[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Proposed Rules]
[Pages 28770-28773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-11560]


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LIBRARY OF CONGRESS

U.S. Copyright Office

37 CFR Part 385

[Docket No. 2011-3 CRB]


Scope of the Register of Copyright's Exclusive Authority Over 
Statements of Account Under the Section 115 Compulsory License

AGENCY: U.S. Copyright Office, Library of Congress.

ACTION: Order.

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SUMMARY: The Copyright Royalty Judges, acting pursuant to statute, 
referred material questions of substantive law to the Register of 
Copyrights concerning the scope of the Register of Copyright's 
exclusive authority over Statements of Account under the section 115 
Compulsory License. Specifically, the Copyright Royalty Board requested 
a decision by the Register of Copyrights regarding ``whether the detail 
requirements set forth in 37 CFR as proposed Sec.  385.12(e) (existing) 
and proposed Sec.  385.22(d) (new) as well as the confidentiality 
requirement proposed for Sec. Sec.  385.12(f) and 385.22(e) encroach 
upon the exclusive statutory domain of the Register under Sec.  115 of 
the Act.'' The Register of Copyrights responded in a timely fashion by 
delivering a Memorandum Opinion to the Copyright Royalty Board on May 
1, 2013.

FOR FURTHER INFORMATION CONTACT: Stephen Ruwe, Attorney Advisor, 
Copyright GC/I&R, P.O. Box 70400, Washington, DC 20024. Telephone: 
(202) 707-8380. Telefax: (202) 707-8366.

SUPPLEMENTARY INFORMATION: In the Copyright Royalty and Distribution 
Reform Act of 2004, Congress amended Title 17 to replace the Copyright 
Arbitration Royalty Panel (``CARP'') with the Copyright Royalty Judges 
(``CRJs''). One of the functions of the CRJs is to make determinations 
and adjustments of reasonable terms and rates of royalty payments as 
provided in sections 112(e), 114, 115, 116, 118, 119 and 1004 of the 
Copyright Act. The CRJs have the authority to request from the Register 
of Copyrights (``Register'') an interpretation of any material question 
of substantive law that relates to the construction of provisions of 
Title 17 and arises out the course of the proceeding before the CRJs. 
See 17 U.S.C. 802(f)(1)(A)(ii).
    On April 17, 2013, the CRJs delivered to the Register: (1) An Order 
referring material questions of substantive law; and (2) a brief filed 
with the CRJs by Settling Participants (identified below in the 
Register's Memorandum Opinion). The CRJs' delivery of the request for 
an interpretation triggered the 14-day response period prescribed in 
section 802 of the Copyright Act. This statutory provision states that 
the Register ``shall deliver to the Copyright Royalty Judges a written 
response within 14 days after the receipt of all briefs and comments 
from the participants.'' See 17 U.S.C. 802(f)(1)(A)(ii). The statute 
also requires that ``[t]he Copyright Royalty Judges shall apply the 
legal interpretation embodied in the response of the Register of 
Copyrights if it is timely delivered, and [that] the response shall be 
included in the record that accompanies the final determination.'' Id. 
On May 1, 2013 the Register responded in a Memorandum Opinion to the 
CRJs that addressed the material questions of law. To provide the 
public with notice of the decision rendered by the Register, the 
Memorandum Opinion is reproduced in its entirety, below.\1\
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    \1\ After the Memorandum Opinion was delivered, the CRJs noted 
an error in the second sentence of the last paragraph on the last 
page of the Memorandum Opinion. The Register clarified the error 
with the CRJs.
    The original sentence erroneously stated:
     ``As such, the proposed ``detail requirements'' do not encroach 
upon the Register's authority with respect to statements of account 
as provided in 17 U.S.C. 115(c)(5).''
    The corrected sentence, as it now appears in the Memorandum 
Opinion below, states:
     ``As such, the proposed ``confidentiality requirement'' does 
not encroach upon the Register's authority with respect to 
statements of account as provided in 17 U.S.C. 115(c)(5).''

