[Federal Register Volume 79, Number 211 (Friday, October 31, 2014)]
[Rules and Regulations]
[Pages 64669-64673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-25971]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 380

[2005-1 CRB DTRA (Webcasting II)]


Digital Performance Right in Sound Recordings and Ephemeral 
Recordings

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final Determination after Second Remand.

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SUMMARY: The Copyright Royalty Judges are announcing their final 
determination upholding the validity and application of the $500 
minimum fee for noncommercial webcasters for the licensing period 2006 
through 2010. The judges issued the determination in response to a 
second order of remand by the United States Court of Appeals for the 
District of Columbia Circuit. Their review of the evidence was de novo. 
The judges issued their initial determination in March 2014 and 
received no motions for rehearing.

DATES: Effective date: October 31, 2014.
    Applicability date: The fee applies to the license period January 
1, 2006, through December 31, 2010.

ADDRESSES: The determination is also published on the agency's Web site 
at www.loc.gov/crb. For related matters see also the Federal 
eRulemaking Portal at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or 
Kim Whittle, Attorney Advisor, (202) 707-7658 or [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    The captioned matter began with a notice in the Federal Register in 
February 2005. In that notice, the Copyright Royalty Judges (Judges) 
commenced a rate-setting proceeding and solicited Petitions to 
Participate. See 70 FR 7970 (February 16, 2005). The aim of the 
proceeding was to establish royalty rates and terms, including the 
establishment of minimum fees, applicable to entities making ephemeral 
recordings of copyrighted sound recordings and digitally performing 
those recordings\1\. The Judges set rates and terms for use of the 
rights during the period 2006 through 2010, publishing their Final 
Determination on May 1, 2007. 72 FR 24084 (May 1, 2007) (Web II).
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    \1\ Owners of rights in sound recordings are subject to 
compulsory licenses under the Copyright Act. See, e.g., 17 U.S.C. 
112(e) (ephemeral recordings), 114 (d)(2), (3) (transmission). The 
Judges are tasked to adjudicate, inter alia, disputes relating to 
licensing fees. See, e.g., 17 U.S.C. 112(e)(3), (4), 114(f), 801, 
803, 804.
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    Intercollegiate Broadcasting System, Inc. (IBS) appealed the 
Judges' determination to the U.S. Court of Appeals for the DC Circuit. 
The DC Circuit remanded the Judges' determination of the minimum fee 
established for noncommercial webcasters, viz. $500 per year per 
station or channel, citing insufficient evidence in the record to 
substantiate the $500 minimum fee. On May 18, 2010, after granting the 
parties leave to engage in additional briefing and discovery, the 
Judges held a further hearing on remand. Following the remand hearing, 
the Judges issued their determination on September 17, 2010. 75 FR 
56873 (Sept. 17, 2010).
    IBS again appealed the Judges' determination. During the pendency 
of the Web II appeal, the Judges issued a final determination regarding 
rates and terms for the same licenses for the period 2011 through 
2015.\2\ (Web III). IBS appealed the Judges' Web III determination 
challenging again the $500 minimum fee and asserting that appointment 
of the Judges violated the Appointments Clause of the U.S. 
Constitution. Given the overlap of issues and the introduction of a 
constitutional challenge, the DC Circuit stayed further proceedings on 
appeal in Web II.
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    \2\ See 76 FR 13026 (Mar. 9, 2011) (Web III).
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    The DC Circuit decided Web III and concluded that the Judges' 
appointments were unconstitutional. The DC Circuit struck portions of 
the Copyright Act that it determined to be unconstitutional and the 
Librarian of Congress appointed a panel of Judges consistent with the 
altered statute. The DC Circuit remanded Web III for further 
proceedings \3\ by a constitutionally valid panel of Judges. After the 
Web III remand, on motion of the Web II parties, the DC Circuit vacated 
and remanded the Web II matter.\4\
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    \3\ Intercollegiate Broadcasting Sys., Inc. v. Copyright Royalty 
Board, 684 F.3d 1332, 1342 (D.C. Cir. 2012), cert. denied, 133 S. 
Ct. 2735 (2013).
    \4\ Intercollegiate Broadcasting Sys., Inc. v. Copyright Royalty 
Board, No. 10-1314 (D.C. Cir. Sept. 30, 2013) (order granting joint 
motion for vacatur and remand).
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    The issue before the Judges is determination of the validity and

