[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Proposed Rules]
[Pages 29259-29270]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11751]
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LIBRARY OF CONGRESS
Copyright Royalty Board
37 CFR Part 385
[Docket No. 2011-3 CRB Phonorecords II]
Adjustment of Determination of Compulsory License Rates for
Mechanical and Digital Phonorecords
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Proposed rule.
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SUMMARY: The Copyright Royalty Judges are publishing for comment
proposed regulations that set the rates and terms for the section 115
statutory license for the use of musical works in physical phonorecord
deliveries, permanent digital downloads, ringtones, interactive
streaming, limited downloads, limited offerings, mixed service bundles,
music bundles, paid locker services and purchased content locker
services.
DATES: Comments and objections, if any, are due no later than June 18,
2012.
ADDRESSES: Comments and objections may be sent electronically to
crb@loc.gov. In the alternative, send an original, five copies, and an
electronic copy on a CD either by mail or hand delivery. Please do not
use multiple means for transmission. Comments and objections may not be
delivered by an overnight delivery service other than the U.S. Postal
Service Express Mail. If by mail (including overnight delivery),
comments and objections must be addressed to: Copyright Royalty Board,
P.O. Box 70977, Washington, DC 20024-0977. If hand delivered by a
private party, comments and objections must be brought between 8:30
a.m. and 5 p.m. to the Copyright Office Public Information Office,
Library of Congress, James Madison Memorial Building, Room LM-401, 101
Independence Avenue SE., Washington, DC 20559-6000. If delivered by a
commercial courier,
[[Page 29260]]
comments and objections must be delivered between 8:30 a.m. and 4 p.m.
to the Congressional Courier Acceptance Site located at 2nd and D
Street NE., Washington, DC, and the envelope must be addressed to:
Copyright Royalty Board, Library of Congress, James Madison Memorial
Building, LM-403, 101 Independence Avenue SE., Washington, DC 20559-
6000.
FOR FURTHER INFORMATION CONTACT: LaKeshia Keys, Program Specialist, by
telephone at (202) 707-7658 or email at crb@loc.gov.
SUPPLEMENTARY INFORMATION: Section 115 of the Copyright Act, title 17
of the United States Code, also known as the mechanical compulsory
license, requires a copyright owner of a nondramatic musical work to
grant a license to any person who wants to make and distribute
phonorecords of that work, provided that the copyright owner has
allowed phonorecords of the work to be produced and distributed, and
that the licensee complies with the statute and regulations.
On November 1, 1995, Congress passed the Digital Performance Right
in Sound Recordings Act of 1995 (``DPRSRA''), Public Law 104-39, 109
Stat. 336, which extended the mechanical license to digital phonorecord
deliveries. 17 U.S.C. 115(c)(3). Consequently, the license now covers
digital transmissions of phonorecords in addition to the physical
copies such as compact discs, vinyl and cassette tapes. Chapter 8 of
the Copyright Act requires the Copyright Royalty Judges (``Judges'') to
conduct proceedings every five years to determine the rates and terms
for the section 115 license.\1\ 17 U.S.C. 801(b)(1), 804(b)(4). In
accordance with section 804(b)(4), the Judges commenced a proceeding to
set rates and terms for the section 115 license on January 9, 2006, 71
FR 1454, and their final determination of said rates and terms was
published in the Federal Register on January 26, 2009. 74 FR 4510.
Therefore, the next proceeding to determine rates and terms for the
section 115 license was to be commenced in January 2011. 17 U.S.C.
804(b)(4).
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\1\ The Copyright Royalty Judges, which were established by the
Copyright Royalty and Distribution Reform Act of 2004, are the third
entity to set the rates and terms for the section 115 license. Until
its abolishment in 1993, the Copyright Royalty Tribunal (``CRT'')
had the authority to adjust the statutory rates for the section 115
license. After 1993, Congress granted authority to Copyright
Arbitration Royalty Panels (``CARP''), under the supervision of the
Librarian of Congress, to set rates and, unlike the CRT, to also
adopt terms for the mechanical license. See Copyright Royalty
Tribunal Reform Act of 1993, Public Law 103-198, 107 Stat. 2304.
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Accordingly, the Judges published a notice commencing the current
proceeding and requesting interested parties to submit their petitions
to participate. 76 FR 590 (January 5, 2011). Petitions to Participate
were received from: Microsoft Corporation (``Microsoft''); Omnifone
Group Limited (``Omnifone''); CTIA--The Wireless Association
(``CTIA''); Cricket Communications, Inc. (``Cricket''); PacketVideo,
Inc. (``PacketVideo''); Slacker, Inc. (``Slacker''); Google, Inc.
(``Google''); Amazon Digital Services, Inc. (``Amazon''); Beyond
Oblivion, Inc. (``Beyond Oblivion''); AT&T Mobility LLC (``AT&T
Mobility''); Rdio, Inc. (``Rdio''); Apple, Inc. (``Apple''); the
Recording Industry Association of America, Inc. (``RIAA''); Rhapsody
International, Inc. (``Rhapsody''); RealNetworks, Inc.
(``RealNetworks''); Thumbplay, Inc. (``Thumbplay''); \2\ Pandora Media,
Inc. (``Pandora''); The American Association of Independent Music
(``A2IM''); Music Reports, Inc. (``Music Reports''); the National Music
Publishers' Association, Inc., Songwriters Guild of America, Nashville
Songwriters Association International and Church Music Publishers
Association, jointly (collectively, ``Copyright Owners''); EMI Music
Publishing (``EMI''); the Songwriters Guild of America (``SGA'');
Napster, LLC (``Napster''); the Digital Media Association (``DiMA'');
and Broadcast Music, Inc. (``BMI'').\3\ The Judges set the timetable
for the three-month negotiation period, see 17 U.S.C. 803(b)(3), and
directed the participants to submit their written direct statements no
later than April 30, 2012. On April 11, 2012, the Judges received a
Motion to Adopt Settlement stating that ``[a]ll participants in the
Proceeding are parties to the Settlement or have reviewed the
Settlement and do not object to its being adopted as the basis for
setting statutory rates and terms.'' \4\ Motion to Adopt Settlement at
2 (April 11, 2012).
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\2\ Thumbplay withdrew from the proceeding on April 5, 2012.
\3\ BMI's filing was styled as ``Comments in Response to Request
for Petitions to Participate,'' and BMI withdrew its comments on
December 1, 2011.
\4\ Music Reports' signature was inadvertently omitted from the
motion; its signature was provided on April 18, 2012. Since neither
Beyond Oblivion nor Napster were signatories to the motion, the
Judges presume that they each reviewed the settlement and do not
object to its adoption, per the signatories' representation.
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Section 801(b)(7)(A) of the Copyright Act authorizes the Judges to
adopt rates and terms negotiated by ``some or all of the participants
in a proceeding at any time during the proceeding'' provided they are
submitted to the Judges for approval. This section provides that in
such event:
(i) The Copyright Royalty Judges shall provide to those that
would be bound by the terms, rates, or other determination set by
any agreement in a proceeding to determine royalty rates an
opportunity to comment on the agreement and shall provide to
participants in the proceeding under section 803(b)(2) that would be
bound by the terms, rates, or other determination set by the
agreement an opportunity to comment on the agreement and object to
its adoption as a basis for statutory terms and rates; and
(ii) The Copyright Royalty Judges may decline to adopt the
agreement as a basis for statutory terms and rates for participants
that are not parties to the agreement, if any participant described
in clause (i) objects to the agreement and the Copyright Royalty
Judges conclude, based on the record before them if one exists, that
the agreement does not provide a reasonable basis for setting
statutory terms or rates.
17 U.S.C. 801(b)(7)(A). Rates and terms adopted pursuant to this
provision are binding on all copyright owners of musical works and
those using such musical works in the activities set forth in the
proposed regulations.
