Notice and Recordkeeping for Use of Sound Recordings Under Statutory License

AGENCY:

Copyright Royalty Board, Library of Congress.

ACTION:

Final rule.

SUMMARY:

The Copyright Royalty Judges are issuing final regulations for the delivery and format of reports of use of sound recordings for the statutory licenses set forth in sections 112 and 114 of the Copyright Act.

DATES:

Effective Date: November 12, 2009.

FOR FURTHER INFORMATION CONTACT:

Richard Strasser, Senior Attorney, or Gina Giuffreda, Attorney Advisor, by telephone at (202) 707-7658 or e-mail at crb@loc.gov.

SUPPLEMENTARY INFORMATION:

I. Background

On October 6, 2006, the Copyright Royalty Judges (“Judges”) issued interim regulations published in the Federal Register for the delivery and format of reports of use of sound recordings for the statutory licenses set forth in sections 112 and 114 of the Copyright Act. 71 FR 59010. The goal of those interim regulations was to establish format and delivery requirements for reports of use so that royalty payments to copyright owners pursuant to section 112 and 114 licenses could be made from April 1, 2004, forward based upon actual data on the sound recordings transmitted by digital audio services. During the interval since the Judges issued the interim regulations, the Judges have monitored the operation of these regulations as well as developments in recordkeeping requirements agreed upon by parties to various settlements relating to the use of section 112 and 114 licenses. Subsequently, on December 30, 2008, the Judges published a notice of proposed rulemaking (“NPRM”) setting forth proposed revisions to the interim regulations adopted in October 2006. 73 FR 79727. The most significant revision proposed by the Judges was to expand the reporting period to implement year-round census reporting. Further, on April 8, 2009, the Judges published a notice of inquiry (“NOI”) to obtain additional information concerning the likely costs and benefits stemming from the adoption of the proposed census reporting provision as well as information on any alternatives to the proposal that might accomplish the same goals as the proposal in a less burdensome way, particularly with respect to small entities. 74 FR 15901. With the issuance of today's regulations, the Judges establish requirements for census reporting for all but those broadcasters who pay no more than the minimum fee for their use of the license. The Judges are adopting these regulations substantially as proposed in the NPRM with minor modifications in response to comments received. These final regulations establish requirements by which copyright owners may receive reasonable notice of the use of their sound recordings and under which records of use shall be kept and made available by entities of all sizes performing sound recordings. See, e.g., 17 U.S.C. 114(f)(4)(A). As with the interim regulations adopted in 2006, today's final regulations represent baseline requirements. In other words, digital audio services are free to negotiate other formats and technical standards for data maintenance and delivery and may use those in lieu of regulations adopted by the Judges, upon agreement with the Collective. We have no intention of codifying these negotiated variances in the future unless and until they come into such standardized use as to effectively supersede the existing regulations.

II. This Proceeding

The Judges' December 30, 2008, NPRM set forth proposed revisions to the regulations governing the format and delivery requirements for reports of use of sound recordings that provided for three potential categories of change. First, the Judges proposed eliminating obsolete provisions of the interim regulations. Second, the Judges proposed placing definitions that were duplicated in various sections of the interim regulations into a new single definition section applicable throughout Part 370 unless otherwise defined in a specific section. Third, the Judges proposed expanded reporting to implement year-round census reporting. In connection with this expanded census reporting, the Judges proposed eliminating the aggregate tuning hours (“ATH”) approach previously available for nonsubscription services and requiring that such services now report actual total performances (“ATP”). However, the Judges proposed allowing pre-existing satellite digital audio radio services, new subscription services and business establishment services to achieve census reporting by continuing their use of the ATH option if technological impediments existed which thwarted the measurement of actual listenership. 73 FR 79727. In addition to these specific proposals, the Judges also solicited comments on technological developments which might warrant additional revisions to rules governing the method of reporting specific data elements and/or the delivery mechanism employed for reporting.

