Compulsory License for Making and Distributing Phonorecords, Including Digital Phonorecord Deliveries

AGENCY:

Copyright Office, Library of Congress.

ACTION:

Final rule.

SUMMARY:

The Copyright Office of the Library of Congress is amending its regulations governing the content and service of certain notices on the copyright owner of a musical work. The notice is served or filed by a person who intends to use a musical work to make and distribute phonorecords, including by means of digital phonorecord deliveries, under a compulsory license.

EFFECTIVE DATE:

July 22, 2004.

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 20024-0977. Telephone: (202) 707-8380; telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION:

I. Background

Section 115 of the Copyright Act, 17 U.S.C., provides that “[w]hen phonorecords of a nondramatic musical work have been distributed to the public in the United States under the authority of the copyright owner, any other person * * * may, by complying with the provisions of this section, obtain a compulsory license to make and distribute phonorecords of the work.” 17 U.S.C. 115(a)(1). The compulsory license set forth in section 115 permits the use of a nondramatic musical work in a phonorecord without the consent of the copyright owner if certain conditions are met and royalties are paid.

Section 115 was subsequently amended on November 1, 1995, with the enactment of the Digital Performance Right in Sound Recordings Act of 1995 (“DPRA”), Public Law 104-39 (1995). Among other things, this law expanded the section 115 compulsory license for making and distributing phonorecords to include not only the traditional use of the musical work to make an original sound recording, but also the distribution of a phonorecord of a nondramatic musical work by means of a digital phonorecord delivery (“DPD”). See 17 U.S.C. 115(c)(3)(A). As defined in the law, a digital phonorecord delivery (DPD) is:

Each individual delivery of a phonorecord by digital transmission of a sound recording which results in a specifically identifiable reproduction by or for any transmission recipient of a phonorecord of that sound recording, regardless of whether the digital transmission is also a public performance of the sound recording or any nondramatic musical work embodied therein.

17 U.S.C. 115(d).

The DMCA did not change or alter the longstanding notice requirement set forth in section 115(b) which requires a person who wishes to obtain a compulsory license under section 115 to notify the copyright owner of his or her intention to use the copyright owner's musical work to make and distribute phonorecords under the section 115 license. However, the amendments did require the Copyright Office to amend its regulations governing the content and service of the required Notices of Intention to use the license to include the making of a digital phonorecord delivery, and the Office did so in 1999. See 64 FR 41286 (July 30, 1999). It is now evident that these changes did not go far enough to address the needs of certain digital music services which anticipate using most, if not all, of the musical works embodied in the sound recordings readily available in today's marketplace under the section 115 license.

Consequently, on August 28, 2001, the Copyright Office published a second notice of proposed rulemaking (“NPRM”) in which it suggested further amendments to those rules associated with service of a notice to use the section 115 license and filing of such notice with the office. 66 FR 45241 (August 28, 2001). After considering the comments from the record industry, music publishers and potential new users of the license who seek to make digital phonorecord deliveries under the section 115 license, the Office published a set of proposed regulations that would allow, among other things, service on an agent, the listing of multiple works on a single notice, and use of an address other than the one listed in the Copyright Office records. In proposing these rules, however, the Office identified three issues pertinent to the rulemaking that either had not been presented to the public for comment or that required further comment from the parties before the Office could issue a final rule. For this reason, the Office published yet another NPRM for the purpose of offering interested parties an opportunity to comment on these three issues: (1) Whether licensees should be required to send statements of account and royalty payments to the agent to whom the notice of intention was sent until the agent or the copyright owner advises the licensee that the statements and payments should be sent elsewhere; (2) whether it is advisable to simplify the requirement that a licensee provide information concerning its ownership, officers and directors; and (3) the sufficiency of a Notice to cover all possible configurations, including those not listed specifically on the notice. 69 FR 11566 (March 11, 2004).

II. Comments and Discussion

The Copyright Office received six comments in response to the March 11 notice from the National Music Publishers' Association, Inc. (“NMPA”) and The Harry Fox Agency, Inc. (“HFA”), jointly; the Digital Media Association (“DiMA”); Yemi Adegbonmire; the Recording Industry Association of America, Inc. (“RIAA”); NMPA/HFA/RIAA, jointly; and Music Reports, Inc. (“MRI”).

