[Federal Register Volume 77, Number 115 (Thursday, June 14, 2012)]
[Proposed Rules]
[Pages 35643-35652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14454]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 201
[Docket No. 2012-5]
Verification of Statements of Account Submitted by Cable
Operators and Satellite Carriers
AGENCY: Copyright Office, Library of Congress.
ACTION: Notice of proposed rulemaking and request for comments.
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SUMMARY: The Copyright Office is proposing a new regulation to
implement provisions in the Satellite Television Extension and Localism
Act of 2010 (``STELA'') that will allow copyright owners to audit
certain Statements of Account filed with the Copyright Office. Cable
operators and satellite carriers pay royalties to and file Statements
of Account with the Copyright Office every six months as required by
law for the use of the statutory licenses that allow for the
retransmission of programming carried on over-the-air broadcast
signals. However, until the passage of STELA the licenses did not
authorize the copyright owners, who are the beneficiaries of the
royalties collected, to audit the information on Statements of Account
and the amounts paid for use of the statutory licenses.
DATES: Comments on the proposed regulation must be received in the
Office of the General Counsel of the Copyright Office no later than 5
p.m. Eastern Daylight Time (EDT) on August 13, 2012. Reply comments
must be received in the Office of the General Counsel no later than 5
p.m. EDT on September 12, 2012.
ADDRESSES: The Copyright Office strongly prefers that comments be
submitted electronically. A comment submission page is posted on the
Copyright Office Web site at http://www.copyright.gov/docs/soaaudit/.
The Web site interface requires submitters to complete a form
specifying name and other required information, and to upload comments
as an attachment. To meet accessibility standards, all comments must be
uploaded in a single file in either the Adobe Portable Document File
(PDF) format that contains searchable, accessible text (not an image);
Microsoft Word; WordPerfect; Rich Text Format (RTF); or ASCII text file
format (not a scanned document). The maximum file size is 6 megabytes
(MB). The name of the submitter and organization should appear on both
the form and the face of the comments. All comments will be posted
publicly on the Copyright Office Web site exactly as they are received,
along with names and organizations if provided. If electronic
submission of comments is not feasible, please contact the Copyright
Office at (202) 707-8380 for special instructions.
FOR FURTHER INFORMATION CONTACT: Tanya Sandros, Deputy General Counsel,
or Erik Bertin, Attorney Advisor, Copyright GC/I&R, P.O. Box 70400,
Washington, DC 20024. Telephone: (202) 707-8380. Telefax: (202) 707-
8366.
SUPPLEMENTARY INFORMATION:
I. Background
Every five years Congress considers legislation to reauthorize the
statutory license that allows satellite carriers to retransmit
television programs that are embodied in distant broadcast
transmissions, provided that the satellite carrier files a Statement of
Account and pays royalties to the Copyright Office. 17 U.S.C. 119. In
May 2010, Congress passed the Satellite Television Extension and
Localism Act of 2010 (``STELA''), Public Law 111-175, 124 Stat. 1218,
for this purpose. STELA reauthorized the Section 119 statutory license
for satellite carriers and, in addition, it made certain amendments to
the Section 119 license and a second statutory license, set forth in
Section 111 of title 17 of the United States Code, that allows cable
systems to retransmit television and radio programs that are embodied
in local and distant broadcast transmissions.
A significant change to the law is the addition of new provisions
directing the Register of Copyrights to develop procedures for the
verification of the Statements of Account and royalty fees that cable
operators and satellite carriers deposit with the Copyright Office
under Sections 111 and 119. Specifically, Section 119(b)(2) directs the
Register to
[[Page 35644]]
``issue regulations to permit interested parties to verify and audit
the statements of account and royalty fees submitted by satellite
carriers under [that] subsection.'' Similarly, Section 111(d)(6)
directs the Register to ``issue regulations to provide for the
confidential verification by copyright owners whose works were embodied
in the secondary transmissions of primary transmissions pursuant to
[section 111] of the information reported on the semiannual statements
of account filed under this subsection for accounting periods beginning
on or after January 1, 2010, in order that the auditor designated under
subparagraph [111(d)(6)(A)] is able to confirm the correctness of the
calculations and royalty payments reported therein.''
These provisions authorize the implementation of a process by which
copyright owners, whose works are retransmitted under the statutory
licenses, can for the first time verify the accuracy of the royalty
payments made by cable operators and satellite carriers. They also make
clear that the Register should consider the interests of the parties
who will be subject to this verification procedure. For example,
Section 111(d)(6) directs the Register to give cable operators an
opportunity to review the auditor's conclusions, to remedy any errors
identified in the auditor's report, and to correct any underpayments
that the auditor may discover. Congress indicated that a single auditor
should conduct the verification procedure on behalf of all copyright
owners and that the Register should limit the number of times that a
party may be subjected to an audit. Congress also directed the Register
to establish procedures for protecting the confidentiality of non-
public financial and business information that may be provided to the
auditor during the course of his or her investigation.
Generally speaking, the proposed regulation is based on similar
regulations that the Office has adopted for the verification of
Statements of Account and royalty payments that are made under the
statutory licenses for the use of ephemeral recordings and the digital
performance of sound recordings under 17 U.S.C. sections 112(e) and
114(f), and for the importation and distribution of or the manufacture
and distribution of digital audio recording devices under 17 U.S.C.
chapter 10. See generally 37 CFR 201.30, 260.5, 260.6, 261.6, 261.7,
262.6, and 262.7. The Office also considered a Petition for Rulemaking
[http://www.copyright.gov/docs/soaaudit/soa-audit-petition.pdf] which
was filed on behalf of the copyright owners who are the beneficiaries
of the royalties that are paid under the Section 111 and 119 statutory
licenses.\1\ The copyright owners asked the Office to adopt separate
regulations for Statements of Account that are filed by cable operators
and satellite carriers and provided the Office with proposed language
for each regulation. Separate regulations, however, do not appear to be
necessary because the basic elements for verifying and auditing
Statements of Account filed under Section 111 and 119 should be the
same. Therefore, the Office is proposing a single regulation setting
forth a process for verifying Statements of Account that would apply to
cable operators and to satellite carriers. In formulating this
regulation, the Office has adopted some of the suggestions included in
the Petition for Rulemaking and welcomes comments on the proposed
regulation from copyright owners, cable operators, satellite carriers,
accounting professionals, and other interested parties.
