[Federal Register: July 23, 2001 (Volume 66, Number 141)]
[Proposed Rules]
[Page 38226-38229]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23jy01-48]

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LIBRARY OF CONGRESS

37 CFR Part 260

[Docket No. 96-5 CARP DSTRA]

Determination of Reasonable Rates and Terms for the Digital
Performance of Sound Recordings

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Copyright Office is requesting comment on proposed
regulations that will govern the RIAA collective when it functions as
the designated agent receiving royalty payments and statements of
accounts

[[Page 38227]]

from nonexempt, subscription digital transmission services which make
digital transmissions of sound recordings under the provisions of
section 114 of the Copyright Act.

DATES: Comments are due no later than August 22, 2001.

ADDRESSES: An original and five copies of any comment shall be
delivered to: Office of the General Counsel, Copyright Office, James
Madison Building, Room LM-403, First and Independence Avenue, SE.,
Washington, DC; or mailed to: Copyright Arbitration Royalty Panel
(CARP), P.O. Box 70977, Southwest Station, Washington, DC 20024-0977.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or
Tanya M. Sandros, Senior Attorney, Copyright Arbitration Royalty Panel,
P.O. Box 70977, Southwest Station, Washington, DC 20024. Telephone:
(202) 707-8380. Telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION:

Background

Section 106(6) of the Copyright Act, title 17 of the United States
Code, gives copyright owners of sound recordings an exclusive right to
perform the copyrighted work publicly by means of a digital audio
transmission. This right is limited by section 114(d), which allows
certain non-interactive digital audio services to transmit sound
recordings under a compulsory license, provided that the services pay a
reasonable royalty fee and comply with the terms of the license.
Section 114(f)(1)(A) outlines the procedural steps for setting
these rates and terms for subscription transmissions by preexisting
subscription services. The first step requires the Librarian of
Congress to initiate a voluntary negotiation period to give the
interested parties the initial opportunity of establishing the
applicable rates and terms. If the parties are unable to reach an
agreement, then section 114(f)(1)(B) directs the Librarian of Congress
to convene a three-person Copyright Arbitration Royalty Panel
(``CARP'') for the purpose of determining the rates and terms for the
compulsory license upon receipt of a petition filed in accordance with
17 U.S.C. 803(a)(1).
The first proceeding to set rates and terms for the section 114
license for preexisting subscription services began in 1995 and
concluded with the issuance of a final rule and order by the Librarian
of Congress on May 8, 1998. See 63 FR 25394 (May 8, 1998). The parties
in this proceeding numbered four: The Recording Industry Association of
America (``RIAA''); Digital Cable Radio Associates, now known as Music
Choice; DMX Music, Inc. (``DMX''); and Muzak, L.P. (``Muzak'')
(collectively, ``the parties''). In this proceeding, the parties
proposed, and the CARP adopted, a term which gave the RIAA the
responsibility for collecting and distributing the royalty fees to all
copyright owners. Id. at 25397. The Librarian adopted this term, then
crafted additional regulations that afforded copyright owners a means
to verify the accuracy of the royalty payments made by the RIAA
collective,\1\ established the value of each performance, specified the
nature of the costs that RIAA may deduct from the royalty fees prior to
distribution, and set forth a procedure for handling royalty fees in
the case where the collective is unable to identify or locate a
copyright owner who is entitled to receive royalties collected under
the statutory license.
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\1\ In November 2000, RIAA formed ``Sound Exchange,'' an
unincorporated division of RIAA, to administer statutory licenses,
including the section 114 statutory license. See, Memorandum in
Support of RIAA Petition to Establish Terms Governing the RIAA
Collective at 2.
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RIAA appealed both the rate set by the Librarian and the additional
conditions imposed on the RIAA collective in its capacity as the
collection agent for copyright owners. See, Recording Industry Ass'n v.
Librarian of Congress, 176 F.3d 528 (D.C. Cir. 1999). The United States
Court of Appeals for the District of Columbia Circuit upheld the rate
set by the Librarian and found that the Librarian has the authority to
impose terms on copyright owners or their agents. However, it remanded
for further consideration certain terms imposed on RIAA under 37 CFR
260.2(d), 260.3(d), 260.6(b), and 260.7, because the CARP had not
considered these issues, leaving the record devoid of any evidence upon
which to fashion any terms concerning the collection and distribution
of the royalty fees. Id. at 536.
On February 13, 2001, the Copyright Office issued a scheduling
order, directing the parties to this proceeding to file their direct
cases with the Office on April 17, 2001. See, Order in Docket No. 96-5
CARP DSTRA (February 13, 2001). On that date, RIAA filed a petition to
establish terms governing the RIAA collective and to suspend the
scheduled proceeding.\2\ DMX and Muzak, two of the three other parties
to the original proceeding, authorized RIAA to inform the Office that
they consent to the proposed terms offered by RIAA in its petition. The
third party, Music Choice, had already informed the Office by letter
dated February 26, 2001, of its intent not to participate further in
this proceeding and that it did not object to the terms proposed by
RIAA.
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\2\ A copy of the RIAA Petition to Establish Terms Governing the
RIAA Collective and To Suspend CARP Proceedings, its memorandum in
support of its petition, and its letter requesting a revision of the
terms proposed in its petition may be found on the Copyright Office
website at: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.loc.gov/copyright/carp#114remand.
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On June 22, 2001, RIAA requested a revision to the terms offered in
its petition to remove a reference to the section 112 statutory license
for the making of ephemeral copies and to make clear that membership in
the collective is open only to those copyright owners whose works are
subject to statutory licensing and thus generate the funds to be
distributed by the collective. Neither DMX nor Muzak had any objections
to the proposed changes. Music Choice, having previously withdrawn from
the proceeding, took no position on the proposed changes. There being
no objection from any party with a direct interest in this proceeding,
the Copyright Office has incorporated the revision into the terms set
forth in the petition.
Pursuant to Sec. 251.63(b) of title 37 of the Code of Federal
Regulations, the Librarian can adopt the parties' proposed terms
without convening a CARP, provided that the proposed terms are
published in the Federal Register and no party with an intent to
participate in the proceeding files a comment objecting to the proposed
terms. In other words, unless there is an objection from a party with
an interest in the proceeding who is prepared to participate in a CARP
proceeding, the purpose of which is to adopt terms governing the RIAA
collective in its handling of royalty fees collected from the three
subscription services, these terms will be adopted. This procedure to
adopt negotiated rates and terms in the case where an agreement has
been reached has been specifically endorsed by Congress.

If an agreement as to rates and terms is reached and there is no
controversy as to these matters, it would make no sense to subject
the interested parties to the needless expense of an arbitration
proceeding conducted under [section 114(f)(2) (1995)]. Thus, it is
the Committee's intention that in such a case, as under the
Copyright Office's current regulations concerning rate adjustment
proceedings, the Librarian of Congress should notify the public of
the proposed agreement in a notice-and-comment proceeding and, if no
opposing comment is received from a party with a substantial
interest and an intent to participate in an arbitration proceeding,
the Librarian of Congress should adopt the rates

[[Page 38228]]

embodied in the agreement without convening an arbitration panel.

S. Rep. No. 104-128, at 29 (1995)(citations omitted).
The proposed terms shall govern the RIAA collective solely in its
capacity as the agent designated to receive royalty payments from the
three subscription services that were parties to this proceeding and
operate under the section 114 statutory license. These terms have been
developed to protect the interest of those copyright owners who are not
members of the RIAA collective and who did not participate in this
proceeding. Thus, due to the circumstances under which these terms are
being promulgated, if they are adopted, they shall have no precedential
value in any future CARP. Terms governing the administrative functions
of any future collective shall be decided in future rate adjustment
proceedings either through negotiations or after a hearing before a
CARP based upon a fully developed written record. For this reason,
parties must limit their comments to the terms offered in the context
of the proceeding to set rates and terms for the three subscription
services--Music Choice, DMX, and Muzak--for the period from the
effective date of the Digital Performance Act through December 31,
2001.
Accordingly, the Copyright Office is granting RIAA's request to
suspend further CARP proceedings and is publishing for public comment
RIAA's proposed terms concerning the operations of the collective. Any
party who objects to the proposed terms must file a written objection
with the Copyright Office and an accompanying Notice of Intent to
Participate, if the party has not already done so. However, it is
unclear whether any party who did not participate in the early stages
of the rate adjustment proceeding the purpose of which was to set rates
and terms applicable to the three subscription services can join the
proceedings at this stage. Any proceeding convened to consider these
terms would be a continuation of the prior CARP proceeding, Docket No.
96-5 CARP DSTRA, on remand from the United States Court of Appeals for
the District of Columbia Circuit. See, 17 U.S.C. 802(g). If a party
does file an objection to the proposed terms, it must state why it
believes the law permits a new party to commence participation at this
stage. The content of the written challenge must also describe the
party's interest in the proceeding, the proposed rule the party finds
objectionable, and the reasons for the challenge. If no comments are
received, the regulations shall become final upon publication of a
final rule.

