[Federal Register Volume 82, Number 58 (Tuesday, March 28, 2017)]
[Rules and Regulations]
[Pages 15297-15299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06065]


=======================================================================
-----------------------------------------------------------------------

LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 385

[Docket No. 16-CRB-0003-PR]


Determination of Royalty Rates and Terms for Making and 
Distributing Phonorecords (Phonorecords III); Subpart A Configurations 
of the Mechanical License

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Copyright Royalty Judges publish final regulations that 
set continued, unaltered rates and terms for subpart A configurations 
subject to the statutory license to use nondramatic musical works to 
make and distribute phonorecords of those works (the Mechanical 
License). In addition, the Judges correct an outdated cross-reference 
in the regulations.

DATES: Effective Date: March 28, 2017.

FOR FURTHER INFORMATION CONTACT: Anita Blaine, Program Specialist, by 
telephone at (202) 707-7658 or by email at [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    The Copyright Royalty Judges (Judges) received a Motion to Adopt 
Settlement (Motion) from UMG Recordings, Inc. (UMG) \1\ and Warner 
Music, Inc. (WMG),\2\ in their respective capacities as licensees of 
nondramatic musical works. The Motion sought approval of a partial 
settlement of the license rate proceeding before the Judges titled 
Determination of Royalty Rates and Terms for Making and Distributing 
Phonorecords (Phonorecords III), Docket No. 16-CRB-0003-PR. UMG and WMG 
reported that they reached the settlement with ``a significant portion 
of the sound recording and music publishing industries'' to continue 
unaltered the currently existing rates and terms in subpart A of 37 CFR 
part 385 for the ``Mechanical License'', i.e., the statutory license 
for the use of nondramatic musical works in the making and distributing 
of phonorecords. See 17 U.S.C. 115.
---------------------------------------------------------------------------

    \1\ UMG Recordings, Inc. includes its successors and affiliates 
that engage in the production and distribution of recorded music, 
including Capitol Christian Music group, Inc., and Capitol Records, 
LLC.
    \2\ Warner Music, Inc. includes its successors and affiliates 
that engage in the production and distribution of recorded music.
---------------------------------------------------------------------------

    Section 801(b)(7)(A) of the Copyright Act authorizes the Judges to 
adopt rates and terms negotiated by ``some or all of the participants 
in a proceeding at any time during the proceeding'' provided the 
settling parties submit the negotiated rates and terms to the Judges 
for approval. That provision directs the Judges to provide those who 
would be bound by the negotiated rates and terms an opportunity to 
comment on the agreement.
    The Judges published the proposed settlement in the Federal 
Register and requested comments from the public.\3\ 81 FR 48371 (July 
25, 2016). The Judges received comments from three entities: American 
Association of Independent Music (A2IM), Sony Music Entertainment 
(SME), and George D. Johnson dba GEO Music (Mr. Johnson). A2IM urged 
adoption of the agreed settlement. SME did not oppose continuing the 
existing royalty rates, but opposed adoption of one portion of the 
proposed regulation, viz., the late fee provision. Mr. Johnson opposed 
adoption of the settlement.
---------------------------------------------------------------------------

    \3\ The notice of settlement included a proposed rule that 
purported to limit the license rates at issue to the time period 
2018 to 2022. See 81 FR 48371 (Jul. 25, 2016). In fact, the license 
rates adopted in this Final Rule will remain in effect until 
superseded by a subsequent rulemaking. See 17 U.S.C. 115(c)(3)(C).
---------------------------------------------------------------------------

    The National Music Publishers' Association (NMPA) and the Nashville 
Songwriters Association International (NSAI) (together, Copyright 
Owners) filed a motion seeking leave to respond to the SME comment and 
partial objection to the settlement. The Judges granted the Copyright 
Owners' motion and extended the initial comment period to permit 
interested parties to submit responsive comments. See 81 FR 71657 (Oct. 
18, 2016). The Judges thus considered Copyright Owners' responsive 
comments, which they had attached to their motion for leave to respond. 
During the extended comment period, the Judges received a comment in 
support of the proposed settlement from ``Anonymous.'' \4\
---------------------------------------------------------------------------

