[Federal Register Volume 77, Number 145 (Friday, July 27, 2012)]
[Proposed Rules]
[Pages 44179-44197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-18275]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Parts 201 and 210

[Docket No. 2012-7]


Mechanical and Digital Phonorecord Delivery Compulsory License

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Copyright Office of the Library of Congress is proposing 
to amend its regulations for reporting Monthly and Annual Statements of 
Account for the making and distribution of phonorecords under the 
compulsory license, 17 U.S.C. 115, to bring the regulations up to date 
to reflect recent and pending rate determinations by the Copyright 
Royalty Judges, which among other things provide new rates for limited 
downloads, interactive streaming and incidental digital phonorecord 
deliveries, and to harmonize these reporting requirements with the 
existing regulations for reporting the making and distribution of 
physical phonorecords, permanent downloads and ringtones.

DATES: Comments are due no later than September 25, 2012. Reply 
comments are due October 25, 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/section115/soa/comments/. 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, if provided, organizations. If 
electronic submission of comments is not feasible, please contact the 
Copyright Office at (202) 707-XXXX for special instructions.

FOR FURTHER INFORMATION CONTACT: Tanya Sandros, Deputy General Counsel, 
or Stephen Ruwe, Attorney Advisor, Office of the General Counsel, PO 
Box 70400, Washington, DC 20024-0400 Telephone: (202) 707-1673. 
Telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION:

Background

    Section 115 of the Copyright Act provides a compulsory license for 
reproducing and distributing phonorecords of a musical work. The 
mechanical license limits the exclusive rights granted to copyright 
owners by enabling anyone to make a phonorecord of an eligible musical 
work for the purpose of distributing it to the public for private use.
    The mechanical license may be used once phonorecords of a 
nondramatic musical work have been distributed to the public in the 
United States under the authority of the copyright owner. In order to 
legally use the mechanical license, the licensee has to comply with the 
requirements in the statute and pay a royalty fee to the copyright 
owner. The mechanical license has its limitations; it is only available 
to make and distribute phonorecords of a musical work and it does not 
allow the licensee to reproduce and distribute another's sound 
recording, or change the ``basic melody or fundamental character of the 
work.'' 17 U.S.C. 115(a)(2).
    The mechanical license was established in the 1909 Copyright Act as 
the first compulsory license in United States copyright law. Congress 
created the license because it wanted to make musical compositions 
available for public use, prevent monopoly, and at the same time ensure 
that compensation is provided to copyright owners. The first mechanical 
license was established in response to the 1908 Supreme Court holding 
in White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1 (1908). 
The Court decided that piano rolls were not considered `copies' of a 
musical work because they did not contain a system of notation that 
could be read. Instead, the Court held they were merely mechanical 
reproductions made for the purpose of performing music. This decision 
prompted Congress to extend copyright protection to include the right 
to make mechanical devices which embody the musical work. H.R. Rep. No. 
60-2222, at 9 (1909). However, Congress was concerned that extending 
the right of reproduction to include mechanical devices like piano 
rolls would enable a cartel of music publishers to exercise monopoly 
power over the recording of music to the possible detriment of the 
copyright owners of the musical work. To ensure a balance, Congress 
created

[[Page 44180]]

the first compulsory license in 1909 to allow anyone to ``cover'' (i.e. 
make a new recording of) the musical work once a copyright owner made 
or authorized a recording of his or her musical work, as long as the 
licensee adhered to the terms of the license and paid the established 
royalty to the copyright owner.
    Whether to retain the compulsory license was a key issue during the 
discussions on the general revision of the copyright law in the 1960s. 
The outcome of this review was the decision to retain the license based 
on a finding that ``a compulsory licensing system is still warranted as 
a condition for the rights of reproducing and distributing phonorecords 
of copyrighted music.'' H.R. Rep. No. 83, at 66-67 (1967). In the 
Copyright Act of 1976, Congress reaffirmed the compulsory license and 
directed the Copyright Office to establish terms and regulations for 
the filing of Notices of Intention to Obtain a Compulsory License and 
for reporting Monthly and Annual Statements of Account. 17 U.S.C. 
115(b)(1) and (c)(5). These regulations can now be found within 37 CFR 
201.18 and 201.19.
    Congress again amended the mechanical license in 1995 when Congress 
passed the Digital Performance Rights in Sound Recordings Act 
(``DPRA''). This Act amended section 115 to address the effects of new 
technology on copyrighted works. DPRA had two main purposes: (1) To 
ensure that recording artists and record companies will be protected as 
new technologies affect the way in which their creative works are used, 
and (2) to create fair and efficient licensing mechanisms that address 
the complex issues facing copyright owners and copyright users as a 
result of the rapid growth of digital audio services.
    Specifically, DPRA amended the section 115 compulsory license to 
include the ability to distribute a phonorecord through digital 
transmission, i.e., as a ``digital phonorecord delivery.'' The 
Copyright Act defines a ``digital phonorecord delivery'' in relevant 
part as ``each individual delivery of a phonorecord by digital 
transmission of a sound recording which results in a specifically 
identifiable reproduction by or for any transmission recipient of a 
phonorecord of that sound recording.'' 17 U.S.C. 115(d).
    Since passage of the Copyright Royalty and Distribution Reform Act 
of 2003, the rates and terms for making and distributing phonorecords 
under the compulsory license have been established by the Copyright 
Royalty Judges. On January 9, 2006 the Copyright Royalty Judges 
published a Notice announcing commencement of a proceeding to determine 
rates and terms due under the compulsory license. The Copyright Royalty 
Judges concluded this proceeding in 2009. The new rates maintained a 
flat penny rate for the making and distribution of physical 
phonorecords, permanent digital downloads and ringtones. However, the 
2009 determination adopting new rates for the section 115 compulsory 
license included a new definition for ringtones and it set forth more 
complex methods for calculating the royalty for limited downloads, 
interactive streaming, and incidental digital phonorecord deliveries, 
which included a multi-step process and specifications for five 
different types of services. Final Determination of Rates and Terms of 
the Copyright Royalty Board, 2006-3 CRB DPRA (74 FR 4510, January 26, 
2009, amended 74 FR 6832, February 11, 2009). The Copyright Royalty 
Judges are also in the final stages of adopting new rates and terms for 
the next licensing term for these and other new services, including 
limited offerings, mixed service bundles, paid locker services and 
purchased content locker services. Proposed rule, Adjustment of 
Determination of Compulsory License Rates for Mechanical and Digital 
Phonorecords, 77 FR 29259, (May 17, 2012). The new proposed rates are 
based upon the same basic methodology adopted in the last rate setting 
proceeding.
    The existing regulations addressing Statements of Account are 
designed to address flat penny rates, such as those that are still 
applicable for the making and distribution of physical phonorecords, 
permanent digital downloads and ringtones. However, the current 
regulations do not specifically accommodate the more complex methods 
for calculating the royalty for limited downloads, interactive 
streaming, incidental digital phonorecord deliveries, or the new 
services identified in the Copyright Royalty Judge's May 17, 2012 
Notice of Proposed Rulemaking. A group of industry stakeholders 
comprised of Recording Industry Association of America, Inc., National 
Music Publishers Association, Songwriters Guild of America, Digital 
Media Association, Music Reports, Inc., RightsFlow, Inc., and American 
Association of Independent Music (collectively ``Stakeholders'') 
expressed their concern with this state of affairs. Following a number 
of meetings with the Copyright Office, the Stakeholders offered 
proposed solutions to a number of issues for which there was general 
industry-wide agreement. (Letter from Stakeholders to Copyright Office, 
dated April 30, 2010).
    In light of the changes to the rate structure for use of the 
license and the Stakeholders' expressed concerns, the Office is 
initiating this public notice and comment proceeding to amend its 
regulations governing the filing of Statements of Account in order to 
incorporate specific reporting regulations for the making and 
distribution of these new digital phonorecord formats under the new 
rate structure established by the Copyright Royalty Judges for these 
configurations in the Final Determination of Rates and Terms of the 
Copyright Royalty Board, 2006-3 CRB DPRA, and the proposed new rates 
and terms for the next licensing period.
    The Copyright Office is acting under the authority set forth in 17 
U.S.C. 115(c)(5), which grants the Copyright Office authority to issue 
regulations regarding Statements of Account. ``Each monthly payment 
shall be made under oath and shall comply with requirements that the 
Register of Copyrights shall prescribe by regulation. The Register 
shall also prescribe regulations under which detailed cumulative annual 
statements of account, certified by a certified public accountant, 
shall be filed for every compulsory license under this section. The 
regulations covering both the monthly and the annual statements of 
account shall prescribe the form, content, and manner of certification 
with respect to the number of records distributed.'' 17 U.S.C. 
115(c)(5).
    Specifically, the Copyright Office proposes the creation of a new 
Part 210 in title 37 of the Code of Federal Regulations for the 
regulations governing use of the compulsory license. Subpart A will be 
reserved for regulations governing the filing of Notices of Intention 
to Use the Compulsory License. These regulations, currently in Sec.  
201.18, are to be incorporated into Subpart A once the Office concludes 
its ongoing rulemaking proceeding concerning the electronic submission 
of such notices with the Office. See 77 FR 31327 (May 25, 2012). 
Subparts B and C will contain Statement of Account provisions for 
reporting royalties for the making and distribution of phonorecords. 
The Statement of Account provisions in Sec.  201.19 are currently based 
on the penny rate royalty formula for physical phonorecords and 
permanent digital phonorecord deliveries. As the a penny rate for this 
type of licensed activity continues under the existing and

[[Page 44181]]

proposed rates the Statement of Account provisions in Sec.  201.19 are 
incorporated into proposed Subpart B of Part 210 with only minor 
amendments, as referenced herein. Subpart C, on the other hand, 
includes new proposed regulations modeled on the current regulations in 
Sec.  201.19 and are designed to specifically accommodate the new rate 
structure for limited downloads, interactive streaming, incidental 
digital phonorecord deliveries, and the proposed new services. Adoption 
of regulatory amendments specific to the proposed rates and terms for 
limited offerings, mixed service bundles, music bundles, paid locker 
services and purchased content locker services set forth in proposed 
Subpart C are dependent upon final action by the Copyright Royalty 
Judges. Should the Copyright Royalty Judges not adopt the proposed 
rates and terms for these new services, alternative regulatory changes 
may be adopted in the final rules to cover these services.
    In large part, the proposed regulations incorporate by reference 
the methodology adopted by the Copyright Royalty Judges in their 2009 
determination and mirrored in the proposed regulations adopting new 
rates and terms for the upcoming licensing period. Nevertheless, the 
Office has identified a number of issues associated with the new rate 
structure that require careful consideration before adoption of final 
regulations. Prior to initiating this proceeding, the Office consulted 
with interested parties on these points for the purpose of 
understanding the extent of the issues and the need for specific 
regulations to address these points. Each of these points and proposed 
amendments to the regulations are discussed herein in light of these 
initial discussions. The Office seeks public comment on the proposed 
changes and whether additional changes are needed.

1. Issues Presented Involving Calculations of Royalties

A. Royalties for Public Performances of Musical Works That Are 
Applicable to the Licensed Activities

    Calculation of the royalties for the making and distribution of 
limited DPDs, interactive streams, incidental DPDs and the proposed new 
services allows the licensee to deduct royalties due for public 
performances of musical works that are applicable to the licensed 
activities. 37 CFR 385.12(b)(2) and proposed 385.22(b)(2). The Office 
is aware that in some instances these values are unknown, and that the 
regulations need to address the appropriate method for accounting for 
this unknown element in the Statements of Account. Preliminary input 
from the Stakeholders has indicated general agreement that when the 
amount of public performance royalties to be deducted pursuant to 37 
CFR 385.12(b)(2) and proposed 385.22(b)(2) is not known (e.g., because 
neither a final nor an interim rate has yet been determined), a 
licensee may compute the public performance royalty based on a 
reasonable estimate of the expected final royalties made in accordance 
with U.S. Generally Accepted Accounting Principles (GAAP) and that the 
aggregate amount of public performance royalties then sought from the 
service by performance rights societies may be deducted from the 
royalties owed for use of the section 115 compulsory license.
    The Office also observes that there may be cases in which there 
will be interim royalties and that therefore it is prudent to allow 
licensees to compute the public performance royalty based on the 
royalties that have been established on an interim basis. In addition, 
the Stakeholders generally agree that an adjustment to account for the 
determination of the service's aggregate final public performance 
royalties then would be made in an amended Annual Statement of Account 
for the year in which a service's aggregate final public performance 
royalty rate is determined.
    In the past, the Copyright Office has applied GAAP when estimates 
are required to complete a formula under section 115. GAAP was first 
applied to the section 115 compulsory license in 1978 when the Office 
adopted its Final Regulations of Compulsory License for Making and 
Distributing Phonorecords, 45 FR 79038 (November 28, 1980). In taking 
this approach, the Office noted that Congress's intention was to have 
some assurance that record companies would not manipulate their 
statements when allowing an estimate to be made in the reserve 
calculation. ``The Office believes that the statutory requirement for 
an annual CPA audit, coupled with our regulatory requirements including 
the application of `generally accepted accounting principles' (GAAP) to 
the recognition of revenue from the sale of phonorecords, should go a 
long way toward assuring copyright owners payment of all monies to 
which they are entitled--that is, statutory royalties for all 
phonorecords shipped, minus phonorecords returned within a reasonable 
time-frame.'' 45 FR 79038. Additionally the regulations stated, ``The 
Copyright Office believes that the application of GAAP will reduce the 
likelihood of unusually high reserves, thereby minimizing the 
possibility for losses of earned interest.'' Id.
    Currently, GAAP applies to several different provisions in the 
section 115 regulations adopted by the Copyright Royalty Judges. Their 
regulations state that GAAP should be applied to the calculations of 
service revenue. 37 CFR 385.11; also see proposed 37 CFR 385.21. 
Additionally, GAAP is applied to situations where the licensee 
calculates an applicable percentage based on offering type. 37 CFR 
385.13(b) and (c); also see, e.g., proposed 37 CFR 385.23(b). Finally 
in 37 CFR 201.19(f)(6)(ii) of the Office's regulations, GAAP is applied 
not only to the reserve calculation but also to the certification 
statement, which states that the auditing CPA will review the 
statements in accordance with GAAP.
    In light of the history that GAAP has had in the administration of 
the compulsory license, the proposed regulations adopt this approach. 
The Copyright Office would like comments on whether to apply GAAP for 
the estimate of the public performance rights royalty calculation in 
the absence of an interim or final rate; and alternatively if GAAP is 
not the right approach, identification of an alternative methodology.