    Dated: May 9, 2013.
Maria A. Pallante,
Register of Copyrights.
Before the U.S. Copyright Office
Library of Congress
Washington, DC 20559

In the Matter of) Mechanical and Digital Phonorecord

Delivery Rate Adjustment Proceeding

Docket No. 2011-3 CRB
(Phonorecords II)

MEMORANDUM OPINION ON MATERIAL QUESTIONS OF SUBSTANTIVE LAW

I. Procedural Background

    On May 17, 2012, the Copyright Royalty Judges (``CRJs'') 
published for comment in the Federal Register proposed regulations 
for the section 115 compulsory license, which were the result of a 
settlement submitted to the CRJs on April 11, 2012. Notice of 
Proposed Rulemaking, Mechanical and Digital Phonorecord Delivery 
Compulsory License, Docket No. 2011-3 CRB Phonorecords II, 77 FR 
29259 (May 17, 2012). The proposed regulations included ``detail 
requirements'' for 37 CFR 385.12(e) and 385.22(d), which would 
require statements of account filed by licensees to include each 
step of the royalty calculations, the type of licensed activity 
engaged in (in certain cases), and the number of plays or downloads. 
The proposed regulations also included a ``confidentiality 
requirement'' for 37 CFR 385.12(f) and 385.22(e), which would 
require copyright owners to maintain statements of account that they 
receive under the license to be maintained in confidence. Id.
    The ``detail requirements'' provision proposed for Sec.  
385.12(e) states:

Accounting. The calculations required by paragraph (b) of this 
section shall be made in good faith and on the basis of the best 
knowledge, information and belief of the licensee at the time 
payment is due, and subject to the additional accounting and 
certification requirements of 17 U.S.C. 115(c)(5) and Sec.  201.19 
of this title. Without limitation, a licensee's statements of 
account shall set forth 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

[[Page 28771]]

demonstrate whether and how a minimum royalty or subscriber-based 
royalty floor pursuant to Sec.  385.13 does or does not apply) and, 
for each offering reported, also indicate the type of licensed 
activity involved and the number of plays of each musical work 
(including an indication of any overtime adjustment applied) that is 
the basis of the per-work royalty allocation being paid.
Id. at 29267.

Section 385.22(d), which is proposed for Subpart C of the 
Settelement, is nearly identical to Sec.  385.12(e), except for 
immaterial changes to conform it to its placement in proposed 
Subpart C.
    The ``confidentiality requirement'' proposed for Sec. Sec.  
385.12(f) and 385.22(e) states:

Confidentiality. A licensee's statements of account, including any 
and all information provided by a licensee with respect to the 
computation of a subminimum, shall be maintained in confidence by 
any copyright owner, authorized representative or agent that 
receives it, and shall solely be used by the copyright owner, 
authorized representative or agent for purposes of reviewing the 
amounts paid by the licensee and verifying the accuracy of any such 
payments, and only those employees of the copyright owner, 
authorized representative or agent who need to have access to such 
information for such purposes will be given access to such 
information; provided that in no event shall access be granted to 
any individual who, on behalf of a record company, is directly 
involved in negotiating or approving royalty rates in transactions 
authorizing third party services to undertake licensed activity with 
respect to sound recordings. A licensee's statements of account, 
including any and all information provided by a licensee with 
respect to the computation of a subminimum, shall not be used for 
any other purpose, and shall not be disclosed to or used by or for 
any record company affiliate or any third party, including any 
third-party record company.
Id. at 29262.