In publishing the parties' proposed rates and terms, the Judges are
removing two provisions and seeking comment on two others. The parties
have included language in proposed Sec. Sec. 385.10(c) and 385.20(c)
that states that ``[n]either this subpart nor the act of obtaining a
license under 17 U.S.C. 115 * * * and shall not constitute evidence, as
to the circumstances in which any of the exclusive rights of a
copyright owner are implicated or a license, including a compulsory
license pursuant to 17 U.S.C. 115, must be obtained.'' Our task, as set
forth in section 115 and chapter 8 of the Copyright Act, is to adopt
rates and terms for the compulsory license for the making and
distributing of physical and digital phonorecords. It is not our task
to offer evaluations, limitations or characterizations of the rates and
terms. Therefore, the Judges decline to include the language ``and
shall not constitute evidence'' in our regulations. See Mechanical and
Digital Phonorecord Delivery Rate Determination Proceeding, Notice of
proposed rulemaking, Docket No. 2006-3 CRB DPRA, 73 FR 57033, 57034
(October 1, 2008); Noncommercial Educational Broadcasting Statutory
License, Notice of proposed rulemaking, Docket No. 2006-2 CRB NCBRA, 72
FR 19138, 19139 (April 17, 2007).
The parties have proposed two provisions, Sec. 385.12(e) and Sec.
385.22(d), relating to statements of account for the
[[Page 29261]]
section 115 license. Both of these sections, which are virtually
identical, appear to propose in their second sentences requirements
beyond those set forth by the Register of Copyrights in 37 CFR 201.19.
The authority to prescribe regulations relating to statements of
account is ``the exclusive domain of the Register,'' see Division of
Authority Between the Copyright Royalty Judges and the Register of
Copyrights under the Section 115 Statutory License, Final order, Docket
No. RF 2008-1, 73 FR 48396, 48398 (August 19, 2008), and the Judges
``cannot alter requirements issued by the Register regarding statements
of account.'' Review of Copyright Royalty Judges Determination, Notice;
correction, Docket No. 2009-1, 74 FR 4537, 4543 (January 26, 2009).\5\
Consequently, we particularly invite comments of the parties, and the
Register of Copyrights, regarding these provisions.
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\5\ In the prior section 115 proceeding, the Register found the
Judges' adoption of language that excluded inclusion of certain
activities from the statements of account to be erroneous. See 74 FR
at 4543. Consequently, the Judges exercised their continuing
jurisdiction and deleted the offending language. See Mechanical and
Digital Phonorecord Delivery Rate Determination Proceeding, Final
rule, Docket No. 2006-3 CRB DPRA, 74 FR 6832 (February 11, 2009).
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As noted above, the public may comment and object to any or all of
the proposed regulations contained in this notice. Such comments and
objections must be submitted no later than June 18, 2012.
List of Subjects in 37 CFR Part 385
Copyright, Phonorecords, Recordings.
Proposed Regulations
For the reasons set forth in the preamble, the Copyright Royalty
Judges propose to amend Part 385 of Chapter III of title 37 of the Code
of Federal Regulations to read as follows:
PART 385--RATES AND TERMS FOR USE OF MUSICAL WORKS UNDER COMPULSORY
LICENSE FOR MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL
PHONORECORDS
1. The authority citation for part 385 continues to read as
follows:
Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4).
Sec. 385.4 [Amended]
2. Section 385.4 is amended by removing ``(`` and adding ``Sec. ''
in its place.
3. Revise heading of Subpart B to read as follows:
Subpart B--Interactive Streaming and Limited Downloads
4. Section 385.10 is amended as follows:
a. By revising paragraph (b); and
b. By adding a new paragraph (c).
The revisions and additions read as follows:
Sec. 385.10 General.
* * * * *
(b) Legal compliance. A licensee that, pursuant to 17 U.S.C. 115,
makes or authorizes interactive streams or limited downloads of musical
works through subscription or nonsubscription digital music services
shall comply with the requirements of that section, the rates and terms
of this subpart, and any other applicable regulations, with respect to
such musical works and uses licensed pursuant to 17 U.S.C. 115.
(c) Interpretation. This subpart is intended only to set rates and
terms for situations in which the exclusive rights of a copyright owner
are implicated and a compulsory license pursuant to 17 U.S.C. 115 is
obtained. Neither this subpart nor the act of obtaining a license under
17 U.S.C. 115 is intended to express or imply any conclusion as to the
circumstances in which any of the exclusive rights of a copyright owner
are implicated or a license, including a compulsory license pursuant to
17 U.S.C. 115, must be obtained.
5. Section 385.11 is amended as follows:
a. By adding in alphabetical order definitions for ``Affiliate'',
``Applicable consideration'', and ``GAAP'';
b. In paragraph (2) of ``Limited download'', by adding ``provider''
after ``service'';
c. In paragraph for definition of ``Offering'', by removing
``service's'' and adding ``service provider's'' in its place, and by
adding ``provider'' after ``service'';
d. By removing paragraph for definition of ``Publication date'';
e. In paragraph for definition of ``Relevant page'', by removing
``users for limited downloads or interactive streams'' and adding
``users for licensed activity'' in its place;
f. In paragraph for definition of ``Service'', by adding
``provider'' after ``Service'' in paragraph heading;
g. In paragraph (1) of ``Service revenue'', by removing ``U.S.
Generally Accepted Accounting Principles'' and adding ``GAAP'' in its
place;
h. In paragraphs (1)(i)-(ii) of ``Service revenue'', by adding
``provider'' after ``service'';
i. In paragraph (1)(iii) of ``Service revenue'', by adding
``provider'' after ``by the service'';
j. In paragraph (2)(i) of ``Service revenue'', by removing
``service'' and adding ``service provider'' in its place each place it
appears; and
k. In paragraph (5) of ``Service revenue'', by removing ``In
connection with such a bundle, if a record company providing sound
recording rights to the service'' and by removing paragraphs (5)(i) and
(ii).
The additions read as follows:
Sec. 385.11 Definitions.
Affiliate means an entity controlling, controlled by, or under
common control with another entity, except that an affiliate of a
record company shall not include a copyright owner of musical works to
the extent it is engaging in business as to musical works.
Applicable consideration means anything of value given for the
identified rights to undertake the licensed activity, including,
without limitation, ownership equity, monetary advances, barter or any
other monetary and/or nonmonetary consideration, whether such
consideration is conveyed via a single agreement, multiple agreements
and/or agreements that do not themselves authorize the licensed
activity but nevertheless provide consideration for the identified
rights to undertake the licensed activity, and including any such value
given to an affiliate of a record company for such rights to undertake
the licensed activity. For the avoidance of doubt, value given to a
copyright owner of musical works that is controlling, controlled by, or
under common control with a record company for rights to undertake the
licensed activity shall not be considered value given to the record
company. Notwithstanding the foregoing, applicable consideration shall
not include in-kind promotional consideration given to a record company
(or affiliate thereof) that is used to promote the sale or paid use of
sound recordings embodying musical works or the paid use of music
services through which sound recordings embodying musical works are
available where such in-kind promotional consideration is given in
connection with a use that qualifies for licensing under 17 U.S.C. 115.
GAAP means U.S. Generally Accepted Accounting Principles, except
that if the U.S. Securities and Exchange Commission permits or requires
entities with securities that are publicly traded in the U.S. to employ
International Financial Reporting Standards, as issued by the
International Accounting Standards Board, or as accepted by the
Securities and Exchange Commission if different from that issued by the
[[Page 29262]]
International Accounting Standards Board, in lieu of Generally Accepted
Accounting Principles, then an entity may employ International
Financial Reporting Standards as ``GAAP'' for purposes of this subpart.
