E7-22044. Digital Performance Right in Sound Recordings and Ephemeral Recordings for a New Subscription Service

AGENCY:

Copyright Royalty Board, Library of Congress.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Copyright Royalty Judges are publishing for comment proposed regulations that set the rates and terms for the use of sound recordings in transmissions made by new subscription services and for the making of ephemeral recordings necessary for the facilitation of such transmissions for the period commencing from the inception of the new subscription service through December 31, 2010.

DATES:

Comments and objections, if any, are due no later than December 10, 2007.

ADDRESSES:

Comments and objections may be sent electronically to [e-mail]. In the alternative, send an original, five copies and an electronic copy on a CD either by mail or hand delivery. Please do not use multiple means of transmission. Comments and objections may not be delivered by an overnight delivery service other than the U.S. Postal Service Express Mail. If by mail (including overnight delivery), comments and objections must be addressed to: Copyright Royalty Board, P.O. Box 70977, Washington, DC 20024-0977. If hand delivered by a private party, comments and objections must be brought to the Copyright Office Public Information Office, Library of Congress, James Madison Memorial Building, Room LM-401, 101 Independence Avenue, SE., Washington, DC 20559-6000. If delivered by a commercial courier, comments and objections must be delivered between 8:30 a.m. and 4 p.m. to the Congressional Courier Acceptance Site located at 2nd and D Street, NE., Washington, DC, and the envelope must be addressed to: Copyright Royalty Board, Library of Congress, James Madison Memorial Building, LM-403, 101 Independence Avenue, SE., Washington, DC 20559-6000.

FOR FURTHER INFORMATION CONTACT:

Richard Strasser, Senior Attorney, or Gina Giuffreda, Attorney-Advisor, by telephone at [phone] or e-mail at [e-mail].

SUPPLEMENTARY INFORMATION:

Background

In 1995, Congress enacted the Digital Performance Right in Sound Recordings Act of 1995 (“DPRA”), Public Law 104-39, which created an exclusive right for copyright owners of sound recordings, subject to certain limitations, to perform publicly the sound recordings by means of certain digital audio transmissions. Among the limitations on the performance right was the creation of a new compulsory license for nonexempt noninteractive digital subscription transmissions. 17 U.S.C. 114(f).

Section 114 was later amended with the passage of the Digital Millennium Copyright Act of 1998 (“DMCA” or “the Act”), Public Law 105-304, to cover additional digital audio transmissions. These include transmissions made by “new subscription services.” For purposes of the section 114 license, a “new subscription service” is “a service that performs sound recordings by means of noninteractive subscription digital audio transmissions and that is not a preexisting subscription service or a preexisting satellite digital audio radio service.” 17 U.S.C. 114(j)(8).

In addition to expanding the current section 114 license, the DMCA also created a new statutory license to allow for the making of ephemeral reproductions for the purpose of facilitating certain digital audio transmissions, including those made by new subscription services. 17 U.S.C. 112(e).

To initiate a proceeding to establish rates and terms for those transmissions made by a new subscription service, either a copyright owner of sound recordings or a new subscription service must file a petition with the Copyright Royalty Judges (“Judges”). The petition must indicate that a new subscription service on which sound recordings are performed is or is about to become operational, for the purpose of determining reasonable terms and rates of royalty payments for the new subscription service for the period commencing with the inception of such new subscription service and ending on the date on which the most recent royalty rates and terms for preexisting subscription digital audio transmission services or preexisting satellite digital audio radio services expire or such other period as the parties may agree. 17 U.S.C. 114(f)(2)(C).

On October 31, 2005, pursuant to section 114(f)(2)(C), XM Satellite Radio, Inc. (“XM”) filed with the Judges a Petition to Initiate and Schedule Proceeding for a New Type of Subscription Service for a “new type of subscription service [which] performs sound recordings on digital audio channels programmed by the licensee for transmission by a satellite television distribution service to its residential customers, where the audio channels are bundled with television channels as part of a `basic' package of service and not for a separate fee.” XM Petition at 1. The petition noted that this new subscription service was to commence on or about November 15, 2005. Id.