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\1\ Representatives of Program Suppliers (commercial
entertainment programming); Joint Sports Claimants (professional and
college sports programming); Commercial Television Claimants (local
commercial television programming); Music Claimants (musical works
included in television programming); Public Television Claimants
(noncommercial television programming); Canadian Claimants (Canadian
television programming); National Public Radio (noncommercial radio
programming); Broadcaster Claimants Group (U.S. commercial
television stations), and Devotional Claimants (religious television
programming) filed the petition jointly.
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II. Verification Procedures
A. Cable Operators and Satellite Carriers Would Be Subject to the Same
Verification Procedure
As discussed above, Section 119(b)(2) directs the Register to issue
regulations to allow ``interested parties'' to verify the Statements of
Account and royalty fees that are filed with the Copyright Office under
Section 119. The term ``interested parties'' was not defined, and the
statute does not provide any guidance on the nature and extent of this
verification procedure. For example, Section 119(b)(2) does not
indicate whether satellite carriers should be allowed to review the
auditor's conclusions or to correct any underpayments that the auditor
may discover. Nor does it provide for the confidential treatment of
information that the satellite carrier may provide to the auditor.
Section 111(d)(6), on the other hand, contains detailed instructions
regarding the verification of Statements of Account and royalty
payments filed by cable operators, including the number of times that a
cable system may be audited, the qualifications of the auditor, and the
deadline for initiating an audit, among other requirements.
However, the differences between the two provisions do not preclude
the Register from adopting a single regulation for verification
procedures conducted under Section 111(d)(6) and 119(b)(2). Nor is
there anything in Section 111(d)(6) that directly contradicts the
requirements of 119(b)(2) (or vice versa). Section 119(b)(2) allows
``interested parties'' to verify and audit Statements of Account and
royalty payments filed by a satellite carrier. By contrast, Section
111(d)(6) only allows ``copyright owners whose works were embodied in
the secondary transmission of primary transmissions'' to audit
Statements of Account and royalty payments filed by a cable operator.
While the statutory language in Section 111(d)(6) is more precise and
identifies who may request an audit, it is nonetheless reasonable to
assume that the only parties who would have an interest in verifying
Statements of Account and royalty payments filed under Section 119
would be copyright owners whose works were embodied in a secondary
transmission made by the party that filed that Statement. Moreover,
virtually the same set of copyright owners participates in proceedings
before the Copyright Royalty Board concerning the distribution of
royalties under the cable and satellite licenses.
Consequently, because Congress provided a blueprint for the
verification of Statements of Account in Section 111(d)(6) and because
those requirements are similar to verification procedures that the
Office has adopted in the past, the Office is inclined to use this
provision as the framework for the regulations governing the
verification of Statements of Account and royalty fees filed by both
cable operators and satellite carriers.\2\ Adoption of the same
procedures for both statutory licenses has advantages. It will reduce
regulatory complexity for copyright owners, it will promote fairness
among statutory licensees, and it will encourage auditors to develop
best practices that could be used regardless of whether an audit
involves Statements of Account filed by a cable operator or a satellite
carrier. The copyright owners apparently agree with this approach.
Although they proposed separate regulations for cable operators and
satellite carriers their drafts are essentially identical, except
[[Page 35645]]
for one difference which is discussed in more detail in the next
section.
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\2\ As the proposed regulation applies to both cable operators
and satellite carriers, they are collectively referred to as
``statutory licensees.''
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The Office invites comments on whether Section 111(d)(6) should be
used as the framework for the verification of Statements of Account
filed under Sections 119(b)(2) or whether there are policy or
administrative reasons for adopting a different approach for the
verification of Statements and royalties filed by cable operators and
satellite carriers.
B. Retroactivity
As discussed above, the copyright owners have asked the Office to
adopt separate regulations for cable operators and satellite carriers
and they have provided the Office with a proposed draft for each
regulation. The primary difference between the two suggested
regulations is that the copyright owners' draft regulation for
satellite carriers would apply retroactively, while their draft
regulation for cable operators would apply on a prospective basis only.
Specifically, the copyright owners' draft regulation for cable
operators would apply to Statements of Account for accounting periods
beginning on or after January 1, 2010 (i.e., the semiannual accounting
period that was in effect when the President signed STELA into law on
May 27, 2010). By contrast, the copyright owners' draft for satellite
carriers would apply to any Statement of Account, even if the Statement
was filed with the Office before STELA was enacted.
In support of this distinction, copyright owners argue that Section
119(b)(2) of ``STELA permits verification of Statements of Account
filed by satellite carriers prior to the 2010-1 accounting period.''
Petition for Rulemaking at 4. However, Section 119(b)(2) does not
contain any language that expressly permits copyright owners to audit a
Statement of Account for an accounting period that predated the
enactment of STELA. Nor does it contain any language that expressly
permits the Office to adopt regulations providing for the verification
of Statements of Account on a retroactive basis. On the contrary, when
STELA does address this issue, it clearly states that copyright owners
may audit a cable operator's Statements of Account, but only with
respect to ``accounting periods beginning on or after January 1, 2010 *
* *.'' Section 111(b)(6). The fact that the verification procedure for
cable operators only applies to the accounting period that was in
effect when STELA was enacted and any subsequent accounting period is
clear evidence that Congress did not intend to impose a retroactive
verification requirement on cable operators. On the other hand, the
lack of similar language in Section 119 is not an indication that
Congress intended to allow retroactive verification of Statements of
Account filed by satellite carriers.
``Retroactivity is not favored in the law. Thus, congressional
enactments and administrative rules will not be construed to have
retroactive effect unless their language requires this result. By the
same principle, a statutory grant of legislative rulemaking authority
will not, as a general matter, be understood to encompass the power to
promulgate retroactive rules unless that power is conveyed by Congress
in express terms.'' Bowen v. Georgetown University Hospital, 488 U.S.
204, 208 (1988) (citations omitted). See also Motion Picture
Association of America, Inc. v. Oman, 969 F.2d 1154, 1156 (D.C. Cir.
1992) (explaining that the Register of Copyrights does ``not have
authority to promulgate retroactive rules unless Congress gives [her]
that authority in express terms'').
Because the copyright owners are asking ``for something the Office
could not give as a matter of law,'' Motion Picture Association of
America, 969 F.2d at 1156, i.e., allowing copyright owners to audit
Statements of Account for accounting periods that preceded the 2010/1
accounting period, the Office has not adopted the draft language that
they proposed for the verification of Statements of Account filed by
satellite carriers.
