[Federal Register Volume 76, Number 75 (Tuesday, April 19, 2011)]
[Proposed Rules]
[Pages 21833-21835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-9455]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Parts 370 and 382

[Docket No. RM 2011-5]


Notice and Recordkeeping for Use of Sound Recordings Under 
Statutory License

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Copyright Royalty Judges are proposing to amend their 
regulations to provide reporting of uses of sound recordings performed 
by means of digital audio transmissions pursuant to statutory license 
for the period April 1, 2004, through December 1, 2009.

DATES: Comments are due no later than May 19, 2011.

ADDRESSES: Comments 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 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 must be addressed to: 
Copyright Royalty Board, P.O. Box 70977, Washington, DC 20024-0977. If 
hand delivered by a private party, comments must be brought to the 
Library of Congress, James Madison Memorial Building, LM-401, 101 
Independence Avenue, SE., Washington, DC 20559-6000. If delivered by a 
commercial courier, comments must be delivered to the Congressional 
Courier Acceptance Site located at 2nd and D Street, NE., Washington, 
DC. 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

    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 services, 
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 radio services, 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,

[[Page 21834]]

pay royalty fees and to report to copyright owners of sound recordings 
on the use of their works. Both licenses direct the Copyright Royalty 
Judges (``Judges'') to determine the royalty rates to be paid, 17 
U.S.C. 114(f)(1)(A), (f)(2)(A) and 17 U.S.C. 112(e)(3), and 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 royalty fees collected under the section 114 and 112 licenses, as 
determined by the Judges,\1\ are paid to a central source known as a 
Collective.\2\ See 37 CFR Part 370. The purpose of the notice and 
recordkeeping requirement is to ensure that the royalties collected 
under the statutory licenses are distributed by the Collective, or 
other agents designated to receive royalties from the Collective, to 
the correct recipients. To this end, on October 13, 2009, the Judges 
published final regulations specifying notice and recordkeeping 
requirements for use of sound recordings under the section 114 and 112 
licenses.\3\ See 74 FR 52418.
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    \1\ To date, the Judges have determined royalty rates for the 
license periods 2006-2010 and 2011-2015. See 72 FR 24084 (May 1, 
2007) and 76 FR 13026 (March 9, 2011).
    \2\ SoundExchange, Inc., originally created by the Recording 
Industry Association of America, Inc., is currently the Collective 
for receiving both section 112 and 114 royalties, and it (and its 
predecessor) has been the Collective since the inception of the two 
licenses.
    \3\ Until that time, interim regulations were in effect. See 71 
FR 59010 (October 6, 2006).
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SoundExchange Petition for Rulemaking

