[Federal Register Volume 78, Number 219 (Wednesday, November 13, 2013)]
[Rules and Regulations]
[Pages 67938-67951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25454]
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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: Final rule.
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SUMMARY: The Copyright Royalty Judges are publishing final regulations
setting
[[Page 67939]]
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: Effective: January 1, 2014.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658 or email at
[email protected].
SUPPLEMENTARY INFORMATION:
Background
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,
including digital phonorecord deliveries,\1\ provided that the
copyright owner has allowed phonorecords of the work to be produced and
distributed to the public, and that the licensee complies with the
statute and attendant regulations. 17 U.S.C. 115(a).
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\1\ The Digital Performance Right in Sound Recordings Act,
Public Law 104-39, 109 Stat. 336 (1995), extended the mechanical
license to digital phonorecord deliveries. Consequently, the license
covers digital transmissions of phonorecords in addition to the
physical copies such as compact discs, vinyl and cassette tapes.
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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. 17 U.S.C. 801(b)(1) and 804(b)(4).\2\
Thus, the Judges, in accordance with 17 U.S.C. 804(b)(4), published a
notice in the Federal Register commencing the current proceeding to set
rates and terms for the section 115 license and requesting interested
parties to submit their petitions to participate. 76 FR 590 (Jan. 5,
2011). In response to the notice, the Judges received 24 petitions to
participate.\3\ The Judges set the timetable for the three-month
negotiation period, see 17 U.S.C. 803(b)(3), as well as a deadline of
April 30, 2012, for the participants' submission of written direct
statements. 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 (Apr. 11, 2012).
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\2\ The Judges commenced a proceeding in 2006, as directed by
section 804(b)(4) of the Copyright Act, and published their final
determination in the Federal Register on January 26, 2009. 74 FR
4510. Therefore, commencement of the next proceeding--the current
proceeding--was to occur in January 2011. 17 U.S.C. 804(b)(4).
\3\ A complete list of parties submitting petitions to
participate can be found at 77 FR 29261 (May 17, 2012). The Judges
also received one filing styled as a ``Comment in Response to
Request for Petitions to Participate,'' which subsequently was
withdrawn. See 77 FR at 29261 n.3.
\4\ The Settling Parties are comprised of National Music
Publishers' Association, Inc.; the Songwriters Guild of America; the
Nashville Songwriters Association International; the Church Music
Publishers Association; the Recording Industry Association of
America; Digital Media Association; and CTIA-the Wireless
Association. One participant's signature was omitted inadvertently
from the motion and subsequently provided on April 18, 2012. See 77
FR 29260 n.4. Although two participants did not sign the motion, the
Judges presume that they each reviewed the settlement and harbored
no objection to its adoption, per the signatories' representation.
Id.
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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 in part
that the Judges must provide to both non-participants and participants
to the rate proceeding who ``would be bound by the terms, rates, or
other determination set by any agreement * * * an opportunity to
comment on the agreement.'' 17 U.S.C. 801(b)(7)(A)(i). Participants to
the proceeding may also ``object to [the agreement's] adoption as a
basis for statutory terms and rates.'' Id.
The Judges ``may decline to adopt the agreement as a basis for
statutory terms and rates for participants that are not parties to the
agreement,'' only ``if any participant [to the proceeding] objects to
the agreement and the [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)(ii). Accordingly, on May 17, 2012, the Judges published a
notice requesting comment on the proposed rates and terms, with certain
modifications, submitted to the Judges.\5\
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\5\ The Judges questioned whether the adoption of two accounting