    After considering the proposed Settlement regulations and the 
comments received in response to them, on March 27, 2013, Chief 
Copyright Royalty Judge Suzanne Barnett proposed material questions 
of substantive law for referral to Register of Copyrights and 
invited participants to submit briefs to accompany the referral of 
questions to the Register of Copyrights, pursuant to the terms of 17 
U.S.C. 802(f)(1)(A)(ii). The referral asked ``whether the detail 
requirements set forth in 37 CFR as proposed Sec.  385.12(e) 
(existing) and proposed Sec.  385.22(d) (new) as well as the 
confidentiality requirement proposed for Sec. Sec.  385.12(f) and 
385.22(e) encroach upon the exclusive statutory domain of the 
Register under Sec.  115 of the Act.'' CRJ Order Referring Material 
Question of Substantive Law, Docket No. 2011-3 CRB (Mar. 27, 2013). 
After receiving a brief filed jointly by the Settling Participants 
\2\ regarding whether proposed terms encroach upon the exclusive 
statutory domain of the Register, the Chief Copyright Royalty Judge 
delivered the referred questions and the Settling Participants brief 
to the Register on April 17, 2013.
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    \2\ The National Music Publishers' Association, Inc., the 
Songwriters Guild of America, the Nashville Songwriters Association 
International, the Church Music Publishers Association, the 
Recording Industry Association of America, Inc., the Digital Media 
Association, CTIA--The Wireless Association, RealNetworks, Inc., 
Rhapsody International Inc., Cricket Communications, Inc., and Rdio, 
Inc.
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    The Register understands that the referred inquiry, quoted 
above, poses the following two questions:
    (1) Whether the ``detail requirements'' proposed for 37 CFR 
385.12(e) and 385.22(d) encroach upon the exclusive statutory domain 
of the Register under section 115 of the Copyright Act; and
    (2) Whether the ``confidentiality requirement'' proposed for 37 
CFR 385.12(f) and 385.22(e) encroach upon the exclusive statutory 
domain of the Register under section 115 of the Copyright Act.
    As required by 17 U.S.C. 802(f)(1)(A)(ii), the Register hereby 
responds to the CRJs.

II. Statutory Authority in Section 115 and Chapter 8 of Title 17

    Prior to 1995, copyright law empowered the Copyright Royalty 
Tribunal and, subsequently, the Copyright Arbitration Royalty Panels 
(``CARPs'') and the Librarian of Congress, to set only the rates 
applicable to the section 115 license. This authority was modified 
in 1995 by the Digital Performance Right in Sound Recording Act of 
1995 in which Congress added provisions to section 115 for ``digital 
phonorecord deliveries.'' The CARPs were authorized to set 
``reasonable terms and rates of royalty payments'' for digital 
phonorecord deliveries (``DPDs''), and these rates and terms were 
subject to modification by the Librarian upon recommendation by the 
Register of Copyrights. The same legislation authorized the 
Librarian to ``establish requirements by which copyright owners may 
receive reasonable notice of the use of their works . . ., and under 
which records of such use shall be kept and made available by 
persons making digital phonorecord deliveries.'' 17 U.S.C. 
115(c)(3)(D) (1996). With respect to physical phonorecords, the 
CARPs' authority was limited to setting rates; there was no 
statutory authorization to set ``terms.'' See 17 U.S.C. 801(b)(1) 
(1996). However, the Register of Copyrights had the authority to 
issue regulations concerning payment. Section 115(c)(5) provided 
(and continues to provide), in pertinent part:

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 made and the number of records distributed.
17 U.S.C. 115(c)(5).

    In 2004, Congress passed the Copyright Royalty and Distribution 
Reform Act (``CRDRA''). This legislation created the CRJs and 
empowered them to set ``terms and rates of royalty payments'' under 
section 115. See 17 U.S.C. 801(b)(1). It also amended section 115 to 
provide that the CRJs had authority to set ``reasonable rates and 
terms of royalty payments'' for use of works under the license as 
well as ``requirements by which records of such use shall be kept 
and made available.'' 17 U.S.C. 115(c)(3)(D). However, the statutory 
provisions authorizing the Register to regulate notice of intention 
to obtain the section 115 license and requirements regarding monthly 
payment and monthly and annual statements of account remained in 
place. Copyright Royalty and Distribution Reform Act of 2004, Pub. 
L. No. 108-419, 118 Stat. 2341 (2004).