* * * * *
6. Section 385.12 is amended as follows:
a. In paragraph (b), by removing ``offering.'' and adding
``offering taking into consideration service revenue and expenses
associated with such offering.'' in its place;
b. In paragraph (b)(1), by removing ``Service.'' and adding
``Offering.'' in its place and by adding ``provider'' after
``service'';
c. In paragraph (b)(1)(i), by removing ``revenue as'' and adding
``revenue associated with the relevant offering as'' in its place;
d. In paragraph (b)(2), by removing ``service, subtract'' and
adding ``service provider, subtract'' in its place, by removing ``by
the service'', by removing ``While'' and adding ``Although'' in its
place, by removing ``under its agreements with performing rights
societies as defined in 17 U.S.C. 101'', and by removing ``In the
latter case,'' and adding ``In the case where the service is also
engaging in the public performance of musical works that does not
constitute licensed activity,'' in its place;
e. In paragraph (b)(3), by adding ``provider'' after ``service'';
f. In paragraph (b)(4), by removing ``used by the service'' and
adding ``used by the service provider'' in its place each place it
appears, by removing ``on or after October 1, 2010'', by removing ``if
the service is'' and adding ``if the service provider is'';
g. By revising paragraph (c);
h. In paragraph (d), by removing ``For licensed activity on or
after October 1, 2010,''; and
i. By adding a new paragraph (f).
The revisions and additions read as follows:
Sec. 385.12 Calculation of royalty payments in general.
* * * * *
(c) Percentage of service revenue. The percentage of service
revenue applicable under paragraph (b) of this section is 10.5%.
* * * * *
(f) Confidentiality. A licensee's statement of account, including
any and all information provided by a licensee with respect to the
computation of a subminimum, shall be maintained in confidence by any
copyright owner, authorized representative or agent that receives it,
and shall solely be used by the copyright owner, authorized
representative or agent for purposes of reviewing the amounts paid by
the licensee and verifying the accuracy of any such payments, and only
those employees of the copyright owner, authorized representative or
agent who need to have access to such information for such purposes
will be given access to such information; provided that in no event
shall access be granted to any individual who, on behalf of a record
company, is directly involved in negotiating or approving royalty rates
in transactions authorizing third party services to undertake licensed
activity with respect to sound recordings. A licensee's statements of
account, including any and all information provided by a licensee with
respect to the computation of a subminimum, shall not be used for any
other purpose, and shall not be disclosed to or used by or for any
record company affiliate or any third party, including any third-party
record company.
7. Section 385.13 is amended as follows:
a. In paragraphs (a)(1)-(a)(5), by removing ``Sec. 385.12(b)(1)''
and adding ``Sec. 385.12(b)(1)(ii)'' in its place each place it
appears, and by removing ``Sec. 385.12(b)(3)'' and adding ``Sec.
385.12(b)(3)(ii)'' in its place each place it appears;
b. In paragraph (a)(4), by adding ``providing licensed activity
that is'' before ``made available to end users'' and by adding
``(including products or services subject to other subparts)'' before
``as part of a single transaction'';
c. By revising paragraphs (b) and (c);
d. By redesignating paragraph (d) as paragraph (e);
e. By adding a new paragraph (d); and
f. In newly redesignated paragraph (e), by removing ``the service
shall for the relevant offering calculate its'' and adding ``the'' in
its place, and by adding ``shall be calculated,'' before ``taking into
account''.
The revisions and additions read as follows:
Sec. 385.13 Minimum royalty rates and subscriber-based royalty floors
for specific types of services.
* * * * *
(b) Computation of subminimum I. For purposes of paragraphs (a)(2),
(3), and (4) of this section, subminimum I for an accounting period
means the aggregate of the following with respect to all sound
recordings of musical works used in the relevant offering of the
service provider during the accounting period--
(1) In cases in which the record company is the licensee under 17
U.S.C. 115 and the record company has granted the rights to make
interactive streams or limited downloads of a sound recording through
the third-party service together with the right to reproduce and
distribute the musical work embodied therein, 17.36% of the total
amount expensed by the service provider or any of its affiliates in
accordance with GAAP for such rights for the accounting period, which
amount shall equal the applicable consideration for such rights at the
time such applicable consideration is properly recognized as an expense
under GAAP.
(2) In cases in which the record company is not the licensee under
17 U.S.C. 115 and the record company has granted the rights to make
interactive streams or limited downloads of a sound recording through
the third-party service without the right to reproduce and distribute
the musical work embodied therein, 21% of the total amount expensed by
the service provider or any of its affiliates in accordance with GAAP
for such rights for the accounting period, which amount shall equal the
applicable consideration for such rights at the time such applicable
consideration is properly recognized as an expense under GAAP.
(c) Computation of subminimum II. For purposes of paragraphs (a)(1)
and (5) of this section, subminimum II for an accounting period means
the aggregate of the following with respect to all sound recordings of
musical works used in the relevant offering of the service provider
during the accounting period--
(1) In cases in which the record company is the licensee under 17
U.S.C. 115 and the record company has granted the rights to make
interactive streams and limited downloads of a sound recording through
the third-party service together with the right to reproduce and
distribute the musical work embodied therein, 18% of the total amount
expensed by the service provider or any of its affiliates in accordance
with GAAP for such rights for the accounting period, which amount shall
equal the applicable consideration for such rights at the time such
applicable consideration is properly recognized as an expense under
GAAP.
(2) In cases in which the record company is not the licensee under
17 U.S.C. 115 and the record company has granted the rights to make
interactive streams or limited downloads of a sound recording through
the third-party service without the right to reproduce and distribute
the musical work embodied therein, 22% of the total amount expensed by
the service
[[Page 29263]]
provider or any of its affiliates in accordance with GAAP for such
rights for the accounting period, which amount shall equal the
applicable consideration for such rights at the time such applicable
consideration is properly recognized as an expense under GAAP.
(d) Payments by third parties. If a record company providing sound
recording rights to the service provider for a licensed activity--
(1) Recognizes revenue (in accordance with GAAP, and including for
the avoidance of doubt all applicable consideration with respect to
such rights for the accounting period, regardless of the form or timing
of payment) from a person or entity other than the service provider
providing the licensed activity and its affiliates, and
(2) Such revenue is received, in the context of the transactions
involved, as applicable consideration for such rights,
(3) Then such revenue shall be added to the amounts expensed by the
service provider solely for purposes of paragraphs (b)(1), (b)(2),
(c)(1), or (c)(2) of this section, as applicable, if not already
included in such expensed amounts. Where the service provider is the
licensee, if the service provider provides the record company all
information necessary for the record company to determine whether
additional royalties are payable by the service provider hereunder as a
result of revenue recognized from a person or entity other than the
service provider as described in the immediately preceding sentence,
then the record company shall provide such further information as
necessary for the service provider to calculate the additional
royalties and indemnify the service provider for such additional
royalties. The sole obligation of the record company shall be to pay
the licensee such additional royalties if actually payable as royalties
hereunder; provided, however, that this shall not affect any otherwise
existing right or remedy of the copyright owner nor diminish the
licensee's obligations to the copyright owner.
* * * * *
8. Section 385.14 is amended as follows:
a. In paragraphs (a)(1)(iii)(A)-(C), by removing ``service'' and
adding ``service provider'' in its place each place it appears;
b. In paragraph (a)(1)(iii)(A), by removing ``commencing on or
after October 1, 2010, except'' and adding ``other than'' in its place;
c. In paragraph (a)(3), by removing ``the service shall provide''
and adding ``the service provider shall provide'' in its place, by
removing ``the service shall have'' and adding ``the service provider
shall have'' in its place, and by removing ``the service (but'' and
adding ``the service provider (but'' in its place;
d. By revising paragraph (b)(1);
e. In paragraph (b)(4), by removing ``the service, and not'' and
adding ``the service provider, and not'' in its place; and
f. By revising paragraph (d).
The revisions read as follows:
Sec. 385.14 Promotional royalty rate.