provisions, found in proposed Sec. 385.12(e) and Sec. 385.22(d),
would encroach on the Register of Copyrights' (Register) exclusive
jurisdiction to promulgate regulations governing the statements of
account to be submitted under section 115 of the Copyright Act. See
77 FR 29259, 29260-61 (May 17, 2012). This issue is discussed infra.
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The Judges received two comments in response to the May 17 notice--
one from the Settling Parties and the other from Gear Publishing
Company (Gear), a non-participant. On November 20, 2012, five months
after the deadline, the Judges received a third comment from Robert
Clarida, also a non-participant, supporting the objections lodged by
Gear in its June comments.\6\ The Settling Parties supported adoption
of the settlement, suggested correction of certain non-substantive
errors and raised certain stylistic issues with regard to the proposed
regulatory text.\7\ Gear's objections were primarily policy-based
concerns about the appropriate scope of the compulsory license. See,
e.g., Comments of Gear Publishing Company, at 2 (``it is inappropriate
to offer interactive streaming and limited download rights via
compulsory license until there is sufficient evidence to demonstrate
that these uses will provide long term sustainable revenue * * *.'')
and 4 (``promotional consideration'' should not be allowed under a
compulsory license). Mr. Clarida's comments, which were submitted at
Gear's request, see Clarida Comments at 2, challenged the compatibility
of the proposed rates and terms with the section 115 license. See,
e.g., Clarida Comments at 3-4 (promotional royalty rate of zero
proposed in Sec. 385.14 violates section 115 of the Copyright Act).
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\6\ On March 12, 2013, the Judges received a letter from the
Settling Parties, which in part, urged that Mr. Clarida's comments
not be considered due to the untimeliness of the submission. The
Settling Parties' request is noted; the Judges decide, however, to
consider Mr. Clarida's comments to address his contention that
certain provisions are contrary to the statute.
\7\ The Judges have corrected the non-substantive errors and
addressed the stylistic issues in regard to the regulatory text
identified by the Settling Parties in Exhibit A to their comment.
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Section 801(b)(7)(A)(ii) limits the Judges' ability to reject an
agreement on the reasonableness of the rates and terms published for
comment. The Judges may decline to adopt an agreement as a basis for
statutory terms and rates for participants that are not parties to the
agreement if a participant that would be bound by the agreement objects
and the Judges conclude that the agreement does not provide a
reasonable basis for setting statutory terms or rates. Id. Neither Gear
nor Mr. Clarida qualifies as a participant to this proceeding, as
neither submitted a petition to participate. Therefore, the Judges
cannot consider any objections lodged by them, as non-participants,
regarding the reasonableness of the rates and terms. See Determination
of Reasonable Rates and Terms for Noncommercial Broadcasting, Final
rule, Docket No. 2011-2 CRB NCEB II, 77 FR 71104, 71107 (Nov. 29,
2012); see also, Review of Copyright Royalty Judges Determination,
Notice; correction,
[[Page 67940]]
Docket No. 2009-1, 74 FR 4537, 4540 (Jan. 26, 2009) (Judges able to
review reasonableness of terms and rates contained in agreement only if
a participant to the proceeding objects to the agreement).
The Judges may, however, ``declin[e] to adopt other portions of an
agreement that would be contrary to the provisions of the applicable
license(s) or otherwise contrary to statutory law.'' 74 FR at 4540. Mr.
Clarida's comments assert that certain of the proposed rules violate
the section 115 statutory license. His assertions will be addressed
below.
Referral of Material Questions to the Register of Copyrights
Section 802(f)(1)(A)(ii) of the Copyright Act, in pertinent part,
authorizes one or more of the Judges to request from the Register ``an
interpretation of any material questions of substantive law that relate
to the construction of provisions of this title and arise in the course
of the proceeding.'' Any request for a written interpretation must be
in writing and on the record, and participants to the proceeding must
be given an opportunity to comment on the question(s) referred. Id.
On March 27, 2013, the Chief Copyright Royalty Judge issued an
order referring material questions of law to the Register concerning
the Judges' authority to adopt certain terms in the Settling Parties'
Proposed Settlement relating to statements of account. See Order
Referring Material Questions of Law and Setting Briefing Schedule,
Docket No. 2011-3 CRB Phonorecords II (Mar. 27, 2013). The proposed
terms involved the accounting provisions proposed in 37 CFR 385.12(e)
and 385.22(d) and the confidentiality provisions proposed in 37 CFR
385.12(f) and 385.22(e).\8\ Id. at 3. The Register delivered her
decision to the Judges on May 1, 2013, and published it in the Federal
Register on May 16, 2013. 78 FR 28770.
