Broadcast Law Blog : Broadcast Lawyer & Attorney : Davis Wright Tremaine Law Firm : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

Last year’s Court of Appeals decision on Internet radio royalties for 2006-2010 remanded one issue to the Copyright Royalty Board for further consideration – the issue of the minimum annual fee to be paid by each webcaster. The Copyright Royalty Judges (“CRJs”) had decided on a $500 per channel minimum fee – a fee that created much concern in the Internet radio community as there was no clear delineation of what a channel was. For services, like Pandora, where there is a unique stream created for each listener, by some definitions there could be an almost infinite number of channels all subject to the $500 minimum fee. Following the CRB's initial decision, a number of the larger webcasters and SoundExchange entered into a settlement capping the minimum fee obligation at $50,000 per webcaster per year. Thus, services with more than 100 channels would only pay a minimum fee of $50,000 at the beginning of each year. However, this settlement was never extended to all webcasters - it applied only to those webcasters who signed the deal.  Following the Court remand, SoundExchange and DiMA (the Digital Media Association which represents many webcasters), submitted the 2007 settlement to the CRB to be codified into the rules that govern webcasters generally. Just before Christmas, the CRJs asked for comments on that settlement. Comments are due by January 22. 

In many cases, this settlement has been superseded by subsequent events – namely the settlements with webcasters that were entered into in February and then later in the summer under the provisions of the Webcaster Settlement Acts. Settlements with broadcasters, pureplay webcasters, small commercial webcasters and various noncommercial groups all set their own minimum fees (and, for the most part, cover the periods through 2015), and thus this proceeding is largely irrelevant to these webcasters. If this settlement is approved, the only remaining question before the CRJs on the remand of the 2006-2010 proceeding will be the minimum fee for some noncommercial groups that did not enter into any settlement, as this agreement on minimum fees applies only to commercial webcasters.

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On October 6, 2009, David Oxenford participated in a panel called "Post-Millennium Analysis: The DMCA in the 21st Century" at the Future of Music Coalition's Policy Summit in Washington, DC.  Other panelists included David Carson, General Counsel of the US Copyright Office, and Mitch Glazer, Executive Vice President, Government and Industry Relations for the RIAA.  The panel discussed, among other topics, webcasting royalties and the proposed broadcast performance royalty, and the safe harbor provisions of the DMCA for services which allow the posting of user-generated content.

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The Corporation for Public Broadcasting has entered into a settlement with SoundExchange extending their current agreement on Internet Radio royalties for "Public" radio stations through 2015.  The previous deal, about which we wrote here, covered the period from 2006 to 2010.  This new agreement picks up in 2011 and covers included stations through 2015.  As in the previous deal, the new agreement has a payment by CPB to SoundExchange satisfying all royalties for all of the covered stations.  This was the fourth agreement that was announced last week, about which we wrote here, although details of this deal had not previously been released.  We have written about the other deals entered into under the Webcaster Settlement Act of 2009 ("WSA"), including the deals with Sirius XM (here) and with other noncommercial webcasters (here). 

This agreement covers stations affiliated with NPR, American Public Media, Public Radio International, and the Public Radio Exchange. CPB will pay to SoundExchange $2,400,000 in five yearly installments, covering up to 490 public radio stations in the first year, and up to 10 additional stations per year thereafter (up to 530 in 2015).  The fee is also subject to adjustment if all of the covered stations exceed certain listening levels.  Those levels, and the required true-up for performances in excess of the caps, are set out below.  However, the CPB payments for excess performances are limited to a total of $480,000 over the 5 year period of the Agreement:

Year              Music ATH Cap              Per Performance Rate

2011                279,500,000                         $0.00057

2012                280,897,500                         $0.00067

2013                282,301,988                         $0.00073

2014                283,713,497                         $0.00077

2015                285,132,065                         $0.00083

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The recent settlement on Internet radio royalties between Sirius XM Radio and SoundExchange provides yet another option for commercial webcasters trying to determine the royalties to be paid for the public performance of sound recordings.  While the settlement is signed by just these two parties, it will be published in the Federal Register and be available for all commercial webcasters who comply with its terms - which will essentially be any webcaster who is not a "Broadcaster" as defined in the NAB Settlement, about which we wrote here.  As set forth below, the royalty rates available under this settlement are slightly lower for 2009 and 2010 than those set by the Copyright Royalty Board back in 2007, but slightly higher than those available under the NAB settlement.  However, in 2013-2015, the rates available under this deal are actually lower than those agreed to by the NAB, meaning that they present a better deal for webcaster expecting their audiences to grow in the next few years.