* * * * *
(b) * * *
(1) No applicable consideration for making or authorizing the
relevant interactive streams or limited downloads is received by the
record company, any of its affiliates, or any other person or entity
acting on behalf of or in lieu of the record company, except for in-
kind promotional consideration given to a record company (or affiliate
thereof) that is used to promote the sale or paid use of sound
recordings or the paid use of music services through which sound
recordings are available;
* * * * *
(d) Interactive streaming of clips. In addition to those in
paragraph (a) of this section, the provisions of this paragraph (d)
apply to interactive streaming conducted or authorized by record
companies under the promotional royalty rate of segments of sound
recordings of musical works with a playing time that does not exceed 90
seconds. Such interactive streams may be made or authorized by a record
company under the promotional royalty rate without any of the temporal
limitations set forth in paragraphs (b) and (c) of this section (but
subject to the other conditions of paragraphs (b) and (c) of this
section, as applicable). For clarity, this paragraph (d) is strictly
limited to the uses described herein and shall not be construed as
permitting the creation or use of an excerpt of a musical work in
violation of 17 U.S.C. 106(2) or 115(a)(2) or any other right of a
musical work owner.
9. Add Subpart C to read as follows:
Subpart C--Limited Offerings, Mixed Service Bundles, Music Bundles,
Paid Locker Services and Purchased Content Locker Services
Sec.
385.20 General.
385.21 Definitions.
385.22 Calculation of royalty payments in general.
385.23 Royalty rates and subscriber-based royalty floors for
specific types of services.
385.24 Free trial periods.
385.25 Reproduction and distribution rights covered.
325.26 Effect of rates.
Subpart C--Limited Offerings, Mixed Service Bundles, Music Bundles,
Paid Locker Services and Purchased Content Locker Services
Sec. 385.20 General.
(a) Scope. This subpart establishes rates and terms of royalty
payments for certain reproductions or distributions of musical works
through limited offerings, mixed service bundles, music bundles, paid
locker services and purchased content locker services provided in
accordance with the provisions of 17 U.S.C. 115. For the avoidance of
doubt, to the extent that product configurations for which rates are
specified in subpart A of this part are included within licensed
subpart C of this part activity, the rates specified in subpart A of
this part shall not apply, except that in the case of a music bundle
the compulsory licensee may elect to pay royalties for the music bundle
pursuant to subpart C of this part or for the components of the bundle
pursuant to subpart A of this part.
(b) Legal compliance. A licensee that, pursuant to 17 U.S.C. 115,
makes or authorizes reproduction or distribution of musical works in
limited offerings, mixed service bundles, music bundles, paid locker
services or purchased content locker services shall comply with the
requirements of that sections, the rates and terms of this subpart, and
any other applicable regulations, with respect to such musical works
and uses licensed pursuant to 17 U.S.C. 115.
(c) Interpretation. This subpart is intended only to set rates and
terms for situations in which the exclusive rights of a copyright owner
are implicated and a compulsory license pursuant to 17 U.S.C. 115 is
obtained. Neither this subpart nor the act of obtaining a license under
17 U.S.C. 115 is intended to express or imply any conclusion as to the
circumstances in which any of the exclusive rights of a copyright owner
are implicated or a license, including a compulsory license pursuant to
17 U.S.C. 115, must be obtained.
Sec. 385.21 Definitions.
For purposes of this subpart, the following definitions shall
apply:
Affiliate shall have the meaning given in Sec. 385.11.
Applicable consideration shall have the meaning given in Sec.
385.11, except that for purposes of this subpart references in the
definition of ``Applicable consideration'' in Sec. 385.11 to licensed
activity shall mean licensed subpart C of this part activity.
[[Page 29264]]
Free trial royalty rate means the statutory royalty rate of zero in
the case of certain free trial periods, as provided in Sec. 385.24.
GAAP shall have the meaning given in Sec. 385.11.
Interactive stream shall have the meaning given in Sec. 385.11.
Licensee shall have the meaning given in Sec. 385.11.
Licensed subpart C of this part activity means--
(1) In the case of a limited offering, the applicable interactive
streams or limited downloads;
(2) In the case of a locker service, the applicable interactive
streams, permanent digital downloads, restricted downloads or
ringtones;
(3) In the case of a music bundle, the applicable reproduction or
distribution of a physical phonorecord, permanent digital download or
ringtone; and
(4) In the case of a mixed service bundle, the applicable--
(i) Permanent digital downloads;
(ii) Ringtones;
(iii) To the extent a limited offering is included in a mixed
service bundle, interactive streams or limited downloads; or
(iv) To the extent a locker service is included in a mixed service
bundle, interactive streams, permanent digital downloads, restricted
downloads or ringtones.
Limited download shall have the meaning given in Sec. 385.11.
Limited offering means a subscription service providing interactive
streams or limited downloads where--
(1) An end user is not provided the opportunity to listen to a
particular sound recording chosen by the end user at a time chosen by
the end user (i.e., the service does not provide interactive streams of
individual recordings that are on-demand, and any limited downloads are
rendered only as part of programs rather than as individual recordings
that are on-demand); or
(2) The particular sound recordings available to the end user over
a period of time are substantially limited relative to services in the
marketplace providing access to a comprehensive catalog of recordings
(e.g., a service limited to a particular genre, or permitting
interactive streaming only from a monthly playlist consisting of a
limited set of recordings).
Locker service means a service providing access to sound recordings
of musical works in the form of interactive streams, permanent digital
downloads, restricted downloads or ringtones, where the service has
reasonably determined that phonorecords of the applicable sound
recordings have been purchased by the end user or are otherwise in the
possession of the end use prior to the end user's first request to
access such sound recordings by means of the service. The term service
locker does not extend to any part of a service otherwise meeting this
definition as to which a license is not obtained for the applicable
reproductions and distributions of musical works.
Mixed service bundle means an offering of one or more of permanent
digital downloads, ringtones, locker services or limited offerings,
together with one or more of non-music services (e.g., Internet access
service, mobile phone service) or non-music products (e.g., a device
such as a phone) of more than token value, that is provided to users as
part of one transaction without pricing for the music services or music
products separate from the whole offering.
Music bundle means an offering of two or more of physical
phonorecords, permanent digital downloads or ringtones provided to
users as part of one transaction (e.g., download plus ringtone, CD plus
downloads). A music bundle must contain at least two different product
configurations and cannot be combined with any other offering
containing licensed activity under subpart B of this part or subpart C
of this part.
(1) In the case of music bundles containing one or more physical
phonorecords, the physical phonorecord component of the music bundle
must be sold under a single catalog number, and the musical works
embodied in the digital phonorecord delivery configurations in the
music bundle must be the same as, or a subset of, the musical works
embodied in the physical phonorecords; provided that when the music
bundle contains a set of digital phonorecord deliveries sold by the
same record company under substantially the same title as the physical
phonorecord (e.g., a corresponding digital album), up to 5 sound
recordings of musical works that are included in the stand-alone
version of such set of digital phonorecord deliveries but are not
included on the physical phonorecord may be included among the digital
phonorecord deliveries in the music bundle. In addition, the seller
must permanently part with possession of the physical phonorecord or
phonorecords sold as part of the music bundle.
(2) In the case of music bundles composed solely of digital
phonorecords deliveries, the number of digital phonorecord deliveries
in either configuration cannot exceed 20, and the musical works
embodied in each configuration in the music bundle must be the same as,
or a subset of, the musical works embodied in the configuration
containing the most musical works.
Paid locker service means a locker service that is a subscription
service.
Permanent digital download shall have the meaning given in Sec.
385.2.
Purchased content locker service means a locker service made
available to end-user purchasers of permanent digital downloads,
ringtones or physical phonorecords at no incremental charge above the
otherwise applicable purchase price of the permanent digital downloads,
ringtones or physical phonorecords, with respect to the sound
recordings embodied in permanent digital downloads or ringtones or
physical phonorecords purchased from a qualifying seller as described
in paragraph (1) of the definition of ``Purchased content locker
service,'' whereby the locker service enables the purchaser to engage
in one or both of the qualifying activities identified in paragraph (2)
of the definition of ``Purchased content locker service.'' In addition,
in the case of a locker service made available to end-user purchasers
of physical phonorecords, the seller must permanently part with
possession of the physical phonorecords.
