We recently wrote about the challenge to appointment of the Copyright Royalty Board’s judges filed by Royalty Logic as part of the appeal of the Board’s decision on Internet Radio royalties.  Royalty Logic argued that the appointment of the Copyright Royalty Judges was improper, as the Librarian of Congress was not the "head of a department" who can appoint lesser government officials under the Appointments Clause of the Constitution.  Thus, Royalty Logic contends that the decision reached by the Board as to Internet radio royalties was a nullity, as the Board effectively does not legally exist.  Earlier this week, the Board and SoundExchange filed their replies to the Royalty Logic motion, arguing that, in fact, the Librarian is the head of a department, as he is appointed by the President and approved by Congress and runs a government "department," i.e. the Library of Congress, of which the Copyright Office is a part.  In demonstrating that the Library is a department, the briefs reach back to the creation of the Library by Thomas Jefferson, and look at the legislative history of legislation modifying the powers of the Library and the process for the appointment of the Librarian – legislation passed in 1870 and 1897.  Essentially, the very technical argument about why the Board was not properly constituted was met with an equally technical one that says it was properly formed.  Clearly, arguments only lawyers could love.

While Royalty Logic will have the opportunity to respond, the litigation process continues on the main portion of the appeal, as SoundExchange filed its intervenor’s brief the week before last, defending the decision of the Copyright Royalty Board.  In one notable departure, SoundExchange, while contending that the Board was correct in determining the minimum fees that would be required of webcasters, it said that, because of the agreement that it reached with certain webcasters that would cap minimum fees at $50,000  no matter how many channels a service might have (see our discussion of the agreement here), it asked that the Court remand that one limited matter back to the Board for adoption of the limitation on minimum fees so that it would apply to all webcasters and not just those who signed the agreement.  In all other respects, SoundExchange opposed the briefs of the webcasters.

Thus, almost one full year after the royalties were made effective, those royalties continue in place.  This week, we saw the second major webcaster pull the plug on its Internet Radio operations.  AOL months ago agree to allow CBS to run its Internet Radio operations, and now Microsoft’s MSN service has now announced that it is terminating its Internet radio service which had been powered by Pandora.  Spokesman for Pandora itself have stated that the royalties don’t allow for its business model to succeed (despite reported revenues of $25 million).   The Small Commercial Webcasters that I have represented in the case still have reached no settlement in the case, and other small webcasters only exist because of a special rate unilaterally offered by SoundExchange, even though it has a number of limitations and problems (see our post here).  While SoundExchange has claimed that the rate arrived at last year is fair and that the industry is growing even with the rate, who is paying it other than a few broadcasters who can run the service has an adjunct to their broadcast service as more or less a loss leader?  And what will happen when the rates rise by another 20% next year?  These practical questions remain as the appeal process moves slowly forward.