B. Application of Negative Reserve Balances in Calculating Payment 
Amounts

    Under the existing Statement of Account regulations designed to 
address flat penny rates, licensees are permitted to account for 
negative reserve balances in calculating their royalty payments. By way 
of explanation, a negative reserve balance exists when physical 
phonorecords are returned to a compulsory licensee after the 
corresponding reserves for returns, and all other eligible reserves, 
have been eliminated. The result is that the compulsory licensee has 
paid royalties for the returned physical phonorecords and can include 
that amount as a credit in calculating the royalty payment for the 
current accounting period. While the Stakeholders agree that a licensee 
is permitted to establish reserves based only on its shipments of 
physical phonorecords, they disagree as to whether a compulsory 
licensee is and should be permitted to apply a negative reserve balance 
to future DPD distributions.
    Copyright owners have stated that negative reserve balances only 
apply to physical phonorecords. In doing so, they have pointed out that 
the existing regulations specifically state that ``[t]o the extent that 
the terms reserve, credit and return appear in this section, such

[[Page 44182]]

provisions shall not apply to digital phonorecord deliveries.'' 37 CFR 
201.19(a)(9). Copyright owners have also argued that it is bad policy 
to allow licensees to apply royalties associated with negative reserve 
balances against royalties due for digital uses as it would encourage 
the practice of overshipping.
    Record labels have stated that they understand that negative 
reserve balances cannot be established for DPD distributions. 
Nevertheless, they contend that the current regulations clearly allow 
credits for negative reserve balances created by returns of physical 
phonorecords to be applied to royalties due for digital uses. They have 
argued that there is no justification for requiring a compulsory 
licensee to pay royalties on new DPD distributions when, due to returns 
of physical phonorecords, it has overpaid the same copyright owner in a 
previous period for these same physical phonorecords that have not been 
distributed within the meaning of 17 U.S.C. 115(c)(2). They have added 
that it is absurd to think that record companies would incur additional 
costs to ``overship'' products.
    While the Office has not proposed an amendment to allow licensees 
to apply a credit for a negative reserve balance to royalties due for 
digital uses, it would like to receive comments on whether there is 
statutory authority for allowing the application of a credit for 
negative reserve balances to digital phonorecord deliveries. Assuming 
there is statutory authority to allow the application of credits for 
negative reserve balances to the ``net balance'' owed, are there 
reasons to limit the application of credits for negative reserve 
balances to physical phonorecords? If licensees should be allowed to 
apply credits for negative reserve balances to royalties due for 
digital uses, should the credits for negative reserve balances be 
calculated on a per work basis or should the regulations permit the 
application of credits for negative reserve balances to be cross-
collaterialized to royalties due to a particular copyright owner for 
different works? And, in what form should such regulations be 
established?

C. Degree of Rounding for Decimal Points

    For purposes of consistency, the Copyright Office would like to 
address the degree of rounding appropriate when computing the royalty 
in the Statements of Account. It appears that the appropriate per work 
royalty allocation, in terms of the number of decimal places, is 
undetermined. Fractions of a penny can quickly add up to substantial 
sums of money if the volume of transactions is high. Consequently, the 
Office requests suggestions as to the degree of rounding that would be 
appropriate for reporting royalties associated with limited downloads, 
interactive streams, and incidental digital phonorecord deliveries made 
under the compulsory license. In considering the appropriate level for 
reporting royalty fees, the Office notes that past rates for the public 
performance of sound recordings and for ephemeral recordings have been 
set out to between four and six decimal places based upon a fraction of 
a dollar rate. See 17 CFR 380.3. Consideration should be given to 
whether a variance can be allowed based on the system of accounting, or 
whether reporting to a certain decimal place should be completely 
uniform.

2. Issues Presented Involving Method of Payment and Delivery of 
Royalties

A. Electronic Payment

    The current regulations for section 115 provide that the Statements 
of Account shall be ``served on the copyright owner or the agent with 
authority to receive Monthly Statements of Account on behalf of the 
copyright owner to whom or which it is directed, together with the 
total royalty for the month covered by the Monthly Statement, by mail 
or by reputable courier service.'' 37 CFR 201.19(e)(7)(i). The 
Stakeholders have informed the Office that they agree in principle that 
a compulsory licensee should be able to make royalty payments by 
electronic funds transfer if the copyright owner and compulsory 
licensee (or its agent) so agree, regardless of the means of delivery 
of Statements of Account. They also agreed that when both the Monthly 
Statement of Account and payment are sent by mail or courier service, 
they should be sent together; otherwise they should be sent 
contemporaneously.
    In light of the general agreement by the Stakeholders regarding 
payment, the Office proposes to maintain the current default 
requirement that payment be sent by mail or courier service. The Office 
also proposes to allow copyright owners and licensees to agree to 
alternatives to the current default methods of payment through mail or 
courier service. Finally, the Office proposes to maintain the 
requirement that when both the Monthly Statement of Account and payment 
are sent by mail or courier service, they should be sent together and 
that otherwise they should be sent contemporaneously. The Copyright 
Office requests comments on these proposals.

B. Electronic Statements of Account

    The Stakeholders generally support the idea that the Office's 
section 115 regulations should permit electronic delivery of Statements 
of Account. However, the Stakeholders were not able to agree on the 
circumstances, if any, in which it should be mandatory for compulsory 
licensees to provide, and copyright owners to accept, Statements of 
Account by electronic means.
    Copyright owners who have expressed an opinion to the Office on 
this topic support mandatory electronic reporting as a general default 
rule for both copyright owners and compulsory licensees. They would 
allow however that if any copyright owner, or its agent, does not, in 
the ordinary course of operating its business, conduct business via the 
internet, or if a compulsory licensee or its agent does not make a 
printable and electronically downloadable version available by posting 
such Statements of Account to a password-protected internet account 
created for the copyright owner or its agent, the copyright owner or 
its agent may request, and the compulsory licensee shall provide, paper 
Statements of Account.
    Representatives of digital music services (DiMA) and licensing 
services (MRI, RightsFlow) support the default rule proposed by 
copyright owners. However, they take no position as to the need for 
electronic reporting between record companies and publishers, noting 
that consideration should be made for the unique historical business 
practices between record labels and publishers.
    Record labels believe that the Office should not require record 
companies doing their own reporting to transition to electronic 
reporting on any particular timetable. They pointed out that in cases 
where neither the record company nor the publisher has felt a need to 
abandon paper-based processes that have worked for decades, forcing 
such a transition would be a massive and highly disruptive process. As 
such they urge that electronic reporting should be a permissible 
option, unless the copyright owner indicates that it would rather stick 
with paper reporting.
    The Office is not persuaded that it is wise to compel copyright 
owners to accept and licensees to serve Statements of Account via an 
electronic transmission as a default rule. The Office is concerned 
that, as a practical matter, many copyright owners may not be equipped 
to accept Statements of Account in this manner. As such, the Office 
proposes to maintain the current

[[Page 44183]]

requirement that Statements of Account be sent by mail or courier 
service as a default rule.
    However, the Office does understand that in many cases a copyright 
owner may reasonably wish to compel certain licensees, who submit 
voluminous Statements of Account, to serve them in electronic format. 
The Office notes that the regulations for filing Notices of Intention 
to use the compulsory license allows for filing the Notice 
electronically and for copyright owners to require submission of 
Notices of Intention in an electronic format in the case where the 
Notice covers more than 50 musical works. 37 CFR 201.18(f)(6). Section 
201.18(a)(7) also allows copyright owners to offer alternative means 
for service, including by means of electronic transmission. The Office 
has adopted these rules to increase efficiencies for both the copyright 
owners and the licensees and has provided an exception to the 
requirement for a handwritten signature when service is made 
electronically. Because these rules appear to be working well and offer 
flexibility for electronic submissions of Notices, the Office proposes 
adopting parallel provisions for filing a Statement of Account, whereby 
copyright owners may require a licensee submitting a Statement of 
Account covering more than 50 works to provide the copyright owner with 
an electronic copy of the Statement of Account, and whereby a copyright 
owner may make known its willingness to accept Statements of Account 
and payment by means of electronic transmission. Furthermore, the 
Office proposes an exception to the requirement for a handwritten 
signature when service is made electronically, and a new provision for 
retention of records that support certification of Statements of 
Account that are served electronically. The Copyright Office requests 
comments on these proposals regarding submission of Statements of 
Account in electronic format and by electronic transmission. 
Additionally, the Office would like to know whether there are copyright 
owners that prefer paper statements and to what extent digital 
reporting has become the normal course of business.

C. Minimum Amount for Payment

    The royalty formula is based on a percentage of income or based on 
the number of plays for each work. In some cases, either when revenue 
is small or a particular work has not received many plays, the royalty 
owed for payment is nominal. The Copyright Office is aware that the 
transactional efforts and costs to provide payment can, in some 
situations, be more burdensome for both copyright owners and licensees 
than the actual value of the payment.
    It has been suggested that a minimum Monthly Statement of Account 
threshold should be met before payment is due in order to make 
processing payment for the Statements of Account more manageable. The 
Stakeholders have suggested that a royalty amount of at least 50 
dollars should be owed to a copyright owner before payments are made, 
and Monthly Statements of Account are required, unless the copyright 
owner requests otherwise.
    The question is whether this proposal is permissible under the 
statute. The statute states that ``royalty payments shall be made on or 
before the 20th of each month and shall include all royalties for the 
month next proceeding'' 17 U.S.C. 115(c)(5). This language seems to 
preclude setting a minimum amount for payment, and to date the Office 
has not adopted regulations to defer de minimis payment nor has any 
party raised this issue.
    Interest, however, does exist today to consider regulations that 
would defer payment of royalties until the amount owed reached an 
established level as a way to avoid overly burdensome costs for making 
payments valued at less than the cost of making the payment. The 
Copyright Office requests comments on whether it has authority to adopt 
such a regulation and whether (and if so, why and how) the minimum 
payment issue should be addressed.

3. Issues Presented Involving Reporting on Statements of Account

A. Promotional Digital Phonorecord Deliveries

    Promotional Digital Phonorecord Deliveries are often an important 
tool for record labels and services to attract new listeners, create 
awareness about a particular artist, and increase plays. The regulation 
adopted by the Copyright Royalty Judges in 37 CFR 385.14 establishes a 
royalty rate of zero for certain promotional digital phonorecord 
deliveries when they are offered for free trial periods to promote the 
sale or other paid use of sound recordings. Also see proposed 37 CFR 
385.24, Free Trial Periods. Even though no royalty is owed in these 
circumstances, it is unclear whether licensees should give a full 
accounting of all the phonorecords made under the license in the 
Statement of Account. The Stakeholders feel that it is unnecessary to 
report promotional digital phonorecord deliveries in the Statements of 
Account.
    Nevertheless, the proposed regulations require a licensee to report 
all phonorecords made and distributed under the section 115 license 
including digital promotional deliveries. This requirement would not 
seem to be a hardship on the licensees in light of the proposed 
recordkeeping requirement for the new trial periods applicable to 
limited offerings, mixed service bundles, music bundles, paid locker 
services and purchased content locker services which requires retention 
of complete and accurate records of the relevant authorization, 
identification of each sound recording of a musical work made available 
through the free trial period, the activity involved, and the number of 
plays and downloads for each recording. See 77 FR 29259, 29269 (May 17, 
2012) (proposing new 37 CFR 385.24(a)(4)(i), (b) and (c).
    The Copyright Office asks for comments on whether the statute 
requires that Statements of Account contain play information on 
promotional digital phonorecord deliveries. Specifically, the Office 
asks for comments that address the Register's conclusion that ``[t]here 
is no statutory authority for an exception to [the section 115(c)(5)] 
requirement for certain types of `phonorecords.' '' Review of Copyright 
Royalty Judges Determination 74 FR 4537, 4543 (January 26, 2009). If 
the conclusion is that there is no statutory requirement, comments 
should address whether digital phonorecords offered at a promotional 
rate or for a free trial period should be reported and with what 
frequency, e.g., monthly or annually.

B. Reporting the Identification of Third Party Licensees

    While the Statement of Account provisions require detailed 
information as to the number of plays, neither the current Statement of 
Account provisions nor the proposed regulations require licensees to 
account for the location of the place of origin of the plays. The 
Copyright Office is aware that in many instances third parties make and 
distribute the phonorecords under the authority of the licensee and 
that different opinions exist as to whether the regulations should 
require the identification of these parties.
    Copyright Owner stakeholders favor amending the regulations to 
require compulsory licensees to report on the number of Digital 
Phonorecord Deliveries made by each third party service operating under 
their authority. They believe that this information is necessarily 
available to compulsory licensees who need to rely on this information 
in order to assess whether their accounting statements are accurate. 
Copyright owners assert that

[[Page 44184]]

such information should not be kept from them and that they should be 
able to use the information to assess the usage and payment for their 
works. Furthermore, since Digital Phonorecord Deliveries are tracked 
electronically, they feel it is reasonable and feasible for record 
companies to provide this information, and believe it will ensure 
transparency in the digital environment.
    Licensee stakeholders have a different view. They note that 
identifying distributors has never been required, and nothing in the 
Copyright Royalty Judges' determination requires imposing such new 
requirements for Digital Phonorecord Delivery configurations other than 
interactive streams and limited downloads. Moreover, they maintain that 
the regulations should not be amended to require this information 
because it would impose substantial costs on the licensees to provide 
unnecessary information since the Statement of Account provisions 
require an annual audit by a CPA to ensure reliability.
    MRI, an independent licensing agent, has informed the Office that 
it has the ability to report the identification of the distributor, 
except where licensees are unable to supply the information to them and 
would support an agreement among the Stakeholders requiring the 
identification of third party distributors on statements when those 
statements are prepared by common agents. It did, however, have some 
reservations about an absolute requirement and suggested that where its 
principals may be unable to provide this information, some leniency 
should be given. This may be the case where distribution statements 
through third party distributors/aggregators fail to provide 
information to the record companies, or due to other bona fide 
technological limitations.
    The Copyright Office would like comments concerning the views set 
forth above and how the alternatives could potentially affect copyright 
owners and licensees. To what degree would these requirements burden or 
benefit licensees and copyright owners?