On December 5, 2005, pursuant to 17 U.S.C. 804(b)(3)(C)(ii), the Copyright Royalty Judges published a notice in the Federal Register announcing commencement of the proceeding to set rates and terms for royalty payments under sections 114 and 112 for the activities of the new subscription service described in the XM Petition and requesting interested parties to submit their petitions to participate. 70 FR 72471 (December 5, 2005). Petitions to participate in this proceeding were received from Sirius Satellite Radio, Inc. (“Sirius”), XM, MTV Networks (“MTV”), and SoundExchange, Inc.

The Judges set the schedule for the proceeding for both the direct and rebuttal phases of the proceeding, including the dates for the filing of the written statements and the dates for oral testimony for each phase. Subsequent to the presentation of the direct phase of their case and the filing of their written rebuttal statements, but prior to the oral presentation of their rebuttal witnesses, the parties informed the Judges that they had “reached full agreement on all issues in this litigation” and that “there are no more issues to try.” Transcript of September 10, 2007, at p. 5. They also stated that the settlement agreement would be submitted to the Judges for approval and adoption pursuant to 17 U.S.C. 801(b)(7)(A). Id. at 6. The proposed rates and terms codifying the settlement agreement were filed on October 30, 2007.

Section 801(b)(7)(A) allows for the adoption of rates and terms negotiated by “some or all of the participants in a proceeding at any time during the proceeding” provided they are submitted to the Copyright Royalty Judges for approval. This section provides that in such event:

(i) the Copyright Royalty Judges shall provide to those that would be bound by the terms, rates, or other determination set by any agreement in a proceeding to determine royalty rates an opportunity to comment on the agreement and shall provide to participants in the proceeding under section 803(b)(2) that would be bound by the terms, rates, or other determination set by the agreement an opportunity to comment on the agreement and object to its adoption as a basis for statutory terms and rates; and

(ii) the Copyright Royalty Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants that are not parties to the agreement, if any participant described in clause (i) objects to the agreement and the Copyright Royalty 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). Rates and terms adopted pursuant to this provision are binding on all copyright owners of sound recordings and new subscription services performing the sound recordings on digital audio channels programmed by the licensee for transmission by a satellite television distribution service to its residential customers where the audio channels are bundled with television channels as part of a “basic” package of service and not for a separate fee.

The parties have agreed and proposed that the terms governing the activities of a new subscription service under sections 114 and 112 as described herein shall be the same, unless otherwise specified, as those to be determined by the Judges in the current proceeding to set rates and terms for the subscription transmissions and the reproduction of ephemeral recordings by preexisting satellite digital audio radio services, Docket No. 2006-1 CRB DSTRA. The Judges will render their determination in that proceeding by mid-December.

The parties proposing the fee structure and fees set forth herein have agreed that the fee structure and fees shall not be offered into evidence, relied upon, considered as precedent, or otherwise taken into account in (i) the proceeding in Docket No. 2006-1 CRB DSTRA to set rates and fees for the public performance of sound recordings or the reproduction of ephemeral phonorecords via preexisting satellite digital audio radio services, or (ii) in the immediately following proceeding to adopt successor rates and terms for preexisting satellite digital audio radio services.

As discussed above, the public may comment and object to any or all of the proposed regulations contained in this notice of proposed rulemaking. Those who do comment and object, however, must be prepared to participate in further proceedings in this docket to establish rates and terms for the activities of the new subscription services described herein under the section 112 and 114 licenses.

List of Subject in 37 CFR Part 383

• Copyright
• Digital audio transmissions
• Performance right
• Sound recordings

Proposed Regulations

For the reasons set forth in the preamble, the Copyright Royalty Judges propose to add part 383 to Chapter III of title 37 of the Code of Federal Regulations to read as follows:

PART 383—RATES AND TERMS FOR SUBSCRIPTION TRANSMISSIONS AND THE REPRODUCTION OF EPHEMERAL RECORDINGS BY NEW SUBSCRIPTION SERVICES

383.1 General.

383.2 Definitions.

383.3 Royalty fees for public performance of sound recordings and the making of ephemeral recordings.

383.4 Terms for making payment of royalty fees.

Authority: 17 U.S.C. 112(e), 114, and 801(b)(1).

§ 383.1

General.