All commenters who expressed an opinion supported proposed rule § 201.18(b), which would require the authorized agent of a copyright owner, within two weeks of receiving a notice, to provide the licensee the name and address of the person to whom the licensee shall submit Statements of Account and royalty payments. They agreed that the rule balanced the equities fairly between the licensee, who bears the responsibility for serving the notice on the proper party in the first instance, and the copyright owner. RIAA/NMPA/HFA went on to note that the alternative proposal—to allow a licensee to make payments and file statements on the agent authorized to accept the notice—would open the door to disputes concerning misdirected payments which could be difficult and time consuming to resolve after the fact. We find this reasoning compelling.

The second proposal—to eliminate the requirement that a licensee provide certain information concerning its ownership, officers and directors, and substitute greatly simplified requirements—also generated no controversy. RIAA/NMPA/HFA had maintained that the current rules require more information than needed to meet the copyright owner's legitimate right to know with whom it is dealing and may well impose a needless burden on licensees. In light of these assertions by both copyright owners and users, the Office proposed to amend the rule and adopt the RIAA/NMPA/HFA proposal which requires that a licensee provide only the name and title of the licensee's CEO, managing partner or the like, and identifying information for the primary entity (such as a record company or digital music service) expected to be actively engaged in business under the license, if that entity is other than the licensee itself. Because the proposed amendment to the rules provide sufficient information to identify the licensee and no party opposes the proposed changes, the Copyright Office is adopting the proposed amendments as announced in the March 11 notice.

The only issue over which the commenters disagreed was whether a single Notice of Intention to use a particular work is sufficient notice to cover all possible format configurations, including both those specifically identified on the notice and those which could be used although not listed on the notice. The question arose because of a comment DiMA made in its initial comment suggesting that the Office promulgate “a minimal set of regulations for the common situation in which online entities will be distributing digital phonorecord deliveries of sound recordings already covered by a mechanical license.” Because DiMA's suggestion was unclear, the Office opined that DiMA's suggestion may have been intended to permit a licensee to rely upon an earlier-filed notice, e.g., one filed in order to use the license to make physical phonorecords, to cover the making of DPDs even though the digital phonorecord format configuration was not listed on that notice. We had stated in the March 11 notice that while it was highly unlikely the final rule promulgated in this proceeding would include any further amendments to address DiMA's suggestion, we would consider DiMA's proposal and comments received on this issue for possible future action.

DiMA, however, did not elaborate on its earlier comment, obviating the need to consider its suggestion further. On the other hand, HFA/NMPA and RIAA did file comments on the Office's proposed interpretation of DiMA's suggestion. Interestingly, the record company representatives and the publishing interests representatives take diametrically opposed positions on whether a single notice covers all configuration formats or whether additional Notices need to be filed each time the licensee expects to use the musical work in a format not previously identified.

RIAA maintains that the current regulations already “permit a licensee under section 115 to rely upon a Notice of Intention that had been previously served or filed to make DPDs.” It notes that the Copyright Act recognizes a single compulsory license within section 115 and covers the making and distribution of a nondramatic musical work by means of a digital audio transmission that results in a digital phonorecord delivery (“DPD”) and that the regulations treat DPDs as merely another phonorecord configuration. RIAA then turns to the regulatory text, focusing on the provision that requires the licensee to identify those phonorecord configurations already made and those expected to be made under the license. See 37 CFR 201.18(c)(1)(iv). It maintains that the phrase “expected to be made” does not require absolute precision and that the licensee need only provide the information “in good faith and on the basis of the best knowledge, information, and belief of the person signing the Notice. If so given, later developments affecting the accuracy of such information shall not affect the validity of the Notice.” 37 CFR 201.18(d)(3), as amended. According to RIAA, these provisions when taken together do not require the filing of subsequent notices merely because a new type of phonorecord configuration is being made and distributed under the section 115 license.

RIAA then cites to an HFA comment offered during the initial rulemaking proceeding, the purpose of which was to establish notice and recordkeeping requirements for use of the section 115 license, where HFA stated that it could accept the filing of a single notice which listed all phonorecord configurations contemplated at the time of the notice, provided that “the regulations insure adequate notice of use of additional forms to be filed for each type of phonorecord configuration of a particular sound recording of a particular song (which we feel is necessary for purposes of clarity and sensible accounting in any event).” Supplemental Statement Concerning Regulations to be Promulgated by the Copyright Office Relative to the Compulsory License Provisions of the Copyright Act (section 115), submitted by the Harry Fox Agency, Inc., May 26, 1977. RIAA opines that the Office adopted HFA's position and promulgated §§ 201.19(e)(3)(ii)(D) and (f)(4), at least in part, to serve this purpose. These two provisions of the rules require that specific accounting information be reported separately for each phonorecord configuration, thus giving the publishers accurate and timely information about the number and types of phonorecords being made and distributed under the compulsory license.