In response to the NPRM, the Judges received 43 comments from various categories of interested parties: (1) Representatives of copyright owners and performers, including SoundExchange, the Collective charged with collecting and distributing royalties; (2) copyright users and/or their representatives, including the National Association of Broadcasters (“NAB”), College Broadcasters Inc. (“CBI”), Intercollegiate Broadcasting System (“IBS”), various radio broadcasters affiliated with educational institutions, a noncommercial religious broadcaster, and an operator of radio and Internet stations featuring Christian programming; an Internet service that simulcasts the over-the-air and Internet-only broadcasts of primarily noncommercial terrestrial radio stations; and (3) several software providers of recordkeeping solutions to radio stations and Webcasters.

Most of the comments received from interested parties centered on the proposed move to full census ATP reporting. Comments focused on the technological reporting capabilities of small entities or less intensive users (particularly, users associated with educational institutions), as well as on various assertions about the costs and benefits of moving to full census ATP reporting for such users. Consequently, the Judges' April 8, 2009, NOI sought to obtain additional, more concrete information concerning the likely costs and benefits stemming from the adoption of the proposed census reporting provision as well as information on any alternatives to the proposal that might accomplish the same goals as the proposal in a less burdensome way, particularly with respect to small entities. 74 FR 15901.

In response to the NOI, the Judges received 14 comments and 6 reply comments from the following categories of interested parties: (1) Representatives of copyright owners and performers, including SoundExchange; (2) copyright users and/or their representatives and allied interested parties, including the NAB, CBI, IBS, the National Federation of Community Broadcasters (“NFCB”), various radio broadcasters affiliated with educational institutions, the American Council on Education (“ACE”); and (3) a software provider of recordkeeping solutions to radio stations and Webcasters.

III. Obsolete Provisions and General Definitions

Obsolete provisions proposed for deletion by the Judges in their December 30th NPRM raised no concerns for commenting parties. Similarly, the deletion of duplicative definitions for nine common terms that appeared in various sections of the interim regulation and their replacement by a single definition for each of the nine terms in a new General Definitions section at the head of the proposed regulation proved noncontroversial. Therefore, given the efficiency gains these changes will bring users, the Judges adopt the changes as proposed in the December 30, 2008, NPRM at 73 FR 79728.

IV. Reports of Use Content and Reporting Period; Census Reporting

Current requirements for the data to be included in reports of use and the frequency of reporting still largely reflect interim regulations adopted on March 11, 2004 (69 FR 11515) by the Copyright Office during an earlier phase of the recordkeeping rulemaking process that predated the transfer of rulemaking authority to the Judges pursuant to the Copyright Royalty and Distribution Reform Act of 2004. The Copyright Office in its interim regulations determined to phase in the new reporting process by requiring periodic reporting of sound recording performances, although the Copyright Office noted that: “[O]nce final regulations are implemented, year-round census reporting is likely to be the standard measure rather than the periodic reporting that will now be permitted on an interim basis.” 69 FR 11526. Such census reporting provides a more complete record on which to base payments for the use of sound recordings compared to periodic reporting. After providing users with ample time—some five years—to familiarize themselves with the methods of acquiring and keeping the necessary data for compliance, the Judges now adopt a final regulation adopting census reporting for all but the lowest intensity users of sound recordings in a single category of users—broadcasters typically engaged in simulcasting their over-the-air broadcasts on the Web. All other nonsubscription services, such as pure play Webcasters, are required to provide full reporting of the actual total performances of the sound recording for each reporting period during the year. To the extent that technological impediments to measuring actual listenership continue to hamper actual listenership measurement with respect to each sound recording for preexisting satellite digital audio radio services, new subscription services or business establishment services, the alternative of census reporting by means of a construct utilizing aggregate tuning hours is maintained for such services.

A number of the most intensive users of the 114 and 112 licenses are already reporting on a census basis according to SoundExchange. See Comments of SoundExchange, Docket No. RM 2008-7 at 5-6 (January 29, 2009); Comments of SoundExchange, Docket No. RM 2008-7 at 15-20 (May 26, 2009). Further, the fact that many of the largest commercial Webcasters and other intensive users such as satellite radio have not filed comments in this proceeding clearly indicates an absence of controversy among more intensive users concerning the Judges' proposed census reporting regulations. Rather, many of the comments focused on the impact of the NPRM on less-intensive users such as a number of noncommercial broadcasters affiliated with educational institutions.