First, the most important issue - how much will it cost?  As with the CRB decision, the NAB deal, and the Pureplay deal (about which we wrote here) as it applies to large pureplay webcasters, the rates established by the deal are based on a "per performance" charge.   A performance is one song as listened to by one listener.  So if a song is played on an Internet radio station subject to the deal and 100 people are listening at the time the song is played, there are 100 performances.  The rates established by the deal are as follows:

           Year              Rate per Performance

2009                      $0.0016

2010                      $0.0017

2011                      $0.0018

2012                      $0.0020

2013                      $0.0021

2014                      $0.0022

                        2015                      $0.0024

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SoundExchange has posted on its website this afternoon four press releases announcing new settlements of amounts due for Internet radio music royalties.  These settlements were negotiated under the provisions of the Webcaster Settlement Act of 2009.  The announcement lists settlements with two noncommercial groups representing College Broadcasters and noncommercial religious broadcasters, as well as a deal with Sirius XM for their streaming of music.  The fourth deal is with a group to be named later - a little mystery that sounds like something out of a trade of baseball players done right at the trading deadline.  In effect, that is the case here, as yesterday was the final date for deals to be done under the terms of the WSA.  These deals join the Pureplay Webcasters settlement announced earlier this month, as well as the deals with the Corporation for Public Broadcasting for NPR affiliates, the NAB for commercial broadcasters, and with microcasters done in February under the terms of the Webcasters Settlement Act of 2008 (links to our description of these deals can be found here).

The press releases do not release detailed terms. For Sirius, the release states that the parties agreed to a per performance rate which is not specified, covering webcasting royalties through 2015.  These rates do not apply to Sirius performances that are done by satellite, which are covered by the Copyright Royalty Board rates recently upheld by the US Court of Appeals.  Instead, these rates only cover the streaming of Sirius programming done over the Internet or to mobile devices using Internet technology.  The Collegiate Broadcasters agreed to a rate that provided the flat $500 fee for the first 159,140 aggregate tuning hours a month set by the CRB decision, and then per performance fees at the NAB rates for all streaming above that amount.  The religious broadcasters deal is less defined, discussing a per performance rate, but not providing any more details of the agreement.  For both noncommercial groups, there are references to reduced recordkeeping requirements for some webcasters, but again, those have not yet been detailed.

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The Pureplay Webcasters settlement agreement, which we summarized here, was published in the Federal Register on Friday, starting the 30 day clock running for the election of the deal by existing webcasters.  While this deal offers better per performance rates to large webcasters than offered by the rates established by the Copyright Royalty Board, and higher permissible listening levels to Small Commercial Pureplay webcasters than allowed under the Microcaster deal, this option still is not for everyone.  For larger webcasters, there is a minimum fee of 25% of total revenue, so companies with multiple lines of business will not want to opt into the deal.  For smaller webcasters, the fees are higher than under the Microcaster deal, including a $25,000 minimum yearly fee, and there are per performance rates that are charged when the webcaster offers services that are "syndicated," i.e. played through a website other than that of the webcaster itself.  So electing this deal is right only for larger "small pureplay" webcasters who have revenues over $250,000 (where they will be paying royalties in excess of the $25,000 minimum fee under any deal) and those entities nearing the audience caps of the Microcaster deal.  Nevertheless, for those webcasters who fit within the constraints of the deal, it offers benefits over the other existing options.  The opt-in date set by the deal is August 17, 2009.  The forms to opt into the the Small Pureplay webcasters agreement are here.  The forms for larger Pureplay webcasters are here. 

Note that this is just one of many options available to webcasters, each tailored to webcasters of specific types.  Noncommercial webcasters associated with NPR or the Corporation for Public Broadcasting have their own deal, where essentially CPB pays the royalties.  See our description of this deal, here.  Streaming done by broadcasters, who would not want to take the "pureplay" deal as their broadcast revenues would be subject to the royalties, have their own settlement agreement, which we described here and here, setting out per performance rates different than those arrived at by the CRB.  Small commercial webcasters can elect the "Microcaster" deal, which we described here.  And for those entities that don't fit under any of these categories, they will have to pay the CRB rates, which we described here and here.  The Radio and Internet Newsletter recently ran a good, basic summary of these alternatives, here.  Note that there still is another two week period where, under the Webcaster Settlement Act of 2009, agreements can be reached with SoundExchange by other webcaster groups to potentially pay rates that are different from any of those agreed to so far.

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The US Court of Appeals for the District of Columbia today released its decision for the most part rejecting the appeals of webcasters of the 2007 decision of the Copyright Royalty Board setting Internet Radio royalty rates for the use of sound recordings.  The Court generally upheld the Board's decision, finding that the issues raised by the appealing parties did not show that the decision was "arbitrary and capricious" - a high standard of judicial review that the Courts accord when reviewing supposedly "expert" administrative agency decisions.  On only one issue did the Court have concerns with the CRB's decision - that being the question of the $500 per channel minimum fees that it had required that webcasters pay.  The Court found that per channel fee, which could result in astronomical fees for some webcasters regardless of their listenership, was not supported by the record evidence, and remanded that aspect of the case to the CRB for further consideration.

The Court surprised some observers by not reaching the constitutional issue of whether the Copyright Royalty Judges were properly appointed.  As we wrote before (see our posts here and here), issues were raised by appellant Royalty Logic, contending that these Judges should be appointed by the President, and not by the Librarian of Congress.  In the recent Court decision on the CRB rates for satellite radio, where the issue had not even been raised, one Judge nevertheless wrote that he questioned the constitutionality of the CRB.  The Court here decided not to decide the issue - finding that it had been raised too late by Royalty Logic, and raised too many fundamental issues (including whether the Register of Copyrights should herself be appointed by the President, potentially invalidating many copyrights) to be decided on the minimal briefing accorded it by the parties.

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A settlement under the Webcaster Settlement Act of 2009 was signed today by SoundExchange and a group of webcasters that I represented in the Copyright Royalty Board proceeding to determine the royalty rates for the use of sound recordings by Internet Radio stations for the period from 2006-2010. This agreement is for “pureplay” webcasters, i.e. those that are willing to include their entire gross revenue in a percentage of revenue calculation to determine their royalties. As permitted under the terms of the WSA, this agreement not only reaches back to set rates different, and substantially lower, than those that were arrived at by the CRB for the period from 2006-2010, but also resolves the rates for 2011-2015, relieving webcasters who join the deal from having to litigate another CRB proceeding to set the rates for those years. 

While no deal arrived at under the circumstances in which these webcasters found themselves (a CRB decision that did not set any percentage of revenue royalty rate and would seemingly put these webcasters out of business, the prospect of a new CRB proceeding that would costs significant sums to litigate with no guarantee of success, and with the only other current option being the “microcasters” deal unilaterally advanced by SoundExchange that severely limited the amount of streaming that a webcaster could do and imposed significant “recapture provisions” in the event of a sale of the webcaster's business) may not be ideal, the settlement does provide significant benefits over any other existing option for any webcaster who qualifies under its provisions. These deal points are set out below.

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The US Senate yesterday passed the Webcaster Settlement Act of 2009, following House passage 10 days ago.  Once the Act receives the signature of President Obama, the law will go into effect, and give webcasting groups and the recording industry 30 days to reach a settlement (or settlements) on Internet radio music royalties for the use of sound recordings.  While the parties did not need the Act to reach settlements for the period of 2011-2015, which is subject to a new royalty proceeding which is now in its early stages, the WSA extension was necessary to cover royalties for the period of 2006-2010, which are covered by the Copyright Royalty Board decision released in 2007.  Without this extension, the rates in effect under the CRB decision (or the rates agreed to under settlements with broadcasters, certain very small webcasters and NPR, and announced earlier this year as authorized by the Webcaster Settlement Act of 2008 ) would have to be paid for that period absent a successful outcome of the currently pending appeal. 

Several groups which participated in the last CRB proceeding have yet to reach settlements, including the "Small Commercial Webcasters" (the independent pureplay webcasting companies), the large webcasters associated with the Digital Media Association, and noncommercial webcasting groups not affiliated with NPR.  In the only statement made on the floor of the Senate before the unanimous approval of the Act, Senator Leahy, the Chair of the Judiciary Committee, cited the controversy over the rates set by the CRB decision, and stated that it was preferable that the parties involved in the case reach an agreement rather than having new rates imposed by the government (see his statement here).  With the passage of this act, the parties now have that opportunity to reach a settlement of the royalties reaching back to 2006. We will see what settlements are announced during the upcoming 30 day period.

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We recently wrote about the agreements between SoundExchange and various groups of webcasters, which became effective under the terms of the Webcasters Settlement Act.  These rates act as a substitute for the rates set by the 2007 Copyright Royalty Board decision  setting Internet radio royalties for the use of sound recordings in the period from 2006-2010.  The deal with broadcasters set lower rates than the CRB for 2009 and 2010, and also waived certain requirements otherwise applicable to webcasters, limiting the number of songs from the same artist that can be played in a given period of time (see our posts here and here).  There is also a deal that SoundExchange unilaterally advanced to certain small webcasters which allows for a percentage of revenue royalty, but limits the amount of listening to these webcasters allowed at these rates, and imposes significant recapture fees if a webcaster sells its service to another company that would not qualify as a small webcaster (see our post here).  April 30 is an important date under both deals, as it is the date by which small webcasters must elect the deal, and the date by which all broadcasters who elected the broadcaster deal earlier this month are to pay any back royalties which they owe for streaming from 2006 through the date of the agreement.

In talking to Internet radio operators, both broadcasters and small webcasters, many seem to be unaware of the records that need to be maintained to remain in compliance with the requirements of the deals.  Both the small webcasters agreement and the NAB-SoundExchange settlement require "full census" reporting of  all songs played by the service, which will include information for every song - including the name of the song that was played, the featured artist who performed the song, the album on which the song appeared, and the label on which the album was released.  In addition, the webcaster must report on the number of times each song was played, and how many people heard each transmission of the song.  Only very small broadcasters and "microcasters" under the small commercial webcaster deal, are totally exempt from these requirements.  Under their deal, broadcasters need not provide all the information for up to 20% of their programming, but this percentage of the broadcast week that can avoid full reporting will shrink every year (see our post here for details).

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As we have written, by April 2, broadcasters who are streaming need to file with SoundExchange a written election in order to take advantage of the SoundExchange-NAB settlement.  For broadcasters who make the election, the settlement agreement will set Internet radio royalty rates through 2015.  One aspect of this agreement that has not received much attention is the waiver from the major record labels of certain aspects of the performance complement that dictates how webcasters can use music and remain within the limits of the statutory license.  When Section 114 of the Copyright Act, the section that created the performance royalty in sound recordings, was first written in the 1990s, there were limits placed on the number of songs from the same CD that could be played in a row, or within a three hour period, as well as limits on the pre-announcing of when songs were played.  These limits were placed seemingly to make it more difficult for listeners to copy songs, or for Internet radio stations to become a substitute for music sales.  In conjunction with the NAB-SoundExchange settlement, certain aspects of these rules were waived by the 4 major record labels and by A2IM, the association representing most of the major independent labels.  These waivers which, for antitrust reasons, were entered into with each label independently, have not been published in the Federal Register or elsewhere.  But I have had the opportunity to review these agreements and, as broadcasters will get the benefit of the agreements, I can provide some information about the provisions of those agreements.

First, it is important to note that each of the 5 agreements is slightly different.  In particular, one has slightly more restrictive terms on a few issues.  To prevent having to review each song that a station is playing to determine which label it is on, and which restrictions apply, it seems to me that a station has to live up to the most restrictive of the terms.  In particular, the agreements generally provide for a waiver of the requirement that stations have in text, on their website, the name of the song, album and artist of a song that is being streamed, so that the listener can easily identify the song.  While most of the labels have agreed to waive that requirement for broadcasters - one label has agreed to waive only the requirement that the album name be identified in text - thus still requiring that the song and artist name be provided.  To me, no station is going to go to the trouble of providing that information for only the songs of one label - so effectively this sets the floor for identifying all songs played by the station and streamed on the Internet.

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The oral argument on the Webcasting appeal of the March 2007 Copyright Royalty Board decision setting Internet radio sound recording royalty rates for 2006-2010 has now been set for March 19.  So, if no settlement under the Webcaster Settlement Act (about which we wrote here) is reached before the February 15 deadline set out in that act, the case will go on to the argument, though apparently without NPR, which benefits from the settlement that the Corporation for Public Broadcasting has reached with SoundExchange.  Even with a settlement with all of the webcasters, SoundExchange is still being challenged by Royalty Logic, which wants to be an alternative collection agency for music royalties, so the case will probably go forward.  Royalty Logic is the party which raised the issue of whether the Copyright Royalty Board was properly appointed under the Appointments Clause of the Constitution, an issue that looks to invalidate the entire CRB decision.  Even thought the Court's argument will be held in March, a final decision will likely not be released for several months after the argument.

The royalty case that resulted in the much lower royalties for Sirius XM is also scheduled for argument in March, the week after the webcasters case. That decision, about which we wrote here, was decided under the 801(b) standard, which takes into account not only the perceived economic value of the music (the "willing buyer, willing seller" standard used in the webcasting case), but also factors involving the public's interest in receiving music, and the impact on the industry that the royalties will have.  If these cases both go forward, after hearing them in short order, the US Court of Appeals will become the center of the digital music royalty world - at least for a short period of time.  Watch for more as these cases develop.

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The Copyright Royalty Board today published a notice in the Federal Register announcing the start of its next proceeding to set the royalties to be paid by Internet radio operators for the performance rights to use "sound recordings" (a particular recording of a song as performed by a particular performer) pursuant to the statutory royalty.  As we've written extensively on this blog, the statutory royalty allows an Internet radio station to use any publicly released recording of a song without the permission of the copyright owner (usually the record company) or the artist who is recorded, as long as the station's owner pays the royalty - currently collected by SoundExchange.  In 2007, the Copyright Royalty Board set the royalties for 2006-2010, a decision which prompted much controversy and is still under appeal.  In the Notice released today, the CRB set February 4 as the deadline for filing a Petition to Participate in the proceeding to set the royalties for the next 5 year period.

The 2006-2010 royalties are currently the subject of negotiations as the parties to the last proceeding attempt to come to a voluntary settlement to set royalties that are different than those established by the CRB decision.  The Webcasting Settlement Act (which we summarized here) gives webcasters until February 15 to reach an agreement as to rates that would become an alternative to the rates that the CRB established.  The Act also permits parties to reach deals that are available not only for the 2006-2010 period, but also allows the deals to cover the period from 2011-2016.  Thus, theoretically, webcasters could all reach agreements with SoundExchange to establish rates that cover the next royalty period, obviating the need for the proceeding of which the CRB just gave notice.  But, as is so often the case, those settlements may not be reached (if they are) until the last minute - so parties may need to file their Petitions to Participate before they know whether a settlement has been achieved.

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The Webcaster Settlement Act, about which we write here, has been signed into law by President Bush, giving parties to the Internet Radio royalty dispute until February 15 to enter into a settlement and have it become effective, without the need for any public comment or any further government approvals.  Several recent articles have indicated that a settlement is close - for at least some of the webcasters.  In several recent statements, Tim Westergrin of Pandora has indicated that the webcasters in DiMA (the Digital Media Association), in their negotiations with SoundExchange and the record labels, were getting very close to results.  At a the Digital Music Conference held in Los Angeles last month, Jon Potter, the President of DiMA, seemed to echo that sentiment.  However, neither could state with absolute certainty when the deal would come, or what its terms would be, though in Westergrin's comments at that conference, available here, he stated that webcasters probably would not be happy with the likely outcome of the settlement, implying that there would be a high rate that would be agreed to by the parties, though it would be one less than what the Copyright Royalty Board ordered (and one which would allow companies like his to survive).  However, he indicated that perhaps not all webcasters would be able to survive at the rate being discussed, and some might have to try to enter into their own agreements to fit other types of webcast operations.  In fact, the Webcasters Settlement Act is not limited to a single settlement, so various other parties who participated in the CRB proceeding - including broadcasters who stream their signals online, small commercial webcasters, and NPR and other noncommercial groups - could negotiate settlements as well, though there have not been any recent public statements that these negotiations were close to bearing fruit.

At a panel that I moderated at the CMJ Music Marathon later in October, which included a SoundExchange representative and a member of its Board, there was a suggestion that further settlements with groups other than DiMA might follow if and when the deal with the large webcasters is concluded.  This approach may make some sense as the copyright holders don't want any deals that they cut with small webcasters or noncommercial parties that could affect their negotiations with larger webcasters, from whom the vast bulk of their revenues are derived.  Copyright holders naturally want to address the interests that will be the most lucrative.  However, this approach does put smaller parties, who are often most worried about potential liabilities and most sensitive to uncertainty, into a very uncomfortable position. As we've written before, the statutory license that is administered by SoundExchange was granted by Congress at least partially to make access to music possible, especially to smaller parties with little bargaining power and little ability to cut deals with thousands of copyright holders, which would be required without this license.  Yet these are the parties most in need of relief from the rates imposed by the Copyright Royalty Board, so we hope that the talks of future settlements in fact are accurate.

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Each year, Internet radio stations must pay a minimum fee to SoundExchange, and that fee is due by January 31.  These minimum fees are applied against  the obligations of a Internet radio service to pay royalties for the use of sound recordings on their stations.  SoundExchange does not send bills, so webcasters must remember, on their own, to make the payments.  For commercial webcasters (including broadcasters who stream their signals on the Internet), under the Copyright Royalty Board decision released last March, a minimum fee of $500 per channel is due.  While SoundExchange and certain large webcasters agreed to cap this minimum fee liability at $50,000 no matter how many channels a webcaster transmits (see our post here), this agreement has yet to be submitted to the CRB for approval.  Minimum payments are also due from noncommercial and small webcasters.

Under the CRB decision, noncommercial webcasters also owe a minimum fee of $500 per channel.  Small webcasters, who earlier this year accepted the SoundExchange offer about which we wrote here, owe a minimum fee of $2000 if they had 2007 revenues of less than $50,000, and minimum fees of $5000 if their 2007 revenues exceeded $50,000.  Note that details about these minimums are difficult to locate on the SoundExchange website.  Nevertheless, the current rules require that these payments be made.  Future settlement negotiations may adjust some of these minimums but, as of this moment, the failure to pay the minimum fees could, at a minimum, subject an Internet radio service to penalty fees and interest payments. 

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With 2008 almost upon us, webcasters streaming music on the Internet need to remember that the way of computing and paying royalties to SoundExchange will shift on January 1- a change that may be especially important for broadcast stations.  Under the Copyright Royalty Board decision reached last March, webcasters must pay royalties computed on a per "performance" basis.  A performance is a per song, per listener computation.  In other words, if an Internet radio station plays a song and 15 listeners are logged into the station at the time that the song plays, there would be 15 performances on which the royalty would need to be paid.  While broadcasters objected that they did not (and in many cases could not) track the number of performances that were made by their stations on the Internet, the CRB, on reconsideration of their initial decision, only went so far as the give stations an interim rate based on the number of  "Aggregate tuning hours" that a station served (e.g. one listener listening for one hour, or two for a half hour each would both be the equivalent of one aggregate tuning hour).   See our post, here, on the CRB's reconsideration decision.  The aggregate tuning hour (or ATH) metric is one that is more readily obtain from a content delivery network or other bandwidth provider, and a metric that has been used since the first royalties were established in 2002.  Yet as of January 1, as the interim ATH rate applied only to 2006 and 2007, that method of payment will no longer be available, and many webcasters are wondering what to do to compute the per performance royalty.

Neither the CRB decision nor SoundExchange, which collects the royalties, explained what a webcaster who cannot count performances is to do when the option to pay based on aggregate tuning hours disappears.   The royalty for January performances is due to be paid to SoundExchange on March 16 (45 days after the end of the month), and a webcaster preparing to file its royalty statement on that day will need to have a performance count to include on its statement.  Many Internet radio companies have been trying to determine how to count performances and, while there are some services that offer to provide software to do so, it is my understanding that none are foolproof and, in some cases, they may not be able to get a complete count of performances.  And many smaller stations may not be able to afford such systems.

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The US Court of Appeal for the District of Columbia has set the briefing dates on the appeal filed by various webcasting groups seeking review of the decision of the Copyright Royalty Board setting Internet radio royalties for the period 2006-2010 for the use of sound recordings (see our coverage of this controversy here, and a detailed summary of the CRB decision here).  The briefs of the various webcasting groups who appealed are due on February 25.  The brief for the CRB (represented by the Department of Justice) is due on April 25, and that of SoundExchange (the "Intervenor) will be filed on May 15. Reply briefs are due on June 12, and oral arguments are yet to be scheduled. As the Court usually takes a summer break in July and August, the argument is likely to be held in the Fall of 2008, and a decision would likely not come until very late in the year or, more likely, in 2009.

Appeals were filed by the a number of groups including large webcasters (including AOL, Yahoo and DiMA), the small commercial webcasters (who I have represented), various noncommercial groups (including two collegiate broadcasting groups and the National Religious Broadcasters Noncommercial Music Licensing Committee), and various commercial broadcasters who also stream their signals on the Internet.  A group called Royalty Logic, which is seeking to become a collective that is competitive with SoundExchange, also filed an appeal of the CRB decision. 

Already, there has been a settlement announced on one narrow aspect of the case, the minimum fees for companies that stream multiple channels, limiting the per company minimum fee to $50,000.  Obviously, if there are other settlements, these appeals could become unnecessary in whole or in part.  See our summary of the remaining issues to be resolved here.

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SoundExchange yesterday announced that it had signed agreements with 24 small commercial webcasters.  Contrary to what many press reports have stated, this is not a settlement with Small Commercial Webcasters.  In truth, what was announced was that 24 small webcasters had signed on to the unilateral offer that SoundExchange made to small webcasters, about which we wrote here.  Essentially, this is the same offer that SoundExchange made in May, which was rejected by many independent webcasters as being insufficient to allow for the hoped for growth of  these companies, and insufficient to encourage investment in these companies.  These larger Small Commercial webcasters, including those that participated in the Copyright Royalty Board proceeding, rejected that offer and instead have sought to negotiate a settlement with SoundExchange that would meet their needs.  Instead of reaching a true settlement with these companies that had participated throughout the CRB proceeding and now have an appeal pending before the Court of Appeals, SoundExchange instead announced that their unilateral proposal was accepted by 24 unnamed webcasters.  Thus, rather than negotiating a settlement, if anything this announcement shows that SoundExchange has not been willing to negotiate - as it has not moved substantively off the proposal they announced over 4 months ago.

While 24 webcasters may have signed on, it would seem that these must be entities that don't expect to grow their revenues to $1.25 million, or grow audiences that reach the 5,000,000 tuning hour limit at which, under the SoundExchange-imposed agreement, the webcaster needs to start paying at the full CRB-imposed royalty rate.  Moreover, the agreements only cover music from SoundExchange members, excluding much independent music that many webcasters play.  For music from companies that are not SoundExchange members, a webcaster has to pay at full CRB rates.  For a small service playing major label music, the agreement may cover their needs, but for the larger companies playing less mainstream music, a different deal is needed. 

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Yesterday, SoundExchange sent to many small webcasters an agreement that would allow many to continue to operate under the terms of the Small Webcaster Settlement Act as crafted back in 2002, with modifications that would limit the size of the audience that would be covered by the percentage of revenue royalties that a small webcaster would pay. A press release from SoundExchange about the offer can be found on their website by clicking on the "News" tab.  This is a unilateral offer by SoundExchange, and does not reflect an agreement with the Small Commercial Webcasters (the “SCWs”) who participated in the Copyright Royalty Board proceeding to set the rates for 2006-2010 and who are currently appealing the CRB decision to the US Court of Appeals (see our notes on the appeal, here). The SoundExchange offer, while it may suffice for some small operators who do not expect their businesses to grow beyond the limits set out in the SWSA (and who only play music from SoundExchange artists - see the limitations described below), still does not address many of the major issues that the SCWs raised when SoundExchange first made a similar proposal in May, and should not be viewed by Congress or the public as a resolution of the controversy over the webcasting royalties set out by the CRB decision (see our summary of the CRB decision here).

The proposal of SoundExchange simply turns their offer made in May, summarized here, into a formal proposal.  It does not address the criticisms leveled against the offer when first made in May, that the monetary limits on a small webcaster do not permit small webcasters to grow their businesses – artificially condemning them to be forever small, at best minimally profitable operations, in essence little more than hobbies. The provisions of the Small Webcasters Settlement Act were appropriate in 2002 when they were adopted to cover streaming for the period from 1998 through 2005, as the small webcasters were just beginning to grow their businesses in a period when streaming technologies were still new to the public and when these companies were still exploring ways to make money from their operations. Now that the public has begun to use streaming technologies on a regular basis, these companies are looking to grow their businesses into real businesses that can be competitive in the vastly expanding media marketplace. The rates and terms proposed by SoundExchange simply do not permit that to occur. 

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Yesterday, a three judge panel of the US Court of Appeals in Washington, D.C. denied the Emergency Motion for a Stay of the Internet Radio Royalty rates set earlier this year by the Copyright Royalty Board.  Our coverage of the stay motion can be found here and here.  Coverage of the entire royalty issue and the surrounding controversy can be found in various posts on our blog, here.  The denial of the stay means that, absent Congressional action or some voluntary agreement of the parties, the new rates will go into effect with payments for the period since the CRB decision being due on Monday, July 16.

The Court's decision was very brief - in essence three sentences which merely stated that the moving parties had not met the high legal burden necessary for the Court to impose a stay.  A stay is an extraordinary legal action, taken by a Court as part of its equitable powers to insure that justice is carried out.  In order to justify a stay, a party must show the Court that there is a likelihood of success on the merits of the case (in other words, it must prove in a 20 page stay motion the likelihood that it will eventually win its appeal after full briefing and oral argument), plus it must prove that there will be irreparable harm if the stay is not issued (more than simply a loss of money - but harm that cannot be remedied if the appeal is eventually successful).  Weighing those factors, and balancing the competing interests of the parties and the public interest, the Court decides whether or not to issue a Stay.  In this case, as there was no more than the pro forma Order, we do not know what shortcomings the Court perceived in the Motion seeking the Stay, but no reasons are required as the Court can merely decide not to exercise its equitable discretion in a case.

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Last week brought more action, and not much in the way of  results, as we count down to the July 15 effective date of the new Internet Radio Royalties.  The actions that received the largest amount of press coverage were the hearing before the US House of Representatives Small Business Committee, and the offer by SoundExchange suggesting that the minimum $500 per channel fee be capped at $2500 per service. While both initially seemed to offer the prospect of some resolution of the dispute over the Internet Radio royalties that were adopted by the Copyright Royalty Board, in fact neither ultimately resulted in much.

The Committee hearing featured webcasters and musicians - equally divided between those who believed that the royalties were fairly decided, and those who believed that the rates were too high.  The one thing on which most of the witnesses seemed to agree was that some rate adjustment was warranted for small webcasters, though no one was able to quantify how such a settlement should be reached.  The Congressional representatives, on the other hand, were cautious to act, asking again and again whether the parties were going to be able to settle the case between themselves.  While Congressman Jay Inslee testified in favor of his Internet Radio Equality Act, the members of the committee seemed hesitant to act while there were judicial avenues of relief still pending, and the possibility of settlement.

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As the clock ticks down to the July 15 effective date of the royalty rates for Internet Radio as determined by the Copyright Royalty Board, webcasters held a Day of Silence today, June 26, to demonstrate to listeners what may well happen if the rates go into effect, and to galvanize their listeners to ask Congress for relief. With the Day of Silence bringing publicity to the Congressional efforts to put the webcasting royalties on hold and to change the standard applied by the Copyright Royalty Board so that it is not focused completely on a hypothetical "willing buyer, willing seller" model, it's worth looking at some of the other issues that have arisen in the royalty battle in the last few days - including further pleadings filed in connection with the Motion for Stay currently pending in the US Court of Appeals, and the Congressional hearing that will occur on Thursday. 

As we've written before, there is currently pending a Motion for Stay of the CRB decision which was submitted jointly by the large and small webcasters and NPR.  Last week, the Department of Justice, acting on behalf of the Copyright Royalty Board to defend the royalty decision, and SoundExchange, each filed oppositions to the Motion for Stay. Each raised many of the same arguments. First, they argued that the large webcasters had procedurally forfeited their rights to challenge the question of the $500 per channel minimum fee by not raising their objection early enough in the CRB proceeding. The DOJ also argued that the damage from the minimum fee was speculative as there was no way to know how that minimum fee would be interpreted. The DOJ contended that, as it was unclear that SoundExchange would prevail on any claim that those Internet Radio services that produced a unique stream for each listener would have to pay $500 for each such stream, the question might end up in a lawsuit – but wouldn’t inevitably lead to the irreparable harm that is necessary for a stay to be issued.

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With July 15 now less than a month away, the new Internet Radio music royalties are still scheduled to go into effect.  Congressional legislation is slowly being considered, and a Motion for Stay to put the regulations on hold pending appeal has been filed (see our post here).  Some discussions on settlement have also taken place, though no deals have been done.  Without some action, payments under the new rules will soon be due.  See our memo, here, for more details on the CRB decision, and all of our posts on this issue, here.  While the legal and legislative actions are still proceeding, and the clock is counting down, the coverage in the popular media continues to grow.  In two recent discussions of the issue, SoundExchange spokesmen seem to blame Internet Radio for the current woes of the recording industry and to justify the high royalty rates through comparisons to the illegal pirating of copyrighted music.  All of these issues will be discussed at a seminar that I am moderating later this week at the Digital Media Conference in the Washington DC area.

