalty 
rate and distribution proceedings, the Judges are exercising their 
authority under 17 U.S.C. 803(c)(4) and are modifying the terms adopted 
in Sec. Sec.  385.11, 385.14 and 385.15. Although the Register clearly 
recognizes that her decision identifying certain errors of copyright 
law is only binding as precedent upon the Judges in subsequent 
proceedings, the Register suggests certain of these legal errors may be 
within the Judges' discretion to correct even in the instant proceeding 
under the continuing jurisdiction provisions of 17 U.S.C. 803(c)(4).
    That statutory provision establishes continuing jurisdiction under 
which the Judges may ``issue an amendment to a written determination to 
correct any technical or clerical errors in the determination or to 
modify the terms, but not the rates, of royalty payments in response to 
unforeseen circumstances that would frustrate the proper implementation 
of such determination.'' 17 U.S.C. 803(c)(4) (emphasis added). The 
Register further interprets this provision of the statute as applicable 
even to the participants' partial agreement, notwithstanding the 
Judges' previously articulated view of the statutory limits on their 
review of such agreements. 74 FR at 4541, 4543.
    Following the Register's view of the Judges' statutory discretion 
to ``correct'' agreements, though only binding as to future 
proceedings, offers a singular advantage in the instant proceeding to 
clarify potential confusion facing users of the license at issue (some 
of whom may not have been parties to the partial agreement). Because 
the Register's published decision has interpreted certain provisions of 
the partial agreement of the participants regarding limited downloads 
and interactive streaming in this proceeding as necessarily implicating 
errors of copyright law and, at the same time, because the partial 
agreement of the participants containing the offending terms were 
previously published as statutorily required together with the Judges' 
resolution of litigated issues, users of the license may well be 
confused as to the status of the currently codified terms. In order to 
clarify those terms by means of an updated codification and, thereby, 
to promote an efficient administration of the applicable license, we 
find, pursuant to the Register's statement of our discretion under 17 
U.S.C. 803(c)(4), four terms which should be clarified by means of the 
issuance of amended regulations to more clearly reflect the law as 
stated in the Register's decision. Because they are contrary to law, 
the following are deleted: (1) The second sentence of the definition of 
an ``interactive stream'' in Sec.  385.11; (2) Sec.  385.14(e); (3) 
Sec.  385.15; and (4) the last sentence of Sec.  385.14(a)(4). The 
Judges act under the Register's determination that agreements of the 
participants may be modified to excise provisions that conflict with 
law and still be the agreement of the participants. The basis for the 
regulations in Subpart B is the agreement presented by the participants 
pursuant to 17 U.S.C. 801(b)(7)(A). The Judges decline to add 
provisions to the participants' agreement, as the Register suggests, to 
correct errors of law and still treat it as an agreement of the 
participants under section 801(b)(7)(A).

 So ordered.

William J. Roberts, Jr.,
Copyright Royalty Judge.

Stanley C. Wisniewski,
Copyright Royalty Judge.

Dated: February 6, 2009.

Dissenting Opinion of Chief Copyright Royalty Judge Sledge

    With utmost respect for my esteemed colleagues, Marybeth Peters, 
Register of Copyrights, and Copyright Royalty Judges Stanley C. 
Wisniewski and William J. Roberts, Jr., the Chief Copyright Royalty 
Judge, James Scott Sledge, dissents. The Copyright Royalty and 
Distribution Reform Act of 2004 is relatively new. This proceeding is 
the third rate determination proceeding tried to completion with a 
final determination under the new act. Appeals are pending on the first 
two rate proceedings. The Register of Copyrights, the Copyright Royalty 
Judges, the participants and the public are all trying to implement the 
new act and faithfully follow its provisions. Consistent with all new 
legislation, the implementation will evolve as the common law develops. 
I dissent from the amendment to the final determination, only because I 
feel an amendment is inappropriate and unwarranted. If an amendment is 
appropriate to be issued, I do not oppose any part of the analysis in 
the majority amendment. This dissenting opinion is the first instance 
that any order or ruling, written or oral, of the Copyright Royalty 
Judges has not been unanimous. We can be proud of our record of harmony 
and this dissent is made after careful deliberation.
    The Judges are not required to amend the final determination unless 
the Court of Appeals reverses and orders changes. The Judges have full 
independence in making initial determinations of copyright royalty 
rates and terms, subject only to a Register's decision following a 
referral of a novel question or a request for an interpretation of a 
material question of substantive law in title 17. 17 U.S.C. 
802(f)(1)(A) and (B). A review of the Judges' final