C. Certification Language

    The certification statement in 37 CFR 201.19 is meant to provide 
additional assurance to the copyright owner that the Statements of 
Account are reliable and truthful. ``The Register shall also prescribe 
regulations under which detailed cumulative Annual Statements of 
Account, certified by a certified public accountant, shall be filed for 
every compulsory license under this section.'' 17 U.S.C. 115(c)(5). 
When 17 U.S.C. 115 was first implemented by Congress, the CPA 
requirement was included with the intention of ensuring accurate 
payment to copyright owners. Congress, however, recognized that a 
balance was necessary. ``Neither the record-keeping nor the CPA audit 
requirements should be so burdensome or expensive as to undermine the 
Congressional intention by putting compulsory licensing out of the 
reach of record companies.'' 45 FR at 79039.
    The Office has previously been urged to provide that the language 
of the CPA certification required in Annual Statements of Account is 
``illustrative'' rather than required. The Office declined such a 
course and instead required adherence to the existing clear and 
unambiguous statement, which fulfills Congress's purpose in requiring 
certification of the Annual Statement. 43 FR at 44515-44516. For 
purposes of this proposed rulemaking proceeding, the Office has 
retained the current regulations for certifying a Statement of Account. 
Nevertheless, the Copyright Office is aware that licensees have 
expressed interest in adopting alternative methods of certifying the 
Statement of Account to accommodate large volumes of statements and 
welcomes suggestions on modifications to the process provided that any 
proposed alternative form of certification fits within the statutory 
requirements and complies with the original intentions of the CPA 
requirement. The CPA requirement should assure that copyright owners 
receive the royalties to which they are entitled, but the requirement 
should not burden the licensee to the point that it would prevent the 
compulsory license from being a practical option for record companies 
or services. Are there alternative certification methods that satisfy 
both goals and should be considered by the Office?

D. Adjustment of Timetables for Reporting

    The accounting methodology and timetables for reporting 
overpayments or underpayments were originally set forth to accommodate 
the penny rate royalty for section 115. Given the increased complexity 
of calculating royalties for interactive streaming, limited downloads 
and the proposed new services in the Annual Statement of Account, an 
extension for statutory licensees to file their Statements of Account 
appears to be reasonable.
    The Stakeholders' preliminary input indicates a general agreement 
that an extension for the deadline of the Annual Statement of Account 
would be appropriate because the calculation of interactive streaming/
limited download royalties, for example, has increased the complexity 
of compiling the statement. The Stakeholders suggest extending the 
deadline from three months after the close of the licensee's fiscal 
year to six months after the close of the licensee's fiscal year. See 
37 CFR 201.19(f)(7)(i). Based on these early discussions, the Office 
proposes amending its regulations and adopting the later deadline for 
filing the Annual Statement of Account. The Office requests comments 
from the relevant parties as to whether this additional time is 
required to create an accurate Statement of Account for annual 
statements.

E. Service of Statements of Account for Periods Prior to Enactment of 
New Regulations

    Pursuant to section 115(c)(5), the Office's existing regulations 
require licensees to serve Monthly and Annual Statements of Account for 
the making and distribution of phonorecords. As explained in the 
introduction, the current regulations in Sec.  201.19 are an ill fit 
for reporting royalties for the new digital phonorecord delivery 
configurations identified in 37 CFR subpart B and proposed new Subpart 
C of Part 385 because of the change in the rate structure. 
Nevertheless, the Office is required to establish regulations to cover 
these new types of phonorecords, including the establishment of dates 
for filing the Statements of Account to cover all past reporting 
periods since the establishment of the new rates set according to 
regulations, which took effect on March 1, 2009. For that reason, the 
Office is proposing a new regulation to address the reporting periods 
prior to the effective date of these regulations. Specifically, the 
proposed regulations require that Statements of Account for any prior 
accounting period shall be due 180 days after the date the regulations 
become effective. This should not be an undue burden on the licensees, 
since as a matter of good business practice, licensees should have 
retained the necessary records to make these filings in accordance with 
the records retention provision the current regulations in Sec.  
201.19.

F. Retention of Records (AKA Documentation)

    The existing regulations require licensees to keep and retain in 
their possession all records and documents necessary and appropriate to 
support fully the information set forth in the Annual Statement of 
Account and in the Monthly Statements of Accounts for three years from 
the date of service of such statements. The Stakeholders have agreed in 
principle that it would be appropriate to extend the general record

[[Page 44185]]

retention period from three to five years after service of Statements 
of Account. In light of this agreement among the Stakeholders, the 
proposed regulations require retention of supporting records for five 
years after service of Statements of Account. The proposed amendment to 
this section also addresses situations in which it may be necessary to 
retain records even longer in the case where public performance rates 
have not been set at the time of filing the Statements of Account. To 
that end, the proposed regulation requires retention of records for a 
period of at least five years from the date of service of an Annual 
Statement of Account or for a period of at least three years from the 
date the relevant public performance royalty fees have been set, 
whichever is longer. Comment on this approach is requested.

G. Harmless Error Provision

    Section 201.19 of the Office's regulations provides detailed 
requirements on how to prepare and file a Statement of Account, along 
with specific elements that are to be included. This information allows 
the copyright owner to evaluate the Statements of Account efficiently 
and aids in ensuring reliability and accuracy. Because of the detailed 
requirements in the regulations, licensees' accounting statements may 
contain inadvertent errors.
    In the past, harmless error provisions have been adopted in an 
attempt to protect licensees from infringement liability and loss of 
their license for inconsequential mistakes. For this reason, a harmless 
error provision was included in the 2004 Final Rule on Compulsory 
License for Making and Distributing Phonorecords, Including Digital 
Phonorecord Deliveries, 69 FR 34578, which amended 37 CFR 201.18 
setting forth the requirements for filing a Notice of Intention to 
obtain a compulsory license. The intent of the harmless error provision 
with respect to a Notice of Intention was to prevent licensees from 
losing the right to use the license for errors that did not affect the 
legal sufficiency of the Notice. 66 FR 45241, 45243. For the Notice of 
Intention provision, the Office further observed that it would not have 
any role in resolving the disputes as to whether or not an error was 
actually harmless, and instead left these disputes to be adjudicated in 
the courts. Id.
    Interested parties representing both copyright owners and licensees 
have suggested that a harmless error provision should be included in 
the section 115 regulations. The Copyright Office has reached no 
preliminary determination on this point and the proposed regulations do 
not include a harmless error provision. However, the Copyright Office 
asks for comments on the Office's authority to include a harmless error 
provision and whether such a provision in Statement of Account 
regulations would be useful as a way to protect licensees from 
inadvertent errors that do not materially affect the adequacy of the 
information provided on the Statement of Account.

H. Confidentiality Provision

    The Copyright Office observes that the Stakeholders' newly proposed 
rates for the compulsory license included provisions requiring that 
Statements of Account submitted to copyright owners must be kept 
confidential. While the proposed term illustrates a general desire 
among licensees and licensors for maintaining confidentiality of 
information contained in Statements of Account, the Copyright Office 
questions the need for the broadly framed confidentiality provision in 
the Proposed rule, Adjustment of Determination of Compulsory License 
Rates for Mechanical and Digital Phonorecords (77 FR 29259, 29262, May 
17, 2012, proposing 37 CFR 385.12(f)).\1\ The Office notes that the 
confidentiality provision negotiated by the participants in the rate 
proceeding does not, for example, accommodate a copyright owner's 
disclosure in litigation of information provided by a licensee.
---------------------------------------------------------------------------

    \1\ When the Copyright Royalty Judges published proposed 
regulations offered by the parties in the ongoing proceeding to set 
new rates and terms for use of the section 115 compulsory license, 
they noted that two proposed provisions appeared to exceed the scope 
of the requirements in the regulations governing Statements of 
Account and issued under the authority of the Register of 
Copyrights. 77 FR 29259 (May 17, 2012). They further noted that 
authority to issue regulations on Statements of Account is ``the 
exclusive domain of the Register.'' 77 FR at 29261, citing to 
Division of Authority Between the Copyright Royalty Judges and the 
Register of Copyrights under the Section 115 Statutory License, 
Final order, Docket No. 2008-1, 73 FR 48396, 48398 (January 26, 
2009). The Copyright Office agrees. While the Copyright Royalty 
Judges do not have authority to alter the regulations governing the 
Statement of Accounts, the Register recognizes the Stakeholders' 
interest in making the statements confidential and addresses the 
issue here. Moreover, these proposed Statements of Account 
regulations would require the licensees to include all calculations 
on the Statements of Account, as proposed in the rate setting 
regulations published by the Copyright Office Judges on May 17, 2012 
for public comment.
---------------------------------------------------------------------------

    Therefore, the Copyright Office asks for comments as to what would 
be the appropriate limits to such a requirement, as well as on its 
authority to require copyright owners to keep information contained in 
Statements of Account confidential.

Conclusion

    The section 115 compulsory license for incidental digital 
phonorecord delivery and interactive streaming provides a useful tool 
for record companies and services to further create and distribute 
content through new technology. The Office is proposing modifications 
to its regulations that will allow copyright owners to receive a full 
and accurate accounting of the various types of digital phonorecord 
deliveries that are made under the section 115 license which are 
subject to the rates and terms adopted under 17 U.S.C. Chapter 8. 
Further comments are invited regarding issues relating to this subject 
that have been not addressed today, but may be relevant to ensure a 
better system of accounting.

List of Subjects

37 CFR Part 201

    Copyright.

37 CFR Part 210

    Copyright, Phonorecords, Recordings.

Proposed Regulations

    For the reasons set forth in the preamble, the Copyright Office 
proposes amending part 201 and adding part 210 to Chapter II of Title 
37 of the Code of Federal Regulations as follows:

PART 201--GENERAL PROVISIONS

    1. The authority citation for part 201 continues to read as 
follows:

    Authority: 17 U.S.C. 702.


Sec.  201.19  [Removed and reserved]

    2. Remove and reserve Sec.  201.19.
    3. Add new part 210 to read as follows:

PART 210--COMPULSORY LICENSE FOR MAKING AND DISTRIBUTING PHYSICAL 
AND DIGITAL PHONORECORDS OF NONDRAMATIC MUSICAL WORKS

Subpart A--[Reserved]
Sec.
210.1-210.10 [Reserved]
Subpart B--Royalties and Statements of Account Under Compulsory License 
for Physical Phonorecord Deliveries, Permanent Digital Downloads and 
Ringtones
210.11 General.
210.12 Definitions.
210.13 Accounting requirements where sales revenue is 
``recognized.''
210.14 Accounting requirements for offsetting phonorecord reserves 
with returned phonorecords.
210.15 Situations in which a compulsory licensee is barred from 
maintaining reserves.

[[Page 44186]]

210.16 Monthly statements of account.
210.17 Annual statements of account.
210.18 Documentation.
210.19 Timing of filing statements of account.
Subpart C--Royalties and Statements of Account Under Compulsory License 
for Interactive Streaming, Limited Downloads and Other Digital 
Phonorecord Delivery Services
210.21 General.
210.22 Definitions.
210.23 Monthly statements of account.
210.24 Annual statements of account.
210.25 Amended annual statements of account.
210.26 Documentation.
210.27 Timing of filing statements of account.

    Authority: 17 U.S.C. 115, 702.

Subpart A-[Reserved]


Sec. Sec.  210.1-210.10  [Reserved]

Subpart B--Royalties and Statements of Account Under Compulsory 
License for Physical Phonorecord Deliveries, Permanent Digital 
Downloads and Ringtones


Sec.  210.11  General.

    This subpart prescribes the rules pertaining to the preparation and 
service of Statements of Account covering compulsory licenses for the 
making and distribution of phonorecords, including by means of a 
digital phonorecord delivery, pursuant to 17 U.S.C. 115 and the 
regulations in 37 CFR part 385 governing rates and terms for use of 
musical works under compulsory license for the making and distribution 
of phonorecords.


Sec.  210.12  Definitions.