C. Initiation of an Audit
The proposed regulation follows the same approach that is used to
initiate audit and verification procedures for examining Statements of
Account filed under the Section 112 and 114 licenses and under Chapter
10. In keeping with this approach, a copyright owner would have to
notify the Copyright Office in writing in order to initiate an audit
procedure, and at the same time, it would have to serve a copy of that
notice on the statutory licensee that would be subject to the audit.
The Office does not intend to create a form for this notice, but at a
minimum, the proposed regulation requires the copyright owner to
identify the Statement(s) of Account and accounting period(s) that
would be included in the audit and the statutory licensee that filed
those Statement(s) with the Office. In addition, the notice of intent
to audit would have to provide specific information about the copyright
owner filing the notice, including its name, address, telephone number,
facsimile number, and email address (if any), and the copyright owner
would have to provide a brief statement establishing that it owns at
least one work that was embodied in a secondary transmission made by
that licensee.
Under the proposed regulation a notice of intent to audit filed by
one copyright owner would preserve the right of all interested
copyright owners to participate in the audit procedure. This would mean
that once the Office has received a notice of intent to audit a
particular semiannual Statement of Account, it would not accept another
notice of intent to audit that same Statement. As discussed in Section
G below, a satellite carrier or cable operator that owns one cable
system would be subject to no more than one audit per year, while a
cable operator that owns multiple cable systems would be subject to no
more than three audits per year. This would mean that once the Office
has received a notice of intent to audit a particular satellite carrier
or a particular cable system that owns a single cable system, the
Office would not accept another notice of intent to audit that licensee
until January 1st of the following year. Likewise, once the Office has
received three notices of intent to audit a particular multiple cable
system operator within a specific calendar year, it would not accept
another notice of intent to audit that same licensee until January 1st
of the following year.\3\
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\3\ However, if a copyright owner filed a notice of intent to
audit a particular Statement of Account or a particular statutory
licensee in calendar year 2013 and if that audit was still ongoing
as of January 1, 2014, the Office would accept a notice of intent to
audit filed in calendar year 2014 concerning other Statements filed
by that same licensee.
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The filing of the notice would then require the Office to publish a
notice in the Federal Register within 30 days after receiving the
notice of intent to audit. The Federal Register notice would identify
the Statement(s) of Account and statutory licensee that would be
subject to audit, it would identify the copyright owner that filed the
notice of intent to audit, and it would provide appropriate contact
information for that party. Any other copyright owner that wishes to
participate in the audit of the Statement(s) of Account identified in
the Federal Register notice would have to contact the copyright owner
that filed the notice of intent to audit. Copyright owners that join in
the audit would be entitled to participate in the selection of the
auditor, and they would be entitled to participate in the selection of
additional cable systems that may be included in an expanded audit, if
the audit involves a multiple cable system operator which has been
shown to have
[[Page 35646]]
underpaid its royalties during the initial examination. In addition,
copyright owners that join in the audit would be entitled to receive a
copy of the auditor's report and they would be required to pay for the
auditor for his or her work in connection with the audit.
Conversely, a copyright owner that failed to join the audit within
30 days would not be permitted to participate in the selection of the
auditor or the selection of cable systems that would be included in an
audit of a multiple system operator. Nor would they be entitled to
receive a copy of the auditor's report. Moreover, a copyright owner
that failed to join the audit within the time allowed would not be
permitted to conduct its own audit of the semiannual Statement(s) of
Account identified in the Federal Register notice at a later time. If
the licensee identified in the Federal Register notice is a satellite
carrier or a single cable system operator, a copyright owner that
failed to join the audit within 30 days would not be permitted to
conduct another audit of that same licensee until the following year
because under the proposed regulations these systems shall be subject
only to a single audit during a given calendar year. See Section G,
Frequency of the Audit Procedure. Likewise, if the Office already
published three Federal Register notices involving a multiple cable
system operator, a copyright owner that failed to join any of these
audits within the time allowed would not be permitted to conduct
another audit of Statements filed by that same licensee for additional
accounting periods until the following year.
D. Designation of the Auditor
Under the copyright owners' proposal, the Office would be
responsible for selecting a qualified and independent person to conduct
the audit, and copyright owners and statutory licensees would be given
an opportunity to comment on the proposed auditor before the final
selection is made. Copyright owners who wished to participate in the
audit and to receive a copy of the auditor's final report would have 15
days after the selection of the auditor to notify the Office of their
intention to join the audit process, and the Office would be
responsible for posting the names of these copyright owners on its Web
site.
The Office has considered the copyright owners' approach but can
see little justification for this degree of involvement by the
Copyright Office. Section 111(d)(6)(A) directs the Office to
``establish procedures for the designation of a qualified independent
auditor,'' but it does not require the Office to make this designation.
The Office does not have the knowledge, experience, or resources needed
to select an appropriate auditor or to manage the selection process
beyond the initial notification step, and doing so would be a dramatic
departure from the audit regulations that the Office has adopted in the
past. See 37 CFR 201.30(d)(2), 260.5(c), 260.6(c), 261.6(c), 261.7(c).
Therefore, the Office is not inclined to adopt the copyright owners'
proposal. Moreover, the Office is unaware of any problems with this
initiation practice as used in the verification process for auditing
statements of account filed under the Section 112 and 114 licenses or
under Chapter 10.
The Office believes that the copyright owners should be responsible
for designating an auditor who will verify the Statement(s) of Account
and royalty payments on their behalf and for resolving any disputes
amongst themselves over the selection of the auditor. Likewise, the
Office believes that the copyright owners who join in the audit should
be responsible for paying the auditor for his or her work in connection
with the audit, and for resolving any disputes amongst themselves
concerning the allocation of those costs.\4\ The Office can establish
regulatory guidelines for the verification process, but it strongly
believes that the copyright owners are better situated to assume the
costs and the responsibility for selecting the auditor and coordinating
the verification procedure, including the identification of those
copyright owners who wish to participate in the verification process.
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\4\ The copyright owners' proposal states that the copyright
owners that join in the audit ``shall pay the costs of the Qualified
Independent Auditor.'' However, they did not indicate whether those
costs should be split evenly among the copyright owners or whether
those costs should be divided in some other manner.