(1) A qualifying seller for purposes of this definition of
``purchased content locker service'' is the same entity operating such
locker service, one of its affiliates or predecessors, or--
(i) In the case of permanent digital downloads or ringtones, a
seller having another legitimate connection to the locker service
provider set forth in one or more written agreements (including that
the locker service and permanent digital downloads or ringtones are
offered through the same third party); or
(ii) In the case of physical phonorecords, a seller having an
agreement with--
(A) The locker service provider whereby such parties establish an
integrated offer that creates a consumer experience commensurate with
having the same service both sell the physical phonorecord and offer
the locker service; or
(B) A service provider that also has an agreement with the entity
offering the locker service, where pursuant to those agreements the
service provider has established an integrated offer that creates a
consumer experience commensurate with having the same service both sell
the physical phonorecord and offer the locker service.
(2) Qualifying activity for purposes of this definition of
``purchased content
[[Page 29265]]
locker service'' is enabling the purchaser to--
(i) Receive one or more additional phonorecords of such purchased
sound recordings of musical works in the form of permanent digital
downloads or ringtones at the time of purchase, or
(ii) Subsequently access such purchased sound recordings of musical
works in the form of interactive streams, additional permanent digital
downloads, restricted downloads or ringtones.
Record company shall have the meaning given in Sec. 385.11.
Restricted download means a digital phonorecord delivery
distributed in the form of a download that may not be retained and
played on a permanent basis. The term restricted download includes a
limited download.
Ringtone shall have the meaning given in Sec. 385.2.
Service provider shall have the meaning given in Sec. 385.11,
except that for purposes of this subpart references in the definition
of ``Service provider'' in Sec. 385.11 to licensed activity and
service revenue shall mean licensed subpart C of this part activity and
subpart C of this part service revenue, respectively.
Subpart C of this part offering means a service provider's offering
of licensed subpart C of this part activity that is subject to a
particular rate set forth in Sec. 385.23(a) (e.g., a particular
subscription plan available through the service provider).
Subpart C of this part relevant page means a page (including a Web
page, screen or display) from which licensed subpart C of this part
activity offered by a service provider is directly available to end
users, but only where the offering of licensed subpart C of this part
activity and content that directly relates to the offering of licensed
subpart C of this part activity (e.g., an image of the artist or
artwork closely associated with such offering, artist or album
information, reviews of such offering, credits and music player
controls) comprises 75% or more of the space on that page, excluding
any space occupied by advertising. A licensed subpart C of this part
activity is directly available to end users from a page if sound
recordings of musical works can be accessed by end users for licensed
subpart C of this part activity from such page (in most cases this will
be the page where the transmission takes place).
Subpart C of this part service revenue. (1) Subject to paragraphs
(2) through (6) of the definition of ``Subpart C of this part service
revenue,'' and subject to GAAP, subpart C of this part service revenue
shall mean the following:
(i) All revenue recognized by the service provider from end users
from the provision of licensed subpart C of this part activity;
(ii) All revenue recognized by the service provider by way of
sponsorship and commissions as a result of the inclusion of third-party
``in-stream'' or ``in-download'' advertising as part of licensed
subpart C of this part activity (i.e., advertising placed immediately
at the start, end or during the actual delivery, by way of
transmissions of a musical work that constitute licensed subpart C of
this part activity); and
(iii) All revenue recognized by the service provider, including by
way of sponsorship and commissions, as a result of the placement of
third-party advertising on a subpart C of this part relevant page of
the service or on any page that directly follows such subpart C of this
part relevant page leading up to and including the transmission of a
musical work that constitutes licensed subpart C of this part activity;
provided that, in the case where more than one service is actually
available to end users from a subpart C of this part relevant page, any
advertising revenue shall be allocated between such services on the
basis of the relative amounts of the page they occupy.
(2) In each of the cases identified in paragraph (1) of the
definition of ``Subpart C of this part service revenue,'' such revenue
shall, for the avoidance of doubt,
(i) Include any such revenue recognized by the service provider, or
if not recognized by the service provider, by any associate, affiliate,
agent or representative of such service provider in lieu of its being
recognized by the service provider;
(ii) Include the value of any barter or other nonmonetary
consideration;
(iii) Not be reduced by credit card commissions or similar payment
process charges; and
(iv) Except as expressly set forth in this subpart, not be subject
to any other deduction or set-off other than refunds to end users for
licensed subpart C of this part activity that they were unable to use
due to technical faults in the licensed subpart C of this part activity
or other bona fide refunds or credits issued to end users in the
ordinary course of business.
(3) In each of the cases identified in paragraph (1) of the
definition of ``Subpart C of this part service revenue,'' such revenue
shall, for the avoidance of doubt, exclude revenue derived solely in
connection with services and activities other than licensed subpart C
of this part activity, provided that advertising or sponsorship revenue
shall be treated as provided in paragraphs (2) and (4) of the
definition of ``Subpart C of this part service revenue.'' By way of
example, the following kinds of revenue shall be excluded:
(i) Revenue derived from non-music voice, content and text
services;
(ii) Revenue derived from other non-music products and services
(including search services, sponsored searches and click-through
commissions);
(iii) Revenue generated from the sale of actual locker service
storage space to the extent that such storage space is sold at a
separate retail price;
(iv) In the case of a locker service, revenue derived from the sale
of permanent digital downloads or ringtones; and
(v) Revenue derived from other music or music-related products and
services that are not or do not include licensed subpart C of this part
activity.
(4) For purposes of paragraph (1) of the definition of ``Subpart C
of this part service revenue,'' advertising or sponsorship revenue
shall be reduced by the actual cost of obtaining such revenue, not to
exceed 15%.
(5) In the case of a mixed service bundle, the revenue deemed to be
recognized from end users for the service for the purpose of the
definition in paragraph (1) of the definition of ``Subpart C of this
part service revenue'' shall be the greater of--
(i) The revenue recognized from end users for the mixed service
bundle less the standalone published price for end users for each of
the non-music product or non-music service components of the bundle;
provided that, if there is no such standalone published price for a
non-music component of the bundle, then the average standalone
published price for end users for the most closely comparable non-music
product or non-music service in the U.S. shall be used or, if more than
one such comparable exists, the average of such standalone prices for
such comparables shall be used; and
(ii) Either--
(A) In the case of a mixed service bundle that either has 750,000
subscribers or other registered users, or is reasonably expected to
have 750,000 subscribers or other registered users within 1 year after
commencement of the mixed service bundle, 40% of the standalone
published price of the licensed music component of the bundle (i.e.,
the permanent digital downloads, ringtones, locker service or limited
offering); provided that, if there is no such standalone published
price for the licensed music component of the bundle, then the average
standalone published price for end users for the
[[Page 29266]]
most closely comparable licensed music component in the U.S. shall be
used or, if more than one such comparable exists, the average of such
standalone prices for such comparables shall be used; and further
provided that in any case in which royalties were paid based on this
paragraph due to a reasonable expectation of reaching 750,000
subscribers or other registered users within 1 year after commencement
of the mixed service bundle and that does not actually happen,
applicable payments shall, in the accounting period next following the
end of such 1-year period, retroactively be adjusted as if paragraph
(5)(ii)(B) of the definition of ``Subpart C of this part service
revenue'' applied; or
(B) Otherwise, 50% of the standalone published price of the
licensed music component of the bundle (i.e., the permanent digital
downloads, ringtones, locker service or limited offering); provided
that, if there is no such standalone published price for the licensed
music component of the bundle, then the average standalone published
price for end users for the most closely comparable licensed music
component in the U.S. shall be used or, if more than one such
comparable exists, the average of such standalone prices for such
comparables shall be used.
(6) In the case of a music bundle containing a physical
phonorecord, where the music bundle is distributed by a record company
for resale and the record company is the compulsory licensee--
(i) Service revenue shall be 150% of the record company's wholesale
revenue from the music bundle; and
(ii) The times at which distribution and revenue recognition are
deemed to occur shall be in accordance with Sec. 201.19 of this title.