    As used in this subpart:
    (a) A Monthly Statement of Account is a statement accompanying 
monthly royalty payments identified in 17 U.S.C. 115(c)(5), as amended 
by Public Law 94-553, and required by that section to be made under the 
compulsory license to make and distribute phonorecords of nondramatic 
musical works, including by means of a digital phonorecord delivery.
    (b) An Annual Statement of Account is a statement identified in 17 
U.S.C 115(c)(5), as amended by Public Law 94-553, and required by that 
section to be filed for every compulsory license to make and distribute 
phonorecords of nondramatic musical works.
    (c) A ``digital phonorecord delivery'' is each individual delivery 
of a phonorecord by digital transmission of a sound recording which 
results in a specifically identifiable reproduction by or for any 
transmission recipient of a phonorecord of that sound recording, 
regardless of whether the digital transmission is also a public 
performance of the sound recording or any nondramatic musical work 
embodied therein. The reproduction of the phonorecord must be 
sufficiently permanent or stable to permit it to be perceived, 
reproduced, or otherwise communicated for a period of more than 
transitory duration. Such a phonorecord may be permanent or it may be 
made available to the transmission recipient for a limited period of 
time or for a specified number of performances. A digital phonorecord 
delivery includes all phonorecords that are made for the purpose of 
making the digital phonorecord delivery.
    (d) A ``ringtone'' means a phonorecord of a partial musical work 
distributed as a digital phonorecord delivery in a format to be made 
resident on a telecommunications device for use to announce the 
reception of an incoming telephone call or other communications or 
message or to alert the receiver to the fact that there is a 
communication or message.
    (e) The term copyright owner, in the case of any work having more 
than one copyright owner, means any one of the co-owners.
    (f) The service of a Statement of Account on a copyright owner 
under this subpart may be accomplished by means of service on either 
the copyright owner or an agent of the copyright owner with authority 
to receive Statements of Account on behalf of the copyright owner. In 
the case where the work has more than one copyright owner, the service 
of the Statement of Account on one co-owner or upon an agent of one of 
the co-owners shall be sufficient with respect to all co-owners.
    (g) A compulsory licensee is a person or entity exercising the 
compulsory license to make and distribute phonorecords of nondramatic 
musical works as provided under 17 U.S.C. 115, including by means of a 
digital phonorecord delivery.
    (h) A digital phonorecord delivery shall be treated as a type of 
phonorecord configuration, and a digital phonorecord delivery shall be 
treated as a phonorecord, with the following clarifications:
    (1) A digital phonorecord delivery shall be treated as a 
phonorecord made and distributed on the date the phonorecord is 
digitally transmitted; and
    (2) A digital phonorecord delivery shall be treated as having been 
voluntarily distributed and relinquished from possession, and a 
compulsory licensee shall be treated as having permanently parted with 
possession of a digital phonorecord delivery, on the date that the 
phonorecord is digitally transmitted.
    (i) Except as provided in paragraph (h) of this section, a 
phonorecord is considered voluntarily distributed if the compulsory 
licensee has voluntarily and permanently parted with possession of the 
phonorecord. For this purpose, and subject to the provisions of 
paragraph (d) of this section, a compulsory licensee shall be 
considered to have ``permanently parted with possession'' of a 
phonorecord made under the license:
    (1) In the case of phonorecords relinquished from possession for 
purposes other than sale, at the time at which the compulsory licensee 
actually first parts with possession;
    (2) In the case of phonorecords relinquished from possession for 
purposes of sale without a privilege of returning unsold phonorecords 
for credit or exchange, at the time at which the compulsory licensee 
actually first parts with possession;
    (3) In the case of phonorecords relinquished from possession for 
purposes of sale accompanied by a privilege of returning unsold 
phonorecords for credit or exchange:
    (i) At the time when revenue from a sale of the phonorecord is 
``recognized'' by the compulsory licensee; or
    (ii) Nine months from the month in which the compulsory licensee 
actually first parted with possession, whichever occurs first. For 
these purposes, a compulsory licensee shall be considered to 
``recognize'' revenue from the sale of a phonorecord when sales revenue 
would be recognized in accordance with generally accepted accounting 
principles as expressed by the American Institute of Certified Public 
Accountants or the Financial Accounting Standards Board, whichever 
would cause sales revenue to be recognized first.
    (j) To the extent that the terms reserve, credit and return appear 
in this section, such provisions shall not apply to digital phonorecord 
deliveries.
    (k) A phonorecord reserve comprises the number of phonorecords, if 
any, that have been relinquished from possession for purposes of sale 
in a given month accompanied by a privilege of return, as described in 
paragraph (i)(3) of this section, and that have not been considered 
voluntarily distributed during the month in which the compulsory 
licensee actually first parted with their possession. The initial 
number of phonorecords comprising a phonorecord reserve shall be 
determined in accordance with generally accepted accounting principles 
as expressed by the American

[[Page 44187]]

Institute of Certified Public Accountants or the Financial Accounting 
Standards Board.
    (l) A negative reserve balance comprises the aggregate number of 
phonorecords, if any, that have been relinquished from possession for 
purposes of sale accompanied by a privilege of return, as described in 
paragraph (i)(3) of this section, and that have been returned to the 
compulsory licensee, but because all available phonorecord reserves 
have been eliminated, have not been used to reduce a phonorecord 
reserve.
    (m) An incomplete transmission is any digital transmission of a 
sound recording which, as determined by means within the sole control 
of the distributor, does not result in a specifically identifiable 
reproduction of the entire sound recording by or for any transmission 
recipient.
    (n) A retransmission is a subsequent digital transmission of the 
same sound recording initially transmitted to an identified recipient 
for the purpose of completing the delivery of a complete and usable 
reproduction of that sound recording to that recipient.


Sec.  210.13  Accounting requirements where sales revenue is 
``recognized.''

    Where under Sec.  210.12(i)(3)(i), revenue from the sale of 
phonorecords is ``recognized'' during any month after the month in 
which the compulsory licensee actually first parted with their 
possession, said compulsory licensee shall reduce particular 
phonorecord reserves by the number of phonorecords for which revenue is 
being ``recognized,'' as follows:
    (a) If the number of phonorecords for which revenue is being 
``recognized'' is smaller than the number of phonorecords comprising 
the earliest eligible phonorecord reserve, this phonorecord reserve 
shall be reduced by the number of phonorecords for which revenue is 
being ``recognized.'' Subject to the time limitations of Sec.  
210.12(i)(3)(ii), the number of phonorecords remaining in this reserve 
shall be available for use in subsequent months.
    (b) If the number of phonorecords for which revenue is being 
``recognized'' is greater than the number of phonorecords comprising 
the earliest eligible phonorecord reserve but less than the total 
number of phonorecords comprising all eligible phonorecord reserves, 
the compulsory licensee shall first eliminate those phonorecord 
reserves, beginning with the earliest eligible phonorecord reserve and 
continuing to the next succeeding phonorecord reserves, that are 
completely offset by phonorecords for which revenue is being 
``recognized.'' Said licensee shall then reduce the next succeeding 
phonorecord reserve by the number of phonorecords for which revenue is 
being ``recognized'' that have not been used to eliminate a phonorecord 
reserve. Subject to the time limitations of Sec.  210.12(i)(3)(ii), the 
number of phonorecords remaining in this reserve shall be available for 
use in subsequent months.
    (c) If the number of phonorecords for which revenue is being 
``recognized'' equals the number of phonorecords comprising all 
eligible phonorecord reserves, the person or entity exercising the 
compulsory license shall eliminate all of the phonorecord reserves.


Sec.  210.14  Accounting requirements for offsetting phonorecord 
reserves with returned phonorecords.

    (a) In the case of a phonorecord that has been relinquished from 
possession for purposes of sale accompanied by a privilege of return, 
as described in Sec.  210.12(i)(3), where the phonorecord is returned 
to the compulsory licensee for credit or exchange before said 
compulsory licensee is considered to have ``permanently parted with 
possession'' of the phonorecord under Sec.  210.12(i), the compulsory 
licensee may use such phonorecord to reduce a ``phonorecord reserve,'' 
as defined in Sec.  210.12(k).
    (b) In such cases, the compulsory licensee shall reduce particular 
phonorecord reserves by the number of phonorecords that are returned 
during the month covered by the Monthly Statement of Account in the 
following manner:
    (1) If the number of phonorecords that are returned during the 
month covered by the Monthly Statement is smaller than the number 
comprising the earliest eligible phonorecord reserve, the compulsory 
licensee shall reduce this phonorecord reserve by the total number of 
returned phonorecords. Subject to the time limitations of Sec.  
210.12(i)(3), the number of phonorecords remaining in this reserve 
shall be available for use in subsequent months.
    (2) If the number of phonorecords that are returned during the 
month covered by the Monthly Statement is greater than the number of 
phonorecords comprising the earliest eligible phonorecord reserve but 
less than the total number of phonorecords comprising all eligible 
phonorecord reserves, the compulsory licensee shall first eliminate 
those phonorecord reserves, beginning with the earliest eligible 
phonorecord reserve, and continuing to the next succeeding phonorecord 
reserves, that are completely offset by returned phonorecords. Said 
licensee shall then reduce the next succeeding phonorecord reserve by 
the number of returned phonorecords that have not been used to 
eliminate a phonorecord reserve. Subject to the time limitations of 
Sec.  210.12(i)(3)(ii), the number of phonorecords remaining in this 
reserve shall be available for use in subsequent months.
    (3) If the number of phonorecords that are returned during the 
month covered by the Monthly Statement is equal to or is greater than 
the total number of phonorecords comprising all eligible phonorecord 
reserves, the compulsory licensee shall eliminate all eligible 
phonorecord reserves. Where said number is greater than the total 
number of phonorecords comprising all eligible phonorecord reserves, 
said compulsory licensee shall establish a ``negative reserve 
balance,'' as defined in Sec.  210.12(l).
    (c) Except where a negative reserve balance exists, a separate and 
distinct phonorecord reserve shall be established for each month during 
which the compulsory licensee relinquishes phonorecords from possession 
for purposes of sale accompanied by a privilege of return, as described 
in Sec.  210.12(i)(3) of this section. In accordance with paragraph 
(ii) of Sec.  210.12(i)(3), any phonorecord remaining in a particular 
phonorecord reserve nine months from the month in which the particular 
reserve was established shall be considered ``voluntarily 
distributed''; at that point, the particular monthly phonorecord 
reserve shall lapse and royalties for the phonorecords remaining in it 
shall be paid as provided in Sec.  210.16(d).
    (d) Where a negative reserve balance exists, the aggregate total of 
phonorecords comprising it shall be accumulated into a single balance 
rather than being separated into distinct monthly balances. Following 
the establishment of a negative reserve balance, any phonorecords 
relinquished from possession by the compulsory licensee for purposes of 
sale or otherwise, shall be credited against such negative balance, and 
the negative reserve balance shall be reduced accordingly. The nine-
month limit provided by Sec.  210.12(i)(3)(ii) shall have no effect 
upon a negative reserve balance; where a negative reserve balance 
exists, relinquishment from possession of a phonorecord by the 
compulsory licensee at any time shall be used to reduce such balance, 
and shall not be considered a ``voluntary

[[Page 44188]]

distribution'' within the meaning of Sec.  210.12(i).
    (e) In no case shall a phonorecord reserve be established while a 
negative reserve balance is in existence; conversely, in no case shall 
a negative reserve balance be established before all available 
phonorecord reserves have been eliminated.


Sec.  210.15  Situations in which a compulsory licensee is barred from 
maintaining reserves.

    Notwithstanding any other provisions of this section, in any case 
where, within three years before the phonorecord was relinquished from 
possession, the compulsory licensee has had final judgment entered 
against it for failure to pay royalties for the reproduction of 
copyrighted music on phonorecords, or within such period has been 
definitively found in any proceeding involving bankruptcy, insolvency, 
receivership, assignment for the benefit of creditors, or similar 
action, to have failed to pay such royalties, that compulsory licensee 
shall be considered to have ``Permanently parted with possession'' of a 
phonorecord made under the license at the time at which that licensee 
actually first parts with possession. For these purposes the 
``compulsory licensee,'' as defined in Sec.  210.12(g), shall include:
    (a) In the case of any corporation, the corporation or any 
director, officer, or beneficial owner of twenty-five percent (25%) or 
more of the outstanding securities of the corporation;
    (b) In all other cases, any entity or individual owning a 
beneficial interest of twenty-five percent (25%) or more in the entity 
exercising the compulsory license.


Sec.  210.16  Monthly statements of account.

    (a) Forms. The Copyright Office does not provide printed forms for 
the use of persons serving Monthly Statements of Account.
    (b) General content. A Monthly Statement of Account shall be 
clearly and prominently identified as a ``Monthly Statement of Account 
Under Compulsory License for Making and Distributing Phonorecords,'' 
and shall include a clear statement of the following information:
    (1) The period (month and year) covered by the Monthly Statement;
    (2) The full legal name of the compulsory licensee, together with 
all fictitious or assumed names used by such person or entity for the 
purpose of conducting the business of making and distributing 
phonorecords;
    (3) The full address, including a specific number and street name 
or rural route, of the place of business of the compulsory licensee. A 
post office box or similar designation will not be sufficient for this 
purpose, except where it is the only address that can be used in that 
geographic location;
    (4) The title or titles of the nondramatic musical work or works 
embodied in phonorecords made under the compulsory license and owned by 
the copyright owner being served with the Monthly Statement and the 
name of the author or authors of such work or works, if known;
    (5) For each nondramatic musical work that is owned by the same 
copyright owner being served with the Monthly Statement and that is 
embodied in phonorecords covered by the compulsory license, a detailed 
statement of all of the information called for in paragraph (c) of this 
section;
    (6) The total royalty payable for the month covered by the Monthly 
Statement, computed in accordance with the requirements of this section 
and the formula specified in paragraph (d) of this section, together 
with a Statement of Account showing in detail how the royalty was 
computed; and
    (7) In any case where the compulsory licensee falls within the 
provisions of Sec.  210.15, a clear description of the action or 
proceeding involved, including the date of the final judgment or 
definitive finding described in that paragraph.
    (c) Specific content of monthly statements: Identification and 
accounting of phonorecords. (1) The information called for by paragraph 
(b)(5) of this section shall, with respect to each nondramatic musical 
work, include a separate listing of each of the following items of 
information:
    (i) The number of phonorecords, including digital phonorecord 
deliveries, made during the month covered by the Monthly Statement;
    (ii) The number of phonorecords that, during the month covered by 
the Monthly Statement and regardless of when made, were either:
    (A) Relinquished from possession for purposes other than sale;
    (B) Relinquished from possession for purposes of sale without any 
privilege of returning unsold phonorecords for credit or exchange;
    (C) Relinquished from possession for purposes of sale accompanied 
by a privilege of returning unsold phonorecords for credit or exchange;
    (D) Returned to the compulsory licensee for credit or exchange;
    (E) Placed in a phonorecord reserve (except that if a negative 
reserve balance exists give either the number of phonorecords added to 
the negative reserve balance, or the number of phonorecords 
relinquished from possession that have been used to reduce the negative 
reserve balance);
    (F) Never delivered due to a failed transmission; or
    (G) Digitally retransmitted in order to complete a digital 
phonorecord delivery.
    (iii) The number of phonorecords, regardless of when made, that 
were relinquished from possession during a month earlier than the month 
covered by the Monthly Statement but that, during the month covered by 
the Monthly Statement either have had revenue from their sale 
``recognized'' under Sec.  210.12(i)(3)(i), or were comprised in a 
phonorecord reserve that lapsed after nine months under Sec.  
210.12(i)(3)(ii).
    (2) Each of the items of information called for by paragraph (c)(1) 
of this section shall also include, and if necessary shall be broken 
down to identify separately, the following:
    (i) The catalog number or numbers and label name or names, used on 
the phonorecords;
    (ii) The names of the principal recording artist or group engaged 
in rendering the performances fixed on the phonorecords;
    (iii) The playing time on the phonorecords of each nondramatic 
musical work covered by the statement; and
    (iv) Each phonorecord configuration involved (for example: single 
disk, long-playing disk, cartridge, cassette, reel-to-reel, digital 
phonorecord delivery, or a combination of them).
    (v) The date of and a reason for each incomplete transmission.
    (d) Royalty payment and accounting. (1) The total royalty called 
for by paragraph (b)(6) of this section shall be payable for every 
phonorecord ``voluntarily distributed'' during the month covered by the 
Monthly Statement.
    (2) The amount of the royalty payment shall be calculated in 
accordance with the following formula:
    (i) Step 1: Compute the number of phonorecords shipped for sale 
with a privilege of return. This is the total of phonorecords that, 
during the month covered by the Monthly Statement, were relinquished 
from possession by the compulsory licensee, accompanied by the 
privilege of returning unsold phonorecords to the compulsory licensee 
for credit or exchange. This total does not include:
    (A) Any phonorecords relinquished from possession by the compulsory