Both commercial and noncommercial broadcasters that are low-intensity users who typically simulcast over the Web appear to share a common technological characteristic-anachronistic systems or procedures that are not designed for easily reporting data on sound recordings simultaneously played as a Webcast. See, e.g., Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 8-9 (January 29, 2009); Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 5 (May 26, 2009). For example, in some cases, the manual play of music without the aid of a computer hampers the effective collection of information on the usage of sound recordings. See, e.g., Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 9 (January 29, 2009); Comments from Tom Worster and Spinitron, Docket No. RM 2008-7 at 3-4 (January 29, 2009); Reply Comments of the American Council on Education, Docket No. RM 2008-7 at 2 (June 8, 2009).

While the absence of automated playlists represents one particular approach followed by some broadcasters for a variety of reasons-sometimes creative, sometimes pedagogical, and sometimes financially driven (See, e.g., Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 8-9 (January 29, 2009); Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 4-5 (May 26, 2009); Comments of University of California NCE Broadcast Radio Stations and Associated College and University Broadcasters Who Simulcast, Docket No. RM 2008-7 at 3 (May 26, 2009); Comments of WSOU-FM, Docket No. RM 2008-7 at 3-4 (May 26, 2009))—these reasons do not necessarily overlap. For example, some low-intensity simulcasters who maintain partial or fully manual playlists may well be affiliated with large, financially well-endowed educational institutions and those institutions may claim to be training future broadcasters irrespective of the broadcast industry trend toward the adoption of automated programming; yet, they may choose to continue manual programming to allow their students more room to pursue a more creative approach to playing music either as part of a structured learning experience or as part of a less structured extracurricular experience. Thus, even in those instances where an educational institution's financial resources appear fully capable of providing for more investment in newer technology for proper recordkeeping and reporting under the Copyright Act, the educational institution may have little incentive to make such investments given the relatively unimportant stature of the activity in its overall mission. As a result, from the user's standpoint in such situations, there may appear to be a reasonable relationship between the low intensity use of Webcasting and the amount of resources the noncommercial broadcasting entity is willing to invest in the effort.

Some parallel exists in a commercial setting where small broadcasters with limited resources may engage small numbers of listeners through simulcasts on the Web of their over-the-air programming, but may not find such listenership sufficiently rewarding to make an immediate investment in adapting their old technology to permit easier recordkeeping. Here again, from the user's standpoint, there may be a reasonable relationship between the very low intensity use of Webcasting and the amount of resources the broadcasting entity is willing to invest in the effort. However, in the commercial case, broadcasters who do not adapt in the long run will fail as commercial entities to achieve the critical mass necessary to justify their presence on the Web. Therefore, they ultimately have a strong financial incentive to become more than very low intensity users, adapt their technology, ultimately achieve the same capabilities as their competitors on the Web and, in the process, attain comparable capabilities for full census reporting. Indeed, this process has been recognized by the NAB and SoundExchange in their recent settlement pursuant to the Webcaster Settlement Act of 2008 (Pub. L. 110-435, 122 Stat. 4974), where they agreed to reporting requirements applicable to commercial broadcasters that require census reporting for all but a small group of low-intensity users that qualify for a “small broadcaster” status. See 74 FR 9301 (March 3, 2009). Such “small broadcasters” are not subject to the full census reporting applicable to other broadcasters in recognition of the “unique business and operational circumstances currently existing with respect to these entities” and are granted this exception to the general rule “on a transitional basis for a limited time.” 74 FR 9301. Some of the operating circumstances that differentiate low-intensity commercial broadcasters from other low-intensity commercial Webcasters include the former's continued use of disparate systems not designed in the first instance to provide sound recording performance data and their inability as small entities to quickly pay for the costs of renovating such systems. See Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 4-5 (May 26, 2009).