III. Register's Determination in Response to Previously Referred 
Question

    On August 8, 2008, the Register responded to the CRJs Referred 
Questions regarding the division of authority in the administration 
of section 115. The Register determined that Congress intentionally 
split the administration of the license between the CRJs and the 
Register of Copyrights. The result of this division of authority is 
that the CRJs may issue regulations that supplant currently 
applicable regulations, including those heretofore issued by the 
Librarian of Congress, solely in the areas of notice of use and 
recordkeeping. 17 U.S.C. 803(c)(3). However, the scope of the CRJs' 
authority in the areas of notice of use and recordkeeping for the 
section 115 license must be construed in light of Congress' more 
specific delegation of responsibility to the Register of Copyrights, 
which includes the authority to issue regulations regarding notice 
of intention to obtain the section 115 license as well as those 
regarding monthly payment and monthly and annual statements of 
account. Register's Division of Authority Decision, Docket No. RF 
2008-1 CRB, 73 FR 48396 (Aug. 19, 2008); see 17 U.S.C. 115(b)(1) and 
115(c)(5).
    The Register recounted that in the CRDRA, Congress amended 
section 115(c)(3)(D) to authorize the CRJs to ``establish 
requirements by which copyright owners may receive reasonable notice 
of the use of their works under this section, and under which 
records of such use shall be kept and made available by persons 
making digital phonorecord deliveries.'' Register's Division of 
Authority Decision, Docket No. RF 2008-1 CRB, 73 FR 48396, 48397 
(Aug. 19, 2008). The CRDRA also added a new section 803(c)(3), which 
allowed the CRJs to ``specify notice and recordkeeping requirements 
of users of the copyrights at issue that apply in lieu of those that 
would otherwise apply under regulations.'' 17 U.S.C 803(c)(3). The 
Register acknowledged that on its face it may appear as if the CRJs 
are empowered to supplant all current regulations in the area of 
notice and recordkeeping. However, the Register noted that the CRJs' 
authority to issue regulations in the areas of notice and 
recordkeeping must be construed in light of the specific grants of 
responsibility over the section 115 license to the Register of 
Copyrights. Register's Division

[[Page 28772]]

of Authority Decision, Docket No. RF 2008-1 CRB, 73 FR 48396, 48397-
98 (Aug. 19, 2008) (citing Simpson v. United States, 435 U.S. 6, 15 
(1978)).
    The Register concluded that the CRJs' authority to issue 
regulations on notice of use and recordkeeping is limited by the 
Register's specific grant of authority to issue regulations 
regarding statements of account. The Register acknowledged that that 
it may be conceivable that the CRJs may determine that licensees 
should be required to provide some information related to notice of 
use that is not addressed in either the notice of intention to 
obtain the section 115 license or the statements of account. The 
Register noted that if the CRJs are able to identify such 
information that is not addressed in either the notice of intention 
to obtain the section 115 license or the statements of account, then 
the CRJs may require that a licensee include that type of 
information in a notice of use (but not in the statement of account) 
to be served on the copyright owner. Additionally, the Register 
noted that a recommendation by the CRJs to the Register to amend the 
regulations governing statements of account to include additional 
information presumably would likely meet with a favorable response. 
Id. at 48398.