[[Page 64670]]

application of the $500 minimum fee for noncommercial webcasters for 
the period 2006 through 2010. The Judges, after notice to the parties, 
concluded that they should reach this determination, to the extent a 
new determination is required, under section 803(b)(5) (paper 
proceedings) after a de novo review of the record.
    For all of the reasons discussed herein, the Judges determine that 
the minimum fee for noncommercial webcasters for the license term 2006 
through 2010 shall be and remain $500 per station or channel, 
applicable to the annual flat fee royalties payable for usage of sound 
recordings for up to 159,140 Aggregate Tuning Hours (ATH) per month. 
The Judges assert that the question on remand is moot. Nonetheless, the 
Judges detail in this determination reasons sufficient to uphold their 
decision on the merits, to the extent required.
    The Judges issued their Initial Determination on Second Remand on 
March 11, 2014. No party moved for rehearing. Accordingly, the Judges 
now issue their Final Determination in this matter.\5\
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    \5\ The Register of Copyrights completed her review of this 
determination on October 20, 2014, and stated that ``[n]o correction 
or any further actions will be taken by the Register on this 
matter.'' See 17 U.S.C. 802 (f)(1)(D).
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II. The Judges Conclude That the Issue on Remand Is Subsumed by the 
Affirmance of the Flat Royalty Rate of $500

    IBS argues in this remand proceeding that the Judges should 
eliminate, or significantly reduce, the $500 minimum fee for 
noncommercial webcasters that the Judges adopted and the DC Circuit 
remanded in the Web II Determination. That minimum fee was in effect 
for the period 2006 through 2010, and thus expired more than three 
years ago. Any change to the minimum fee at issue in this remand 
proceeding would have no prospective effect whatever on the rates that 
noncommercial webcasters pay. If a decision by the Judges in IBS's 
favor at this stage were to have any effect at all, it would be by 
requiring a retrospective adjustment of noncommercial webcasters' 
payment obligations (e.g., a refund of minimum fees already paid). Such 
a remedy would be warranted only if a reduction in the minimum fee 
would also result in a reduction of a noncommercial webcaster's total 
payment obligation.
    The minimum fee that a webcaster pays is only one component of the 
webcasters' total payment obligation under the section 114 and section 
112(e) statutory licenses. The Final Determination established a rate 
structure for noncommercial webcasters that consisted of a flat annual 
fee of $500 for the first 159,140 ATH of usage per month, 37 CFR 
380.3(a)(2)(i) (2008), plus a per-performance rate equal to the 
commercial rate for usage in excess of 159,140 ATH per month. 37 CFR 
380.3(a)(2)(ii) (2008). In addition, noncommercial webcasters were 
subject to the contested $500 annual minimum fee. The minimum fee was 
non-refundable, but recoupable against the $500 flat royalty fee. 37 
CFR 380.3(b) (2008); see also Final Determination, 72 FR at 24100.\6\
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    \6\ This minimum fee, codified in 37 CFR 380.3(b) (2008), 
applies to both commercial and noncommercial webcasters.
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    Because the $500 minimum fee was recoupable, a noncommercial 
webcaster's single payment of $500 satisfied both the minimum fee and 
the $500 flat rate for the first 159,140 ATH of monthly usage. 
Nonetheless, the flat rate and the minimum fee are separate and 
distinct components of the rate structure, codified in separate 
sections of the Code of Federal Regulations.
    In its decision of the appeal of the Final Determination, the DC 
Circuit ``vacate[d] the $500 minimum fee'' for both commercial \7\ and 
noncommercial webcasters and ``remand[ed] that portion of the 
determination to the Copyright Royalty Judges for further proceedings 
not inconsistent with this opinion.'' 574 F.3d at 772. ``All other 
portions of the determination [were] affirmed.'' Id.; accord id. at 
753.
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    \7\ The commercial webcasters and SoundExchange reached a 
settlement after the Final Determination was remanded, which the 
Judges adopted, leaving only the minimum fee for noncommercial 
webcasters for the Judges to determine in this remand proceeding. 
See 75 FR 6097 (Feb. 8, 2010).
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    The plain language of the DC Circuit's remand order demonstrates 
that the court affirmed the flat rate component of the rate structure 
for noncommercial webcasters. Even if the Judges were to reduce the 
minimum fee retroactively, noncommercial webcasters' obligation to pay 
a flat royalty rate of $500 annually would be unaffected. Consequently, 
a decision in IBS's favor on the minimum fee issue would have no effect 
on noncommercial webcasters' total payment obligations. That is, given 
that the $500 payment satisfied both the minimum fee and the $500 flat 
rate for the first 159,140 ATH of usage, IBS and its constituents would 
realize no benefit, even if the Judges were to reduce the minimum fee, 
thereby eliminating any actual issue for adjudication. The Judges 
conclude, therefore, that the instant matter has been rendered moot and 
that IBS lacks a ``significant interest in the proceedings'' as 
required by section 803(b)(2)(C) of the Act.

