Brookings wants a law to make 801(b)(1) the standard for all non-interactive digital radio

Wednesday, August 15, 2012 - 1:30pm

A new paper from a Washington, D.C. think tank clearly recounts how entrenched interests crafted copyright law to establish copyright royalty obligations that put webcasters at a severe disadvantage to other forms of radio -- and calls on Congress to fix it.

The highly-regarded Brookings Institution last week published "Digital Music Broadcast Royalties: The Case for a Level Playing Field" in which it calls for Congress to enact legislation requiring the use of a consistent legal standard for royalties when it comes to "all non-interactive digital audio broadcasting."

We've often discussed (such as here) -- as have leading experts in the field, such as attorney David Oxenford -- the fact that sound recording performance royalties for Internet radio are determined using a significantly different (and, as it's been demonstrated, dramatically unfavorable) legal standard than those for other forms of radio. 

The bottom-line result of the different legal standard can be seen in recent Copyright Royalty Board determinations. For instance, the CRB, based on the widely-used "801(b)(1)" standard in copyright law, "concluded in a December 2007 ruling that the satellite radio royalty rates should start at 6% of gross revenue for 2006, rising gradually to 8% in 2012." The same group of judges, using the significantly different "willing buyer/willing seller" standard (instead of 801(b)(1)), determined a royalty rate for Internet radio of $.0021 "per performance" (songs x listeners) for 2012. Pandora, had it been paying this rate instead of its special discounted agreement rate with SoundExchange, "its payments to SoundExchange for sound recording performance licenses would likely have... approach(ed) or exceed(ed) its revenue of $80.1 million."

The Brookings paper is an excellent primer on the differences between U.S. Copyright Law's "801(b)(1)" standard (used for rate-setting for satellite radio and services like Music Choice) and the "willing buyer/willing seller" standard that 1998's Digital Millennium Copyright Act mandated for webcasting. It also very nicely recounts the history of webcasting royalties, CARP and CRB, the DMCA, and more. The author, Brookings nonresident senior fellow John Villasenor, has published articles in Forbes (covered in RAIN here and here) on this very topic.

Brookings has at least one ally in Congress already. In July we reported (here) that Utah Republican Congressman Jason Chaffetz has begun crafting a bill that would indeed replace the "willing buyer/willing seller" standard in webcast royalty determinations with the 801(b)(1) standard.

Download the Brookings paper here. has also covered this story here.

Rep. Chaffetz's Internet Radio Fairness Act would require rates based on same Copyright Act standard

Thursday, July 19, 2012 - 12:40pm

Utah Republican Congressman Jason Chaffetz has reportedly begun crafting a bill aimed at bringing Internet radio royalty rates more in line with those of other radio platforms. The bill's key feature is a change from the controversial "willing buyer/willing seller" standard in webcast royalty determinations to the more prevalent "801(b)" standard.

Chaffetz says his Internet Radio Fairness Act of 2012 is still in draft form and isn't yet ready to be introduced. But he plans to determine his next steps by the end of this month.

When Copyright Royalty Board (CRB) judges determine the royalty rate at which webcasters pay copyright owners and performers for the use of sound recordings, they do so based on the standard -- mandated by the DMCA -- of what a "willing buyer" and a "willing seller" would agree to in a hypothetical marketplace. The judges do not (and in fact, are instructed to not) consider the "real world" ramifications of their determination, only the perceived economic value of the right. The Internet radio royalty process is unique in this way, as royalties for satellite and cable radio are based on the Copyright Act's more well-known 801(b) standard. Royalty determinations for what labels pay music publishers and songwriters are also based on 801(b).

"In setting royalties, (801(b)) assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music," explains attorney David Oxenford (here). Among other objectives, judges using 801(b) are instructed to set rates that "minimize any disruptive impact on the... industries involved." (Read 801(b)(1) of the Copyright Act here.)

How much of a difference does this standard make? Consider that satellite radio operator SiriusXM pays around 8% of its revenues for the right to use copyright sound recordings in its broadcasts, based on a determination using the 801(b) standard. Pandora, on the other hand, says nearly 70% of its total revenue (based on its Q1 FY 2013) will go to royalty payments (and that's based on on a deal Pandora struck that actually decreased its obligation from the CRB decision -- a decision based on "willing buyer/willing seller").

"It seems screwy that royalty rates change so dramatically based on the platform," Chaffetz explained. "When you’re listening to music in your house or in your car, you may be listening to it on your iPhone, you may be listening on the satellite radio or the FM radio. Does that mean the royalties should be so vastly different? It doesn’t seem to make sense to me. We need to play catch-up here."