NMPA and HFA take a radically different view of the current notice requirements. They now argue that any provision or interpretation which would allow the filing of a single Notice of Intention to cover format configurations beyond those identified on the notice, “would disrupt longstanding industry practice and conflict directly with established jurisprudence.” They maintain that it is standard industry practice to require each licensee to specify the configuration for which the licensee seeks the license. They argue that the reason for imposing configuration limitations is to provide the publishers with a means to track the licensee's use of the musical work and to insure that the appropriate royalty rate attaches to the different configurations. In support of their position, NMPA and HFA cite two court cases which held that the scope of a mechanical license was limited to the express terms of the license. See Rodgers & Hammerstein Org. v. UMG Recordings, Inc., 00 Civ. 9322 (JSM), 2001 U.S. Dist. LEXIS 16111 (S.D.N.Y. Sept. 26, 2001), and Fred Ahlert Music Corp. v. Warner/Chappell Music, Inc., 958 F. Supp. 170 (S.D.N.Y. 1997). Neither court, however, discusses the terms of use applicable to a section 115 statutory license.

The Office acknowledges that HFA and NMPA offer a well-articulated presentation of the current state of affairs with respect to mechanical licenses negotiated in the marketplace but finds that their discussion misses the mark. As a primary matter, HFA and NMPA overlook the fact that a voluntary license negotiated in the marketplace between a willing buyer and a willing seller are not the same as the license Congress granted to licensees who make and distribute phonorecords under the terms set forth in section 115 of the Copyright Act. The terms of the statutory license are set by Congress and are not subject to modification at will by the parties. Parties may use the statutory license as a starting point, adopting those provisions that meet their needs and modifying or eliminating those that do not. But, the result is a negotiated license which varies from the section 115 statutory license in significant ways.

NMPA and HFA, however, treat the statutory and negotiated licenses as one and the same. Thus, they rely on the courts' interpretation of voluntary license terms to inform the interpretation of similar statutory and regulatory provisions that govern the statutory license, but they fail to explain how the courts' interpretation of private commercial licenses relates to the regulatory framework and the policy considerations which underlie the notice and accounting requirements adopted by the Register of Copyrights in 1980.

The relevant question is whether the current regulations adopted in 1980 require a compulsory licensee to file a new notice in the case where the licensee seeks to expand its use of the section 115 license to cover phonorecord configurations not listed on the Notice of Intention to Use. A review of the comments and testimony from the rulemaking proceeding by which the current regulations were promulgated show that the question engendered some debate. During the early phase of that proceeding, publishers sought a rule that would require a licensee to file a separate notice for each separate type of phonorecord configuration, but they backed away from that position in their later comments. In Supplemental Comments filed on May 26, 1977, the Harry Fox Agency stated its willingness to permit use of a single notice listing those configurations the licensee is contemplating using at the time of service, provided that the licensee subsequently identified the use of new configurations on the accounting forms.

They may have changed their position in light of statements made by the Register of Copyrights during public hearings held by the Copyright Office in April 1977. In her comments, the Register spoke directly to the question and made the observation that the notice was to contain information that “would be given as of the date that the Notice was filed, and there [was] no obligation that it be kept up-to-date.” In taking this position, she contrasted the lack of a legal requirement to update a notice served under section 115 with the notice requirements for use of the cable compulsory license “where there is a requirement that it be kept up-to-date.” Transcript of Second Hearing on Implementation of the Copyright Law Revision, Docket No. 77-3, at 46. (April 26, 1977).

Beyond the early exchanges, the parties did not address the question further and the Copyright Office issued interim regulations on December 29, 1977. 42 FR 64889 (December 29, 1977). These regulations did not include any provision that would require a licensee to submit a further formal notice to the copyright owner of actual use beyond the initial notice that listed format configurations the licensee was using at the time or expected to use in the future. The rules, however, did include, and still do, a requirement that the licensee provide the accounting information specified in §§ 201.19(e)(3)(ii)(D) and (f)(4)(i) for each phonorecord configuration actually made, thus seeming to adopt the HFA suggestion for using statements of account to provide further information on actual use.