III. Assuming the Issue on Remand States an Issue for Adjudication, the 
Judges' Determination on Remand Is Narrowed by the Directive From the 
D.C. Circuit

A. The First Remand

    In vacating and remanding the Judges' original Web II Determination 
with regard to the ``Minimum Annual Fee'' \8\ for noncommercial 
webcasters subject to the statutory license, the D.C. Circuit held:
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    \8\ The rates and terms established by the Judges ``shall 
include a minimum fee . . . .'' 17 U.S.C. 114(f)(2)(B).

    Because there is no record evidence that $500 represented 
SoundExchange's administrative cost per channel or station, the 
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Judges' determination in this regard cannot be sustained.

    Intercollegiate Broadcast System, Inc. v. Copyright Royalty Board, 
574 F.3d 748, 767 (D.C. Cir. 2009) (emphasis added). The basis for the 
Court's holding was that, in the absence of sufficient evidence, ``the 
$500 minimum fee was arbitrary, capricious and not supported by record 
evidence . . . .'' Id. at 772 (emphasis added).
    Accordingly, the D.C. Circuit ``remand[ed] the issue of the 
appropriate minimum fee for noncommercials.'' Id. at 767. To allow for 
a cure of this defect on remand, the D.C. Circuit instructed the Judges 
to undertake ``further proceedings not inconsistent with this 
opinion,'' id., which required the Judges to receive and consider new 
``record evidence'' of ``SoundExchange's administrative cost per 
channel or station.'' Id. at 767 (emphasis added).
    For the first remand, the Judges permitted the Participants to 
submit additional papers and to engage in supplemental discovery. 
Thereafter, on May 18, 2010, the Judges conducted the remand hearing 
required by the D.C. Circuit. To the extent this second remand presents 
an issue for adjudication, the current, reconstituted panel of Judges 
has conducted a de novo review of the evidence and transcripts of the 
first remand and analyzed the propriety of the annual $500 minimum fee 
per station or channel.

B. The Participants' Witnesses and Relevant Evidence

    In the first remand proceeding, SoundExchange, as the collective 
representing the licensors, presented the written and oral testimony of 
W. Tucker McCrady, a member of its Licensing Committee, which, is 
directly

[[Page 64671]]