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To this end, the proposed regulation would establish clear
guidelines for the process, such as defining what constitutes a
``qualified'' and ``independent'' auditor. Specifically, an auditor
would be considered ``qualified'' if he or she is a certified public
accountant. Consistent with Section 111(d)(6)(A)(ii), an auditor would
be considered ``independent'' if he or she is not an officer, employee,
or agent of a copyright owner for any purpose other than the audit. In
addition, an auditor would be considered ``independent'' for purposes
of this procedure if that person is considered to be ``independent'' as
that term is used in the Code of Professional Conduct of the American
Institute of Certified Public Accountants (``AICPA''), in the
Statements on Auditing Standards promulgated by the Auditing Standards
Board of the AICPA, and in the Interpretations thereof issued by the
Auditing Standards Division of the AICPA. See, e.g., AICPA Code of
Professional Conduct, ET Section 101 (Independence), 102 (Integrity and
Objectivity), 191 (Ethics Rulings on Independence, Integrity, and
Objectivity), available at http://www.aicpa.org/interestareas/professionalethics/resources/codeofconduct/pages/default.aspx. However,
the Office does agree with the copyright owners that an auditor should
be disqualified if there is any conflict of interest that would prevent
him or her from participating in the verification procedure, and notes
that conflicts of interest are prohibited under AICPA Code of
Professional Conduct Section 102-2.
The standard for evaluating an auditor's independence is based on
the Office's audit regulation for digital audio recording technology,
which has been in effect since 1996. See 37 CFR 201.30(j)(3). The
Office welcomes comments from accounting professionals and other
interested parties as to whether accountants currently use this
standard to evaluate their independence or whether the standard has
changed over the past 16 years.
If a statutory licensee has reason to believe that an auditor is
not qualified or independent, it would have to raise those concerns
with the copyright owner(s) who selected the auditor before the audit
begins. If the parties are unable to resolve the matter, the cable
operator or satellite carrier could raise its concerns with AICPA's
Professional Ethics Division or with the State Board of Accountancy
that licensed the auditor. Consistent with the verification procedures
that the Office has adopted for other statutory licenses, the auditor
would be allowed to proceed with the audit while his or her
qualifications were under review. See 37 CFR 201.30(j)(1).
E. Time Period for Conducting an Audit
Section 111(d)(6) allows copyright owners to audit Statements of
Account and royalty payments filed with the Copyright Office for any
accounting period beginning on or after January 1, 2010. In order to
provide cable operators with a measure of certainty and to encourage
copyright owners to exercise their audit rights in a prompt manner,
Congress directed the Register to set a deadline for initiating an
audit
[[Page 35647]]
procedure. Specifically, Section 111(d)(6)(D) states that the Register
shall ``permit requests for verification of a statement of account to
be made only within 3 years after the last day of the year in which the
statement of account is filed.''
Taking its cue from the statutory text, the proposed regulation
would provide that the deadline for initiating a verification procedure
would be calculated from the last day of the year in which the
Statement of Account was filed. Thus, the final date for filing a
notice of intent to audit a particular Statement would be December 31,
regardless of whether the Statement was filed by a cable operator or a
satellite carrier, whether the Statement covers the first or second
half of the year, or whether the Statement was filed before or after
the filing deadline. If the copyright owner intends to audit more than
one Statement of Account, the notice of intent to audit would have to
be filed within three years after the last day of the year that the
earliest Statement was filed with the Office. For example, a notice of
intent to audit three Statements of Account filed by a satellite
carrier on July 30, 2010, January 30, 2011, and July 30, 2011 would
have to be received in the Office on or before December 31, 2013.
The copyright owners' draft regulation would require the Office to
designate an auditor within 60 days after the notice of intent to audit
was published in the Federal Register. The auditor would be required to
contact the statutory licensee within 30 days thereafter, and the
statutory licensee would be required to make its records available to
the auditor 30 days later. The Office assumes that the amount of time
required for an audit will vary depending on the number and complexity
of the Statements of Account that will be subject to review. The only
statutory requirement is that the request for verification must be made
``within 3 years after the last day of the year in which the statement
of account is filed.'' 17 U.S.C. 111(d)(6)(E). Therefore, the Office is
not inclined to set a precise deadline for when the auditor should be
selected, when the audit should begin, or when the audit should be
completed. Nor is it aware that failure to establish a regulatory
timeline for completing these tasks has been a problem with the
verification of Statements of Accounts filed under other statutory
licenses.
F. Retention of Records
The copyright owners' draft regulation would require statutory
licensees to keep records that may be necessary to confirm the
correctness of the calculations and royalty payments reported in a
Statement of Account for at least five years after the Statement has
been filed. While the Office agrees that statutory licensees should be
required to retain their records until the deadline for auditing a
Statement of Account has passed, it is not clear that such records need
to be maintained for five years. See, e.g., 37 CFR 260.4(f) and
261.5(f) (requiring books and records relating to the payment of
statutory licensing fees to be kept for three years).
Under the proposed regulation, a statutory licensee would be
required to retain such records for a minimum of three and a half years
(e.g., 42 months) after the last day of the year in which the Statement
of Account was filed with the Office. Should the Office announce the
receipt of a notice of intent to audit a particular Statement, the
statutory licensee would be required to retain its records concerning
the calculations and royalty payments reported in that Statement for at
least three years after the date that the auditor delivers his or her
final report to the copyright owner(s). This will preserve the records
for the benefit of all parties in the event that the copyright owner(s)
decide to take legal action based on the facts and conclusions set
forth in the auditor's report. Conversely, if the Office does not
announce the receipt of a notice of intent to audit within three and a
half years (e.g., 42 months) after the last day of the year in which a
particular Statement of Account was filed, the statutory licensee would
no longer be required to retain its records concerning that Statement,
at least for the purpose of verifying the Statement of Account under
this regulation.
G. Frequency of the Audit Procedure
Section 111(d)(6)(A)(i) appears to provide copyright owners with a
single opportunity to verify a particular Statement of Account. This
provision directs the Register to ``establish procedures for the
designation of a qualified independent auditor with exclusive authority
to request verification of such a statement of account on behalf of all
copyright owners. * * *'' Once an auditor has been selected, he or she
would conduct that audit on behalf of ``all'' copyright owners,
regardless of whether they decide to join the audit or not. Once the
auditor has completed his or her review of that Statement, there is no
apparent need for additional audits, because all copyright owners would
have been given an opportunity to audit that Statement already. In
light of this reading, the proposed regulation explains that a
Statement of Account may be audited no more than once.
However, this basic limitation to a single audit for each Statement
of Account does not address Congress's directive to ``limit the
frequency of requests for verification for a particular cable system
and the number of audits that a multiple system operator can be
required to undergo in a single year.'' 17 U.S.C. 111(d)(6)(D). The
statute does not indicate what those limits should be and there is no
legislative history for STELA. It is clear that Congress did not intend
to overburden cable operators that own and operate multiple systems,
but striking an appropriate balance is not an easy question.