By contrast, many low-intensity noncommercial broadcasters do not have similarly pressing financial incentives or, indeed, may only be secondarily motivated by financial considerations as noted above. Therefore, for low-intensity noncommercial broadcasters, the transition from old technological equipment and approaches may well proceed at a slower pace until such time as the activity in question generates more support in terms of its relative position in the overall mission of the affiliated institution. This is not to say that a permanent exception to the census reporting rule for low-intensity noncommercial broadcasters is in order. Clearly, the failure to report the full actual number of performances of a sound recording is at odds with the purpose of the recordkeeping requirement to the extent that, as a result, many sound recordings are under-compensated or not compensated at all from the section 114 and 112 royalties. Yet, at the same time, the low-intensity noncommercial broadcaster, by definition, does not enjoy the same pecuniary benefit from the use of the sound recordings at issue in this proceeding as does the low-intensity commercial broadcaster. Aggregate payments owed by low-intensity noncommercial broadcasters are dwarfed by payments by other users. Therefore, the tension between the relative cost of potential undercompensation to copyright owners and the relative cost of replacing outmoded systems employed by the low-intensity noncommercial broadcaster appears best resolved by allowing low-intensity noncommercial broadcasters to continue to report estimated usage on a quarterly basis in the same manner as under previous requirements until such time as either a reasonably priced technological solution is developed to facilitate census reporting under their current operational configurations and practices or where such noncommercial broadcasters finally move to more state-of-the art technology and practices.

Despite recognizing that there may be situations in which some low-intensity noncommercial broadcasters are not in a position to provide census reporting, SoundExchange nonetheless urges the adoption of census reporting as the default rule in this proceeding. The Judges decline to do so for this narrow class of users. While the rate of progress toward achieving census reporting capabilities among low-intensity noncommercial broadcasters is frustratingly slow, it would be unreasonable to adopt a regulation that may well reduce the ability of such users to submit reports beyond even their current level of effort. Such an action may also raise the transactions costs for both users and the Collective. Neither of these two results would inure to the benefit of copyright owners.

Most educationally affiliated noncommercial broadcasters and/or their representatives initially urged the Judges to allow them to continue to report two weeks out of every quarter and to continue to use ATH as a reporting alternative to ATP. See, e.g., Comments of University of California NCE Broadcast Radio Stations and Associated College and University Broadcasters Who Simulcast, Docket No. RM 2008-7 at 3 (January 28, 2009); Supplemental Comments of Harvard Radio Broadcasting Company, Docket No. RM 2008-7 at 22 (May 26, 2009). In particular, many of these comments urged the continuation of the two-week sampling approach with ATH reporting “for educational stations paying only the minimum fee”—i.e., for the lowest intensity users. See, e.g., Comments of Collegiate Broadcasters, Inc., Docket No. RM 2008-7 at 29 (May 26, 2009). However, some subsequent comments urged the Judges to consider, at least in the alternative, rolling back even the current two-week sampling requirement in favor of a complete reporting exemption for minimum fee users willing to pay an additional $100 “data proxy fee” annually. See, e.g., Reply Comments of Collegiate Broadcasters, Inc., Docket No. RM 2008-7 at 11, 16 (June 8, 2009). Supplemental Reply Comments of Harvard Radio Broadcasting Company, Docket No. RM 2008-7 at 20 (June 8, 2009).

We do not agree that an additional data proxy fee in lieu of any reporting obligation represents a reasonable alternative to the continuation of the two-week sampling approach with ATH reporting for educational stations paying only the minimum fee. The data proxy fee alternative as proposed here represents a step backward in achieving better accuracy in reporting. As a result, it makes undercompensation stemming from inaccurate reporting even more problematic, inasmuch as it is the low-intensity educational station user that both such users and the Collective agree plays more diverse sound recordings. See, e.g., Supplemental Reply Comments of Harvard Radio Broadcasting Company, Docket No. RM 2008-7 at 20 (June 8, 2009). Because of such greater diversity, many more sound recording copyright owners may well forfeit a distribution of earned royalties when their use is not reported at all. See, e.g., Reply Comments of SoundExchange, Inc., Docket No. RM 2008-7 at 2 (June 8, 2009) (“These services do not pay very much in royalties, but what they pay may be the only statutory royalties earned by the copyright owners and performers of many obscure recordings.”). In short, it is hardly reasonable to propose a complete exemption from even the existing sample-based recordkeeping requirements, for even if the current requirements produce results that are less than perfectly accurate as collected, observed and administered, they at least provide some rational basis for royalty distribution to owners and performers who would otherwise be completely shut out of the royalty distribution process notwithstanding the use of their works.