responsible for negotiating and approving any settlements related to 
statutory licenses on behalf of SoundExchange. McCrady WDT at 1. Mr. 
McCrady is also associate counsel, digital legal affairs, for Warner 
Music Group (WMG). Id. SoundExchange also presented the written and 
oral testimony of Barrie Kessler, its chief operating officer. 
SoundExchange also introduced into evidence agreements it reached 
pursuant to the Webcaster Settlement Acts of 2008 and 2009, with (i) 
College Broadcasters, Inc. (CBI) for noncommercial educational 
webcasters; (ii) National Association of Broadcasters (NAB) for 
broadcasters who also webcast performances of sound recordings; (iii) 
Sirius XM Radio, Inc. (Sirius XM) for webcasts of signals provided by 
satellite services; and (iv) DiMA for commercial webcasters. 5/18/10 
Tr. at 13 (McCrady).
    IBS represents a membership of more than 1,000 student-staffed 
stations and webcasting operations affiliated with domestic academic 
institutions, and purports to be the largest such organization in the 
United States. Frederick J. Kass, Jr. (Pre-Remand) WDT at ] 6. IBS 
presented its case principally through the written and oral testimony 
of Captain Kass, treasurer, director of operations (chief operating 
officer), and a director of IBS.\9\ In addition, IBS presented the 
written testimony of John E. Murphy, general manager of WHUS, a 
university radio station at the University of Connecticut, and Benjamin 
Shaiken, at the time a student at the University of Connecticut and 
operations manager of WHUS.
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    \9\ Frederick Kass is also retired from the United States Navy, 
having achieved the rank of Captain. Kass (Pre-remand) WDT ] 1. 
Accordingly, the Judges refer to him in this Determination as 
Captain Kass.
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C. The Minimum Fee Proposals of the Participants

1. The SoundExchange Proposal
    SoundExchange proposed the same dollar level for a minimum fee for 
noncommercial webcasters, $500, as it had proposed prior to the first 
remand. Specifically, SoundExchange proposed:

    Each Noncommercial Webcaster will pay an annual, nonrefundable 
minimum fee of $500 for each calendar year or part of a calendar 
year of the license period during which they are [sic] Licensees 
pursuant to licenses under 17 U.S.C. 114. This annual minimum fee is 
payable for each individual channel and each individual station 
maintained by Noncommercial Webcasters and is also payable for each 
individual Side Channel maintained by Broadcasters who are 
Licensees. The minimum fee payable under 17 U.S.C. 112 is deemed to 
be included within the minimum fee payable under 17 U.S.C. 114. Upon 
payment of the minimum fee, the Licensee will receive a credit in 
the amount of the minimum fee against any additional royalty fees 
payable in the same calendar year.

    Proposed Rates and Terms of SoundExchange, Inc. for the Remand 
Proceeding Concerning the Minimum Fee Payable by Noncommercial 
Webcasters (Jan. 11, 2010).
    Consistent with the Judges' prior ruling in Web II, SoundExchange's 
proposed minimum fee would be ``fully recoupable'' against royalty fees 
owed by noncommercial webcasters subject to the statutory license. 5/
18/10 Tr. at 14 (McCrady).
2. The IBS Proposal
    IBS proposed that certain smaller noncommercial webcasters be 
exempt from paying any minimum fee. 5/18/10 Tr. at 76, 83-85 (Kass); 
Kass (Supplemental) WDT at 2 (For certain smaller noncommercial 
webcasters, ``[t]he imposition of a minimum fee should be rejected by 
the Judges.'') \10\ More particularly, IBS proposed that an exemption 
from the minimum fee be provided to webcasters that met IBS's proposed 
(and unprecedented) classification as either ``Small Noncommercial 
Webcasters,'' defined by IBS as those whose total performances of 
digitally recorded music is less than 15,914 ATH per month, or ``Very 
Small Noncommercial Webcasters,'' defined by IBS as those whose total 
performances of digitally recorded music is less than 6,365 ATH per 
month. IBS's Restated Rate Proposal (June 1, 2010). IBS did not propose 
a separate minimum fee for noncommercial webcasters who performed more 
than 15,914 ATH per month, nor did IBS object to SoundExchange's 
proposed minimum fee for noncommercial webcasters who webcast more than 
15,914 ATH per month.
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    \10\ Because the D.C. Circuit remanded for a determination of 
``the issue of the appropriate minimum fee for noncommercials,'' the 
Judges construe the IBS proposal as a request for a minimum of fee 
of zero. The Judges do not reach the question whether a minimum fee 
of $0 could ever satisfy the statutory mandate to ``include a 
minimum fee for each . . . type of service. . . .'' 17 U.S.C. 
114(f)(2)(B).
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    In addition, IBS raised issues that went beyond the scope of the 
remand instructions of the D.C. Circuit.\11\
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    \11\ Specifically--and separate and apart from the minimum fee 
issue--IBS also requested for these proposed new classes of 
noncommercial webcasters: (1) A new flat royalty rate of $50 per 
annum for the noncommercial webcasters IBS classified as ``Small''; 
(2) a new flat royalty rate of $20 per annum for the noncommercial 
webcasters IBS classified as ``Very Small''; and (3) new terms that 
would exempt both such proposed classes from recordkeeping and 
reporting requirements. By seeking different royalty rates and 
terms, IBS has raised issues that go beyond the scope of the remand 
instructions. Indeed, as the D.C. Circuit made clear, except for the 
minimum fee issue, ``[a]ll other portions of the determination are 
affirmed.'' 574 F.3d at 772 (emphasis added).
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D. The Participants' Testimony and Evidence