Under the copyright owners' proposal, it appears that a satellite
carrier or a cable operator that owns one cable system would be subject
to no more than one audit per year. However, a cable operator that owns
more than one system would be subject to as many as three audits per
year.
The Office included the copyright owners' proposal in the initial
draft of the regulation, because the statute does not provide any
meaningful guidance concerning the phrase ``limit the frequency of
requests for verification.'' However, this is merely a starting point
for further discussion on this issue. The Office welcomes comment from
interested parties concerning the limit on the total number of audits
that a satellite carrier, a cable system operator that owns a single
cable system, or a multiple system operator can be required to undergo
in a single year, and in particular, whether there is a legitimate
reason for treating cable operators differently depending on whether
they own one cable system or more than one system (i.e., whether the
multiple system operator should be subject to a single audit or up to
three audits per year).
By contrast, the proposed regulation does not fully embrace the
copyright owners' proposal concerning multiple system cable operators,
because it does not appear to place any meaningful limit on the number
of cable systems that can be included within each audit. Allowing the
auditor to evaluate all of the cable systems owned by a multiple system
operator may be unduly burdensome for the operator--depending on the
number of systems within its portfolio. In order to protect the
interests of a multiple system operator, the proposed regulation
directs the auditor to study a sampling of the cable systems owned by
that operator. At the same time, the regulation protects the interests
of copyright owners by allowing them to
[[Page 35648]]
maximize their opportunity by including more than one Statement of
Account in each audit.
According to the AICPA, ``the basic concept of sampling is well
established in auditing practice.'' American Institute of CPAs,
Statement on Auditing Standards Sec. 350.06 at 516, available at
http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00350.pdf. It involves ``the application of an
audit procedure to less than 100 percent of the items within * * * [a]
class of transactions for the purposes of evaluating some
characteristic of the * * * class.'' Id. at 515. ``The size of a sample
necessary to provide sufficient audit evidence depends on both the
objectives and the efficiency of the sample.'' Id.
The proposed regulation does not require the auditor to review a
specific number of cable systems, because the number of systems owned
by each multiple system operator will vary. On the one hand, an audit
involving five or six cable systems may impose an undue burden on the
operator if it owns only a half dozen systems. On the other hand, if a
multiple system operator owns dozens of cable systems, e.g., Time
Warner, an audit involving only five of those systems may not be
statistically significant given the size of the company.
To address this conundrum, the Office believes that the interests
of multiple system cable operators, copyright owners, and the auditor
would be better served by allowing the auditor to study a percentage of
the cable systems owned by a multiple system operator. The proposed
regulation states that, in the case where there are two or more systems
under common ownership, audits should involve no more than fifty
percent of those systems. However, if the auditor discovers an
underpayment of five percent or more in any Statement of Account filed
by that operator, the size of the sample could be expanded to include
any and all of the systems owned by that operator. The specific cable
systems that would be included within the sample of the expanded audit
would be selected by the copyright owner(s) who elected to participate
in the audit. Setting the trigger at five percent would be generally
consistent with the copyright owners' proposal for allocating the cost
of the audit, which would require the auditor's fee to be paid by the
statutory licensee if the auditor concludes that there was an
underpayment of five percent or more reported in any Statement of
Account that was included in the audit. However, this is merely a
preliminary suggestion, and the Office solicits comments from all
interested parties.
The Office invites comments on whether a sampling approach should
be used for audits involving a multiple system operator, and if so,
whether an audit involving up to fifty percent of the systems owned by
a particular operator is likely to produce a statistically significant
result or whether this threshold would be unduly burdensome for the
operator and, if so, what percentage would be appropriate. The Office
also invites comments on whether copyright owners should be allowed to
increase the number of systems subject to audit if the auditor
discovers an underpayment of royalties, and if so, whether the
underpayment should be higher or lower than five percent in order to
trigger this requirement.
H. Proposed Remedies for Cable Operators and Satellite Carriers
STELA directed the Register to ``require a consultation period for
the independent auditor to review its conclusions with a designee of
the cable system.'' In addition, Congress directed the Register to
``establish a mechanism for the cable system to remedy any errors
identified in the auditor's report and to cure any underpayment
identified,'' and to ``provide an opportunity to remedy any disputed
facts or conclusions.'' See 17 U.S.C. 111(d)(6)(C)(i)-(ii). Congress
did not indicate whether the regulation should provide these remedies
to satellite carriers, but as discussed above there is nothing in
Sections 111(d)(6)(C)(i)-(ii) or 119(b)(2) that prevents the Office
from taking this approach and the Office can think of no good reason to
adopt different approaches for the two licenses. Therefore, the Office
is proposing a single regulation for both cable operators and satellite
carriers which would allow any statutory licensee to review the
auditor's conclusions before the auditor delivers his or her report to
the copyright owner(s), to correct errors and underpayments identified
in the auditor's report, and to dispute any of the facts and
conclusions set forth in that report. Each of these remedies is
discussed below.
1. Consultation With the Statutory Licensee
Once the auditor has completed his or her review of the Statements
of Account, the proposed regulation directs the auditor to prepare a
written report setting forth his or her conclusions. The proposed
regulation explains that the auditor should deliver a copy of that
report to the statutory licensee before it is delivered to any of the
copyright owner(s) that are participating in the audit. However, there
is one exception to this rule. The auditor may deliver a copy of his or
her report directly to the copyright owner(s) without sharing it with
the statutory licensee if the auditor has reason to suspect that the
statutory licensee has committed fraud and that disclosing his or her
conclusions to the statutory licensee would prejudice further
investigation of that fraud. The Office has taken a similar approach in
other audit regulations. See 37 CFR 261.6(g), 261.7(f), 262.6(f),
262.7(f).
Consistent with Section 111(d)(6)(C)(i), the auditor would be
required to review his or her report with a designee of the statutory
licensee before it is delivered to the copyright owner(s).
Specifically, the auditor would be required to consult with a designee
of the statutory licensee within 30 days after the auditor has
delivered his or her report to the licensee. The Office assumes that
the consultation would take place at a time and place that is mutually
convenient for both parties, and that it would be conducted in person,
by telephone, or video conference as the parties may agree. Because the
issues presented in each audit will be unique, the regulation does not
provide specific topics that the parties should review. But as
discussed in Section H.3 below, if the statutory licensee discovers any
factual errors or erroneous conclusions in the auditor's report, the
designee must bring those issues to the auditor's attention during the
consultation.
The Office invites comment on whether the regulation should provide
a precise amount of time for the auditor to meet and confer with the
statutory licensee's designee, and if so, whether 30 days would be a
sufficient amount of time for the consultation period.