Subscription service means a digital music service for which end
users are required to pay a fee to access the service for defined
subscription periods of 3 years or less (in contrast to, for example, a
service where the basic charge to users is a payment per download or
per play), whether such payment is made for access to the service on a
standalone basis or as part of a bundle with one or more other products
or services, and including any use of such a service on a trial basis
without charge as described in Sec. 385.24.
Sec. 385.22 Calculation of royalty payments in general.
(a) Applicable royalty. Licensees that make or authorize licensed
subpart C of this part activity pursuant to 17 U.S.C. 115 shall pay
royalties therefor that are calculated as provided in this section,
subject to the royalty rates and subscriber-based royalty floors for
specific types of services provided in Sec. 385.23, except as provided
for certain free trial periods in Sec. 385.24.
(b) Rate calculation methodology. Royalty payments for licensed
subpart C of this part activity shall be calculated as provided in
paragraph (b) of this section. If a service provides different subpart
C of this part offerings, royalties must be separately calculated with
respect to each such subpart C of this part offering taking into
consideration service revenue and expenses associated with such
offering. Uses subject to the free trial royalty rate shall be excluded
from the calculation of royalties due, as further described in this
section and the following Sec. 385.23.
(1) Step 1: Calculate the All-In Royalty for the Subpart C of this
Part Offering. For each accounting period, the all-in royalty for each
subpart C of this part offering of the service provider is the greater
of:
(i) The applicable percentage of subpart C of this part service
revenue associated with the relevant offering as set forth in Sec.
385.23(a) (excluding any subpart C of this part service revenue derived
solely from licensed subpart C of this part activity uses subject to
the free trial royalty rate), and
(ii) The minimum specified in Sec. 385.23(a) for the subpart C of
this part offering involved.
(2) Step 2: Subtract applicable performance royalties to determine
the payable royalty pool, which is the amount payable for the
reproduction and distribution of all musical works used by the service
provider by virtue of its licensed subpart C of this part activity for
a particular subpart C of this part offering during the accounting
period. From the amount determined in step 1 in paragraph (b)(1) of
this section, for each subpart C of this part offering of the service
provider, subtract the total amount of royalties for public performance
of musical works that has been or will be expensed pursuant to public
performance licenses in connection with uses of musical works through
such subpart C of this part offering during the accounting period that
constitute licensed subpart C of this part activity (other than
licensed subpart C of this part activity subject to the free trial
royalty rate), or in connection with previewing of such subpart C of
this part offering during the accounting period. Although this amount
may be the total of the payments with respect to the service for that
subpart C of this part offering for the accounting period, it will be
less than the total of such public performance payments if the service
is also engaging in public performance of musical works that does not
constitute licensed subpart C of this part activity, or previewing of
such licensed subpart C of this part activity. In the case where the
service is also engaging in the public performance of musical works
that does not constitute licensed subpart C of this part activity, the
amount to be subtracted for public performance payments shall be the
amount of such payments allocable to licensed subpart C of this part
activity uses (other than free trial royalty rate uses), and previewing
of such uses, in connection with the relevant subpart C of this part
offering, as determined in relation to all uses of musical works for
which the public performance payments are made for the accounting
period. Such allocation shall be made on the basis of plays of musical
works or, where per-play information is unavailable due to bona fide
technical limitations as described in step 3 in paragraph (b)(3) of
this section, using the same alternative methodology as provided in
step 3 in paragraph (b)(3) of this section.
(3) Step 3: Calculate the Per-Work Royalty Allocation for Each
Relevant Work. This is the amount payable for the reproduction and
distribution of each musical work used by the service provider by
virtue of its licensed subpart C of this part activity through a
particular subpart C of this part offering during the accounting
period. To determine this amount, the result determined in step 2 in
paragraph (b)(2) of this section must be allocated to each musical work
used through the subpart C of this part offering. The allocation shall
be accomplished as follows:
(i) In the case of limited offerings (but not limited offerings
that are part of mixed service bundles), by dividing the payable
royalty pool determined in step 2 in paragraph (b)(2) of this section
for such offering by the total number of plays of all musical works
through such offering during the accounting period (other than free
trial royalty rate plays) to yield a per-play allocation, and
multiplying that result by the number of plays of each musical work
(other than free trial royalty rate plays) through the offering during
the accounting period. For purposes of determining the per-work royalty
allocation in all calculations under this step 3 only (i.e., after the
payable royalty pool has been determined), for sound recordings of
musical works with a playing time of over 5 minutes, each play shall be
counted as provided in paragraph (c) of this section. Notwithstanding
the foregoing, if the service provider is not
[[Page 29267]]
capable of tracking play information due to bona fide limitations of
the available technology for services of that nature or of devices
usable with the service, the per-work royalty allocation may instead be
accomplished in a manner consistent with the methodology used by the
service provider for making royalty payment allocations for the use of
individual sound recordings.
(ii) In the case of mixed service bundles and locker services, by--
(A) Determining a constructive number of plays of all licensed
musical works that is the sum of the total number of interactive
streams of all licensed musical works made through such offering during
the accounting period (other than free trial royalty rate interactive
streams), plus the total number of plays of restricted downloads of all
licensed musical works made through such offering during the accounting
period as to which the service provider tracks plays (other than free
trial royalty rate restricted downloads), plus 5 times the total number
of downloads of all licensed musical works made through such offering
during the accounting period as to which the service provider does not
track plays (other than free trial royalty rate downloads);
(B) Determining a constructive per-play allocation that is the
payable royalty pool determined in step 2 of paragraph (b)(2) of this
section for such offering divided by the constructive number of plays
of all licensed musical works determined in paragraph (b)(3)(ii)(A) of
this section;
(C) For each licensed musical work, determining a constructive
number of plays of that musical work that is the sum of the total
number of interactive streams of such licensed musical work made
through such offering during the accounting period (other than free
trial royalty rate interactive streams), plus the total number of plays
of restricted downloads of such licensed musical work made through such
offering during the accounting period as to which the service provider
tracks plays (other than free trial royalty rate restricted downloads),
plus 5 times the total number of downloads of such licensed musical
work made through such offering during the accounting period as to
which the service provider does not track plays (other than free trial
royalty rate downloads); and
(D) For each licensed musical work, determining the per-work
royalty allocation by multiplying the constructive per-play allocation
determined in paragraph (b)(3)(ii)(B) of this section by the
constructive number of plays of that musical work determined in
paragraph (b)(3)(ii)(C) of this section.
(E) Notwithstanding the foregoing, if a service provider offers
both a paid locker service and a purchased content locker service, and
with respect to the purchased content locker service there is no
subpart C of this part service revenue and the applicable subminimum is
zero dollars, then the service provider shall be permitted to include
within the calculation of constructive plays under paragraphs
(b)(3)(ii)(A) and (b)(3)(ii)(C) of this section for the paid locker
service, the licensed subpart C of this part activity made through the
purchased content locker service (i.e., the total number of interactive
streams of all licensed musical works made through the purchased
content locker service during the accounting period (other than free
trial royalty rate interactive streams), plus the total number of plays
of restricted downloads of all licensed musical works made through the
purchased content locker service during the accounting period as to
which the service provider tracks plays (other than free trial royalty
rate restricted downloads), plus 5 times the total number of downloads
of all licensed musical works made through the purchased content locker
service during the accounting period as to which the service provider
does not track plays (other than free trial royalty rate downloads));
provided that the relevant licensed subpart C of this part activity
made through the purchased content locker service is similarly included
within the play calculation for the paid locker service for the
corresponding sound recording rights.
(iii) In the case of music bundles, by--
(A) Allocating the payable royalty pool determined in step 2 of
paragraph (b)(2) of this section to separate pools for each type of
product configuration included in the music bundle (e.g., CD, permanent
digital download, ringtone) in accordance with the ratios that the
standalone published prices of the products that are included in the
music bundle bear to each other; provided that, if there is no such
standalone published price for such a product, then the average
standalone published price for end users for the most closely
comparable product in the U.S. shall be used or, if more than one such
comparable exists, the average of such standalone prices for such
comparables shall be used; and
(B) Allocating the product configuration pools determined in
paragraph (b)(3)(iii)(A) of this section to individual musical works by
dividing each such pool by the total number of sound recordings of
musical works included in products of that configuration in the music
bundle.