1. SoundExchange's Testimony and Evidence
    SoundExchange--through Ms. Kessler's testimony--provided precisely 
the type of evidence required by the D.C. Circuit in its remand 
instructions. That is, Ms. Kessler testified regarding the costs 
incurred by SoundExchange to administer the royalty payment and 
distribution process under the statutory license. As Ms. Kessler 
testified, broadly speaking, ``there is not necessarily much difference 
between a noncommercial service and a commercial service in terms of 
the effort required for [SoundExchange] to administer . . . use of 
sound recordings.'' Kessler Corrected WDT at 3.
    Ms. Kessler testified that 305 noncommercial webcasters paid the 
minimum fee of $500 in 2009. Kessler Corrected WDT at 3; 5/18/10 Tr. at 
34 (Kessler).\12\ According to Ms. Kessler, by making these payments, 
the noncommercial webcasters demonstrated that they were able and 
willing to pay the minimum fee. 5/18/10 Tr. at 33 (Kessler).
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    \12\ The remaining 58 noncommercial webcasters also were charged 
the $500 minimum fee, but they recouped that minimum fee either 
because they exceeded the ATH threshold cap or because they streamed 
multiple channels or stations.
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    According to Ms. Kessler, SoundExchange does not track the 
administrative costs on a licensee, station, or channel basis in the 
ordinary course of business. 5/18/10 Tr. at 37 (Kessler). However, for 
this remand proceeding, SoundExchange estimated its administrative 
costs and found that the average per channel or station cost for 
webcasters for 2008 was $803. 5/18/10 Tr. at 36 (Kessler); Kessler 
Corrected WDT at 9-10. Further, Ms. Kessler testified that this average 
cost exceeded the average revenue derived by SoundExchange from 
noncommercial webcasters. 5/18/10 Tr. at 34 (Kessler).
    Ms. Kessler testified that, for all licensees, regardless of size 
or classification, SoundExchange must perform certain basic processes 
to administer the collection and distribution of royalty fees related 
to use of sound recordings. She also testified that that there was no 
positive correlation between the volume of sound recordings performed 
by a station

[[Page 64672]]