2. Correcting Errors and Curing Underpayments Identified in the
Auditor's Report
STELA directed the Register to ``establish a mechanism for the
cable system to remedy any errors identified in the auditor's report
and to cure any underpayment identified.'' The Office already has a
process that allows cable operators and satellite carriers to amend
their Statements of Account and to make additional royalty payments
that may be due. See 37 CFR 201.11(h) and 201.17(m). The Office is
inclined to use the same approach here.
If the auditor concludes that any of the information in a Statement
of
[[Page 35649]]
Account is incorrect or incomplete, that the calculation of the royalty
fee was incorrect, or that the statutory licensee failed to deposit the
royalties owed with the Office, the statutory licensee may correct
those errors by filing an amended Statement of Account or by submitting
supplemental royalty payments to the Office. To do so, the licensee
must comply with the procedures set forth in 37 CFR 201.11(h)(1) and
201.17(m)(3), including the obligation to pay interest on any
underpayment that may be due and the requisite filing fee set forth in
37 CFR 201.3.
The copyright owners apparently agree with this approach. Their
proposed regulation states that the statutory licensee ``may * * *
remedy any errors identified in the [auditor's] report * * * and cure
any underpayment identified (subject to the filing fee and interest
requirements generally applicable to late, corrected, or supplemental
Statements of Account and royalty fees).'' Petition for Rulemaking at
10. However, the copyright owners' proposal would give licensees only a
brief opportunity to correct errors or underpayments identified in the
auditor's report. Specifically, corrections and underpayments would
have to be made during a 30-day consultation period when the auditor
would be required to discuss his or her tentative findings with a
representative of the licensee.
The statute directs the Office to establish a mechanism for
correcting errors identified in the auditor's report and for curing
underpayments, but it does not specify a deadline for making these
adjustments. The proposed regulation would allow the Office to accept
corrected Statements of Account and supplemental royalty payments
before, during, or after a verification procedure. Certainly, it would
be in the best interest of the licensee to file an amended Statement of
Account and any royalties fees owed as soon as possible to avoid
accruing additional interest payments and possible exposure to an
infringement suit.
The Office welcomes comment on whether the proposed regulation
provides statutory licensees with an adequate opportunity to ``remedy
any errors identified in the auditor's report and to cure any
underpayments identified,'' as required by Section 111(d)(6)(C)(ii).
The Office also welcomes comment on whether it would be beneficial to
give statutory licensees a specific deadline for correcting errors in
their Statements of Account and for making supplemental royalty
payments. If so, would 30 days be a sufficient amount of time, and
should the deadline be based on the date that the auditor delivers his
or her preliminary report to the statutory licensee or the date that
the auditor delivers his or her final report to the copyright owner(s)?
3. Disputing the Facts and Conclusions Set Forth in the Auditor's
Report
If the statutory licensee disagrees with any of the facts or
conclusions set forth in the auditor's report, the licensee's designee
must raise those issues during the initial consultation with the
auditor. If the auditor agrees that a mistake has been made, he or she
should correct those errors before the report is delivered to the
copyright owner(s). If facts or conclusions set forth in the report
remain in dispute after the consultation, the licensee may provide the
auditor with a written response setting forth its views. The licensee's
deadline for providing this response would be two weeks (e.g., 14
calendar days) after the date of the initial consultation between the
auditor and the licensee's representative.
Within 60 days after the auditor delivers his or her report to the
statutory licensee, the auditor would be required to prepare a final
report setting forth his or her conclusions and would be required to
deliver that report to the copyright owner(s) that participated in the
audit process. At the same time, the auditor would be required to
provide the statutory licensee with a copy of the final report. (The
copyright owners made a similar suggestion in their draft regulation,
but they did not specify a deadline for the delivery of the final
report nor did they offer to share the final report with the statutory
licensee.) If the statutory licensee prepared a written response
contesting the facts or conclusions set forth in the auditor's report,
the auditor would be required to include that response as an attachment
to his or her final report to the copyright owner(s).
The Office invites comment on whether the proposed regulation
provides statutory licensees with an adequate ``opportunity to remedy
any disputed facts or conclusions'' as required by Section
111(d)(6)(C)(iii). The Office also welcomes comment on whether two
weeks would be a sufficient amount of time for the statutory licensee
to prepare a written response to the auditor's report (if any), and
whether 60 days would be a sufficient amount of time for the auditor to
prepare his or her final report for the copyright owners.
I. Cost of the Audit Procedure
The statute does not indicate whether the costs of the audit should
be paid by the copyright owners or by the statutory licensee. The
Office has, however, considered this same issue in its regulations
concerning the audit of Statements of Account and royalty payments made
under Section 112, Section 114, and Chapter 10, and it is inclined to
use the same approach in this regulation. See 37 CFR 201.30(i),
260.5(f), 260.6(f), 261.6(g), 261.7(g), 262.6(g), 262.7(g).\5\
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\5\ There is no legislative history for STELA, although a prior
iteration of the legislation contained language concerning the
verification of Statements of Account. The House Report for the
earlier bill stated that ``[t]he rules adopted by the Office shall
include procedures allocating responsibility for the cost of audits
consistent with such procedures in other audit provisions in its
rules.'' See Satellite Home Viewer Update and Reauthorization Act of
2009, H. Rep. No. 111-319, 111th Cong., 1st Sess., at 10 (2009).
---------------------------------------------------------------------------
As a general rule, the copyright owner(s) who selected the auditor
would be expected to pay for the auditor's work in connection with the
audit. Copyright owner(s) who do not participate in the verification
procedure would not be required to pay for the auditor's services, and
consequently they would not be entitled to receive a copy of the
auditor's report, although they would benefit from the payment of any
additional royalty fees made as a result of the audit. However, if the
auditor concludes that there was an underpayment of five percent or
more reported in any Statement of Account that was included in the
audit, the proposed regulation would require the auditor's fee to be
paid by the statutory licensee that filed that Statement with the
Office with the proviso that if a court, in a final judgment (i.e.,
after all appeals have been exhausted) rejects that determination, the
copyright owners would have to reimburse the licensee for its payment
of the auditor's services. The copyright owners included a similar
proposal in their draft regulation.
The Office invites comment on whether the regulation should include
a cost-shifting provision, and if so, whether the percentage of
underpayment needed to trigger a cost shifting to the statutory
licensee should be more or less than five percent.