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\8\ The Order directed participants to submit an initial brief
no later than April 5, 2013, and to submit reply briefs no later
than April 12, 2013. The lone brief, submitted by the Settling
Parties, was transmitted to the Register on April 17, 2013.
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Proposed Accounting Provisions
The Register found that the accounting provisions proposed in
Sec. Sec. 385.12(e) and 385.22(d) \9\ ``represent an encroachment on
the Register's [exclusive] authority'' regarding statements of account
even though the proposed provisions are consistent with the Register's
current regulations. Id. at 28772. In light of the Register's
interpretation, the Judges cannot adopt proposed Sec. Sec. 385.12(e)
and 385.22(d). Nevertheless, the Judges recognize the parties' efforts
to reach an agreement and the importance of these provisions to the
agreement. See Letter from Settling Parties to Copyright Royalty Judges
(June 7, 2013) (on file with the Copyright Royalty Board) (proposed
provisions ``reflect an industry-wide consensus on necessary detail
requirements as part of the accounting process for the proposed
percentage rates'' and represent an ``important factor in reaching a
settlement'' in this proceeding). Therefore, the Judges recommend that
the Register include these provisions in the amendments to the
regulations regarding statements of account currently being considered
in the Copyright Office's ongoing rulemaking. See Division of Authority
Between the Copyright Royalty Judges and the Register of Copyrights
under the Section 115 Statutory License, Docket No. RF 2008-1, 73 FR
48396, 48398 (Aug. 19, 2008) (the Judges may recommend that the
Register ``amend the regulations governing statements of account to
include additional information.'').
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\9\ Proposed Sec. 385.12(e) would have required the licensee's
statement of account to ``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-play allocations (including information
sufficient to demonstrate whether and how a minimum royalty or
subscriber-based royalty floor pursuant to Sec. 385.13 does or does
not apply) and, for each offering reported, also indicate the type
of licensed activity involved and the number of plays of each
musical work (including an indication of any overtime adjustment
applied) that is the basis of the per-work royalty allocation being
paid.'' 77 FR at 29267 (May 17, 2012). The language of proposed
Sec. 385.22(d) mirrors that in Sec. 385.12(e), except for non-
substantive conforming language needed for its inclusion in proposed
Subpart C.
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Proposed Confidentiality Provisions
Conversely, the Register found that the confidentiality provisions
proposed at Sec. Sec. 385.12(f) and 385.22(e) \10\ do not ``encroach
upon the Register's authority with respect to statements of account''
nor do they ``conflict with any other authority reserved for the
Register.'' 78 FR at 28773. The Register questioned, however, whether
the Judges ``have any independent authority to issue regulations such
as the proposed confidentiality [provisions] which would impose
obligations on a copyright owner with regard to what he or she is able
to do with a statement of account received by a licensee.'' Id.
Consequently, the Register highlighted another potential novel question
of law: the question of the Judges' authority regarding ``imposing
requirements on what a copyright owner (as opposed to a licensee) may
do (or not do) with information provided in a statement of account
after that statement was prepared and served in accordance with the
[Copyright] Office's regulations.'' Id. (emphasis in original).
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\10\ The confidentiality provisions proposed in Sec. Sec.
385.12(f) and 385.22(e) would mandate: ``A licensee's statements 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.'' 77 FR at 29262, 29267-68.
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Referral of Novel Question to the Register of Copyrights
Accordingly, on May 17, 2013, the Judges referred to the Register
the novel question of ``whether the [Judges] have the authority to
impose a confidentiality requirement such as that proposed in
Sec. Sec. 385.12(f) and 385.22(e).'' See Order Referring Novel
Question of Law and Setting Briefing Schedule, Docket No. 2011-3 CRB
Phonorecords II, at 4.\11\ The Register delivered her decision to the
Judges on July 25, 2013, and published it in the Federal Register on
August 5, 2013. 78 FR 47421.