A summary of the bill (according to news source The Hill) says the legislation also aims to "improve the proceedings process for rate-making cases and ensure judges on the Copyright Royalty Board have the same legal background and expertise as federal court judges who consider copyright cases."

Chaffetz says he expects push-back from the recording industry, and remains open to labels' input. "We’ll flesh all that out. I have no doubt we’ll have a good, lively discussion on that. There’s plenty of money to be made by all the various interests, it’s just I think moving toward parity is an important principle," he said.

The "801(b) vs. 'willing buyer/willing seller'" issue has come up multiple times in the history of Internet radio. The Performance Rights Act, which would have imposed a sound recording performance royalty on broadcast radio, would have moved webcast rate determinations to 801(b) (see our coverage here). Attorney David Oxenford wrote about the inherent unfairness of using different standards by platform in early 2008 (see RAIN coverage here). That same year Senators Ron Wyden (D-OR) and Sam Brownback (R-KS) introduced their Internet Radio Equality Act, which would have, like the PRA and Chaffetz's new bill, given Internet radio the 801(b) standard. That effort stalled by July (see RAIN coverage here). We have tons more coverage and analysis about 801(b), here.

Read more from The Hill online here.

Besides for IBS noncomm streamers, Court finding on CRB has little effect, Oxenford says

Monday, July 9, 2012 - 11:30am

On Friday RAIN reported (here) on the U.S. Appeals Court finding that the appointments of judges to the Copyright Royalty Board were unconstitutional. We have follow-up today from industry attorney David Oxenford:

This case involved the last webcasting case, which set royalties for the period 2011-2015. Every party had settled out of the case, but for the Intercollegiate Broadcasting System (IBS), which represents certain small webcasters associated with colleges and high schools. It challenged the constitutionality of the Copyright Royalty Board (taking up the argument that Live365 made earlier in the case, before itself settling out of the case -– note that I was counsel for Live365), that the Board’s structure was impermissible under the Appointments Clause of the U.S. Constitution (see RAIN's coverage here). The Court ruled that the CRB was in fact unconstitutional, but the ruling will likely have little practical effect.

The constitutional issue was whether the Board was properly appointed by the Librarian of Congress. Under the constitution, "principal officers" of the U.S. have to be appointed by the President. The Court determined that the CRB, as originally set up, had enough power so that its Judges were principal officers and should have been appointed by the President.

But rather than striking down the whole scheme and sending it back to Congress to straighten out, the Court took it upon itself to remedy the problem: simply by striking the portions of the statute that limit the power of the Librarian of Congress to remove the Copyright Royalty Judges without cause. By determining that this single provision was the provision that gave the CRB too much power, the Court decided that it was this section that was unconstitutional.

So while the Judges were improperly appointed, by striking that section of the law, the Court determined that it could remedy the constitutional issues. Going forward, it seems like the Board can function as it has -– the only difference being that, theoretically, the Judges can now be removed by the Librarian at any time.

All in all, it appears to have been much controversy with little practical effect. IBS will get a remand, as their case was decided by a Board that was unconstitutional. But it looks like other cases can go forward in the normal course, including the next webcasting royalty proceeding that will begin in 2014, and the satellite radio royalty case that is currently under consideration.

Many webcasters had thought that this case might force Congress to take another look at the CRB process. The CRB not only sets webcasting royalties, but also the royalties paid by background music services, satellite radio, and others. It also distributes the royalties collected by the Copyright Office by cable and satellite television distributors (which are paid to copyright owners of programs on TV stations distributed by these systems). If the Court had found the Board to be unconstitutional, and had not applied the "fix," Congress would have had to act so that these matters could be resolved. Many had hoped that Congress would look at many of the other issues that parties have had with the CRB and the rates that it has set. But, by applying the "fix," that impetus for Congress to act immediately has been removed.

This decision can be appealed -– through a request for a rehearing by all of the judges on the D.C. Circuit of the Court of Appeals, or to the Supreme Court. If not appealed, the issue of the CRB’s constitutionality may have finally been settled.

Finally, IBS CEO/COO Fritz Katz said after the decision, "This is another big win for IBS and the second time the D.C. Circuit has vacated the $500 minimum fee for IBS noncommercial webcasters... IBS will also be moving to remove the CRB requirement for 'census' (100%) reporting of use, which is uneconomic for the artist as it costs more to process the data than the now vacated $500 minimum, and certainly much more than the actual use of the statutory license by IBS Members which is about $20 a year."

David Oxenford is a Washington, D.C.-based partner at Wilkinson, Barker, Knauer, LLP.