J. Confidentiality
STELA directed the Register to issue regulations ``to provide for
the confidential verification'' of Statements of Account and royalty
payments, and to ``establish procedures for safeguarding all non-public
financial
[[Page 35650]]
and business information'' that may be provided during the course of
the investigation. The proposed regulation explains that confidential
information should be made available for use in the audit procedure,
and that access to that information should be limited to the auditor
who conducts the procedure. The auditor may share confidential
information with his or her employees, agents, consultants, and
independent contractors who need access to the information in order to
perform their duties in connection with the audit. However, the
auditor's employees, agents, consultants, and independent contractors
would be required to enter into an appropriate confidentiality
agreement governing the use of the confidential information and they
could not be employees, officers, or agents of a copyright owner for
any purpose other than the audit. In addition, the auditor and any
other person that receives confidential information would have to
implement procedures to safeguard that information, using at least the
same level of security that they would use to protect his or her own
confidential information.
The Office also seeks comment on whether there are situations where
copyright owner(s) would have a legitimate need to review the
confidential information that may be provided by the licensee and, if
so, whether the licensee's legitimate interest in safeguarding that
information would be adequately protected by adopting a regulation
requiring the copyright owner(s) to enter into an appropriate non-
disclosure agreement with the statutory license. Under most of the
audit regulations adopted by the Office, access to confidential
information has been limited to the auditor and his or her employees
and agents. See 37 CFR 260.4(d)(2), 261.5(d)(2), 262.5(d)(2). The
Office's regulations concerning digital audio recording technology
allow copyright owners to access confidential information ``for
verification purposes,'' but only if the copyright owner is neither
owned nor controlled by another manufacturing or importing party that
is subject to royalty obligations under Chapter 10. See 37 CFR
201.29(d)(1), 201.29(f)(2). By contrast, the regulations concerning
ephemeral recordings allow the copyright owners and their attorneys,
consultants, and other authorized agents to access confidential
information ``[i]n connection with bona fide royalty disputes or claims
* * * and under an appropriate confidentiality agreement or protective
order * * *''. 37 CFR 262.5(d)(e). The statute provides no guidance on
the issue and the copyright owners did not address this issue in their
draft regulation. Therefore, the Office seeks comment on whether and,
if so, the circumstances under which access to confidential information
by copyright owner(s) is appropriate and the best approach for
protecting the information from unauthorized disclosure in such
situations.
III. Conclusion
The Office seeks comment from the public on the subjects discussed
above related to the implementation of the audit provisions adopted by
Congress with the passage of the Satellite Television Extension and
Localism Act of 2010.
List of Subjects in 37 CFR Part 201
Copyright, General provisions.
Proposed Regulations
In consideration of the foregoing, the Copyright Office proposes to
amend part 201 of 37 CFR Chapter II, as follows:
PART 201--GENERAL PROVISIONS
1. The authority citation for part 201 reads as follows:
Authority: 17 U.S.C. 702, 17 U.S.C. 111(d)(6), and 17 U.S.C.
119(b)(2).
2. Add new Sec. 201.16 to read as follows:
Sec. 201.16 Verification of a Statement of Account and royalty fee
payments for secondary transmissions made by cable systems and
satellite carriers.
(a) General. This section prescribes general rules pertaining to
the verification of a Statement of Account and royalty fees filed with
the Copyright Office pursuant to sections 111(d)(1) and 119(b)(1) of
title 17 of the United States Code, as amended by Public Law 111-175.
(b) Definitions. (1) Auditor means a qualified and independent
accountant who is not an officer, employee or agent of a copyright
owner, but has been selected to audit a Statement of Account on behalf
of copyright owners under sections 111(d)(6) and 119(b)(2) of title 17
of the United States Code, as amended by Public Law 111-175.
(2) The term cable system has the meaning set forth in Sec.
201.17(b)(2) of this chapter.
(3) Copyright owner means the copyright owner of a work embodied in
a secondary transmission made by a statutory licensee that filed a
Statement of Account with the Copyright Office for an accounting period
beginning on or after January 1, 2010.
(4) Generally accepted auditing standards (GAAS) means the auditing
standards promulgated by the American Institute of Certified Public
Accountants.
(5) The term satellite carrier has the meaning set forth in section
119(d)(6) of title 17 of the United States Code.
(6) The term secondary transmission has the meaning set forth in
section 111(f)(2) of title 17 of the United States Code, as amended by
Public Law 111-175.
(7) Statement of Account or Statement means a semiannual Statement
of Account filed with the Copyright Office for an accounting period
beginning on or after January 1, 2010 under sections 111(d)(1) or
119(b)(1) of title 17 of the United States Code, as amended by Public
Law 111-175.
(8) Statutory licensee or licensee means a cable system or
satellite carrier that filed a Statement of Account with the Office
under sections 111(d)(1) or 119(b)(1) of title 17 of the United States
Code, as amended by Public Law 111-175.
(c) Notice of intent to audit. Any copyright owner that intends to
audit a semiannual Statement of Account must notify the Register of
Copyrights no later than three years after the last day of the year in
which the Statement was filed with the Office. The notice shall
identify the statutory licensee that filed the Statement(s) with the
Copyright Office, the Statement(s) and accounting period(s) that will
be subject to the audit, and the copyright owner that filed the notice,
including its name, address, telephone number, facsimile number, and
email address, if any. In addition, the notice shall include a
statement establishing that the copyright owner owns a work that was
embodied in a secondary transmission made by the statutory licensee
during the accounting period(s) specified in the Statement(s) of
Account that will be subject to the audit. The copyright owner shall
serve the notice of intent to audit on the statutory licensee at the
same time that the notice is filed with the Copyright Office. Within 30
days after the notice has been received in the Office, the Office will
publish a notice in the Federal Register announcing the receipt of the
notice of intent to audit.
(d) Selection of the auditor. Any other copyright owner who wishes
to participate in the audit of the Statement(s) of Account identified
in a notice of intent to audit must notify the copyright owner that
filed the notice of intent to audit within 30 days of the publication
of the notice in the Federal Register. Those copyright owner(s) who
have agreed to participate in the audit
[[Page 35651]]
shall designate an independent and qualified auditor to audit the
Statement(s) on behalf of all copyright owners who own a work that was
embodied in a secondary transmission made by the statutory licensee
during the accounting period(s) specified in those Statement(s). Any
dispute about the selection of the auditor shall be resolved by these
copyright owner(s). Promptly after the auditor has been selected, these
copyright owner(s) shall provide the statutory licensee with the
auditor's name, address, telephone number, facsimile number, and email
address, if any.