IV. Summary of Parties' Arguments

    In the sole brief submitted in relation to the referral of 
questions to the Register, the Settling Participants acknowledge 
that, pursuant to section 115(c)(5), the Register has authority to 
set requirements for the form, content, and manner of certification 
of statement of account. They note the Register's current 
regulations includes a requirement that ``[e]ach step in computing 
the monthly payment, including the arithmetical calculations 
involved in each step, shall be set out in detail in the Monthly 
Statement.'' Brief of Settling Participants, Docket No. 2011-3 CRB 
Phonorecords II (Apr. 5, 2013) at 8-12, citing 37 CFR 
201.19(e)(4)(iii).
    The Settling Participants conclude that because the proposed 
``detail requirements'' are consistent with the Register's current 
statement of account regulations the ``detail requirements'' do not 
encroach on the Register' authority. They also acknowledge the 
Register's 2008 Division of Authority Decision. But they argue that 
the Division of Authority Decision was directed toward proposed 
terms that would have been inconsistent with and would have 
supplanted the Register's rules regarding statements of account. 
They assert that therefore that the Division of Authority Decision 
should not properly be read to preclude regulations proposed as part 
of a settlement that are wholly consistent with and merely amplify 
and clarify the application of the Register's regulations to 
specific fee calculations. Brief of Settling Participants, Docket 
No. 2011-3 CRB Phonorecords II (Apr. 5, 2013) at 8-12.
    The Settling Participants also acknowledge the Register's 
statements regarding division of authority in the Register's 2009 
Review of the CRJs' previous determination of rates and terms for 
the section 115 license stating that the ``CRJ s cannot alter 
requirements issued by the Register regarding statements of 
account.'' Id. at 10 (citing Review of Copyright Royalty Judges 
Determination, Docket No. 2009-1, 74 FR 4537, 4543 (Jan. 26, 2009)).
    The Settling Participants then consider the question of what 
should happen to effectuate accounting when the CRJs properly adopt 
a new rate structure different than that contemplated by the 
statement of account regulations. They acknowledge the Register's 
prior answer to such a concern as stated in the 2008 Division of 
Authority Decision. There, the Register offered that the CRJs had 
two options: first, ``require that a licensee include that type of 
information in a notice of use (but not in the statement of 
account)'' or second, make ``a recommendation[hellip] to the 
Register to amend the regulations governing statements of account to 
include additional information.'' Id. at 11 (citing 73 FR at 
48,398). Despite the Register's recitation of the two options, the 
Settlement Participants opine that it does not appear that the 
Register had in mind the possibility of an entirely new rate 
structure. Id. They assert that while in theory having the Register 
update the statement of account regulations may seem like a better 
alternative, waiting for the Register to issue new statement of 
account regulations will require an inconvenient lag time before 
appropriate statement of account regulations can be effectuated. The 
Settling Participants conclude that while the Register is authorized 
to set forth statement of account regulations, it is most consistent 
with the overall operation of the section 115 license to allow the 
CRJs to specify additional data elements to be included in 
statements of account, and that the Register should find such detail 
requirements permissible. Id.
    The Settling Participants again acknowledge the Register's 
express statutory grant of authority is to prescribe the ``form, 
content, and manner of certification.'' Id. at 13, citing 17 U.S.C. 
115(c)(5). However, they state that while the ``confidentiality 
requirement'' might in some sense be considered to relate to 
statements of account, the ``confidentiality requirement'' does not 
have anything to do with the form, content or manner of 
certification of statements of account. They conclude therefore that 
the ``confidentiality requirement'' does not does not encroach on 
the Office's power with respect to statements of account as provided 
in section 115(c)(5). The Settling Participants accurately state 
that the ``confidentiality requirement'' does not add to, subtract 
from or otherwise alter the content of the statement, modify the 
form of the statement, or affect certification, in any way. The 
Settling Participants assert that the ``confidentiality 
requirement'' merely specifies what a copyright owner may do (or not 
do) with information in a statement of account after that statement 
has been prepared and served in accordance with the Office's 
regulations. Id.
    The Settling Participants further elaborate their views that the 
``confidentiality requirement'' was an integral part of the 
Settlement which represents a comprehensive compromise, designed to 
protect sensitive business information, and that all parties agreed 
the provision was in the best interests of all participants, the 
industry generally, and the public. They state that the 
``confidentiality requirement'' does not add to or subtract from, 
modify or change the timing or manner of service of statements of 
account, in any way and that such entirely additional and non-
intrusive provisions do not in any way impinge on the Office's 
unique power to prescribe the form, content and manner of 
certification of statements of account. The Settling Participants 
also address concerns that the ``confidentiality requirement'' may 
impede litigation by noting that use of statements of account in 
litigation could be accommodated by being shielded from disclosure 
via a protective order. Id. at 13-14.
    The Settling Participants conclude by offering that the Register 
should conclude that the CRJs have authority to adopt both the 
``detail requirements'' and the ``confidentiality requirement'' as 
part of the Settlement. They also state that if the Register does 
not agree with their recommendation, then the Copyright Office 
should incorporate the provisions into its statement of account 
regulations, and the Register should announce the intention to do so 
as part of the Register's decision on this referral. Id. at 16.