In light of the fact that the purpose of the Notice of Intention is merely to give notice to the copyright owner of a licensee's intention to use the copyright owner's musical work to make and distribute phonorecords subject to the terms of the section 115 compulsory license, additional notices to update information that was correct at the time of service are not part of the statutory scheme. Once a notice is served, the copyright owner is on notice that the licensee will be using the identified musical work to make phonorecords. The licensee is then obligated to provide specific information about the types and numbers of phonorecords made and distributed as part of the monthly and annual statements of account, making it unnecessary to file follow-up notices for this purpose.

III. Additional Issues

1. Further revisions to § 201.19. DiMA offered no specific comment on the three questions posed in the March 11 notice, but it has requested that the Office modify § 201.19 as follows: (1) To permit statements of account to be signed and delivered by the compulsory licensee or a duly authorized agent preparing the statement; (2) to eliminate the requirement for a handwritten signature, given the ability to work through an agent; and (3) to permit service of the statements of account by regular mail or electronic delivery. MRI requests the same three modifications.

In the current rulemaking, the Office sought to amend its rules to expedite the filing of notices pursuant to section 115(b)(1) of the Copyright Act and offered proposed amendments to § 201.18 to achieve this goal, while at the same time proposing limited changes to § 201.19 in order to harmonize the service requirements between the two sections. See 66 FR 45241 (August 28, 2001). This notice expressly stated that the Office was not considering further changes to § 201.19 in this proceeding. Id. at 45242. While we understand DiMA's interest in pursuing additional amendments in the interest of streamlining the reporting process and will consider initiating a new rulemaking proceeding to address these issues, we will not place the current rulemaking on hold to consider new questions. The process with respect to amending the rules to streamline the process for serving notices under § 201.18 has come to an end, and it is in the interest of all parties that these final rules be adopted without delay.

As part of this proceeding, however, amendments have already been made to allow service of statements of account by regular mail. See 37 CFR 201.19(e)(7)(i), (ii) and (f)(7)(i) and (iii). Formerly, these provisions required service by certified mail or registered mail, but they have been amended to allow for service “by mail or by reputable courier service.” However, the proposed rules did not include a provision to permit service of statements of account by electronic delivery because this proceeding had not considered amendments to § 201.19 beyond those needed to provide the licensee with options for sending the Statements as currently prepared. The rules governing the Statements of Account differ significantly from those governing a Notice of Intention in that they require the person signing the document to certify the accuracy of the information in the Statements of Account. Consequently, it would appear that the signature of the certifying official constitutes a legal representation on behalf of the licensee that should not be dismissed lightly without comment from the affected parties and, thus, should be considered along with the other issues identified by DiMA and MRI in a separate rulemaking.

2. Date of filing. Adegbonmire noted that the amended rules did not clarify that a receipt from a reputable courier indicating the date of attempted delivery would be acceptable as evidence of the date of service, even though the March 11 notice stated that such proof would be sufficient to establish the date of service. He proposes amending proposed § 201.18(f)(5) to include language expressly stating that such receipt is acceptable proof for establishing the date of service. We agree and have made the necessary changes to proposed § 201.18(f)(5) and to §§ 201.19(e)(7)(iv) and (f)(7)(iv).

He also suggested that the rules expressly recognize use of a Delivery Confirmation receipt as proof of the date of service. We are unfamiliar with this service and decline to adopt the suggestion to specifically list a Delivery Confirmation receipt as evidence of the date of service. Sections 201.18(f)(5) and 201.19(e)(7)(iv), however, should not be interpreted as listing the only acceptable forms of proof. In fact, the last sentence in these provisions leaves open the possibility that the licensee may adduce other evidence to establish the date of service. For that reason, we see no reason to list every possible means of proof for establishing the date of service and have only acknowledged the two specific means the parties have already considered by virtue of the earlier notices.

3. Demand for electronic submission. Adegbonmire has also offered comment on the proposed regulation that would permit a copyright owner or its agent to demand that a notice containing more than 50 titles of works be resubmitted in an electronic format. He proposes setting the threshold at 25 titles rather than 50 to facilitate the process, though he does not state how it would do so. Consequently, we see no reason to reconsider the decision to set the threshold at more than 50 titles.