List of Subjects in 37 CFR Part 260

Proposed Regulation

In consideration of the foregoing, the Copyright Office proposes
amending part 260 of 37 CFR as follows:

PART 260--USE OF SOUND RECORDINGS IN A DIGITAL PERFORMANCE

1. The authority citation for part 260 continues to read as
follows:

Authority: 17 U.S.C. 114, 801(b)(1).

Sec. 260.2 [Amended]

2. In Sec. 260.2, remove paragraph (d).
3. Section 260.3 is amended as follows:
a. By revising paragraphs (c), (d), and (e); and
b. By adding new paragraph (f).
The revisions to Sec. 260.3 read as follows:

Sec. 260.3 Terms for making payments of royalty fees.

* * * * *
(c) The collective designated to receive the royalty payments and
the statements of account shall have the responsibility of making
further distribution of these payments to copyright owners of the
exclusive right under 17 U.S.C. 106(6) whose sound recordings were
performed by the services making the payments. Such copyright owners
shall allocate their receipts according to the provisions set forth at
17 U.S.C. 114(g)(2).
(d) Before making the distributions specified in paragraph (c) of
this section, the designated collective may deduct reasonable costs
incurred in the administration of the collection and distribution of
the royalty payments, so long as the reasonable costs do not exceed the
actual costs incurred by the collective.
(e) In determining the share of each service's royalty payments to
be distributed to copyright owners who are nonmembers of the designated
collective, the collective shall attach the same weight to each
performance of a sound recording made by that service; provided,
however, that the collective may adopt a distribution methodology that
weights each such performance according to its relative value. In
determining relative value, the collective may consider factors such as
the actual or estimated number of persons who listened to each
performance by the service. The collective shall inform the Register of
Copyrights of:

(1) The methodology for distributing royalty payments to
nonmembers, and any amendment thereto, within 60 days after its
adoption;
(2) Any written complaint that the collective receives from a
nonmember concerning the distribution of royalty payments, within 60
days of receiving such written complaint; and
(3) The final disposition by the collective of any complaint
specified by paragraph (e)(2) of this section, within 60 days of such
disposition.

Nothing in these rules shall deprive any person from pursuing any
remedies they may have under law against the collective.
(f) Commencing June 1, 1998, and until such time as a new
designation is made, the collective established by the Recording
Industry Association of America, Inc., known as ``Sound Exchange,''
shall receive the royalty payments and statements of account under this
part 260. Membership in the collective shall be open on a
nondiscriminatory basis to all copyright owners of the rights subject
to statutory licensing under 17 U.S.C. 114. In determining whether to
make a new designation, the Register of Copyrights may consider any
written complaints concerning the collective; provided, however, that
the collective shall receive timely notice of, and an opportunity to
respond to, any such complaints.
4. Section 260.6 is revised to read as follows:

Sec. 260.6 Verification of royalty payments.

(a) General. This section prescribes procedures by which interested
parties, as defined in paragraph (g) of this section, may verify the
royalty payments made by the designated collective pursuant to
Sec. 260.3(c).
(b) Frequency of verification. Interested parties may conduct a
single audit of the collective making the royalty payment during any
given calendar year.
(c) Notice of intent to audit. Interested parties must file with
the Copyright Office a notice of intent to audit the collective making
the royalty payments. Such notice of intent shall be served at the same
time on the collective to be audited. Within 30 days of the filing of
the notice of intent, the Copyright Office shall publish in the Federal
Register a notice announcing such filing.
(d) Retention of records. The interested party requesting the

[[Page 38229]]

verification procedure shall retain the report of the verification for
a period of three years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent auditor, shall serve as an acceptable verification
procedure for all interested parties.
(f) Costs of the verification procedure. The interested parties
requesting the verification procedure shall pay for the cost of the
verification procedure, unless an independent auditor concludes that
there was an underpayment of five (5) percent or more, in which case,
the collective which made the underpayment shall bear the costs of the
verification procedure.
(g) Interested parties. For purposes of this section, interested
parties are:
(1) Those copyright owners who are nonmembers of the collective
entitled to receive royalty payments pursuant to Sec. 260.3(c); and
(2) Those persons who are entitled to receive a share of the
copyright owners' receipts pursuant to 17 U.S.C. 114(g)(2), or their
designated agents.
5. Section 260.7 is amended by removing the phrase ``collecting
agent'' each place it appears and adding the word ``entity'' in its
place; and in the last sentence, by removing the word ``fees'' and
adding the word ``payments'' in its place.

Dated: July 18, 2001.
Marilyn J. Kretsinger,
Assistant General Counsel.
[FR Doc. 01-18339 Filed 7-20-01; 8:45 am]
BILLING CODE 1410-33-P