[[Page 6834]]

determination for legal error by the Register is precedent in 
subsequent proceedings under Chapter 8. 17 U.S.C. 802(f)(1)(D). The 
Register does not claim the authority to direct amendments in the 
determination and regulations, like a remand, and her corrections to 
the legal errors she found are suggestions to the Judges.
    The Judges are not authorized to make the corrections suggested by 
the Register. Section 803(c)(4) only permits an amendment to a final 
determination to correct technical or clerical errors or to modify 
terms in response to unforeseen circumstances that would frustrate the 
proper implementation of the determination. The Register's suggested 
changes are substantive changes of rates and terms. A determination of 
what constitutes a technical or clerical error is not a material 
question of substantive law in title 17 that is subject to the 
Register's authority in section 802(f)(1)(D). If any correction 
suggested by the Register is an unforeseen circumstance, one must 
conclude that it is unreasonable or unforeseeable for the Register to 
review a determination and find legal error.
    The Judges should not make the suggested changes to the 
determination as they are not consistent with Chapter 8. The change to 
the agreement presented by all the participants discourages 
settlements. The procedure in proceedings throughout section 803 
encourages settlements. Section 801(b)(7)(A) encourages settlements and 
does not include the threshold requirement suggested by the Register 
for a review to delete any provision that is contrary to law. The 
suggested change would adopt an agreement of the participants after 
provisions are deleted and new provisions added, notwithstanding the 
non-severability restrictions in the agreement. This practice 
discourages settlements. The changes hinder judicial efficiency by 
encouraging parties that are disgruntled or losing arguments in a 
proceeding to make last-minute requests to refer novel questions of law 
to the Register. Also, the Judges would be reviewing agreements for 
legal error after the record is closed and shortly before the 
determination is required to be issued, which was the timing of the 
agreement in this case. The changes involve the Register in procedural 
issues in a proceeding. An order granting or denying a motion to refer 
a novel question of law is a procedural, interlocutory order that is 
not subject to Register review, section 802(f)(1)(A)(ii), and is not a 
material question of law under title 17 that underlies or is contained 
in a final determination. The changes undermine the statutorily 
conferred independence of the Judges, section 802(f)(1)(A).
    Rather than amend the determination, I would hold that the 
determination and regulations should remain as published.

James Scott Sledge,
Chief U.S. Copyright Royalty Judge.

Dated: February 6, 2009.

List of Subjects in 37 CFR Part 385

    Copyright, Phonorecords, Recordings.

Final Regulation

0
For the reasons set forth in the preamble, the Copyright Royalty Judges 
are further amending Part 385 of Chapter III of title 37 of the Code of 
Federal Regulations as published January 26, 2009, at 74 FR 4510 as 
follows:

PART 385--RATES AND TERMS USE OF MUSICAL WORKS UNDER COMPULSORY 
LICENSE FOR MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL 
PHONORECORDS

0
1. The authority citation for part 385 continues to read:

    Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4).


Sec.  385.11  [Amended]

0
2. Section 385.11 is amended by removing the last sentence from the 
definition of ``Interactive stream''.


Sec.  385.14  [Amended]

0
3. Section 385.14 is amended as follows:
0
a. In paragraph (a)(4), by removing the last sentence; and
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b. By removing paragraph (e).


Sec.  385.15  [Removed and Reserved]

0
4. Remove and reserve Sec.  385.15.

    Dated: February 6, 2009.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
[FR Doc. E9-2900 Filed 2-10-09; 8:45 am]
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