or channel and the administrative work required of SoundExchange, nor, 
as noted supra, was there a greater amount of time and effort expended 
to administer the licensing process for commercial webcasters compared 
to noncommercial webcasters.\13\ In fact, as Ms. Kessler testified, 
SoundExchange ``at times has to devote more time to working with a 
noncommercial service than it would a commercial service, because of 
the small and often inexperienced staff and relative lack of automation 
in the operations of many noncommercial webcasters.'' Kessler Corrected 
WDT at 4.
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    \13\ According to Ms. Kessler, although the particular per 
channel or station costs deviate from the average (by definition, 
the value of each item within a heterogeneous set will deviate from 
the set's average value), those deviations are not a function of the 
classification of the service as commercial or noncommercial. 
Rather, those deviations are a function of the amount of ``time and 
attention'' required of SoundExchange to administer the license, 
which itself is a function of the quality of the data provided by 
the service operating the channel or station. 5/18/10 Tr. at 37-38 
(Kessler).
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    Moreover, SoundExchange's additional documentary evidence regarding 
the minimum fee contained in other agreements was consistent with the 
use of the $500 minimum fee in this proceeding. All of the agreements 
filed pursuant to the Webcaster Settlement Acts of 2008 and 2009 and 
introduced into evidence by SoundExchange contained minimum fees 
similar to the $500 per station or channel proposed by SoundExchange. 
Of particular importance, one of those agreements was the agreement 
between SoundExchange and noncommercial educational webcasters (the CBI 
Agreement) for the same type of services as would be covered under the 
IBS proposal. More specifically, the CBI Agreement contains the 
identical minimum fee of $500 per year per station or channel. 5/18/10 
Tr. at 14 (McCrady).
    Mr. McCrady testified that this proposed $500 minimum fee 
represented a substantial discount for noncommercial webcasters. 
Specifically, Mr. McCrady testified that--with regard to Commercial 
Webcasters--WMG required that its negotiated voluntary licenses for its 
full catalogue must generate payments anticipated to be at least 
$25,000. 5/18/10 Tr. at 25 (McCrady), and the lowest commercial minimum 
fee is 20% of revenue. 5/18/10 Tr. at 20 (McCrady). On percentage 
terms, therefore, the $500 minimum fee would represent a substantial 
discount because--accepting arguendo IBS's assertion that the average 
annual operating budget of its member stations is $9,000, see 5/18/10 
Tr. at 20 (McCrady) and 5/18/10 Tr. at 71 (Kass)--that proposed $500 
minimum fee would be less than 6% of that amount.
2. IBS's Testimony and Evidence
    IBS's primary contention to support a zero minimum fee for 
``Small'''' and ``Very Small'' noncommercial webcasters is essentially 
that those entities are unable to afford the $500 minimum fee proposed 
by SoundExchange. 5/18/10 Tr. at 103 (Kass). More specifically, Capt. 
Kass testified that, according to a prior survey by IBS of its member 
stations--a survey undertaken ``back aways'' and not proffered by IBS--
the average annual operating budget for those campus stations was 
approximately $9,000 per year. 5/18/10 Tr. at 71 (Kass); Kass (Pre-
Remand) WDT at 9.
    Messrs. Kass, Murphy, and Shaiken all testified about certain 
distinctions between college (and, to a lesser extent, high school) 
radio stations and commercial radio stations. Kass (Pre-Remand) WDT at 
]] 7-8; 10-13; 4/22/10 Tr. at 761, 765(Kass); Murphy WDT at ]] 4-10; 
Shaiken WDT ]] 5-9.\14\ The gravamen of these asserted distinctions was 
that smaller webcasters affiliated with educational institutions have 
an instructional need for sound recordings that, according to IBS, must 
be distinguished from the demand of other webcasters, in a manner that 
would preclude any minimum fee.
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    \14\ The written testimony of Messrs. Murphy and Shaiken were 
introduced previously in Web III on April 22, 2010, and were 
subsequently designated as evidence by IBS and admitted in the first 
Web II remand proceeding. 5/18/10 Tr. at 66-67.
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    However, the evidence and testimony introduced by IBS did not 
address the issue of whether SoundExchange incurred administrative 
costs in connection with licensing of sound recordings performed by 
academic institutions, or the dollar value of such administrative 
costs.