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\11\ The Order directed participants to submit an initial brief
no later than June 7, 2013, and to submit reply briefs no later than
June 21, 2013. The lone brief, submitted by the Settling Parties,
was transmitted to the Register on June 25, 2013. The Settling
Parties also submitted a letter requesting that the Judges recommend
to the Register that the language in the accounting provisions
proposed in Sec. Sec. 385.12(e) and 385.22(d) be incorporated into
the Copyright Office's regulations governing statements of account.
The Judges transmitted the letter to the Register. As discussed
supra, the Judges have made the requested recommendation.
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The Register concluded that the Judges are without authority to
``adopt the provisions imposing a duty of confidentiality upon
copyright owners, regardless of whether the provisions are included in
a voluntarily negotiated license agreement between copyright owners and
licensees.'' Scope of the Copyright Royalty Judges' Authority to Adopt
Confidentiality Requirements upon Copyright Owners within a Voluntarily
Negotiated License
[[Page 67941]]
Agreement, Final Order, Docket No. 2011-3 CRB, 78 FR at 47423. The
Register noted that section 115(c)(3)(D) of the Copyright Act grants to
the Judges the authority to establish ``notice and recordkeeping
requirements under which such records of use shall be kept and made
available by licensees'' but not to those to ``be kept and made
available by copyright owners.'' Id. (emphasis in original). Moreover,
she found that ``such provisions are not necessary to effectively
implement the [section 115] statutory license or to insure the smooth
administration of the [section 115] license.'' Id. In light of the
Register's interpretation, the Judges cannot adopt the confidentiality
requirements in Sec. Sec. 385.12(f) and 385.22(e) of the proposed
settlement.
Having addressed the Register's concerns with the proposed
settlement, the Judges now turn to the concerns raised by Mr. Clarida.
Comments of Mr. Clarida
When presented with a settlement agreement, the Judges' task is to
implement the settlement to the extent possible as long as no provision
on its face violates the statutory license at issue. See 17 U.S.C.
801(b)(7)(A); see also H.R. Rep. No. 108-408, at 24 (2004) (purpose of
provision to facilitate and promote settlements). With this statutory
task in mind, the Judges consider Mr. Clarida's challenge to the legal
validity of the promotional ``free trial'' royalty rates (proposed
Sec. Sec. 385.14(b)(1), 385.21, and 385.24), and Subpart C activities
(i.e., ``Limited Offerings, Mixed Service Bundles, Paid Locker
Services, and Purchased Content Locker Services'') (proposed Sec. Sec.
385.20-24).\12\
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\12\ Mr. Clarida also challenges the legal validity of the
confidentiality provisions (proposed Sec. Sec. 385.12(f),
385.22(e)). The Register's determination that the Judges have no
authority to impose an obligation of confidentiality on a copyright
owner with respect to a statement of account renders Mr. Clarida's
arguments on this point moot.
Moreover, at the outset of his comments, Mr. Clarida makes a
vague, passing challenge to the Proposed Rule on the basis that
``the proposed changes, if adopted, would risk placing the United
States in violation of Article 13 of the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS). Clarida Comments,
at 2. Congress was clear, however, that TRIPS may not be used as a
basis for challenging any action of a federal agency and that, to
the extent any conflict exists between TRIPS and U.S. law, U.S. law
governs. The Uruguay Round Agreements Act, Public Law 103-465,
sections 102(a)(1), (c)(1)(B), 108 Stat. 4809 (1994). The Judges,
therefore, will be guided by the provisions of the Copyright Act and
will not consider any objections based on TRIPS.