    On March 24, 2011, SoundExchange petitioned the Judges to commence 
a rulemaking proceeding to consider adopting regulations to authorize 
SoundExchange ``to use proxy reporting data to distribute to copyright 
owners and performers certain sound recording royalties [collected by 
SoundExchange] for periods before 2010 that are otherwise 
undistributable due to licensees' failure to provide reports of use'' 
or their provision of ``reports of use that are so deficient as to be 
unusable.'' Petition of SoundExchange, Inc. for a Rulemaking to 
Authorize Use of a Proxy to Distribute Certain Pre-2010 Sound Recording 
Royalties at 1 and 2 (March 24, 2011) (footnotes omitted). 
SoundExchange states that it has ``expended considerable effort'' to 
work with licensees to bring them into compliance with their reporting 
obligations, id. at 2, and will continue its efforts to obtain 
reporting data for the pre-2010 period. SoundExchange asserts that 
despite these efforts, it is ``approaching the point at which further 
efforts would either be futile or unreasonably costly.'' Id. 
SoundExchange holds approximately $28 million in royalties paid by 
statutory licensees under sections 114 and 112 for the period April 1, 
2004, to December 31, 2009, that should be paid to copyright owners and 
performers. This pool represents 4.5% of the royalties SoundExchange 
has collected for that period. Id. However, these royalties are not 
distributable due to licensees' failure to provide reports of use as 
required or their provision of unusable reports. Id. Consequently, 
SoundExchange asserts that such royalties can ``reasonably'' be 
distributed to copyright owners and performers only by use of a proxy.
    In support of its request, SoundExchange points out that a proxy 
has been utilized once before when the lack of reports of use rendered 
the reasonable distribution of royalties difficult if not impossible. 
There, reporting data did not exist for the period October 1998 (when 
the statutory licenses first became available for services other than 
preexisting subscription services) to March 2004 (when interim 
recordkeeping regulations were promulgated).\4\ In order to allow for 
the distribution of those royalties, the reports of use submitted by 
preexisting subscription services for the October 1998 to March 2004 
timeframe were used as a proxy for all other services operating under 
the section 114 and section 112 licenses, thereby negating the need for 
submission of additional reports of use by nonsubscription services, 
satellite digital audio radio services, new subscription services or 
business establishment services. See Notice and Recordkeeping for Use 
of Sound Recordings Under Statutory License, Docket No. RM 2002-1G, 
Final rule, 69 FR 58261 (September 30, 2004). The Copyright Office 
stated that use of such proxy data was not a perfect solution in that 
context but was the ``optimal method to ensure that royalties collected 
for the [October 1998 to March 2004 timeframe] [were] equitably 
distributed * * * with minimal delay, cost, and effort.'' 69 FR 42009 
(September 30, 2004).
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    \4\ Prior to May 31, 2005, the statutory licenses were 
administered by the Copyright Office under the Copyright Arbitration 
Royalty Panel (``CARP'') system. The Copyright Royalty Distribution 
Reform Act of 2004 replaced the CARP system with the Copyright 
Royalty Judges.
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    SoundExchange contends that a similar approach is warranted now. 
Namely, SoundExchange states that it has ``reduced the pool of 
[undistributable] royalties * * * due to missing reports of use to a 
point such that in the near future `[t]he likelihood of obtaining any 
useful and meaningful data' from non-reporting services would be 
`small.' '' SoundExchange Petition at 3. Consequently, SoundExchange 
proposes using proxy reports of use. Specifically, SoundExchange seeks 
to use ``available data for services of the same license type, for the 
same year,'' which SoundExchange believes should result in a ``much 
more accurate distribution'' than the distribution for the October 1998 
to March 2004 period. Id. at 9 (emphasis in original). For example, for 
business establishment services which fail to submit reports of use as 
required under the applicable regulations, SoundExchange would use 
reports of use submitted by other business establishment services for 
the same calendar year and distribute royalties from non-submitting 
services in proportion to the distribution of royalties from submitting 
services. Id.
    SoundExchange also proposes technical corrections to part 382 to 
reflect the renumbering of certain sections in Part 370 when the Judges 
adopted their final notice and recordkeeping regulations in October 
2009.

Solicitation of Comments on the Proposed Regulations

    The Judges seek comment from interested parties on SoundExchange's 
proposal regarding the use of a proxy for the distribution of royalties 
collected under the section 114 and 112 licenses for the period April 
1, 2004, through December 31, 2009. In addition to general comments 
regarding the proposal, the Judges seek comments on the following 
areas:

    1. Has SoundExchange exhausted all reasonable means to ensure 
that all undistributed royalties for the period from April 1, 2004, 
through December 31, 2009, have been distributed to the party that 
earned those royalties? If not, what other means could SoundExchange 
use to facilitate further distributions without resorting to proxy 
reports of use?
    2. Assuming that SoundExchange has exhausted all reasonable 
means of distributing royalties to the parties who earned them, is 
the proposed use of proxy reports a fair and appropriate means of 
distributing remaining royalties for this period? If not, what would 
be a better alternative?
    3. SoundExchange proposes using proxy reports of use based on 
available data for services of the same type, for the same year. 
Where no such proxy reports are available for the same type of 
service for the same year, is a default proxy based on an aggregate 
of the reports of other services covered by the license a fair and 
appropriate means of