IV. Register's Determination

A. Whether the ``detail requirements'' proposed for 37 CFR 385.12(e) 
and 385.22(d) encroach upon the exclusive statutory domain of the 
Register under section 115 of the Act.

    As the Settling Participants acknowledge, pursuant to section 
115(c)(5), the Register has authority to set requirements for the 
form, content, and manner of certification of statement of account. 
The ``detail requirements'' proposed for 37 CFR 385.12(e) and 
385.22(d) clearly attempt to set forth requirements addressing the 
content that licensees must include in statements of account, as 
opposed to requirements addressing the content that licensees must 
include in a notice of use. As such, the proposed ``detail 
requirements'' encroach upon the exclusive statutory domain of the 
Register to issue regulations regarding statements of account set 
forth in 17 U.S.C. 115(b)(1) and 115(c)(5).
    The proposed ``detail requirements'' represent an encroachment 
on the Register's authority regardless of whether or not they 
conflict with the Register's current regulations for statements of 
account. The Settling Participants accurately state that the 
Register's current regulations include a requirement that ``[e]ach 
step in computing the monthly payment, including the arithmetical 
calculations involved in each step, shall be set out in detail in 
the Monthly Statement.'' 37 CFR 201.19(e)(4)(iii). This provision is 
consistent with the ``detail requirements'' proposed for 37 CFR 
385.12(e) and 385.22(d). The fact that the ``detail requirements'' 
are consistent with the Register's current regulations does not 
diminish the Register's exclusive authority regarding statements of 
account.
    While the Register is reluctant to state an intended outcome in 
its ongoing rulemaking regarding amendments to the regulations 
regarding statements of account, the Register

[[Page 28773]]

is actively considering the possibility of including in the Office's 
updated regulations provisions that would enhance or expand upon the 
details required for including all steps in rate calculation. See 
Notice of Proposed Rulemaking, Mechanical and Digital Phonorecord 
Delivery Compulsory License 77 FR 44179 (July 27, 2012).

B. Whether the ``confidentiality requirement'' proposed for 37 CFR 
385.12(f) and 385.22(e) encroach upon the exclusive statutory domain of 
the Register under Sec.  115 of the Act.

    As the Settling Participants accurately set forth, the 
``confidentiality requirement'' does not address the form, content, 
and manner of certification of statements of account. As such, the 
proposed ``confidentiality requirement'' does not encroach upon the 
Register's authority with respect to statements of account as 
provided in 17 U.S.C. 115(c)(5). Furthermore, the Register is not 
aware that the ``confidentiality requirement'' conflicts with any 
other authority reserved for the Register. However, the Register 
also notes that it is unclear whether the CRJs have any independent 
authority to issue regulations such as the proposed 
``confidentiality requirement'' which would impose obligations on a 
copyright owner with regard to what he or she is able to do with a 
statement of account received by a licensee. The Register, suggests 
that the question of whether the CRJs have authority to issue 
regulations imposing requirements on what a copyright owner (as 
opposed to a licensee) may do (or not do) with information in a 
statement of account after that statement has been prepared and 
served in accordance with the Office's regulations, represents a 
novel question of law that may be separately referred to the 
Register. If such a novel question is referred to the Register, the 
Register submits that the participants should be afforded an 
opportunity to brief that specific issue, which was not adequately 
addressed in the participants' brief on the instant referral. If 
such a novel question is referred, the Register encourages the 
participants to cite specific sources supporting the view that the 
CRJs enjoy such authority.

    May 1, 2013.

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Maria A. Pallante,
Register of Copyrights.

[FR Doc. 2013-11560 Filed 5-15-13; 8:45 am]
BILLING CODE 1410-P