The expanded scope of census reporting adopted in the final regulation also gave rise to two ancillary changes. One is a minor, noncontroversial change to harmonize references to the frequency of report delivery with the reporting period. That is, in those instances where monthly reports of use are required, the corresponding reporting period is defined as one month; and, in those cases where quarterly reports of use are maintained as the requirement, the corresponding reporting period is defined as one quarter. Second, a change to the previously existing rate category codes was required in the new § 370.4(d)(2)(ii) adopted today so as to prevent inconsistencies with different categories used during prior reporting periods. SoundExchange proposed the use of a new list of category codes with the addition of language indicating that the Collective “may from time to time publish an updated list of categories then applicable under the Webcaster Settlement Act or regulations, and Services shall identify the most specific category then applicable to them.” See Comments of SoundExchange, Docket No. RM 2008-7, Proposed Regulations Exhibit A at 6 (January 29, 2009). On the other hand, another proposal instead recommends obsoleting and reserving the 2006 codes which would be no longer used going forward, while maintaining the same 2006 codes for categories which have not changed. See Comments from Tom Worster and Spinitron, Docket No. RM 2008-7 at 7 (January 29, 2009). The Spinitron proposal is supported by the NAB as promoting more clarity for users. See Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 6, (May 26, 2009). Because the Judges agree that this latter approach makes clear that anyone previously reporting under one of the obsolete codes must choose another one, we adopt the proposal put forward by Tom Worster on behalf of Spinitron as part of this final regulation.

V. Additional Revisions Proposed by the Parties

In addition to the specific recordkeeping regulatory changes proposed by the Judges in the December 2008 NPRM, the Judges solicited comments on any technological developments that pointed to the need for further adjustment of the rules either in terms of the method of reporting specific data elements or with respect to the delivery mechanism employed for reporting. For example, the Judges specifically inquired as to what further improvements to the reporting regulations could be made in light of recent technological developments since the promulgation of the interim regulation, the new availability of reporting software or the advent of substantially reduced costs for certain delivery mechanism alternatives.

While approximately 18 proposals for additional regulatory changes beyond those proposed in the December 30, 2008 NPRM were submitted by SoundExchange, users and other interested parties, a number of the additional proposals went beyond the scope of the Judges' specific inquiry. That is, such proposals did not reflect technological developments which might warrant additional revisions to rules governing the method of reporting specific data elements and/or the delivery mechanism being employed for reporting. For example, SoundExchange proposed the addition of late fees for incomplete or tardy reports of use; or, as another example, Frederick Wilhelms III proposed the addition of various detail to the Collective's annual report requirements. See Comments of SoundExchange, Docket No. RM 2008-7 at 30-32 (January 29, 2009); Comments of Frederick Wilhelms III, Docket No. RM 2008-7 at 8-9 (January 27, 2009).

Other proposals, such as SoundExchange's request for the delineation of a separate certification form provided by SoundExchange to accompany the report of use (See Comments of SoundExchange, Docket No. RM 2008-7 at 30-32 (January 29, 2009)) generated significant controversy concerning the design process and/or contents of the proposed new form, indicating that such proposals not only were likely beyond the scope of the Judges' specific technological change inquiry, but also not yet likely ripe for determination. See, e.g., Comments of National Association of Broadcasters, Docket No. RM 2008-7 at 5-6 (May 26, 2009); Reply Comments of SoundExchange, Docket No. RM 2008-7 at 13 (June 8, 2009). Similarly, SoundExchange's proposal to require nonsubscription services to provide copyright owner information in exactly the same form as it appears in the commercially released product met with objections as to practicality for some users that merit more detailed consideration than the focus of this proceeding permits. See, e.g., Comments of National Association of Broadcasters, Docket No. RM 2008-7 at 6-7 (May 26, 2009).