E. Analysis and Determination

    The Judges concluded in the first remand that SoundExchange's $500 
minimum fee proposal is clearly appropriate and eminently reasonable. 
The Judges in this remand reach the same conclusion and find several 
bases in the record for this conclusion.
    First, IBS did not proffer any evidence to contradict Ms. Kessler's 
testimony. Accordingly, the Judges find as a fact that the cost to 
administer the statutory license, including for the noncommercial 
webcasters represented by IBS, is $803 per year on average. It is 
reasonable and appropriate for the minimum fee at least to cover 
SoundExchange's administrative cost. Moreover, as noted at the outset 
of this Determination, the D.C. Circuit expressly remanded the prior 
Determination with a directive that the Judges develop just such a 
record regarding SoundExchange's administrative costs, in order to 
ground a decision as to the minimum fee on evidentiary bases.\15\
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    \15\ The Judges note that, as Mr. McCrady testified, generally, 
minimum fees ``are intended not only to cover our costs of 
negotiating and administering the license, but to assure that we 
will receive a substantial guaranteed stream of revenue for making 
available our large repertoire of sound recordings.'' McCrady WDT at 
5. Although in the present proceeding the minimum fee has been based 
on the administrative costs incurred by SoundExchange, nothing set 
forth herein should be construed as precluding a minimum fee from 
also serving to guarantee a stream of revenue for licensees as 
appropriate in the particular proceeding.
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    Second, the CBI Agreement admitted into evidence is persuasive 
corroborating evidence. The CBI Agreement confirms that SoundExchange's 
proposal represents a minimum fee that has actually been negotiated in 
the marketplace between a willing buyer and a willing seller. The 
Judges further note that the negotiated CBI Agreement employs the same 
minimum fee per station or channel, up to the 159,140 ATH threshold, 
without the smaller sub-classifications proposed by IBS.
    Third, the undisputed fact that 305 noncommercial webcasters paid 
the $500 minimum fee in 2009 is persuasive evidence that this minimum 
fee has not only been included in an agreement, but has actually been 
paid in the marketplace. Just as webcasting rates (beyond a minimum 
fee) must represent marketplace rates, so too should a statutory 
minimum fee bear a relationship to the minimum fees that actually are 
paid for similar services.
    In stark contrast, the testimony and evidence proffered by IBS do 
not present any countervailing considerations.
    First, IBS proffered no record evidence to support the contention 
that the ``Small'' or ``Very Small'' noncommercial webcasters as 
defined by IBS would be unable to pay a $500 minimum fee. Indeed, IBS 
did not offer testimony from any entity that demonstrably qualified as 
a ``Small'' or ``Very Small'' noncommercial webcaster. Mere conclusory 
statements that a $500 minimum payment would be unaffordable for 
smaller noncommercial webcasters do not serve as probative evidence.
    Second, the only testimony that mentions any specifics about the

[[Page 64673]]