[[Page 44189]]

licensee for purposes of sale without the privilege of return; and
    (B) Any phonorecords relinquished from possession for purposes 
other than sale.
    (ii) Step 2: Subtract the number of phonorecords reserved. This 
involves deducting, from the subtotal arrived at in Step 1, the number 
of phonorecords that have been placed in the phonorecord reserve for 
the month covered by the Monthly Statement. The number of phonorecords 
reserved is determined by multiplying the subtotal from Step 1 by the 
percentage reserve level established under Generally Accepted 
Accounting Practices. This step should be skipped by a compulsory 
licensee barred from maintaining reserves under Sec.  210.15.
    (iii) Step 3: Add the total of all phonorecords that were shipped 
during the month and were not counted in Step 1. This total is the sum 
of two figures:
    (1) The number of phonorecords that, during the month covered by 
the Monthly Statement, were relinquished from possession by the 
compulsory licensee for purposes of sale, without the privilege of 
returning unsold phonorecords to the compulsory licensee for credit or 
exchange; and
    (2) The number of phonorecords relinquished from possession by the 
compulsory licensee, during the month covered by the Monthly Statement, 
for purposes other than sale.
    (iv) Step 4: Make any necessary adjustments for sales revenue 
``recognized,'' lapsed reserves, or reduction of negative reserve 
balance during the month. If necessary, this step involves adding to or 
subtracting from the subtotal arrived at in Step 3 on the basis of 
three possible types of adjustments:
    (A) Sales revenue ``recognized.'' If, in the month covered by the 
Monthly Statement, the compulsory licensee ``recognized'' revenue from 
the sale of phonorecords that had been relinquished from possession in 
an earlier month, the number of such phonorecords is added to the Step 
3 subtotal;
    (B) Lapsed reserves. If, in the month covered by the Monthly 
Statement, there are any phonorecords remaining in the phonorecord 
reserve for the ninth previous month (that is, any phonorecord reserves 
from the ninth previous month that have not been offset under FOFI, the 
first-out-first-in accounting convention, by actual returns during the 
intervening months), the reserve lapses and the number of phonorecords 
in it is added to the Step 3 subtotal.
    (C) Reduction of negative reserve balance. If, in the month covered 
by the Monthly Statement, the aggregate reserve balance for all 
previous months is a negative amount, the number of phonorecords 
relinquished from possession by the compulsory licensee during that 
month and used to reduce the negative reserve balance is subtracted 
from the Step 3 subtotal.
    (D) Incomplete transmissions. If, in the month covered by the 
Monthly Statement, there are any digital transmissions of a sound 
recording which do not result in specifically identifiable 
reproductions of the entire sound recording by or for any transmission 
recipient, as determined by means within the sole control of the 
distributor, the number of such phonorecords is subtracted from the 
Step 3 subtotal.
    (E) Retransmitted digital phonorecords. If, in the month covered by 
the Monthly Statement, there are retransmissions of a digital 
phonorecord to a recipient who did not receive a complete and usable 
phonorecord during an initial transmission, and such transmissions are 
made for the sole purpose of delivering a complete and usable 
reproduction of the initially requested sound recording to that 
recipient, the number of such retransmitted digital phonorecords is 
subtracted from the Step 3 subtotal.
    (v) Step 5: Multiply by the statutory royalty rate. The total 
monthly royalty payment is obtained by multiplying the subtotal from 
Step 3, as adjusted if necessary by Step 4, by the statutory royalty 
rate of 9.1 cents or 1.75 cents per minute or fraction of playing time, 
whichever is larger for every physical phonorecord delivery and 
permanent digital download, and by the statutory royalty rate of 24.0 
cents for every ringtone made and distributed.
    (3) Each step in computing the monthly payment, including the 
arithmetical calculations involved in each step, shall be set out in 
detail in the Monthly Statement.
    (e) Clear statements. The information required by paragraphs (b) 
and (c) of this section requires intelligible, legible, and unambiguous 
statements in the Monthly Statements of Account without incorporation 
of facts or information contained in other documents or records.
    (f) Certification. (1) Each Monthly Statement of Account shall be 
accompanied by:
    (i) The printed or typewritten name of the person who is the 
licensee certifying the Monthly Statement of Account;
    (ii) If the compulsory licensee is a partnership or a corporation, 
by the title or official position held in the partnership or 
corporation by the person certifying the Monthly Statement of Account;
    (iii) The date of certification;
    (iv) A statement of the capacity of the person making the 
certification; and
    (v) The following statement:

    I certify that I have examined this Monthly Statement of Account 
and that all statements of fact contained herein are true, complete, 
and correct to the best of my knowledge, information, and belief, 
and are made in good faith.

    (2) If the Monthly Statement of Account is served by mail or by 
reputable courier service, certification of the Monthly Statement of 
Account by the licensee shall be made by handwritten signature. If the 
compulsory licensee is a corporation, the signature shall be that of a 
duly authorized officer of the corporation; if the compulsory licensee 
is a partnership, the signature shall be that of a partner.
    (3) If the Monthly Statement of Account is served electronically, 
the licensee and the copyright owner shall establish a procedure to 
verify that the certification of the Monthly Statement of Account by 
the licensee is made upon proper authority.
    (g) Service. (1) Each Monthly Statement of Account shall be served 
on the copyright owner or the agent with authority to receive Monthly 
Statements of Account on behalf of the copyright owner to whom or which 
it is directed, together with the total royalty for the month covered 
by the Monthly Statement, by mail or by reputable courier service on or 
before the 20th day of the immediately succeeding month. However, in 
the case where the licensee has served its Notice of Intention upon an 
agent of the copyright owner pursuant to Sec.  201.18 of this chapter, 
the licensee is not required to serve Monthly Statements of Account or 
make any royalty payments until the licensee receives from the agent 
with authority to receive the Notice of Intention notice of the name 
and address of the copyright owner or its agent upon whom the licensee 
shall serve Monthly Statements of Account and the monthly royalty fees. 
Upon receipt of this information, the licensee shall serve Monthly 
Statements of Account and all royalty fees covering the intervening 
period upon the person or entity identified by the agent with authority 
to receive the Notice of Intention by or before the 20th day of the 
month following receipt of the notification. It shall not be necessary 
to file a copy of the Monthly Statement in the Copyright Office.

[[Page 44190]]

    (2)(i) In any case where a Monthly Statement of Account is sent by 
mail or reputable courier service and the Monthly Statement of Account 
is returned to the sender because the copyright owner or agent is no 
longer located at that address or has refused to accept delivery, or in 
any case where an address for the copyright owner is not known, the 
Monthly Statement of Account, together with any evidence of mailing or 
attempted delivery by courier service, may be filed in the Licensing 
Division of the Copyright Office. Any Monthly Statement of Account 
submitted for filing in the Copyright Office shall be accompanied by a 
brief statement of the reason why it was not served on the copyright 
owner. A written acknowledgment of receipt and filing will be provided 
to the sender.
    (ii) The Copyright Office will not accept any royalty fees 
submitted with Monthly Statements of Account under this section.
    (iii) Neither the filing of a Monthly Statement of Account in the 
Copyright Office, nor the failure to file such Monthly Statement, shall 
have effect other than that which may be attributed to it by a court of 
competent jurisdiction.
    (iv) No filing fee will be required in the case of Monthly 
Statements of Account submitted to the Copyright Office under this 
section. Upon request and payment of the fee specified in Sec.  
201.3(e) of this chapter, a Certificate of Filing will be provided to 
the sender.
    (3) A separate Monthly Statement of Account shall be served for 
each month during which there is any activity relevant to the payment 
of royalties under 17 U.S.C. 115, and under this subpart. The Annual 
Statement of Account identified in Sec.  210.17 of this subpart does 
not replace any Monthly Statement of Account.
    (4) If a Monthly Statement of Account is sent by certified mail or 
registered mail, a mailing receipt shall be sufficient to prove that 
service was timely. If a Monthly Statement of Account is delivered by a 
reputable courier, documentation from the courier showing the first 
date of attempted delivery shall also be sufficient to prove that 
service was timely. In the absence of a receipt from the United States 
Postal Service showing the date of delivery or documentation showing 
the first date of attempted delivery by a reputable courier, the 
compulsory licensee shall bear the burden of proving that the Monthly 
Statement of Account was served in a timely manner.
    (5) If a Monthly Statement of Account covers reporting for more 
than 50 works that are embodied in phonorecords made under the 
compulsory license, the copyright owner or the authorized agent may 
send the licensee a demand that the Monthly Statement of Account be 
resubmitted in an electronic format and that future Statements of 
Account be submitted in an electronic format. The statement may be 
submitted on a data storage medium widely used at the time for 
electronic storage of data, in the form of a flat file, word processing 
document or spreadsheet readable with computer software in wide use at 
such time, with the required information identified and/or delimited so 
as to be readily discernible. The Statement of Account may be submitted 
by means of electronic transmission (such as email) if the demand from 
the copyright owner or authorized agent states that such submission 
will be accepted. As provided in paragraph (f) of this section, the 
licensee and the copyright owner shall establish a procedure to verify 
that the certification portion of the statement is made upon the 
authority of the licensee.
    (6) The copyright owner and the licensee or authorized agent may 
agree upon alternative methods of payment, provided that when the 
Monthly Statement of Account and payment are not sent together by mail 
or courier service, they shall be sent contemporaneously. Monthly 
Statements of Account shall be sent and payment shall be made on or 
before the 20th day of each month and shall include all royalties for 
the month next proceeding. Any Monthly Statement of Account or payment 
provided in accordance with such policy shall not be rendered invalid 
for failing to comply with the specific requirements of paragraph 
(g)(1) of this section regarding service by mail or by reputable 
courier service of the Monthly Statements of Account together with the 
total royalty for the month covered by the Monthly Statement.
    (7) For purposes of this section, a copyright owner or an agent of 
a copyright owner with authority to receive a Monthly Statement of 
Account may make public a written policy that it will accept a Monthly 
Statement of Account by means of electronic transmission and include in 
that written policy procedures for making royalty payments. When the 
Monthly Statement of Account and payment are not sent together by mail 
or courier service, they shall be sent contemporaneously. Monthly 
Statements of Account shall be sent and payment shall be made on or 
before the 20th day of each month and shall include all royalties for 
the month next proceeding. Any Monthly Statement of Account or payment 
provided in accordance with such policy shall not be rendered invalid 
for failing to comply with the specific requirements of paragraph 
(g)(1) of this section regarding service by mail or by reputable 
courier service of the Monthly Statements of Account together with the 
total royalty for the month covered by the Monthly Statement.


Sec.  210.17  Annual statements of account.