[[Page 21835]]

distributing royalties for this period. If not, what would be a 
better alternative?
    4. Is the disaggregation by type of service proposed in Sec.  
370.4(f) (i.e., nonsubscription transmission service, preexisting 
satellite digital audio radio service, new subscription service, or 
business establishment service) sufficient to determine a reasonable 
proxy for generating corresponding reports of use for similar types 
of non-reporting services?
    Is further disaggregation of some service types, as currently 
referenced in 37 CFR Part 380 (e.g., disaggregation of 
nonsubscription transmission services into commercial webcasters, 
noncommercial webcasters, broadcasters, or noncommercial educational 
webcasters) desirable to determine a better proxy for generating 
corresponding reports of use for such non-reporting services? Would 
this type of further disaggregation be practicable? Would the 
benefits yielded by such further disaggregation, if any, justify the 
incremental costs of doing so?
    5. Does the proposed regulatory language in Sec. Sec.  370.3(i) 
and 370.4(f) (i.e., ``* * * service has not provided a report of use 
required under this section * * *'') clearly encompass both the 
failure of a service to provide reports of use as well as instances 
where the service files an unusable report of use?

    SoundExchange's petition is posted on the Copyright Royalty Board 
Web site at http://www.loc.gov/crb/3-24-11-SoundExchange-petition-proxy.pdf.

List of Subjects

37 CFR Part 370

    Copyright, Sound recordings.

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 amending 37 CFR parts 370 and 382 as follows:

PART 370--NOTICE AND RECORDKEEPING REQUIREMENTS FOR STATUTORY 
LICENSES

    1. The authority citation for part 370 continues to read as 
follows:

    Authority: 17 U.S.C. 112(e)(4), 114(f)(4)(A).

    2. Section 370.3 is amended by adding new paragraph (i) to read as 
follows:


Sec.  370.3  Reports of use of sound recordings under statutory license 
for preexisting subscription services.

* * * * *
    (i) In any case in which a preexisting subscription service has not 
provided a report of use required under this section for use of sound 
recordings under section 112(e) or section 114 of title 17 of the 
United States Code, or both, prior to January 1, 2010, reports of use 
for the corresponding calendar year filed by other preexisting 
subscription services shall serve as the reports of use for the non-
reporting service, solely for purposes of distribution of any 
corresponding royalties by the Collective.
    3. Section 370.4 is amended by adding new paragraph (f) to read as 
follows:


Sec.  370.4  Reports of use of sound recordings under statutory license 
for nonsubscription transmission services, preexisting satellite 
digital audio radio services, new subscription services and business 
establishment services.

* * * * *
    (f) In any case in which a nonsubscription transmission service, 
preexisting satellite digital audio radio service, new subscription 
service, or business establishment service has not provided a report of 
use required under this section for use of sound recordings under 
section 112(e) or section 114 of title 17 of the United States Code, or 
both, prior to January 1, 2010, reports of use for the corresponding 
calendar year filed by other services of the same type shall serve as 
the reports of use for the non-reporting service, solely for purposes 
of distribution of any corresponding royalties by the Collective.

PART 382--RATES AND TERMS FOR DIGITAL TRANSMISSIONS OF SOUND 
RECORDINGS AND THE REPRODUCTION OF EPHEMERAL RECORDINGS BY 
PREEXISTING SUBSCRIPTION SERVICES AND PREEXISTING SATELLITE DIGITAL 
AUDIO RADIO SERVICES

    4. The authority citation of part 382 continues to read as follows:

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


Sec.  382.3  [Amended]

    5. Section 382.3(c)(1) is amended by removing ``Sec.  370.2'' and 
adding ``Sec.  370.3'' in its place.


Sec.  382.13  [Amended]

    6. Section 382.13(f)(1) is amended by removing ``Sec.  370.3'' and 
adding ``Sec.  370.4'' in its place.

    Dated: April 14, 2011.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
[FR Doc. 2011-9455 Filed 4-18-11; 8:45 am]
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