(c) Overtime adjustment. For purposes of the calculations in step 3
of paragraph (b)(3)(i) of this section only, for sound recordings of
musical works with a playing time of over 5 minutes, adjust the number
of plays as follows:
(1) 5:01 to 6:00 minutes--Each play = 1.2 plays
(2) 6:01 to 7:00 minutes--Each play = 1.4 plays
(3) 7:01 to 8:00 minutes--Each play = 1.6 plays
(4) 8:01 to 9:00 minutes--Each play = 1.8 plays
(5) 9:01 to 10:00 minutes--Each play = 2.0 plays
(6) For playing times of greater than 10 minutes, continue to add
.2 plays for each additional minute or fraction thereof.
(d) Accounting. The calculations required by paragraph (b) of this
section shall be made in good faith and on the basis of the best
knowledge, information and belief of the licensee at the time payment
is due, and subject to the additional accounting and certification
requirements of 17 U.S.C. 115(c)(5) and Sec. 201.19 of this title.
Without limitation, a licensee's statements of account shall set forth
each step of its calculations with sufficient information to allow the
copyright owner to assess the accuracy and manner in which the licensee
determined the payable royalty pool and per-work allocations (including
information sufficient to demonstrate whether and how a minimum royalty
payment pursuant to Sec. 385.23 does or does not apply) and, for each
subpart C of this part offering reported, also indicate the type of
licensed subpart C of this part activity involved and the number of
plays or downloads, as applicable, of each musical work (including an
indication of any overtime adjustment applied, if applicable) that is
the basis of the per-work royalty allocation being paid.
(e) Confidentiality. A licensee's statements of account, including
any and all information provided a licensee with respect to the
computation of a subminimum, shall be maintained in confidence of any
copyright owner, authorized representative or agent that receives it,
and shall solely be used by the copyright owner, authorized
representative or agent for purposes of reviewing the amounts paid by
the licensee and verifying the accuracy of any such payments, and only
those employees of the copyright owner, authorized representative or
agent who need to have access to such information
[[Page 29268]]
for such purposes will be given access to such information; provided
that in no event shall access be granted to any individual who, on
behalf of a record company, is directly involved in negotiating or
approving royalty rates in transactions authorizing third party
services to undertake licensed activity with respect to sound
recordings. A licensee's statements of account, including any and all
information provided by a licensee with respect to the computation of a
subminimum, shall not be used for any other purpose, and shall not be
disclosed to or used by or for any record company affiliate or any
third party, including any third-party record company.
Sec. 385.23 Royalty rates and subscriber-based royalty floors for
specific types of services.
(a) In general. The following royalty rates and subscriber-based
royalty floors shall apply to the following types of licensed subpart C
of this part activity:
(1) Mixed service bundle. In the case of a mixed service bundle,
the percentage of subpart C of this part service revenue applicable in
step 1 of Sec. 385.22(b)(1)(i) is 11.35%. The minimum for use in step
1 of Sec. 385.22(b)(1)(ii) is the appropriate subminimum as described
in paragraph (b) of this section for the accounting period, where the
all-in percentage applicable to Sec. 385.23(b)(1) is 17.36%, and the
sound recording-only percentage applicable to Sec. 385.23(b)(2) is
21%.
(2) Music bundle. In the case of a music bundle, the percentage of
subpart C of this part service revenue applicable in step 1 of Sec.
385.22(b)(1)(i) is 11.35%. The minimum for use in step 1 of Sec.
385.22(b)(1)(ii) is the appropriate subminimum as described in
paragraph (b) of this section for the accounting period, where the all-
in percentage applicable to Sec. 385.23(b)(1) and (3) is 17.36%, and
the sound recording-only percentage applicable to Sec. 385.23(b)(2) is
21%.
(3) Limited offering. In the case of a limited offering, the
percentage of subpart C of this part service revenue applicable in step
1 of Sec. 385.22(b)(1)(i) is 10.5%. The minimum for use in step 1 of
Sec. 385.22(b)(1)(ii) is the greater of--
(i) The appropriate subminimum as described in paragraph (b) of
this section for the accounting period, where the all-in percentage
applicable to Sec. 385.23(b)(1) is 17.36%, and the sound recording-
only percentage applicable to Sec. 385.23(b)(2) is 21%; and
(ii) The aggregate amount of 18 cents per subscriber per month.
(4) Paid locker service. In the case of a paid locker service, the
percentage of subpart C of this part service revenue applicable in step
1 of Sec. 385.22(b)(1)(i) is 12%. The minimum for use in step 1 of
Sec. 385.22(b)(1)(ii) is the greater of--
(i) The appropriate subminimum as described in paragraph (b) of
this section for the accounting period, where the all-in percentage
applicable to Sec. 385.23(b)(1) is 17.11%, and the sound recording-
only percentage applicable to Sec. 385.23(b)(2) is 20.65%; and
(ii) The aggregate amount of 17 cents per subscriber per month.
(5) Purchased content locker service. In the case of a purchased
content locker service, the percentage of subpart C of this part
service revenue applicable in step 1 of Sec. 385.22(b)(1)(i) is 12%.
For the avoidance of doubt, paragraph (1)(i) of the definition of
``Subpart C of this part service revenue'' shall not apply. The minimum
for use in step 1 in Sec. 385.22(b)(1)(ii) is the appropriate
subminimum as described in paragraph (b) of this section for the
accounting period, where the all-in percentage applicable to Sec.
385.23(b)(1) is 18%, and the sound recording-only percentage applicable
to Sec. 385.23(b)(2) is 22%, except that for purposes of paragraph (b)
of this section the applicable consideration expensed by the service
for the relevant rights shall consist only of applicable consideration
expensed by the service, if any, that is incremental to the applicable
consideration expensed for the rights to make the relevant permanent
digital downloads and ringtones.
(b) Computation of subminima. For purposes of paragraph (a) of this
section, the subminimum for an accounting period is the aggregate of
the following with respect to all sound recordings of musical works
used in the relevant subpart C of this part offering of the service
provider during the accounting period--
(1) Except as provided in paragraph (b)(3) of this section, in
cases in which the record company is the licensee under 17 U.S.C. 115
and the record company has granted the rights to engage in licensed
subpart C of this part activity with respect to a sound recording
through the third-party service together with the right to reproduce
and distribute the musical work embodied therein, the appropriate all-
in percentage from paragraph (a) of this section of the total amount
expensed by the service provider or any of its affiliates in accordance
with GAAP for such rights for the accounting period, which amount shall
equal the applicable consideration for such rights at the time such
applicable consideration is properly recognized as an expense under
GAAP.
(2) In cases in which the record company is not the licensee under
17 U.S.C. 115 and the record company has granted the rights to engage
in licensed subpart C of this part activity with respect to a sound
recording through the third-party service without the right to
reproduce and distribute the musical work embodied therein, the
appropriate sound recording-only percentage from paragraph (a) of this
section of the total amount expensed by the service provider or any of
its affiliates in accordance with GAAP for such rights for the
accounting period, which amount shall equal the applicable
consideration for such rights at the time such applicable consideration
is properly recognized as an expense under GAAP.
(3) In the case of a music bundle containing a physical
phonorecord, where the music bundle is distributed by a record company
for resale and the record company is the compulsory licensee, the
appropriate all-in percentage from paragraph (a) of this section of the
record company's total wholesale revenue from the music bundle in
accordance with GAAP for the accounting period, which amount shall
equal the applicable consideration for such music bundle at the time
such applicable consideration is properly recognized as revenue under
GAAP, subject to the provisions of Sec. 201.19 of this title
concerning the times at which distribution and revenue recognition are
deemed to occur.