    (a) Forms. The Copyright Office does not provide printed forms for 
the use of persons serving Annual Statements of Account.
    (b) Annual period. Any Annual Statement of Account shall cover the 
full fiscal year of the compulsory licensee.
    (c) General content. An Annual Statement of Account shall be 
clearly and prominently identified as an ``Annual Statement of Account 
Under Compulsory License for Making and Distributing Phonorecords,'' 
and shall include a clear statement of the following information:
    (1) The fiscal year covered by the Annual Statement;
    (2) The full legal name of the compulsory licensee, together with 
all fictitious or assumed names used by such person or entity for the 
purpose of conducting the business of making and distributing 
phonorecords;
    (3) If the compulsory licensee is a business organization, the name 
and title of the chief executive officer, managing partner, sole 
proprietor or other person similarly responsible for the management of 
such entity.
    (4) The full address, including a specific number and street name 
or rural route, or the place of business of the compulsory licensee. A 
post office box or similar designation will not be sufficient for this 
purpose except where it is the only address that can be used in that 
geographic location;
    (5) The title or titles of the nondramatic musical work or works 
embodied in phonorecords made under the compulsory license and owned by 
the copyright owner being served with the Annual Statement and the name 
of the author or authors of such work or works, if known;
    (6) The playing time of each nondramatic musical work on such 
phonorecords;
    (7) For each nondramatic musical work that is owned by the same 
copyright owner being served with the Annual Statement and that is 
embodied in phonorecords covered by the compulsory license, a detailed 
statement of all of the information called for in paragraph (d) of this 
section;

[[Page 44191]]

    (8) The total royalty payable for the fiscal year covered by the 
Annual Statement computed in accordance with the requirements of this 
section, together with a statement of account showing in detail how the 
royalty was computed. For these purposes, the applicable royalty as 
specified in Sec.  385.3 shall be payable for every phonorecord 
``voluntarily distributed'' during the fiscal year covered by the 
Annual Statement;
    (9) The total sum paid under Monthly Statements of Account by the 
compulsory licensee to the copyright owner being served with the Annual 
Statement during the fiscal year covered by the Annual Statement; and
    (10) In any case where the compulsory license falls within the 
provisions of Sec.  210.15, a clear description of the action or 
proceeding involved, including the date of the final judgment or 
definitive finding described in that paragraph.
    (d) Specific content of annual statements: Identification and 
accounting of phonorecords. (1) The information called for by paragraph 
(c)(7) of this section shall, with respect to each nondramatic musical 
work, include a separate listing of each of the following items of 
information separately stated and identified for each phonorecord 
configuration (for example, single disk, long playing disk, cartridge, 
cassette, or reel-to-reel) made:
    (i) The number of phonorecords made through the end of the fiscal 
year covered by the Annual Statement, including any made during earlier 
years;
    (ii) The number of phonorecords which have never been relinquished 
from possession of the compulsory licensee through the end of the 
fiscal year covered by the Annual Statement;
    (iii) The number of phonorecords involuntarily relinquished from 
possession (as through fire or theft) of the compulsory licensee during 
the fiscal year covered by the Annual Statement and any earlier years, 
together with a description of the facts of such involuntary 
relinquishment;
    (iv) The number of phonorecords ``voluntarily distributed'' by the 
compulsory licensee during all years before the fiscal year covered by 
the Annual Statement;
    (v) The number of phonorecords relinquished from possession of the 
compulsory licensee for purposes of sale during the fiscal year covered 
by the Annual Statement accompanied by a privilege of returning unsold 
records for credit or exchange, but not ``voluntarily distributed'' by 
the end of that year;
    (vi) The number of phonorecords ``voluntarily distributed'' by the 
compulsory licensee during the fiscal year covered by the Annual 
Statement, together with:
    (A) The catalog number or numbers, and label name or names, used on 
such phonorecords; and
    (B) The names of the principal recording artists or groups engaged 
in rendering the performances fixed on such phonorecords.
    (2) If the information given under paragraph (d)(1)(i) through (vi) 
of this section does not reconcile, the Annual Statement shall also 
include a clear and detailed explanation of the difference. For these 
purposes, the information given under such paragraphs shall be 
considered not to reconcile if, after the number of phonorecords given 
under paragraphs (d)(1)(ii), (iii), (iv) and (v) of this section are 
added together and that sum is deducted from the number of phonorecords 
given under paragraph (d)(1)(i), the result is different from the 
amount given under paragraph (d)(1)(vi).
    (e) Clear statement. The information required by paragraph (c) of 
this section requires intelligible, legible, and unambiguous statements 
in the Annual Statement of Account without incorporation by reference 
of facts or information contained in other documents or records.
    (f) Certification. (1) Each Annual Statement of Account shall be 
accompanied by:
    (i) The printed or typewritten name of the person who is the 
licensee certifying the Annual Statement of Account;
    (ii) The date of certification;
    (iii) If the compulsory licensee is a partnership or a corporation, 
the title or official position held in the partnership or corporation 
who is making the certification;
    (iv) A statement of the capacity of the person making the 
certification; and
    (v) The following statement:

    I certify that I have examined this Annual Statement of Account 
and that all statements of fact contained herein are true, complete, 
and correct to the best of my knowledge, information, and belief, 
and are made in good faith.

    (2)(i) Each Annual Statement of Account shall also be certified by 
a licensed Certified Public Accountant. Such certification shall 
consist of the following statement.

    We have examined the attached ``Annual Statement of Account 
Under Compulsory License For Making and Distributing Phonorecords'' 
for the fiscal year ended (date) of (name of the compulsory 
licensee) applicable to phonorecords embodying (title or titles of 
nondramatic musical works embodied in phonorecords made under the 
compulsory license) made under the provisions of 17 U.S.C. 115, as 
amended by Public Law 94-553, and applicable regulations of the 
United States Copyright Office. Our examination was made in 
accordance with generally accepted auditing standards and 
accordingly, included tests of the accounting records and such other 
auditing procedures as we considered necessary in the circumstances.
    In our opinion the Annual Statement of Account referred to above 
presents fairly the number of phonorecords embodying each of the 
above-identified nondramatic musical works made under compulsory 
license and voluntarily distributed by (name of the compulsory 
licensee) during the fiscal year ending (date), and the amount of 
royalties applicable thereto under such compulsory license, on a 
consistent basis and in accordance with the above cited law and 
applicable regulations published thereunder.

-----------------------------------------------------------------------
(City and State of Execution)

-----------------------------------------------------------------------
(Signature of Certified Public Accountant or CPA Firm)

-----------------------------------------------------------------------
Certificate Number

-----------------------------------------------------------------------
Jurisdiction of Certificate

-----------------------------------------------------------------------
(Date of Opinion)

    (ii) The certificate shall be signed by an individual, or in the 
name of a partnership or a professional corporation with two or more 
shareholders. The certificate number and jurisdiction are not required 
if the certificate is signed in the name of a partnership or a 
professional corporation with two or more shareholders.
    (3) If the Annual Statement of Account is served by mail or by 
reputable courier service, the certification of the Annual Statement of 
Account by the licensee shall be made by handwritten signature. If the 
compulsory licensee is a corporation, the signature shall be that of a 
duly authorized officer of the corporation; if that compulsory licensee 
is a partnership, the signature shall be that of a partner.
    (4) If the Annual Statement of Account is served electronically, 
the licensee may serve an electronic facsimile of the original 
certification of the Annual Statement of Account signed by the licensed 
Certified Public Accountant. The licensee shall retain the original 
certification of the Annual Statement of Account signed by the licensed 
Certified Public Accountant, which shall be made available to the 
copyright owner upon demand.
    (5) If the Annual Statement of Account is served electronically, 
the licensee and the copyright owner shall

[[Page 44192]]

establish a procedure to verify that the certification of the Annual 
Statement of Account by the licensee is made upon proper authority.
    (g) Service. (1) Each Annual Statement of Account shall be served 
on the copyright owner or the agent with authority to receive Annual 
Statements of Account on behalf of the copyright owner to whom or which 
it is directed by mail or by reputable courier service on or before the 
20th day of the sixth month following the end of the fiscal year 
covered by the Annual Statement. It shall not be necessary to file a 
copy of the Annual Statement in the Copyright Office. An Annual 
Statement of Account shall be served for each fiscal year during which 
at least one Monthly Statement of Account was required to have been 
served under Sec.  210.16(g).
    (2) In any case where the amount required to be stated in the 
Annual Statement of Account under paragraph (c)(8) of this section is 
greater than the amount stated in that Annual Statement under paragraph 
(c)(9) of this section, the difference between such amounts shall be 
delivered to the copyright owner together with the service of the 
Annual Statement. The delivery of such sum does not require the 
copyright owner to accept such sum, or to forego any right, relief, or 
remedy which may be available under law.
    (3)(i) In any case where an Annual Statement of Account is sent by 
mail or by reputable courier service and is returned to the sender 
because the copyright owner or agent is not located at that address or 
has refused to accept delivery, or in any case where an address for the 
copyright owner is not known, the Annual Statement of Account, together 
with any evidence of mailing or attempted delivery by courier service, 
may be filed in the Licensing Division of the Copyright Office. Any 
Annual Statement of Account submitted for filing shall be accompanied 
by a brief statement of the reason why it was not served on the 
copyright owner. A written acknowledgment of receipt and filing will be 
provided to the sender.
    (ii) The Copyright Office will not accept any royalty fees 
submitted with Annual Statements of Account under this paragraph 
(g)(3).
    (iii) Neither the filing of an Annual Statement of Account in the 
Copyright Office, nor the failure to file such Annual Statement, shall 
have any effect other than that which may be attributed to it by a 
court of competent jurisdiction.
    (iv) No filing fee will be required in the case of Annual 
Statements of Account submitted to the Copyright Office under this 
paragraph (g)(3). Upon request and payment of the fee specified in 
Sec.  201.3(e) of this chapter, a Certificate of Filing will be 
provided to the sender.
    (4) If an Annual Statement of Account is sent by certified mail or 
registered mail, a mailing receipt shall be sufficient to prove that 
service was timely. If an Annual Statement of Account is delivered by a 
reputable courier, documentation from the courier showing the first 
date of attempted delivery shall also be sufficient to prove that 
service was timely. In the absence of a receipt from the United States 
Postal Service showing the date of delivery or documentation showing 
the first date of attempted delivery by a reputable courier, the 
compulsory licensee shall bear the burden of proving that the Annual 
Statement of Account was served in a timely manner.
    (5) If an Annual Statement of Account covers reporting for more 
than 50 works that are embodied in phonorecords made under the 
compulsory license, the copyright owner or the authorized agent may 
send the licensee a demand that the Annual Statement of Account be 
resubmitted in an electronic format and that future Annual Statements 
of Account be submitted in an electronic format. The statement may be 
submitted on a data storage medium widely used at the time for 
electronic storage of data, in the form of a flat file, word processing 
document or spreadsheet readable with computer software in wide use at 
such time, with the required information identified and/or delimited so 
as to be readily discernible. The Statement of Account may be submitted 
by means of electronic transmission (such as email) if the copyright 
owner or authorized agent states that such submission will be accepted. 
As provided in paragraph (f) of this section, the licensee and the 
copyright owner shall establish a procedure to verify that the 
certification portion of the statement is made upon the authority of 
the licensee.
    (6) The copyright owner and the licensee or authorized agent may 
agree upon alternative methods of payment, provided that when the 
Statement of Account and payment are not sent together by mail or 
courier service, they shall be sent contemporaneously. Annual 
Statements of Account shall be sent and any additional payment shall be 
made on or before the 20th day of the sixth month following the end of 
the fiscal year covered by the Annual Statement. Any Annual Statement 
of Account or payment provided in accordance with such policy shall not 
be rendered invalid for failing to comply with the specific 
requirements of paragraph (g) of this section regarding service by mail 
or by reputable courier service of the Annual Statements of Account 
together with the total additional royalty covered by the Annual 
Statement.
    (7) For purposes of this section, a copyright owner or an agent of 
a copyright owner with authority to receive an Annual Statement of 
Account may make public a written policy that it will accept an Annual 
Statement of Account by means of electronic transmission and include in 
that written policy procedures for making any additional royalty 
payments. When the Annual Statement of Account and any additional 
payment are not sent together by mail or courier service, they shall be 
sent contemporaneously. Annual Statements of Account shall be sent and 
payment shall be made on or before the 20th day of the sixth month 
following the end of the fiscal year covered by the Annual Statement. 
Any Annual Statement of Account provided in accordance with such policy 
shall not be rendered invalid for failing to comply with the specific 
requirements of this paragraph (g) regarding service by mail or by 
reputable courier service of the Annual Statement of Account together 
with any additional royalty payment.


Sec.  210.18  Documentation.

    All compulsory licensees shall, for a period of at least five years 
from the date of service of an Annual Statement of Account, keep and 
retain in their possession all records and documents necessary and 
appropriate to support fully the information set forth in such Annual 
Statement and in Monthly Statements served during the fiscal year 
covered by such Annual Statement.


Sec.  210.19  Timing of statements of account.

    Statements of Accounts for an accounting period which closes after 
the effective date of this regulation shall be due as provided in 
Sec. Sec.  210.16(g)(1) and 210.17(g)(1). Statements of Account for any 
prior reporting period shall be due 180 days after the effective date 
of this regulation.

Subpart C--Royalties and Statements of Account Under Compulsory 
License for Interactive Streaming, Limited Downloads and Other 
Digital Phonorecord Delivery Services


Sec.  210.21  General.

    This subpart prescribes the rules pertaining to the preparation and 
service of Statements of Account covering compulsory licenses for the 
making and distribution of phonorecords, by certain services which

[[Page 44193]]

offer digital phonorecord deliveries, pursuant to 17 U.S.C. 115 and the 
regulations in 37 CFR part 385 governing rates and terms for use of 
musical works under compulsory license for the making and distribution 
of phonorecords.


Sec.  210.22  Definitions.