(e) Independence and qualifications of the auditor. (1) The auditor
shall be qualified and independent as defined in this subsection. If
the statutory licensee has reason to believe that the auditor is not
qualified or independent, it shall raise the matter with the copyright
owner(s) who selected the auditor before the commencement of the audit.
If the matter is not resolved, the statutory licensee may raise the
issue with the American Institute of Certified Public Accountants'
Professional Ethics Division and/or the auditor's State Board of
Accountancy while the audit is being performed.
(2) An auditor shall be considered qualified if:
(i) He or she is a certified public accountant,
(ii) He or she is not an officer, employee, or agent of a copyright
owner for any purpose other than the audit;
(iii) He or she is independent as that term is used in the Code of
Professional Conduct of the American Institute of Certified Public
Accountants, including the Principles, Rules, and Interpretations of
such Code applicable generally to attest engagements; and
(iv) He or she is independent as that term is used in the
Statements on Auditing Standards promulgated by the Auditing Standards
Board of the AICPA and Interpretations thereof issued by the Auditing
Standards Division of the AICPA.
(f) Scope of the audit. The audit shall be performed in accordance
with generally accepted auditing standards (GAAS).
(g) Consultation. Before delivering a report to any copyright
owner(s), except where the auditor has a reasonable basis to suspect
fraud and that disclosure would, in the reasonable opinion of the
auditor, prejudice the investigation of such suspected fraud, the
auditor shall deliver a copy of that report to the statutory licensee
and shall review his or her conclusions with a designee of the licensee
within 30 days thereafter. If the statutory licensee disagrees with any
of the facts or conclusions set forth in the report, the licensee may
provide the auditor with a written response setting forth its views
within two weeks after the date of the initial consultation between the
auditor and the licensee's designee. If the auditor agrees that there
are errors in the report, he or she shall correct those errors before
the report is delivered to the copyright owner(s). The auditor shall
include the licensee's written response, if any, as an attachment to
his or her report before it is delivered to any copyright owner(s).
(h) Corrections and supplemental payments. Where the auditor has
concluded that any of the information given in a Statement of Account
is incorrect or incomplete, that the calculation of the royalty fee
payable for a particular accounting period was incorrect, or that the
amount deposited in the Copyright Office for that period was too low, a
licensee may file a correction to the Statement of Account and
supplemental royalty fee payments with the Office in accordance with
the procedures set forth in Sec. Sec. 201.11(h) or 201.17(m).
(i) Distribution of the auditor's report. No less than 60 days
after the date that the auditor delivered his or her report to the
statutory licensee and subject to the confidentiality provisions set
forth in paragraph (m) of this section, the auditor shall deliver a
written report to the copyright owner(s) who retained the auditor's
services setting forth his or her conclusions. At the same time the
auditor shall deliver a copy of that report to the statutory licensee.
The copyright owner(s) shall retain this report for a period of not
less than three years.
(j) Costs of the audit. The copyright owner(s) who selected the
auditor shall pay the auditor for his or her work in connection with
the audit, unless the auditor concludes that there was an underpayment
of five percent or more reported in any Statement of Account that is
subject to the audit, in which case, the auditor's fee shall be paid by
the statutory licensee that deposited that Statement with the Copyright
Office with the proviso that if a court, in a final judgment (i.e.,
after all appeals have been exhausted) rejects that determination, the
copyright owners will reimburse the licensee for its payment of the
auditor's services.
(k) Frequency of verification. (1) Subject to the limitations in
paragraph (k)(3) of this section, a copyright owner may include more
than one Statement of Account in its notice of intent to audit, but
each Statement of Account shall be subject to audit only once. Once a
notice of intent to audit a particular semiannual Statement of Account
has been received in the Office, a notice of intent to audit the same
Statement of Account will not be accepted for publication in the
Federal Register.
(2) A satellite carrier or a cable operator that owns a single
cable system shall be subject to no more than one audit per calendar
year.
(3) A cable operator that owns multiple cable systems shall be
subject to no more than three audits per calendar year. Each audit
shall be limited to a sampling of no more than fifty percent of the
cable systems owned by that operator, unless the auditor concludes that
there was an underpayment of five percent or more reported in any
Statement of Account filed by that operator, in which case, the audit
may be expanded to include any and all of the cable systems owned by
that operator. The specific cable systems to be included within each
sampling shall be selected by the copyright owner(s) who retained the
auditor's services. The limitation on the number of systems under
common ownership that can be audited in a calendar year does not limit
in any way the number of Statements of Account submitted by the
selected systems that may be audited in a calendar year.
(l) Retention of records. For each semiannual Statement of Account
that a statutory licensee files with the Copyright Office for
accounting periods beginning on or after January 1, 2010, the licensee
shall maintain all records necessary to confirm the correctness of the
calculations and royalty payments reported in each Statement for at
least three and a half years after the last day of the year in which
that Statement was filed with the Office. If the Office publishes a
Federal Register notice announcing the receipt of a notice of intent to
audit a specific Statement of Account, the statutory licensee shall
maintain all records necessary to confirm the correctness of the
calculations and royalty payments reported in that Statement for at
least three years after the date that the auditor delivers a written
report setting forth his or her conclusions to the copyright owner(s)
who retained the auditor's services.
(m) Confidentiality. (1) For purposes of this section, confidential
information shall include any non-public financial or business
information pertaining to a Statement of Account that has been
subjected to an audit under sections 111(d)(6) or 119(b)(2) of title 17
of the United States Code, as amended by Public Law 111-175.
Confidential information also shall include any information so
designated in a
[[Page 35652]]
confidentiality agreement which has been duly executed between a
statutory licensee and any other interested party, or between one or
more interested parties; provided that all such information shall be
made available for the audit procedure provided for in this section.
(2) Access to confidential information under this section shall be
limited to:
(i) The auditor; and
(ii) Subject to an appropriate confidentiality agreement, those
employees, agents, consultants and independent contractors of the
auditor who are not employees, officers, or agents of a copyright owner
for any purpose other than the audit, who are engaged in the audit of a
Statement of Account or activities directly related hereto, and who
require access to the confidential information for the purpose of
performing such duties during the ordinary course of their employment.
(3) The auditor and any person identified in paragraph (m)(2)(ii)
of this section shall implement procedures to safeguard all
confidential information received from any third party in connection
with an audit, 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 auditor or such person.
Dated: June 8, 2012.
David O. Carson,
General Counsel.
[FR Doc. 2012-14454 Filed 6-13-12; 8:45 am]
BILLING CODE 1410-30-P