    \4\ Without more information, the Judges cannot determine 
whether ``Anonymous'' is a participant in this proceeding. As 
``Anonymous'' made no objection, however, participant status is 
irrelevant.
---------------------------------------------------------------------------

    On or about October 28, 2016, the Judges received a Motion to Adopt 
Settlement Industry-Wide (Second Motion). In the Second Motion, the 
Copyright Owners reported an agreement between Copyright Owners and 
SME, resolving all issues SME raised in its partial objection to the 
proposed settlement. According to the Second Motion, the parties agreed 
that: (1) SME would withdraw its objection to the proposed rule, (2) 
Copyright Owners would withdraw their response to SME's objection, (3) 
the parties to the settlement would request that the Judges adopt the 
settlement industry-wide, and (4) SME would withdraw from the 
proceeding, except to support adoption of the settlement or, if the 
settlement were not adopted, to litigate matters relating to the 
subpart A regulations.
    By its terms, the partial settlement applied originally only to 
UMG, WMG, and the unnamed ``significant portion of the . . . music 
publishing industries'' with whom the licensees had agreed. The Second 
Motion expanded the settlement to include SME as a licensee subject to 
the settlement rates and terms.
    The Judges ``may decline to adopt the agreement as a basis for 
statutory terms and rates for participants that are not parties to the 
agreement,'' only ``if any participant [in the proceeding] objects to 
the agreement and the [Judges] conclude, based on the record before 
them if one exists, that the agreement does not provide a reasonable 
basis for setting statutory terms or rates.'' 17 U.S.C. 
801(b)(7)(A)(ii).

Mr. Johnson's Objections to the Settlement

    George Johnson, dba GEO Music, appears in this proceeding as a pro 
se participant. Mr. Johnson's comment

[[Page 15298]]

opposing the proposed settlement rates and terms filed August 24, 2016, 
incorporated by reference ``two Opposition Motions'' filed concurrently 
with his Comments in the rulemaking. The exact identity of the two 
``Opposition Motions'' Mr. Johnson cites is unclear.
    Mr. Johnson submitted: (1) Opposition to Parties Motion to Adopt 
Settlement, dated June 27, 2016 (Opposition); (2) Second Opposition 
Motion to NMPA, NSAI, WMG, and UMG's Reply to Adopt Settlement as 
Statutory Rates and Terms, dated July 7, 2016 (Second Opposition); (3) 
Objection to Comments and Objections of Sony Music Entertainment 
Concerning Proposed Settlement, dated August 29, 2016 (Objection); and 
(4) Objection and Response to NMPA and NSAI's Response to SME's 
Comments and Objections Concerning Proposed Sec.  385.3 Settlement, 
dated August 31, 2016 (Second Objection).\5\
---------------------------------------------------------------------------

    \5\ These papers were filed with the Judges on July 7, 2016, 
July 11, 2016, September 28, 2016, and September 28, 2016, 
respectively.
---------------------------------------------------------------------------

    Mr. Johnson filed an opposition to the Second Motion on November 3, 
but amended his filing twice. He submitted his final version November 
8, 2016.\6\ The objections Mr. Johnson made in response to the Second 
Motion were a reprise of his earlier objections. Nothing in the 
parties' agreement addresses Mr. Johnson's grievances.
---------------------------------------------------------------------------

    \6\ CRB procedural rules require responses to motions to be 
filed within five business days after the motion is filed. See 37 
CFR 350.4(f). Five business days after October 28, 2016, was 
November 4, 2016. As Mr. Johnson's later filings consisted of 
amendments to the original, timely filing and as Mr. Johnson is 
appearing in this proceeding pro se, the Judges accepted his 
November 8, amended filing.
---------------------------------------------------------------------------

    In each of his filings, Mr. Johnson objects to adoption of the 
settlement rates and terms, whether for the settling parties alone, or 
as a basis for statutory licenses industry-wide. The bases for his 
objections are that the proposed settlement:

    (1) ``violates copyright owners' exclusive rights''; \7\
---------------------------------------------------------------------------

    \7\ Opposition at 2; Second Opposition at 6; see Second 
Objection at 3.
---------------------------------------------------------------------------

    (2) creates a ``substantive competitive disadvantage for every 
American independent songwriter and music publisher, as well as, 
every co-writer and co-publisher within the Universal Music 
Publishing (UMP) . . . and Warner-Chappell Publishing (WCP) 
catalogs;'' \8\
---------------------------------------------------------------------------