    As used in this subpart:
    (a) A Monthly Statement of Account is a statement accompanying 
monthly royalty payments identified in 17 U.S.C. 115(c)(5), as amended 
by Public Law 94-553, and required by that section to be made under the 
compulsory license to make and distribute phonorecords of nondramatic 
musical works, including by means of a digital phonorecord delivery.
    (b) An Annual Statement of Account is a statement identified in 17 
U.S.C. 115(c)(5), as amended by Public Law 94-553, and required by that 
section to be filed for every compulsory license to make and distribute 
phonorecords of nondramatic musical works.
    (c) A ``digital phonorecord delivery'' is each individual delivery 
of a phonorecord by digital transmission of a sound recording which 
results in a specifically identifiable reproduction by or for any 
transmission recipient of a phonorecord of that sound recording, 
regardless of whether the digital transmission is also a public 
performance of the sound recording or any nondramatic musical work 
embodied therein. The reproduction of the phonorecord must be 
sufficiently permanent or stable to permit it to be perceived, 
reproduced, or otherwise communicated for a period of more than 
transitory duration. Such a phonorecord may be permanent or it may be 
made available to the transmission recipient for a limited period of 
time or for a specified number of performances. A digital phonorecord 
delivery includes all phonorecords that are made for the purpose of 
making the digital phonorecord delivery.
    (d) A limited download means a digital transmission of a sound 
recording of a musical work to an end user, other than a stream, that 
results in a specifically identifiable reproduction of that sound 
recording that is only accessible for listening if--
    (1) An amount of time not to exceed 1 month from the time of the 
transmission (unless the service, in lieu of retransmitting the same 
sound recording as another limited download, separately and upon 
specific request of the end user made through a live network 
connection, reauthorizes use for another time period not to exceed 1 
month), or in the case of a subscription transmission, a period of time 
following the end of the applicable subscription no longer than a 
subscription renewal period or 3 months, whichever is shorter; or
    (2) A specified number of times not to exceed 12 (unless the 
service, in lieu of retransmitting the same sound recording as another 
limited download, separately and upon specific request of the end user 
made through a live network connection, reauthorizes use of another 
series of 12 or fewer plays), or in the case of a subscription 
transmission, 12 times after the end of the applicable subscription.
    (3) A limited download is a general digital phonorecord delivery as 
defined in this section.
    (e) An interactive stream means a stream of a sound recording of a 
musical work, where the performance of the sound recording by means of 
a stream is not exempt under 17 U.S.C. 114(d)(1) and does not in itself 
or as a result of a program in which it is included qualify for 
statutory licensing under 17 U.S.C. 114(d)(2).
    (f) A phonorecord is used as a general term in this subpart to 
refer to all configurations of a phonorecord made and distributed under 
17 U.S.C. 115, including a limited download, an incidental digital 
phonorecord delivery, and an interactive stream.
    (g) The term copyright owner, in the case of any work having more 
than one copyright owner, means any one of the co-owners.
    (h) The service of a Statement of Account on a copyright owner 
under this subpart may be accomplished by means of service on either 
the copyright owner or an agent of the copyright owner with authority 
to receive Statements of Account on behalf of the copyright owner. In 
the case where the work has more than one copyright owner, the service 
of the Statement of Account on one co-owner or upon an agent of one of 
the co-owners shall be sufficient with respect to all co-owners.
    (i) A compulsory licensee is a person or entity exercising the 
compulsory license to make and distribute phonorecords of nondramatic 
musical works as provided under 17 U.S.C. 115, including by means of a 
digital phonorecord delivery.
    (j) A limited download, an incidental digital phonorecord delivery, 
and an interactive stream shall be treated as a type of phonorecord 
configuration:
    (1) Distributed on the date the phonorecord is digitally 
transmitted; and
    (2) As having been voluntarily distributed and relinquished from 
possession on the date that the phonorecord is digitally transmitted.
    (k) An incomplete transmission is any digital transmission of a 
sound recording which, as determined by means within the sole control 
of the distributor, does not result in a specifically identifiable 
reproduction of the entire sound recording by or for any transmission 
recipient.
    (l) A retransmission is a subsequent digital transmission of the 
same sound recording initially transmitted to an identified recipient 
for the purpose of completing the delivery of a complete and usable 
reproduction of that sound recording to that recipient.


Sec.  210.23  Monthly statements of accounts.

    (a) Forms. The Copyright Office does not provide printed forms for 
the use of persons serving Monthly Statements of Account.
    (b) General content. A Monthly Statement of Account shall be 
clearly and prominently identified as a ``Monthly Statement of Account 
Under Compulsory License for Making and Distributing Phonorecords,'' 
and shall include a clear statement of the following information:
    (1) The period (month and year) covered by the Monthly Statement;
    (2) The full legal name of the compulsory licensee, together with 
all fictitious or assumed names used by such person or entity for the 
purpose of conducting the business of making and distributing 
phonorecords.
    (3) The full address, including a specific number and street name 
or rural route, of the place of business of the compulsory licensee. A 
post office box or similar designation will not be sufficient for this 
purpose, except where it is the only address that can be used in that 
geographic location;
    (4) The title or titles of the nondramatic musical work or works 
embodied in phonorecords made under the compulsory license and owned by 
the copyright owner being served with the Monthly Statement and the 
name of the author or authors of such work or works, if known;
    (5) For each nondramatic musical work that is owned by the same 
copyright owner being served with the Monthly Statement and that is 
embodied in phonorecords covered by the compulsory license, a detailed 
statement of all of the information called for in paragraph (c) of this 
section;
    (6) The total royalty payable for the month covered by the Monthly 
Statement, computed in accordance with the requirements of this section 
specified in paragraph (d) of this

[[Page 44194]]

section, together with a Statement of account showing in detail how the 
royalty was computed; and
    (c) Specific content of monthly statements: Identification and 
accounting of phonorecords. (1) The information called for by paragraph 
(b)(5) of this section shall, with respect to each each nondramatic 
musical work, include a separate listing of each of the following items 
of information:
    (i) The number of phonorecords accounted for in this subpart, 
including the number of limited downloads, incidental digital 
phonorecord deliveries, and interactive streams made during the month 
covered by the Monthly Statement;
    (ii) The number of promotional interactive streams and promotional 
promotional limited downloads; and
    (iii) The number of phonorecords that were never delivered due to a 
failed transmission; or digitally retransmitted in order to complete a 
digital phonorecord delivery.
    (2) Each of the items of information called for by paragraph (c)(1) 
of this section shall also include, and if necessary shall be broken 
down to identify separately, the following:
    (i) The catalog number or numbers and label name or names, used on 
the phonorecords;
    (ii) The names of the principal recording artist or group engaged 
in rendering the performances fixed on the phonorecords;
    (iii) The playing time on the phonorecords of each nondramatic 
musical work covered by the statement; and
    (iv) Each phonorecord configuration involved (for example, a 
limited download, an incidental digital phonorecord delivery, an 
interactive stream or a combination of these configurations).
    (v) The date of and a reason for each incomplete transmission.
    (d) Royalty payment and accounting. (1) The total royalty called 
for by paragraph (b)(6) of this section shall be payable for every 
phonorecord ``voluntarily distributed'' during the month covered by the 
Monthly Statement.
    (2) The amount of the royalty payment for each offering, e.g., a 
limited download or an interactive stream, shall be calculated 
separately:
    (i) In accordance with the methodology specified in Sec. Sec.  
385.12 through 385.14, for each standalone non-portable subscription--
streaming only service; standalone non-portable subscription--mixed 
service; standalone portable subscription service; bundled subscription 
service; and free nonsubscription/ad-supported service, and
    (ii) In accordance with the methodology specified in Sec. Sec.  
385.22 through 385.24, for each limited offering, mixed service bundle, 
music bundle, paid locker service, and purchased music content locker 
service.
    (3) Each Statement of Account shall include each step of its 
calculations with sufficient information to allow the copyright owner 
to assess the accuracy and manner in which the licensee determined the 
payable royalty pool and per-play allocations (including information 
sufficient to demonstrate whether and how a minimum royalty or 
subscriber-based royalty floor pursuant to Sec.  385.13 and Sec.  
385.23 does or does not apply).
    (4) In computing royalty payment pursuant to paragraph (d)(2) of 
this section, a licensee may, in cases where the final public 
performance royalty has not yet been determined, compute the public 
performance royalty component based on the interim rate, if 
established; or alternatively, on a reasonable estimation of the 
expected royalties to be paid made in accordance with U.S. Generally 
Accepted Accounting Principles (GAAP). Royalty payments based on 
anticipated payments or interim public performance royalty rates must 
be reconciled on the Annual Statement of Account or, if the final 
public performance royalty rate is determined after the filing of the 
Annual Statement of Account, within six months of obtaining the 
information concerning the amount of public performance royalties 
actually paid during the relevant accounting period by filing an 
Amended Annual Statement of Account for this purpose.
    (e) Clear statements. The information required by paragraphs (b) 
and (c) of this section requires intelligible, legible, and unambiguous 
statements in the Monthly Statements of Account without incorporation 
of facts or information contained in other documents or records, except 
in the case of promotional interactive streaming activities, certain 
promotional limited downloads and free trial periods. Information 
concerning promotional activities and free trial periods shall be 
maintained and made available as prescribed in Sec.  385.14 and Sec.  
385.24.
    (f) Certification. (1) Each Monthly Statement of Account shall be 
accompanied by:
    (i) The printed or typewritten name of the person who is the 
licensee certifying the Monthly Statement of Account;
    (ii) If the compulsory licensee is a partnership or a corporation, 
by the title or official position held in the partnership or 
corporation by the person certifying the Monthly Statement of Account;
    (iii) The date of certification;
    (iv) A statement of the capacity of the person making the 
certification; and
    (v) The following statement:

    I certify that I have examined this Monthly Statement of Account 
and that all statements of fact contained herein are true, complete, 
and correct to the best of my knowledge, information, and belief, 
and are made in good faith.

    (2) If the Monthly Statement of Account is served by mail or by 
reputable courier service, certification of the Monthly Statement of 
Account by the licensee shall be made by handwritten signature. If the 
compulsory licensee is a corporation, the signature shall be that of a 
duly authorized officer of the corporation; if the compulsory licensee 
is a partnership, the signature shall be that of a partner.
    (3) If the Monthly Statement of Account is served electronically, 
the licensee and the copyright owner shall establish a procedure to 
verify that the certification of the Monthly Statement of Account by 
the licensee is made upon proper authority.
    (g) Service. (1) Each Monthly Statement of Account shall be served 
on the copyright owner or the agent with authority to receive Monthly 
Statements of Account on behalf of the copyright owner to whom or which 
it is directed, together with the total royalty for the month covered 
by the Monthly Statement, by mail or by reputable courier service on or 
before the 20th day of the immediately succeeding month. However, in 
the case where the licensee has served its Notice of Intention upon an 
agent of the copyright owner pursuant to Sec.  201.18 of this chapter, 
the licensee is not required to serve Monthly Statements of Account or 
make any royalty payments until the licensee receives from the agent 
with authority to receive the Notice of Intention notice of the name 
and address of the copyright owner or its agent upon whom the licensee 
shall serve Monthly Statements of Account and the monthly royalty fees. 
Upon receipt of this information, the licensee shall serve Monthly 
Statements of Account and all royalty fees covering the intervening 
period upon the person or entity identified by the agent with authority 
to receive the Notice of Intention by or before the 20th day of the 
month following receipt of the notification. It shall not be necessary 
to file a copy of the Monthly Statement in the Copyright Office.
    (2)(i) In any case where a Monthly Statement of Account is sent by 
mail or

[[Page 44195]]

reputable courier service and the Monthly Statement of Account is 
returned to the sender because the copyright owner or agent is no 
longer located at that address or has refused to accept delivery, or in 
any case where an address for the copyright owner is not known, the 
Monthly Statement of Account, together with any evidence of mailing or 
attempted delivery by courier service, may be filed in the Licensing 
Division of the Copyright Office. Any Monthly Statement of Account 
submitted for filing in the Copyright Office shall be accompanied by a 
brief statement of the reason why it was not served on the copyright 
owner. A written acknowledgment of receipt and filing will be provided 
to the sender.
    (ii) The Copyright Office will not accept any royalty fees 
submitted with Monthly Statements of Account under this section.
    (iii) Neither the filing of a Monthly Statement of Account in the 
Copyright Office, nor the failure to file such Monthly Statement, shall 
have effect other than that which may be attributed to it by a court of 
competent jurisdiction.
    (iv) No filing fee will be required in the case of Monthly 
Statements of Account submitted to the Copyright Office under this 
section. Upon request and payment of the fee specified in Sec.  
201.3(e) of this chapter, a Certificate of Filing will be provided to 
the sender.
    (3) A separate Monthly Statement of Account shall be served for 
each month during which there is any activity relevant to the payment 
of royalties under 17 U.S.C. 115, and under this section. The Annual 
Statement of Account identified in Sec.  210.24 of this subpart does 
not replace any Monthly Statement of Account.
    (4) If a Monthly Statement of Account is sent by certified mail or 
registered mail, a mailing receipt shall be sufficient to prove that 
service was timely. If a Monthly Statement of Account is delivered by a 
reputable courier, documentation from the courier showing the first 
date of attempted delivery shall also be sufficient to prove that 
service was timely. In the absence of a receipt from the United States 
Postal Service showing the date of delivery or documentation showing 
the first date of attempted delivery by a reputable courier, the 
compulsory licensee shall bear the burden of proving that the Monthly 
Statement of Account was served in a timely manner.
    (5) If a Monthly Statement of Account covers reporting for more 
than 50 works that are embodied in phonorecords made under the 
compulsory license, the copyright owner or the authorized agent may 
send the licensee a demand that the Monthly Statement of Account be 
resubmitted in an electronic format and that future Statements of 
Account be submitted in an electronic format. The statement may be 
submitted on a data storage medium widely used at the time for 
electronic storage of data, in the form of a flat file, word processing 
document or spreadsheet readable with computer software in wide use at 
such time, with the required information identified and/or delimited so 
as to be readily discernible. The Statement of Account may be submitted 
by means of electronic transmission (such as email) if the demand from 
the copyright owner or authorized agent states that such submission 
will be accepted. As provided in paragraph (f) of this section, the 
licensee and the copyright owner shall establish a procedure to verify 
that the certification portion of the statement is made upon the 
authority of the licensee.
    (6) The copyright owner and the licensee or authorized agent may 
agree upon alternative methods of payment, provided that when the 
Monthly Statement of Account and payment are not sent together by mail 
or courier service, they shall be sent contemporaneously. Monthly 
Statements of Account shall be sent and payment shall be made on or 
before the 20th day of each month and shall include all royalties for 
the month next proceeding. Any Monthly Statement of Account or payment 
provided in accordance with such policy shall not be rendered invalid 
for failing to comply with the specific requirements of paragraph 
(g)(1) of this section regarding service by mail or by reputable 
courier service of the Monthly Statements of Account together with the 
total royalty for the month covered by the Monthly Statement.
    (7) For purposes of this section, a copyright owner or an agent of 
a copyright owner with authority to receive a Monthly Statement of 
Account may make public a written policy that it will accept a Monthly 
Statement of Account by means of electronic transmission and include in 
that written policy procedures for making royalty payments. When the 
Monthly Statement of Account and payment are not sent together by mail 
or courier service, they shall be sent contemporaneously. Monthly 
Statements of Account shall be sent and payment shall be made on or 
before the 20th day of each month and shall include all royalties for 
the month next proceeding. Any Monthly Statement of Account or payment 
provided in accordance with such policy shall not be rendered invalid 
for failing to comply with the specific requirements of paragraph 
(g)(1) of this section regarding service by mail or by reputable 
courier service of the Monthly Statements of Account together with the 
total royalty for the month covered by the Monthly Statement.