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Mr. Clarida's Concerns Regarding Promotional and ``Free Trial'' Royalty
Rates
Mr. Clarida argues that the promotional royalty rate of zero in
proposed Sec. 385.14(b)(1) violates section 115 of the Copyright Act,
which, according to Mr. Clarida, requires that every phonorecord made
and distributed under the license be subject to a royalty. Clarida
Comments, at 3-4. He contends that ``[z]ero is not a royalty; it is an
exemption,'' and only Congress possesses the authority to create
statutory exemptions under the Copyright Act. Id. at 4. The Judges'
adoption of a royalty rate of zero, Mr. Clarida charges, would result
in the creation of ``a new statutory exemption in the guise of a
regulation.'' Id. at 4-5.
Mr. Clarida also alleges legal infirmities with the ``free trial
royalty rate of zero'' defined in proposed Sec. 385.21 \13\ and
applied in proposed Sec. 385.24. Proposed Sec. 385.24, in his view,
allows a record company, rather than the owner of a musical work, to
permit use of that label's sound recordings gratis to ``promote the
offering'' of a limited offering service, mixed service bundle, or paid
locker service. Id. at 5. Mr. Clarida contends that this provision
``does not even credibly further the statutory purpose of encouraging
the sales of musical works.'' Id. He posits that proposed Sec. 385.24
conceivably elevates technology companies and record companies to the
status of joint copyright owners of the musical works, instead of mere
licensees, thereby allowing licensees ``to usurp the copyright owner's
exclusive rights with respect to works beyond the licensee's own
phonorecords'' in violation of section 115 of the Copyright Act. Id. 5-
6 (footnote omitted).
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\13\ Proposed Sec. 385.21 defines ``free trial royalty rate''
as ``the statutory royalty rate of zero in the case of certain free
trial periods, as provided in Sec. 385.24.''
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Mr. Clarida interprets section 115(c)(4) of the Copyright Act as
requiring that even where distribution of a phonorecord is by rental,
lease, or lending, the royalty must be calculated ``based on revenue
generated `from every such act' of distribution of the phonorecord
under this clause.'' Id. at 6 (emphasis omitted). He concludes that
``the [proposed free trial royalty rate] does away with this required
nexus between the distribution of specific phonorecords and the
calculation of payment, allowing for extensive royalty-free use by
compulsory licensees.'' Id. (footnote omitted).
Judges' Response
The Judges find Mr. Clarida's challenges unavailing. A royalty rate
of zero set for a statutory license, while not common, is not
unprecedented under the Copyright Act. Indeed, in 2009 the Judges
adopted the promotional royalty rate in Sec. 385.14 challenged here by
Mr. Clarida. The Register reviewed the Judges' adoption of the zero
rate, which is still in effect, and found no legal error in such
action.\14\ See Review of Copyright Royalty Judges Determination,
Notice; correction, Docket No. 2009-1, 74 FR 4537 (Jan. 26, 2009). See
also Rate Adjustment for the Satellite Carrier Compulsory License,
Final rule and order, Docket No. 96-3 CARP SRA, 62 FR 55742, 55753
(Oct. 28, 1997) (the Librarian of Congress upheld the imposition by a
Copyright Arbitration Royalty Panel of a zero royalty rate for the
retransmission of certain distant signals by satellite carriers under
the section 119 statutory license and accepted the Register's
recommendation to adopt a zero royalty rate for certain local
retransmissions of network signals.).
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\14\ The Register suggested, in issuing an interim rule
clarifying the definition of a ``digital phonorecord delivery,''
that a zero rate may be appropriate in certain circumstances. See
Compulsory License for Making and Distributing Phonorecords,
Including Digital Phonorecord Deliveries, Interim rule and request
for comments, Docket No. RM 2000-7, 73 FR 66173, 66181 (Nov. 7,
2008)(``[T]he Office would not dispute a finding that non-
interactive and interactive streams have different economic value,
or even that a rate of zero might be appropriate for [digital
phonorecord deliveries] made in the course of non-interactive
streams.'').