(4) If a record company providing sound recording rights to the
service provider for a licensed subpart C of this part activity--
(i) Recognizes revenue (in accordance with GAAP, and including for
the avoidance of doubt all applicable consideration with respect to
such rights for the accounting period, regardless of the form or timing
of payment) from a person or entity other than the service provider
providing the licensed subpart C of this part activity and its
affiliates, and
(ii) Such revenue is received, in the context of the transactions
involved, as applicable consideration for such rights,
(iii) Then such revenue shall be added to the amounts expensed by
the service provider solely for purposes of paragraph (b)(1) or (2) of
this section, as applicable, if not already included in such expensed
amounts. Where the service provider is the licensee, if the service
provider provides the record company all information necessary for the
record company to determine whether additional royalties are payable
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by the service provider hereunder as a result of revenue recognized
from a person or entity other than the service provider as described in
the immediately preceding sentence, then the record company shall
provide such further information as necessary for the service provider
to calculate the additional royalties and indemnify the service
provider for such additional royalties. The sole obligation of the
record company shall be to pay the licensee such additional royalties
if actually payable as royalties hereunder; provided, however, that
this shall not affect any otherwise existing right or remedy of the
copyright owner nor diminish the licensee's obligations to the
copyright owner.
(c) Computation of subscriber-based royalty rates. For purposes of
paragraphs (a)(3) and (4) of this section, to determine the subscriber-
based minimum applicable to any particular subpart C of this part
offering, the total number of subscriber-months for the accounting
period shall be calculated, taking into account all end users who were
subscribers for complete calendar months, prorating in the case of end
users who were subscribers for only part of a calendar month, and
deducting on a prorated basis for end users covered by a free trial
period subject to the free trial royalty rate as described in Sec.
385.24. The product of the total number of subscriber-months for the
accounting period and the specified number of cents per subscriber
shall be used as the subscriber-based component of the minimum for the
accounting period.
Sec. 385.24 Free trial periods.
(a) General provisions. This section establishes a royalty rate of
zero in the case of certain free trial periods for mixed service
bundles, paid locker services and limited offerings under a license
pursuant to 17 U.S.C. 115. Subject to the requirements of 17 U.S.C. 115
and the additional provisions of paragraphs (b) through (e) of this
section, the free trial royalty rate shall apply to a musical work when
a record company transmits or authorizes the transmission, as part of a
mixed service bundle, paid locker service or limited offering, of a
sound recording that embodies such musical work, only if--
(1) The primary purpose of the record company in providing or
authorizing the free trial period is to promote the applicable subpart
C of this part offering;
(2) No applicable consideration for making or authorizing the
transmissions is received by the record company, or any other person or
entity acting on behalf of or in lieu of the record company, except for
in-kind promotional consideration used to promote the sale or paid use
of sound recordings or audiovisual works embodying musical works or the
paid use of music services through which sound recordings or
audiovisual works embodying musical works are available;
(3) The free trial period does not exceed 30 consecutive days per
subscriber per two-year period;
(4) In connection with authorizing the transmissions, the record
company has obtained from the service provider it authorizes a written
representation that--
(i) The service provider agrees to maintain for a period of no less
than 5 years from the end of each relevant accounting period complete
and accurate records of the relevant authorization, and identifying
each sound recording of a musical work made available through the free
trial period, the licensed subpart C of this part activity involved,
and the number of plays or downloads, as applicable, of such recording;
(ii) The service is in all material respects operating with
appropriate license authority with respect to the musical works it is
using; and
(iii) The representation is signed by a person authorized to make
the representation on behalf of the service provider;
(5) Upon receipt by the record company of written notice from the
copyright owner of a musical work or agent of the copyright owner
stating in good faith that a particular service is in a material manner
operating without appropriate license authority from such copyright
owner, the record company shall within 5 business days withdraw by
written notice its authorization of such uses of such copyright owner's
musical works under the free trial royalty rate by that service;
(6) The free trial period is offered free of any charge to the end
user; and
(7) End users are periodically offered an opportunity to subscribe
to the service during such free trial period.
(b) Recordkeeping by record companies. To rely upon the free trial
royalty rate for a free trial period, a record company making or
authorizing the free trial period shall keep complete and accurate
contemporaneous written records of the contractual terms that bear upon
the free trial period; and further provided that, if the record company
itself is conducting the free trial period, it shall also maintain any
additional records described in paragraph (a)(4)(i) of this section.
The records required by this paragraph (b) shall be maintained for no
less time than the record company maintains records of usage of
royalty-bearing uses involving the same type of licensed subpart C of
this part activity in the ordinary course of business, but in no event
for less than 5 years from the conclusion of the licensed subpart C of
this part activity to which they pertain. If the copyright owner of a
musical work or its agent requests a copy of the information to be
maintained under this paragraph (b) with respect to a specific free
trial period, the record company shall provide complete and accurate
documentation within 10 business days, except for any information
required under paragraph (a)(4)(i) of this section, which shall be
provided within 20 business days, and provided that if the copyright
owner or agent requests information concerning a large volume of free
trial periods or sound recordings, the record company shall have a
reasonable time, in view of the amount of information requested, to
respond to any request of such copyright owner or agent. If the record
company does not provide required information within the required time,
and upon receipt of written notice citing such failure does not provide
such information within a further 10 business days, the uses will be
considered not to be subject to the free trial royalty rate and the
record company (but not any third-party service it has authorized)
shall be liable for any payment due for such uses; provided, however,
that all rights and remedies of the copyright owner with respect to
unauthorized uses shall be preserved.
(c) Recordkeeping by services. If the copyright owner of a musical
work or its agent requests a copy of the information to be maintained
under paragraph (a)(4)(i) of this section by a service authorized by a
record company with respect to a specific promotion, the service
provider shall provide complete and accurate documentation within 20
business days, provided that if the copyright owner or agent requests
information concerning a large volume of free trial periods or sound
recordings, the service provider shall have a reasonable time, in view
of the amount of information requested, to respond to any request of
such copyright owner or agent. If the service provider does not provide
required information within the required time, and upon receipt of
written notice citing such failure does not provide such information
within a further 10 business days, the uses will be considered not to
be subject to the free trial royalty rate and the service provider (but
not the record company)
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will be liable for any payment due for such uses; provided, however,
that all rights and remedies of the copyright owner with respect to
unauthorized uses shall be preserved.
(d) Interpretation. The free trial royalty rate is exclusively for
audio-only licensed subpart C of this part activity involving musical
works subject to licensing under 17 U.S.C. 115. The free trial royalty
rate does not apply to any other use under 17 U.S.C. 115; nor does it
apply to public performances, audiovisual works, lyrics or other uses
outside the scope of 17 U.S.C. 115. Without limitation, uses subject to
licensing under 17 U.S.C. 115 that do not qualify for the free trial
royalty rate (including without limitation licensed subpart C of this
part activity beyond the time limitations applicable to the free trial
royalty rate) require payment of applicable royalties. This section is
based on an understanding of industry practices and market conditions
at the time of its development, among other things. The terms of this
section shall be subject to de novo review and consideration (or
elimination altogether) in future proceedings before the Copyright
Royalty Judges. Nothing in this section shall be interpreted or
construed in such a manner as to nullify or diminish any limitation,
requirement or obligation of 17 U.S.C. 115 or other protection for
musical works afforded by the Copyright Act, 17 U.S.C. 101 et seq.
Sec. 385.25 Reproduction and distribution rights covered.
A compulsory license under 17 U.S.C. 115 extends to all
reproduction and distribution rights that may be necessary for the
provision of the licensed subpart C of this part activity, solely for
the purpose of providing such licensed subpart C of this part activity
(and no other purpose).
Sec. 385.26 Effect of rates.
In any future proceedings under 17 U.S.C. 115(c)(3)(C) and (D), the
royalty rates payable for a compulsory license shall be established de
novo.
Dated: May 10, 2012.
Stanley C. Wisniewski,
Copyright Royalty Judge.
[FR Doc. 2012-11751 Filed 5-16-12; 8:45 am]
BILLING CODE 1410-72-P