    \8\ Opposition at 2-3; Second Opposition at 6.
---------------------------------------------------------------------------

    (3) involves foreign companies, as UMP/UMG and WCP/WMG are 
headquartered in France and Russia; \9\
---------------------------------------------------------------------------

    \9\ Opposition at 3; Second Opposition at 7.
---------------------------------------------------------------------------

    (4) permits licensees to look out for their own self-interests; 
\10\
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    (5) is a product of anticompetitive ``price-fixing other 
people's property at the below-market 9.1 cents. . . .'' \11\
---------------------------------------------------------------------------

    \11\ Id.; Objection at 2; see Second Objection at 3-4.
---------------------------------------------------------------------------

    (6) ``does not provide a reasonable basis for setting statutory 
terms or rates;'' \12\ and
---------------------------------------------------------------------------

    \12\ Opposition at 6.
---------------------------------------------------------------------------

    (7) disregards the effects of inflation on the songwriter and 
publisher rights at issue.\13\
---------------------------------------------------------------------------

    \13\ Opposition at 7; Second Opposition at 6-7; Objection at 3-
4; Second Objection at 2.

    Mr. Johnson makes legal, economic, and subjective arguments against 
adoption of the agreed license rates and terms from his perspective as 
an independent songwriter and publisher.
    Mr. Johnson's legal argument, viz., that the proposed settlement 
violates copyright owners' exclusive rights, fails.\14\ The copyrights 
of creators of nondramatic musical works are not unlimited. They are 
subject to express exceptions and limitations, including section 115 of 
the Act. Section 115, like its predecessor, section 1(e) of the 1909 
Copyright Act, creates a compulsory, statutory license available to 
users of musical works for ``mechanical'' manufacture and distribution 
of those works. Over time, the scope of the ``mechanical'' license has 
grown to include digital uses. These uses are expressly allowed by the 
Act and, so long as the user complies with the terms of the statutory 
license, the user is not infringing on any copyright that a songwriter 
or publisher might claim.\15\
---------------------------------------------------------------------------

    \14\ It is unclear whether, in his Objection, Mr. Johnson 
intended to challenge the constitutionality of the mechanical 
compulsory license. The Judges find that Mr. Johnson's conclusory 
statement that ``[t]his is . . . unconstitutional and violates the 
Art I exclusive rights in copyright'' does not articulate a 
constitutional challenge that the Judges can consider.
    \15\ In some of his argument, Mr. Johnson refers to the 
difficulties presented not only by the section 115 license, but also 
by the Performing Rights Organizations' uses that are governed by 
separate Consent Decrees that were first entered in 1941 and have 
been amended periodically since. Consent Decree rates are determined 
in a New York federal district court, commonly known as the Rate 
Court. The Judges agree with Mr. Johnson that music licensing is 
fragmented, both by reason of the Consent Decree and the 
fragmentation of the statutory licensing schemes in the Act. These 
issues are beyond the scope of authority of the Judges; they can 
only be addressed by Congress.
---------------------------------------------------------------------------

    Similarly, Mr. Johnson's economic arguments must fail. Negotiations 
by and between major recording companies and major publishers might be 
concluded without input from independent songwriters or publishers. The 
negotiating representatives, however, represent individual songwriters 
and publishers.\16\ Presumably the representatives are acting in the 
interest of their constituents. If they were not doing so, the 
constituents could seek representation elsewhere. But, Mr. Johnson has 
not even hinted at evidence to support his argument that the 
representative negotiators are engaged in anti-competitive price-fixing 
at below-market rates. The very definition of a market value is one 
that is reached by negotiations between a willing buyer and a willing 
seller, with neither party being under any compulsion to bargain. 
Although Mr. Johnson states it as a negative, the parties' negotiations 
are only fair and reasonable if each party acts to protect its own 
self-interest. In that regard, the Judges view the settling parties' 
consensual decision to establish a fixed nominal rate, i.e., unadjusted 
for inflation, as also representative of their mutual self-
interest.\17\
---------------------------------------------------------------------------