finances of smaller webcasters is the reference by Capt. Kass to the 
survey performed ``back aways'' that supposedly showed that IBS members 
had an average annual operating budget of $9,000. Kass (Pre-Remand) WDT 
at ] 9. IBS did not offer that purported survey into evidence. Without 
documentary evidence that would allow the Judges to assess the validity 
of the survey, the Judges cannot accept Capt. Kass's reference to that 
survey as evidence. See 37 CFR 351.l0(e). Moreover, assuming arguendo 
the Judges could accept such a casual reference as probative, the 
assertion would not advance IBS's case. On its face, an assertion that 
the average operating budget for IBS members is $9,000 does not 
establish that its members lack the capacity to make a minimum payment 
of $500.
    Third, the evidence strongly suggests that the ATH cutoffs that IBS 
proposed for ``Small'' and ``Very Small'' noncommercial webcasters are 
arbitrary. It appears that, for these proposed smaller categories, IBS 
chose ATH levels that represent 10% and 4%, respectively, of the ATH 
cutoff (159,400 ATH) for all noncommercial webcasters contained in 
SoundExchange's rate proposal. IBS's Restated Rate Proposal (June 1, 
2010). Nothing in the record substantiates these ATH levels as 
probative of the ability, vel non, of a noncommercial webcaster to pay 
a $500 minimum fee.
    Fourth, even if there were a sufficient basis in the record to 
conclude that ``Small'' and/or ``Very Small'' noncommercial webcasters 
were unable to pay a $500 minimum fee, that alone would not demonstrate 
that a willing seller in a hypothetical marketplace would be prepared 
to offer a lower minimum fee. That proposition is particularly dubious 
in this proceeding given the evidence in the record (discussed supra) 
that SoundExchange's average annual administrative cost exceeds $500 
per station or channel.
    Fifth, the particular economic circumstances of the academic 
webcasters represented by IBS are germane only to the determination of 
the statutory royalty rate that they are required to pay--a royalty 
determination previously rendered by the Judges and affirmed by the 
D.C. Circuit. Indeed, the prior Determination by the Judges, affirmed 
by the D.C. Circuit, acknowledged the appropriateness of lower rates 
for noncommercial webcasters compared to the rates set for commercial 
webcasters. The issue at hand on this remand is different--whether 
there should be a distinction regarding the minimum fee--not the 
royalty rate--among different groups within the category of 
noncommercial webcasters.\16\
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    \16\ The contrast between the economic value of a sound 
recording and the economic value of administrative services is 
instructive in this regard. Administrative services, like any 
private services or goods, are priced in a market at a level that 
permits the seller to recover at least its average variable cost of 
providing those services. By contrast, the marginal cost of 
producing an additional copy of a sound recording is essentially 
zero, so the determination of the price for the sound recording, on 
the supply side, is influenced by that economic fact (and by the 
recurring sinking of long-term costs to create the recording and the 
need to provide an incentive for the creation of future sound 
recordings). Noncommercial webcasters might have been able to argue 
for a different or lower royalty rate based on this economic 
argument, but the Judges cannot apply this principle to the 
valuation of a service, such as the provision of administrative 
functions that, like all private goods or services, are provided at 
a positive marginal cost.
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    Finally, the testimony of the IBS witnesses regarding the nature of 
the use of sound recordings \17\ by academic institutions is not 
pertinent to the setting of the minimum fee based on SoundExchange's 
administrative costs. That is, payment of a minimum fee of zero, and 
indeed any minimum fee significantly below SoundExchange's actual 
administrative costs, would provide a webcaster with an unjustified 
free ride \18\ in terms of the cost of administering the license, 
because SoundExchange incurs that cost regardless of the nature of the 
use of the sound recording.\19\
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    \17\ Pursuant to 17 U.S.C. 114(f)(2)(B), the Judges can identify 
and then account for those differences in the ``nature of the use of 
sound recordings'' that would support a different rate or term.
    \18\ ``Small'' and ``Very Small'' noncommercial webcasters would 
obtain a free ride under the IBS proposal because they receive 
benefits from SoundExchange's administrative services. As explained 
by Mr. McCrady, rather than having to negotiate licenses with 
individual copyright owners in a market without a statutory license, 
noncommercial webcasters enjoy ``one-stop shopping'' for rights to 
all recordings at a pre-established price. McCrady WDT at 11.
    \19\ The Judges do not rely upon Mr. McCrady's testimony 
regarding the nature of the use of the sound recordings by academic 
institutions. He testified that the $500 minimum fee is appropriate 
because it provides an important educational message for students 
regarding the value of recorded music and the need to pay for it. 5/
18/10 Tr. at 23 (McCrady). Mr. McCrady did not purport to be an 
educator, he did not claim any direct knowledge of the scope or 
content of the educational work undertaken by academic institutions 
that authorize their students to play sound recordings, and 
SoundExchange did not proffer evidence to indicate that Mr. McCrady 
possessed the competency to testify as to any relationship between 
the educational mission of these institutions and the establishment 
of a minimum fee. Although such a ``message'' might well be 
appropriate as part of an economics or business school class or 
internship, that message might not be part of the curriculum in a 
music or communications class or internship. Further, a student's 
understanding of the economic issues regarding the pricing of sound 
recordings cannot be imparted in such an ad hoc manner.
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IV. Conclusion

    For the foregoing reasons, developed from a de novo review of the 
record, the Judges conclude that the $500 minimum fee proposed by 
SoundExchange for all noncommercial webcasters for the license term 
2006 through 2010 is appropriate and consistent with the relevant 
willing buyer/willing seller statutory standard. The Judges hereby 
expressly adopt the same minimum fee as set forth in the Final 
Determination published on May 1, 2007, and the Order on Remand. See 37 
CFR 380.3(b)(2). The Judges also conclude that IBS failed to support 
the zero minimum fee that it proposed for sub-categories of 
noncommercial webcasters, either with relevant evidence or economic 
analysis consistent with the applicable statutory standard.
    September 17, 2014.

    So Ordered.

Suzanne M. Barnett,
Chief United States Copyright Royalty Judge.
David R. Strickler,
United States Copyright Royalty Judge.
Jesse M. Feder,
United States Copyright Royalty Judge.
    Dated: October 22, 2014.
Suzanne M. Barnett,
Chief United States Copyright Royalty Judge.

Approved by:

James H. Billington,
Librarian of Congress.
[FR Doc. 2014-25971 Filed 10-30-14; 8:45 am]
BILLING CODE 1410-72-P