(a) Scope. This part 383 establishes rates and terms of royalty payments for the public performance of sound recordings in certain digital transmissions by Licensees in accordance with the provisions of 17 U.S.C. 114, and the making of certain ephemeral recordings by Licensees in accordance with the provisions of 17 U.S.C. 112(e), during the period commencing from the inception of the Licensees' Services and continuing through December 31, 2010.

(b) Legal compliance. Licensees relying upon the statutory licenses set forth in 17 U.S.C. 112 and 114 shall comply with the requirements of those sections and the rates and terms of this part.

(c) Relationship to voluntary agreements. Notwithstanding the royalty rates and terms established in this part, the rates and terms of any license agreements entered into by Copyright Owners and Licensees shall apply in lieu of the rates and terms of this part to transmissions within the scope of such agreements.

§ 383.2

Definitions.

For purposes of this part, the following definitions shall apply:

(a) Applicable Period is the period for which a particular payment to the designated collection and distribution organization is due.

(b) Bundled Contracts means contracts between the Licensee and a Provider in which the Service is not the only content licensed by the Licensee to the Provider.

(c) Copyright Owner is a sound recording copyright owner who is entitled to receive royalty payments under 17 U.S.C. 112(e) or 114(g).

(d) License Period means the period commencing from the inception of the Licensees' Services and continuing through December 31, 2010.

(e) Licensee is a person that has obtained statutory licenses under 17 U.S.C. 112 and 114, and the implementing regulations, to make digital audio transmissions as part of a Service (as defined in paragraph (h) of this section), and ephemeral recordings for use in facilitating such transmissions.

(f) Provider means a “multichannel video programming distributor” as that term is defined in 47 CFR 76.1000(e); notwithstanding such definition, for purposes of this part, a Provider shall include only a distributor of programming to televisions, such as a cable or satellite television provider.

(g) Revenue. (1) “Revenue” means all monies and other considerations, paid or payable, recognizable during the Applicable Period as revenue by the Licensee consistent with Generally Accepted Accounting Principles (“GAAP”) and the Licensee's past practices, which is derived by the Licensee from the operation of the Service and shall be comprised of the following:

(i) Revenues recognizable by Licensee from Licensee's Providers and directly from residential U.S. subscribers for Licensee's Service;

(ii) Licensee's advertising revenues recognizable from the Service (as billed), or other monies received from sponsors of the Service if any, less advertising agency commissions not to exceed 15% of those fees incurred to a recognized advertising agency not owned or controlled by Licensee;

(iii) Revenues recognizable for the provision of time on the Service to any third party;

(iv) Revenues recognizable from the sale of time to Providers of paid programming, such as infomercials, on the Service;

(v) Where merchandise, service, or anything of value is receivable by Licensee in lieu of cash consideration for the use of Licensee's Service, the fair market value thereof or Licensee's prevailing published rate, whichever is less;

(vi) Monies or other consideration recognizable as revenue by Licensee from Licensee's Providers, but not including revenues recognizable by Licensee's Providers from others and not accounted for by Licensee's Providers to Licensee, for the provision of hardware for the Service by anyone and used in connection with the Service;

(vii) Monies or other consideration recognizable as revenue for any references to or inclusion of any product or service on the Service; and

(viii) Bad debts recovered regarding paragraphs (g)(1)(i) through (vii) of this section.

(2) “Revenue” shall include such payments as set forth in paragraphs (g)(1)(i) through (viii) of this section to which Licensee is entitled but which are paid or payable to a parent, subsidiary, division, or affiliate of Licensee, in lieu of payment to Licensee but not including payments to Licensee's Providers for the Service. Licensee shall be allowed a deduction from “Revenue” as defined in paragraph (g)(1) of this section for bad debts actually written off during the reporting period.

(h) A Service is a non-interactive (consistent with the definition of “interactive service” in 17 U.S.C. 114(j)(7)) audio-only subscription service (including accompanying information and graphics related to the audio) that is transmitted to residential subscribers of a television service through a Provider which is marketed as and is in fact primarily a video service where

(1) Subscribers do not pay a separate fee for audio channels,

(2) The audio channels are delivered by digital audio transmissions through a technology that is incapable of tracking the individual sound recordings received by any particular consumer.