    \16\ Of note, Mr. Johnson himself is a member of NSAI. See 
George Johnson's (GEO) Objection to NMPA, NSAI and SME's Motion to 
Adopt Settlement Industry Wide at 10 (Nov. 8, 2016).
    \17\ Mr. Johnson repeats allegations that the recording 
companies involved in this licensing negotiation are foreign-owned. 
He fails, however, to state why foreign corporate ownership might be 
relevant to the issues at hand.
---------------------------------------------------------------------------

Judges' Conclusion

    Section 801(b)(7)(A) of the Act is clear that the Judges have the 
authority to adopt settlements between some or all of the participants 
to a proceeding at any time during a proceeding, so long as those that 
would be bound by those rates and terms are given an opportunity to 
comment. Id. at (b)(7)(A)(i). If a participant raises an objection to 
adoption of the settlement, the Judges must determine whether, despite 
the objection(s), the proposed settlement provides a reasonable basis 
for setting the rates and terms at issue. Id. If the Judges find that 
no participant has shown that the agreement ``does not provide a 
reasonable basis for setting statutory terms or rates'' then they may 
adopt the proposed terms and rates as statutory rates and terms for 
participants that are not parties to the agreement. Id. at 
(b)(7)(A)(ii).
    The Judges provided an opportunity for comment and, following the 
Second Motion, were left with only Mr. Johnson's objections. As 
discussed above, Mr. Johnson's objections did not change and he 
provides no persuasive legal or economic arguments that would convince 
the Judges to reject a proposed settlement reached voluntarily between 
the Settling parties.
    From the perspective of an independent songwriter, the proposed 
rates might seem inadequate. The fact remains, however, that the 
proposed rates and terms were negotiated on behalf of the vast majority 
of parties that historically have participated in Section 115 
proceedings before the Judges.

[[Page 15299]]

Those parties clearly concluded that the rates and terms were 
acceptable to both sides. The evidence \18\ and arguments Mr. Johnson 
presented are insufficient for the Judges to determine that the agreed 
rates and terms are unreasonable.
---------------------------------------------------------------------------

    \18\ The Judges are not ruling that any of Mr. Johnson's 
submissions would be admissible at an evidentiary hearing. Even 
taking those submissions as admissible evidence in support of its 
positions, however, the Judges find that they would be immaterial to 
the Judges' rate-setting mandate.
---------------------------------------------------------------------------

    The only objections to the agreement by a participant were those of 
Mr. Johnson. Based on those objections, the Judges cannot conclude that 
the agreement reached voluntarily between the Settling Parties does not 
provide a reasonable basis for setting statutory terms and rates for 
licensing nondramatic musical works to manufacture and distribute 
phonorecords, including permanent digital downloads and ringtones 
(Subpart A Configurations). Therefore, the Judges must adopt the 
proposed regulations that codify the partial settlement.
    Further, because the only participant, other than Mr. Johnson, 
offering objection to the settlement joined in the Second Motion to 
apply the rates and terms industry-side, the Judges adopt the proposed 
rates and terms industry-wide for subpart A Configurations. In doing 
so, the Judges make clear that the adoption of the partial settlement 
should in no way suggest that they are more or less inclined to adopt 
the reasoning or proposals of any of the parties remaining in the 
proceeding in relation to subpart B or C configurations.
    In reviewing the regulations, the Judges discovered an outdated 
cross-reference and are correcting it.
    The regulations of 37 CFR part 385, subpart A, are adopted as 
detailed in this Final Rule.

List of Subjects in 37 CFR Part 385

    Copyright, Phonorecords, Recordings.

Final Regulation

    For the reasons set forth herein, the Copyright Royalty Judges 
amend 37 CFR part 385 as follows:

PART 385--RATES AND TERMS FOR USE OF MUSICAL WORKS UNDER COMPULSORY 
LICENSE FOR MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL 
PHONORECORDS

0
1. The authority citation for part 385 continues to read:

    Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4).


Sec.  385.4   [Amended]

0
2. Section 385.4 is amended by removing ``Sec.  201.19(e)(7)(i)'' and 
adding ``Sec.  210.16(g)(1)'' in its place.

    Dated: February 22, 2017.
Suzanne M. Barnett,
Chief Copyright Royalty Judge.
Approved by:
Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2017-06065 Filed 3-27-17; 8:45 am]
 BILLING CODE 1410-72-P