Sec.  210.24  Annual statements of accounts.

    (a) Forms. The Copyright Office does not provide printed forms for 
the use of persons serving Annual Statements of Account.
    (b) Annual period. Any Annual Statement of Account shall cover the 
full fiscal year of the compulsory licensee.
    (c) General content. An Annual Statement of Account shall be 
clearly and prominently identified as an ``Annual Statement of Account 
under Compulsory License for Making and Distributing Phonorecords,'' 
and shall include a clear statement of the following information:
    (1) The fiscal year covered by the Annual Statement;
    (2) The full legal name of the compulsory licensee, together with 
all fictitious or assumed names used by such person or entity for the 
purpose of conducting the business of making and distributing 
phonorecords;
    (3) If the compulsory licensee is a business organization, the name 
and title of the chief executive officer, managing partner, sole 
proprietor or other person similarly responsible for the management of 
such entity.
    (4) The full address, including a specific number and street name 
or rural route, or the place of business of the compulsory licensee. A 
post office box or similar designation will not be sufficient for this 
purpose except where it is the only address that can be used in that 
geographic location;
    (5) The title or titles of the nondramatic musical work or works 
embodied in phonorecords made under the compulsory license and owned by 
the copyright owner being served with the Annual Statement and the name 
of the author or authors of such work or works, if known;
    (6) The playing time of each nondramatic musical work on such 
phonorecords;
    (7) For each nondramatic musical work that is owned by the same 
copyright owner being served with the Annual Statement and that is 
embodied in phonorecords covered by the compulsory license, a detailed 
statement of all of the information called for in paragraph (d) of this 
section;
    (8) The total royalty payable for the fiscal year covered by the 
Annual

[[Page 44196]]

Statement computed in accordance with the requirements of this section, 
together with a statement of account showing in detail how the royalty 
was computed. For these purposes, the applicable royalty as specified 
in Sec. Sec.  385.12 through 385.14 and Sec. Sec.  385.22 through 
385.24, shall be payable for every phonorecord ``voluntarily 
distributed'' during the fiscal year covered by the Annual Statement;
    (9) The total sum paid under Monthly Statements of Account in 
accordance with the requirements of this section by the compulsory 
licensee to the copyright owner being served with the Annual Statement 
during the fiscal year covered by the Annual Statement; and
    (10) Any adjustments for public performance royalties deducted from 
the monthly royalty payments made during the fiscal year covered by the 
Annual Statement.
    (d) Specific content of annual statements: Identification and 
accounting of phonorecords. (1) The information called for by paragraph 
(c)(7) of this section shall, with respect to each nondramatic musical 
work, include a separate listing for each phonorecord configuration 
(for example, limited download, an incidental digital phonorecord 
delivery, and an interactive stream) made the number of phonorecords 
made and voluntarily distributed'' by the compulsory licensee through 
the end of the fiscal year covered by the Annual Statement, together 
with:
    (i) The catalog number or numbers, and label name or names, used on 
such phonorecords; and
    (ii) The names of the principal recording artists or groups engaged 
in rendering the performances fixed on such phonorecords.
    (2) If the information given under paragraphs (d)(1) and (c)(8) of 
this section does not reconcile, the Annual Statement shall also 
include a clear and detailed explanation of the difference. For these 
purposes, the information given under these paragraphs shall be 
considered not to reconcile if the number of phonorecords and royalties 
reported under these paragraphs are different from the sum of these 
amounts reported on the Monthly Statements of Account covered by the 
Statement of Account.
    (e) Clear statement. The information required by paragraph (c) of 
this section involves intelligible, legible, and unambiguous statements 
in the Annual Statement of Account itself and without incorporation by 
reference of facts or information contained in other documents or 
records, except in the case of promotional interactive streaming 
activities, certain promotional limited downloads and free trial 
periods. Information concerning promotional activities and free trial 
periods shall be maintained and made available as prescribed in Sec.  
385.14 and Sec.  385.24.
    (f) Certification. (1) Each Annual Statement of Account shall be 
accompanied by:
    (i) The printed or typewritten name of the person who is the 
licensee certifying the Annual Statement of Account;
    (ii) The date of certification;
    (iii) If the compulsory licensee is a partnership or a corporation, 
the title or official position held in the partnership or corporation 
who is making the certification;
    (iv) A statement of the capacity of the person making the 
certification; and
    (v) The following statement:

    I certify that I have examined this Annual Statement of Account 
and that all statements of fact contained herein are true, complete, 
and correct to the best of my knowledge, information, and belief, 
and are made in good faith.

    (2)(i) Each Annual Statement of Account shall also be certified by 
a licensed Certified Public Accountant. Such certification shall 
consist of the following statement.

    We have examined the attached ``Annual Statement of Account 
Under Compulsory License For Making and Distributing Phonorecords'' 
for the fiscal year ended (date) of (name of the compulsory 
licensee) applicable to phonorecords embodying (title or titles of 
nondramatic musical works embodied in phonorecords made under the 
compulsory license) made under the provisions of 17 U.S.C. 115, as 
amended by Public Law 94-553, and applicable regulations of the 
United States Copyright Office. Our examination was made in 
accordance with generally accepted auditing standards and 
accordingly, included tests of the accounting records and such other 
auditing procedures as we considered necessary in the circumstances.
    In our opinion the Annual Statement of Account referred to above 
presents fairly the number of phonorecords embodying each of the 
above-identified nondramatic musical works made under compulsory 
license and voluntarily distributed by (name of the compulsory 
licensee) during the fiscal year ending (date), and the amount of 
royalties applicable thereto under such compulsory license, on a 
consistent basis and in accordance with the above cited law and 
applicable regulations published thereunder.

-----------------------------------------------------------------------
(City and State of Execution)

-----------------------------------------------------------------------
(Signature of Certified Public Accountant or CPA Firm)

-----------------------------------------------------------------------
Certificate Number
-----------------------------------------------------------------------
Jurisdiction of Certificate

-----------------------------------------------------------------------
(Date of Opinion)

    (ii) The certificate shall be signed by an individual, or in the 
name of a partnership or a professional corporation with two or more 
shareholders. The certificate number and jurisdiction are not required 
if the certificate is signed in the name of a partnership or a 
professional corporation with two or more shareholders.
    (3) If the Annual Statement of Account is served by mail or by 
reputable courier service, the certification of the Annual Statement of 
Account by the licensee shall be made by handwritten signature. If the 
compulsory licensee is a corporation, the signature shall be that of a 
duly authorized officer of the corporation; if that compulsory licensee 
is a partnership, the signature shall be that of a partner.
    (4) If the Annual Statement of Account is served electronically, 
the licensee may serve an electronic facsimile of the original 
certification of the Annual Statement of Account signed by the licensed 
Certified Public Accountant. The licensee shall retain the original 
certification of the Annual Statement of Account signed by the licensed 
Certified Public Accountant, which shall be made available to the 
copyright owner upon demand.
    (5) If the Annual Statement of Account is served electronically, 
the licensee and the copyright owner shall establish a procedure to 
verify that the certification of the Annual Statement of Account by the 
licensee is made upon proper authority.
    (g) Service. (1) Each Annual Statement of Account shall be served 
on the copyright owner or the agent with authority to receive Annual 
Statements of Account on behalf of the copyright owner to whom or which 
it is directed by mail or by reputable courier service on or before the 
20th day of the sixth month following the end of the fiscal year 
covered by the Annual Statement. It shall not be necessary to file a 
copy of the Annual Statement in the Copyright Office. An Annual 
Statement of Account shall be served for each fiscal year during which 
at least one Monthly Statement of Account was required to have been 
served under Sec.  210.23(g).
    (2) In any case where the amount required to be stated in the 
Annual Statement of Account under paragraph (c)(8) of this section is 
greater than the

[[Page 44197]]

amount stated in that Annual Statement under paragraph (c)(9) of this 
section, the difference between such amounts shall be delivered to the 
copyright owner together with the service of the Annual Statement. The 
delivery of such sum does not require the copyright owner to accept 
such sum, or to forego any right, relief, or remedy which may be 
available under law.
    (3)(i) In any case where an Annual Statement of Account is sent by 
mail or by reputable courier service and is returned to the sender 
because the copyright owner or agent is not located at that address or 
has refused to accept delivery, or in any case where an address for the 
copyright owner is not known, the Annual Statement of Account, together 
with any evidence of mailing or attempted delivery by courier service, 
may be filed in the Licensing Division of the Copyright Office. Any 
Annual Statement of Account submitted for filing shall be accompanied 
by a brief statement of the reason why it was not served on the 
copyright owner. A written acknowledgment of receipt and filing will be 
provided to the sender.
    (ii) The Copyright Office will not accept any royalty fees 
submitted with Annual Statements of Account under this paragraph 
(g)(3).
    (iii) Neither the filing of an Annual Statement of Account in the 
Copyright Office, nor the failure to file such Annual Statement, shall 
have any effect other than that which may be attributed to it by a 
court of competent jurisdiction.
    (iv) No filing fee will be required in the case of Annual 
Statements of Account submitted to the Copyright Office under this 
paragraph (g)(3). Upon request and payment of the fee specified in 
Sec.  201.3(e) of this chapter, a Certificate of Filing will be 
provided to the sender.
    (4) If an Annual Statement of Account is sent by certified mail or 
registered mail, a mailing receipt shall be sufficient to prove that 
service was timely. If an Annual Statement of Account is delivered by a 
reputable courier, documentation from the courier showing the first 
date of attempted delivery shall also be sufficient to prove that 
service was timely. In the absence of a receipt from the United States 
Postal Service showing the date of delivery or documentation showing 
the first date of attempted delivery by a reputable courier, the 
compulsory licensee shall bear the burden of proving that the Annual 
Statement of Account was served in a timely manner.
    (5) If an Annual Statement of Account covers reporting for more 
than 50 works that are embodied in phonorecords made under the 
compulsory license, the copyright owner or the authorized agent may 
send the licensee a demand that the Annual Statement of Account be 
resubmitted in an electronic format and that future Annual Statements 
of Account be submitted in an electronic format. The statement may be 
submitted on a data storage medium widely used at the time for 
electronic storage of data, in the form of a flat file, word processing 
document or spreadsheet readable with computer software in wide use at 
such time, with the required information identified and/or delimited so 
as to be readily discernible. The Statement of Account may be submitted 
by means of electronic transmission (such as email) if the copyright 
owner or authorized agent states that such submission will be accepted. 
As provided in paragraph (f) of this section, the licensee and the 
copyright owner shall establish a procedure to verify that the 
certification portion of the statement is made upon the authority of 
the licensee.
    (6) The copyright owner and the licensee or authorized agent may 
agree upon alternative methods of payment, provided that when the 
Statement of Account and payment are not sent together by mail or 
courier service, they shall be sent contemporaneously. Annual 
Statements of Account shall be sent and any addition payment shall be 
made on or before the 20th day of the sixth month following the end of 
the fiscal year covered by the Annual Statement. Any Annual Statement 
of Account or payment provided in accordance with such policy shall not 
be rendered invalid for failing to comply with the specific 
requirements of paragraph (g) of this section regarding service by mail 
or by reputable courier service of the Annual Statements of Account 
together with the total additional royalty covered by the Annual 
Statement.
    (7) For purposes of this section, a copyright owner or an agent of 
a copyright owner with authority to receive an Annual Statement of 
Account may make public a written policy that it will accept an Annual 
Statement of Account by means of electronic transmission and include in 
that written policy procedures for making any additional royalty 
payments. When the Annual Statement of Account and any additional 
payment are not sent together by mail or courier service, they shall be 
sent contemporaneously. Annual Statements of Account shall be sent and 
payment shall be made on or before the 20th day of the sixth month 
following the end of the fiscal year covered by the Annual Statement. 
Any Annual Statement of Account provided in accordance with such policy 
shall not be rendered invalid for failing to comply with the specific 
requirements of this paragraph (g) regarding service by mail or by 
reputable courier service of the Annual Statement of Account together 
with any additional royalty payment.


Sec.  210.25  Amended annual statements of account.

    In any case where an Annual Statement of Account has been served 
prior to the final determination of public performance royalties for 
the reported musical works, all compulsory licensees shall serve 
Amended Annual Statement of Accounts within six months from the date 
final rates for public performance royalties for the reported musical 
works have been established. The Amended Annual Statements of Account 
shall recalculate the royalty fees reported on the relevant Annual 
Statements of Account to adjust for any change to the public 
performance rate used to calculate the royalties reported pursuant to 
Sec.  210.24. Service shall be made in accordance with Sec.  210.24(g) 
of this subpart.


Sec.  210.26  Documentation.

    All compulsory licensees shall, for a period of at least five years 
from the date of service of an Annual Statement of Account or for a 
period of at least three years from the date the relevant public 
performance royalty fees have been set, whichever is longer, keep and 
retain in their possession all records and documents necessary and 
appropriate to support fully the information set forth in such Annual 
Statement and in Monthly Statements served during the fiscal year 
covered by such Annual Statement.


Sec.  210.27  Timing of statements of account.

    Statements of Accounts for any accounting period which closes after 
the effective date of this regulation shall be due as provided in 
Sec. Sec.  210.23(g)(1) and 210.24(g)(1). Statements of Account for any 
prior reporting period shall be due 180 days after the effective date 
of this regulation.

    Dated: July 23, 2012.
Tanya M. Sandros,
Deputy General Counsel.
[FR Doc. 2012-18275 Filed 7-26-12; 8:45 am]
BILLING CODE 1410-30-P