He also suggests that the rule itself violates the statute because the rule would allow a licensee to resubmit its notice in an electronic format within 30 days after receipt of the demand. We disagree. Provided that the initial notice adheres to the rules and is served on the copyright owner or its agent before or within 30 days of making, and before distributing any phonorecords of the listed works, then the licensee has fulfilled the statutory requirement to serve notice. The request for an electronic submission is a subsequent requirement that must be met in accordance with the rules. The requirement itself does not raise questions of whether the filing is timely; rather, it addresses compliance with format and submission requirements. Thus, failure to comply with the copyright owner's demand for an electronic submission would constitute a violation of the rules governing use of the license and could provide the basis for a copyright infringement suit.

There being no other matters for consideration, the Office is announcing final rules—incorporating the amendments discussed—governing the filing of Notices of Intention to Use a section 115 license for the making and distribution of phonorecords.

IV. Regulatory Flexibility Act

Although the Copyright Office, as a department of the Library of Congress and part of the legislative branch, is not an “agency subject to the Regulatory Flexibility Act,” 5 U.S.C. 601-612, the Register of Copyrights has considered the effect of the amendments to §§ 201.18 and 201.19 on individual authors and small entities. The Register has determined that the final regulations will not have a significant economic impact on a substantial number of individual compulsory licensees or small entities that would require provision of special relief for small entities in the regulations, and that the final regulations are, to the extent consistent with the stated objectives of applicable statutes, designed to minimize any significant economic impact on small entities.

List of Subjects in 37 CFR Part 201

• Copyright

Final Regulation

In consideration of the foregoing, the Copyright Office is amending part 201 of 37 CFR as follows:

PART 201—GENERAL PROVISIONS

1. The authority citation for part 201 continues to read as follows:

Authority: 17 U.S.C. 702.

2. Section 201.18 is revised to read follows:

3. Section 201.19 is amended as follows:

a. by revising paragraph (a)(3);

b. by redesignating paragraphs (a)(4) through (a)(11) as paragraph (a)(5) through (a)(12), respectively;

c. by adding a new paragraph (a)(4);

d. by removing the phrase “subparagraph (B) of this § 201.19(a)(5)(iii)” and adding “paragraph (a)(7)(iii)(B) of this section” in its place each place it appears;

e. by removing the phrase “paragraph (B) of this § 201.19(a)(5)(iii)” and adding “paragraph (a)(7)(iii)(B) of this section” in its place each place it appears;

f. in newly designated paragraph (a)(7), by removing the phrase “paragraph (a)(5)” and adding “paragraph (a)(6) of this section” in its place;

g. in paragraph (c)(2)(iii), by removing the phrase “paragraph (a)(7)” and adding “paragraph (a)(10)” in its place;

h. in paragraph (d) introductory text, by removing the phrase “§ 201.19(a)(4)” and adding “paragraph (a)(5) of this section” in its place;

i. by revising paragraph (e)(7)(i);

j. by revising paragraph (e)(7)(ii)(A);

k. in paragraph (e)(7)(ii)(B), by removing the phrase “§ 202.19(e)(7)(ii)” and adding “this paragraph (e)(7)(ii)” in its place;

l. in paragraph (e)(7)(ii)(D), by removing the phrase “this § 201.19(e)(7)(ii)” and adding “this paragraph (e)(7)(ii)” in its place;

m. by adding a new paragraph (e)(7)(iv);

n. by revising paragraph (f)(3)(iii);

o. in paragraph (f)(4)(ii), by removing the phrase “paragraphs (A) through (F) of this § 201.19(f)(4)(i)” and adding “paragraphs (f)(4)(i)(A) through (F) of this section” in its place;

p. in paragraph (f)(5), by removing the phrase “[subject to paragraph (f)(3)(iii)(A)]'';

q. by revising paragraph (f)(7)(i);

r. by revising paragraph (f)(7)(iii)(A);

s. in paragraph (f)(7)(iii)(B), by removing the phrase “§ 202.19(f)(7)(iii)” and adding “this paragraph (f)(7)(iii)” in its place; and

t. by adding a new paragraph (f)(7)(iv).

The revisions and additions to § 201.19 read as follows: