Following the recent Copyright Royalty Board decision, about which we have written several times this week, many individuals and companies have asked what can be done either to reverse the decision, or to operate in a world where the decision becomes effective. While it is much too early to access all of the options, I thought that I would outline some of the possibilities.
First, Petitions for Rehearing of the Decision can be filed by the parties to the case within 15 days of the release of the decision – by March 19. As such a Petition asks the Board to determine that the conclusions it reached after several months of deliberation were wrong, this is an uphill battle. There is, however, a much greater possibility that the Board will clarify some of the more onerous ambiguities of the decision – such as the issue of what constitutes a "channel" or "station" to which the minimum fee attaches.
After Petitions for Rehearing are dealt with, the Library of Congress must publish the decision in the Federal Register. Within 30 days of such publication, parties can appeal the case to the United States Court of Appeals for the District of Columbia. The filing of a Notice of Appeal by that deadline merely starts the appellate process. The Court will establish a schedule for the case – setting dates for the filing of full legal briefs and responses to those briefs. The Court will have an oral argument after the briefs are filed. A decision will follow. In appellate cases, this process can easily take a year to complete. In order to overturn the decision, the court must find that the decision was arbitrary and capricious – in essence that, when presented with the facts, no there was no reasonable way for the decision to turn out the way it did. This is a high standard that must be achieved, but not one so high that appeals are never successful. So there is always hope.
But there are other ways in which this decision could be changed, or ways by which webcasters could work around its effects. SoundExchange and some or all of the parties could reach a voluntary settlement, agreeing to rates different from those that the Board assigned. These rates would have to be applicable to classes of webcasters – rather than to individual companies. In 2002, after the decision of the Copyright Royalty Arbitration Panel setting the first royalty rates for the digital performance right for sound recordings, SoundExchange felt that, to bind all copyright holders, such settlements had to have Congressional blessing – hence the Small Webcasters Settlement Act authorizing those settlements. In this case, while the CRB still has jurisdiction while it considers rehearing motions, it is possible that settlements could be blessed by it. In any event, a settlement is possible.
A number of parties have already started to talk to Congress about the decision. Given that we have had two decisions in the last 5 years on these royalties, and both times the decisions have been such that smaller entities feel that they have been disenfranchised – even when they were part of the process as they were this year – the whole “willing buyer, willing seller” standard used in this case might need to be reevaluated. In this case, it seems that the standard was evaluated in terms of the largest, most successful webcasters, who are actually not the pure webcasters that the statute was meant to protect. Instead, they were larger companies who use their streams to promote other aspects of their operations, or subsidize those streams with revenues from other sources. These larger entities are ones that could deal with the record labels – in fact in many cases have dealt with the record labels to work out interactive and other nonstatutory licenses. The statute, which was supposed to help smaller entities who didn’t have the bargaining power to deal with the labels directly, instead seems to have precluded these entities from continuing their operations every time that a decision has been made under the statutory standard.
There is currently a disparity in standards used for different digital music services operating under the statutory license. “Pre-existing subscription services” (i.e. digital cable music services and satellite radio) have a standard that relies on a number of factors in reaching a fair royalty, including the relative contributions of the parties to the dissemination of the music and the benefits that the public receives from the existence of the particular music service involved. It is not the strict "willing buyer willing seller" economic analysis that applies to the Internet radio operators. While the Perform Act currently pending before Congress proposes some reform of the standard, it is not generally perceived to be a reform that would resolve this issue. So Congressional reform – both short term to resolve this specific issue and longer term to resolve the issues that seem to plague the entire system – may be a remedy.
Finally, if none of these options work, services can try to negotiate private deals for the use of music by artists who believe that the promotional value of Internet radio exposure helps them sell recordings, concert tickets and other merchandise. An Internet radio service can get waivers of the fees from copyright owners. If they get waivers from some of the artists that they play, it can reduce the amount of the royalty that they pay. If they only play artists from who they have waivers, then they can eliminate their royalties. There have been some discussions in various forums about independent artists who might make their music available to Internet radio. In fact, artists and webcasters could get together to create pools of available royalty free music that could be played on Internet radio. If this were to occur, the CRB decision could lead to a boom for independent music – perhaps to the detriment of the traditional major labels that supported the SoundExchange litigation.
Some of the more concerned webcasters have talked about moving off shore. That may not be a viable long term option for a company that has a US presence. The royalties apply to music streamed to US residents. Over the last few years, we’ve seen many foreign webcasters cutting off US streams to avoid paying US royalties, just as many large US webcasters have cut off foreign listeners to avoid liability to foreign performing rights organizations. You may remember, a few years ago, the recording industry put pressure on US ISPs to cut off access to a Chinese website that was offering downloads at a fraction of the usual price to US listeners. That same thing could happen to a successful webcasters who, while located off shore, was targeting US listeners and advertisers.
All in all, there are many effort that need to be made in coming days and weeks to preserve Internet radio as we are now familiar with it. I’m sure that we will all be waiting to see what happens.