One example of SoundExchange's recent claims can be found in a series of articles found on the Los Angeles Times website featuring a "Dust-up" exchange of viewpoints on the Internet radio issue,  between Kurt Hanson, owner of Internet radio broadcaster Accuradio and the publisher of the Radio and Internet newsletter, and Jay Rosenthal, a Board member of SoundExchange.  Mr. Rosenthal, in attacking the value of Internet radio as a promotional tool, said that while webcasters might excite people about new music, most new music is now illegally downloaded so that the promotion doesn't actually help the artists.  But, as Kurt Hanson points out, that would essentially be an excuse for never promoting any music in any venue - in fact it seemingly would be an excuse for shutting down the recording industry.  If music promotion just leads to illegal file sharing sites, and little or no music is ever to be sold again, why bother?  Does the recording industry really expect to make up for lost sales by receiving royalties from Internet radio?  Yet the same point seems to be made by SoundExchange President John Simson in a piece done by the PBS program NOW.  That program focused on the Internet Radio station Radio Paradise and how its popular, eclectic music mix will be silenced if the new royalties go into effect.  In that story, Simson also points to illegal downloading as causing the woes of the music industry, seemingly implying that this justifies outrageous royalties - yet offers nothing to tie downloading to Internet radio.

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On the same day that many webcasters were on Capitol Hill lobbying for the Internet Radio Equality Act, the Copyright Royalty Board issued its Final Determination of Rates and Terms today, and it was published in the Federal Register.  That action starts the clock ticking on appeals which must now be filed in 30 days.  In the Final Determination, the Board included a few revisions in its initial decision, reflecting the issues that it addressed in response to the Rehearing motions - including provisions adding a transitional period of two years during which webcasters can pay using an Aggregate Tuning Hour formula instead of paying based on each performance.  Surprisingly, the Board also amended the rules that it adopted governing the timing of the first payment under the new royalty rate, making the first payment due 45 days from the end of the month during which the Final Determination was issued.  As the decision was issued today, May 1, that would delay the due date for the first payments under the new royalties until July 15.

The statute governing the Copyright Royalty Board allowed the Library of Congress to review the CRB decision to determine if the Librarian (through the Copyright Office) saw any obvious errors of law.  Apparently, the Librarian found none (though that does not mean that there are not issues that can be raised on appeal), leading to the publication of the decision in the Federal Register.  Appeals are due 30 days after that publication.  On that date, parties file a Notice of Appeal, which provides notice to the Court of Appeals that parties believe that the decision was in error.  After those notices are filed, the Court will set briefing schedules and oral arguments.  The appeal process that can take a year or more before a decision is rendered.

Our previous coverage of the CRB proceeding can be found, here.

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The Internet Radio Equality Act was introduced in the House of Representatives today, proposing several actions - most significantly the nullification of the decision of the Copyright Royalty Board raising royalty rates for the use of sound recordings by Internet radio stations.  Our summary of the decision and its aftermath can be found here.  In addition to nullifying the decision of the Board, the Act does the following:

1. Changes the "willing buyer, willing seller" standard used to determine royalty rates for Internet radio to the "801(b)" standard - named after section 801(b) of the Copyright Act, which considers a variety of factors in determining royalties - factors including possible disruption to the industry of royalties, the maximization of the distribution of the copyrighted work to the public, the relative value of the contributions of the copyright holder and the service, and the determination of a fair rate of return to the copyright holder.  The 801(b) standard is the used for determining rates for satellite radio and digital cable radio.
2. Establishes an interim royalty rate for 2006-2010 of  (at the choice of the webcaster) either .33 cents per Aggregate Tuning Hour of listening or 7.5% of the service's revenues directly related to Internet radio
3. For noncommercial radio, places the royalty determination into Section 118 of the Copyright Act, which is where other noncommercial royalties (including the royalty for ASCAP and BMI for over-the-air use of musical compositions) are found, using the standards set forth in that section; and
4. Establishes a royalty for 2006-2010 for noncommercial entites at 150% of the fee that the service paid for the sound recording royalty during 2004.
5. Requires three studies to be conducted after the initiation of the next royalty proceeding, that will be submitted to the Copyright Royalty Board for their consideration in that case.  One study, by the National Telecommunications and Information Administration ("NTIA"), would study the economic impact of royalties on the competitiveness of the Internet radio marketplace.  A second, to be conducted by the FCC, would study the impact of royalties on local programming, diversity of programming (including foreign language programming), and the competitive barriers to entry into the Internet radio market.  A final study, by the Corporation for Public Broadcasting, would provide information to the CRB on the impact of the royalties on public radio operators. 

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