A proposal that syndicated programming that is simulcast by broadcasters should be exempted from recordkeeping requirements (See Comments of the National Association of Broadcasters, Docket No. RM 2008-7 at 8 (May 26, 2009)) raises serious issues concerning the recordkeeping obligations of users and, at the same time, offers no solution for improving reports of actual use to facilitate owners receiving more accurate payment distributions. Moreover, inasmuch as the interim reporting regulation in place has functioned for some time without such an exemption, albeit with less frequent quarterly reporting requirements, it is not at all clear that the adoption of the final regulation proposed in the NPRM merits rethinking at this juncture. Indeed, the Collective suggests that any reporting problems for broadcasters associated with syndicated programming have been adequately addressed going forward in their recently completed NAB-SoundExchange Webcaster settlement agreement. See Reply Comments of SoundExchange, Docket No. RM 2008-7 at 14 (June 8, 2009). In short, the syndication exemption proposal has not been sufficiently developed for the Judges' consideration in this proceeding.

Similarly, SoundExchange's proposal to authorize the Collective to distribute royalties based on a reasonable proxy when sufficient reports of use have not been filed within one year after receiving payment has been insufficiently developed in this proceeding. See Comments of SoundExchange, Docket No. RM 2008-7 at 4-5 (May 26, 2009). It was raised for the first time in this proceeding in response to the April 8, 2009 NOI and even SoundExchange admits to originally contemplating making this request in a subsequent petition. Id. at 4 n.7.

Still other proposals, such as the proposal that the Collective be required to provide confirmation of the receipt of reports of use within a time certain (See, e.g., Comments of Tom Worster and Spinitron, Docket No. RM 2008-7 at 7 (January 29, 2009)), might arguably fit within a very broad view of the Judges' specific technological change inquiry, but were not addressed by the Collective in terms of either technological feasibility or costs of adoption (if any).

In short, some of the proposals included in comments received by the Judges in this proceeding may merit further examination in a future rulemaking. However, they are not ripe for either adoption or rejection at the present time.

As a result, only a small number of proposals put forward in the parties' comments have been adopted in the final regulations. Some of these proposals relate to clarifying the final regulations as a result of changes made to the frequency reporting rule and are described herein above in connection with that rule. Of the remaining three party proposals adopted by the Judges, one adopted proposal reflects recent technological developments, another adopted proposal reflects a physical change of address for the Collective, and the remaining adopted proposal corrects an inconsistency in the delineation of the use of report dates in the NPRM. No controversy was raised by any of the commenting parties concerning these three proposals.

The change in the final regulation adopted from comments received by the Judges that is directly related to technological developments is the elimination of the delivery of reports of use by means of floppy diskette. See Comments of SoundExchange, Docket No. RM 2008-7 at 25 (January 29, 2009). We agree with SoundExchange that the use of floppy diskettes has been rendered obsolete by recent technological developments and that it is not technologically efficient for the Collective to maintain old disk drives and equipment applicable only to such physical media. Moreover, delivery by means of CD-ROM is readily available and maintained in the final regulation for any license user needing a physical media delivery alternative.

The remaining two changes adopted by the Judges from comments submitted by the parties are: (1) a correction in the e-mail address for the Collective to reports@soundexchange.com and (2) the consistent reference to dates of a reporting period throughout the final regulation in the format “year, month and day.” See Comments of SoundExchange, Docket No. RM 2008-7 at 29-30 (January 29, 2009). These changes adopted by the Judges will add clarity and consistency to the final regulation for reporting and delivery.

List of Subjects in 37 CFR Part 370

• Copyright
• Sound recordings

Final Regulation

For the reasons set forth in the preamble, the Copyright Royalty Judges revise 37 CFR part 370 to read as follows:

PART 370—NOTICE AND RECORDKEEPING REQUIREMENTS FOR STATUTORY LICENSES

Authority: 17 U.S.C. 112(e)(4), 114(f)(4)(A).