Appellate ruling won't affect most webcast royalty rates, but non-comm $500 minimum fee remanded to CRB

Friday, July 6, 2012 - 11:20am

The U.S. Court of Appeals has found that the judges that determined webcasting royalty rates were appointed unconstitutionally -- but also immediately rectified that by striking part of the statute.

The Copyright Royalty Board is the panel of judges, appointed by the Librarian of Congress, that sets the default royalty rates for Internet radio's use of copyright recordings. Intercollegiate Broadcasting Services, which represents educational institution-based broadcasters and webcasters, appealed the CRB's final royalty determination for 2011-2015 (specifically, the $500 annual minimum royalty fee) (prior coverage here). As part of its appeal, the IBS argued the Librarian's appointment of the judges violated the Appointments Clause of the Constitution, and thus its determinations null and void.

In its just-released decision in that case, the Court agreed with IBS that the CRB appointments were indeed unconstitutional. However, that problem was solved by the Court by simply striking the language of the statute that limited the Librarian's ability to remove judges without cause -- thereby satisfying the Appointments Clause.

What's this mean for webcasters and royalty rates? Apparently, not much. The vast majority of webcast services operate not under the actual CRB-determined compulsory, but under agreements reached between SoundExchange and various groups of webcasters, published in the Federal Register. These agreements remain in effect.

However, the $500 minimum fee argued against by IBS has been remanded back to the (now-Constitutionally-appointed) CRB for review.

We're looking for more clarification on this story from authoritative sources, and will follow up as warranted. Read the decision itself here.

David Carson explains Copyright Office's roles and stances on copyright issues impacting radio

Wednesday, May 9, 2012 - 12:10pm

David Carson at RAIN Summit West 2012"We're nothing to be afraid of," chuckled David Carson, General Counsel of the U.S. Copyright Office, during RAIN Summit West 2012. Carson was interviewed on-stage by industry attorney and Davis Wright Tremaine partner David Oxenford. "Are you to be feared?" Oxenford had asked, on behalf of the webcasters and broadcasters in the audience.

Carson insisted the answer is "no." In fact, he said the Copyright Office has "hardly anything to do with" what is perhaps the biggest copyright-related sore spot among webcasters: setting royalty rates. That job is mainly handled by the Copyright Royalty Board.

However, Carson (pictured) did explain that the Copyright Office can review the CRB's decisions for "legal error," and any corrections can become legal precedents in the future. The CRB can also consult the Copyright Office about legal questions, and the Copyright Office makes recommendations about who should serve as a judge on the CRB.

In fact, Carson was part of a panel that just recently recommended the new CRB judge, Suzanne Barnett (RAIN coverage here).

The Copyright Office does take stances on copyright issues, though, and makes recommendations to Congress. One such issue -- "the most glaring," in Caron's opinion -- is the broadcast radio performance royalty. Carson said that since before 1978, the Copyright Office has "taken the position that sound recordings should be entitled to a performance royalty just like musical compositions are... We are one of the few countries on earth that doesn't actually provide a performance royalty for sound recordings [played on AM/FM broadcast radio]." (Internet and satellite radio in the U.S. do pay performance royalties.)

To the Copyright Office, explained Carson, broadcast radio's performance royalty exemption "seems sort of bizarre" and "strange."

Oxenford questioned Carson about whether the Copyright Office has, or should, consult broadcasters about that stance. "That's what Congress does," answered Carson. "We advise Congress." And while sometimes Congress requests the Copyright Office to conduct studies and discuss the matter with stakeholders, more commonly "we're actually directed not to talk to stakeholders. 'We want your expert advice,' [instructs Congress]... and as often as not they thank us for our recommendations and then go off and do something else."

All that said, "we can expect no copyright legislation this year," predicted Carson, thanks in part to the election.

Carson also discussed the situation on pre-1972 sound recordings, and offered his thoughts on the recent SOPA debacle (when "suddenly politics wasn't played by the usual rules").

You can watch the entire interview with David Carson thanks to RTTNews here.

Librarian of Congress appoints new CRB Chief Judge

Friday, April 13, 2012 - 11:55am

CRBThe Librarian of Congress today announced that Suzanne Barnett will be the new Chief Judge for the Copyright Royalty Board (CRB). Barnett is currently a superior court judge of King County in Seattle, Washington.

"This is the first new judge on the three-judge CRB since the judges were first appointed in January 2006, soon after Congress first created the CRB," writes Davis Wright Tremaine partner David Oxenford. He also notes that at least one royalty case has been postponed until after the new judge assumes her role at the CRB.

Oxenford has more details -- including info about the law governing who should make-up the CRB -- at the Broadcast Law Blog here.

David Oxenford will interview U.S. Copyright Office general counsel David Carson at RAIN Summit West 2012, which takes place this Sunday, April 15 (more info here).

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