(3) However, paragraph (h)(2) of this section shall not apply to the Licensee's current contracts with Providers that are in effect as of the effective date of this part if such Providers become capable in the future of tracking the individual sound recordings received by any particular consumer, provided that the audio channels continued to be delivered to Subscribers by digital audio transmissions and the Licensee remains incapable of tracking the individual sound recordings received by any particular consumer.

(i) Subscriber means every residential subscriber to the underlying service of the Provider who receives Licensee's Service in the United States for all or any part of a month; provided, however, that for any Licensee that is not able to track the number of subscribers on a per-day basis, “Subscribers” shall be calculated based on the average of the number of subscribers on the last day of the preceding month and the last day of the applicable month, unless the Service is paid by the Provider based on end-of-month numbers, in which event “Subscribers” shall be counted based on end-of-month data.

(j) Stand-Alone Contracts means contracts between the Licensee and a Provider in which the only content licensed to the Provider is the Service.

§ 383.3

Royalty fees for public performances of sound recordings and the making of ephemeral recordings.

(a) Royalty rates. Royalty rates for the public performance of sound recordings by eligible digital transmissions made over a Service pursuant to 17 U.S.C. 114, and for ephemeral recordings of sound recordings made pursuant to 17 U.S.C. 112 to facilitate such transmissions, are as follows. Each Licensee will pay, with respect to content covered by the License that is provided via the Service of each such Licensee:

(1) For Stand-Alone Contracts, the greater of:

(i) 15% of Revenue, or

(ii) The following monthly minimum payment per Subscriber to the Service of such Licensee—

(A) From inception through 2006: $0.0075

(B) 2007: $0.0075

(C) 2008: $0.0075

(D) 2009: $0.0125

(E) 2010: $0.0150 and

(2) For Bundled Contracts, the greater of:

(i) 15% of Revenue allocated to reflect the objective value of the Licensee's Service, or

(ii) The following monthly minimum payment per Subscriber to the Service of such Licensee:

(A) From inception through 2006: $0.0220

(B) 2007: $0.0220

(C) 2008: $0.0220

(D) 2009: $0.0220

(E) 2010: $0.0250

(b) Minimum fee. Each Licensee will pay an annual, non-refundable minimum fee of one hundred thousand dollars ($100,000), payable on January 31 of each calendar year in which the Service is provided pursuant to the section 112 and 114 statutory licenses, but payable pursuant to the applicable regulations for all years 2007 and earlier. Such fee shall be recoupable and credited against royalties due in the calendar year in which it is paid.

§ 383.4

Terms for making payment of royalty fees.

(a) Subject to the provisions of this section, terms governing timing and due dates of royalty payments, late fees, statements of account, audit and verification of royalty payments and distributions, cost of audit and verification, record retention requirements, treatment of Licensees' confidential information, distribution of royalties, unclaimed funds, designation and definition of the collection and distribution organization, and any definitions for applicable terms not defined herein and not otherwise inapplicable shall be those adopted by the Copyright Royalty Judges for subscription transmissions and the reproduction of ephemeral recordings by preexisting satellite digital audio radio services in Docket No. 2006-1 CRB DSTRA (“the SDARS Proceeding”).

(b) Without prejudice to any applicable notice and recordkeeping provisions, statements of account shall not require reports of performances.

(c) If the Copyright Royalty Judges adopt reports of use regulations in the SDARS Proceeding, those regulations, if any, shall govern Licensees' obligations to report sound recordings used pursuant to this part, except that Licensees also shall report to SoundExchange which channels are transmitted by their respective Providers for all past, current and future periods. In the event that the Copyright Royalty Judges do not adopt reports of use regulations in the SDARS Proceeding, then reports of use provided by XM Satellite Radio Inc. (“XM”) and Sirius Satellite Radio Inc. (“Sirius”) for their use of sound recordings on their preexisting satellite digital audio radio services (as defined in 17 U.S.C. 114(j)(10)) shall be deemed to satisfy XM's and Sirius' obligations to report sound recordings used pursuant to this part, and MTV Networks shall provide census reporting, retroactive to the inception of its Service.

Dated: November 6, 2007.

James Scott Sledge,

Chief Copyright Royalty Judge.