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The Judges also disagree with Mr. Clarida's assertion that other
provisions of the Copyright Act, which create exceptions to the payment
of royalties in other contexts, imply that the Judges cannot approve a
settlement and adopt regulations in which a royalty rate of zero is
established for certain promotions or trial periods under section 115
of the Copyright Act. The fact that by granting exceptions Congress has
determined, in effect, that in certain circumstances a royalty rate of
zero must always apply does not imply that in all other circumstances a
royalty rate of zero may never apply. Any mandatory statutory waiver of
the payment of royalties in other contexts cannot serve to prohibit the
Judges, in the exercise of their discretion, from incorporating into
the regulations the terms of a settlement in which a zero royalty rate
is established.\15\
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\15\ As noted supra, a ``participant'' in this proceeding could
have objected to the reasonableness of the rates and terms of the
settlement and the proposed regulations. If a ``participant'' had
raised such objections, the Judges would have considered those
arguments, including any arguments as to any alleged failure of the
zero royalty rates, combined with the associated promotional
benefits, to provide reasonable economic compensation to a copyright
owner under section 115 of the Copyright Act. However, Mr. Clarida
and Gear chose not to participate and therefore they cannot make any
cognizable argument as to the reasonableness of the combination of
the proposed zero royalty rates and the associated promotional
benefits.
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[[Page 67942]]
Accordingly, the Judges conclude that nothing in the Copyright Act
indicates that adoption of a zero royalty rate is contrary to section
115 of the Copyright Act; and the Judges adopt, as published on May 17,
2012, the provisions relating to the promotional and ``free trial''
royalty rates.
Mr. Clarida's Concerns Regarding Subpart C Activities
Mr. Clarida charges that the use of the statutory license under
section 115 of the Copyright Act by ``entirely new classes of `bundled'
activity: So-called mixed service bundles, music bundles, paid locker
services, and purchased content locker services'' violates the primary-
purpose requirement of section 115(a), which states ``[a] person may
obtain a compulsory license only if his or her primary purpose in
making phonorecords is to distribute them to the public for private
use, including by means of a digital phonorecord delivery.'' Clarida
Comments at 7. Such bundling, he concludes, results in ``an
impermissible expansion of the scope'' of the section 115 license
because many of the services in such bundles ``have nothing whatsoever
to do with distributing phonorecords, and the services in their
respective entireties are relieved of the statutory obligation to pay
royalties based on specific individual music transactions.'' Id.
The Judges do not agree with Mr. Clarida's assertion that the
``primary purpose'' of the providers of the new classes of ``bundled''
activity is not to make phonorecords and distribute them to the public
for private use. The fact that other services are bundled with that
service does not cause any one of the bundled services to have primacy
over any other of the bundled services. In that regard, Mr. Clarida
does not propose a method by which the Judges could rank the
``purposes'' of the several bundled services.
Mr. Clarida also opposes the calculation of royalties proposed in
Sec. 385.20(a), which would allow music bundle providers the option of
paying for the ``components'' under the rates set forth in Subpart A of
the proposed regulations or under the formula set forth in Subpart C of
the proposal and would relieve those who distribute such bundles from
paying for each phonorecord made or distributed. Clarida Comments at 7.
Mr. Clarida also opposes the calculation of royalties under proposed
Sec. 385.22 for the other proposed Subpart C activities, asserting
that such calculation ``is utterly without support in the statute.''
Id. In particular, Mr. Clarida objects to the portion of the proposed
royalty formula that would allow, for instance, mixed service bundles
and locker services to determine a ``constructive number of plays,''
even though the actual number of uses are known, and then apply that
number against ``a formula apportioning aggregate revenue from the
service.'' Id. The main problem with this approach, in his view, is
that information regarding the number of plays is not simply reported
and paid for accordingly. Id.
Judges' Response
Despite Mr. Clarida's objections, none of the challenged Subpart C
provisions on their face appear to be contrary to the section 115
license. As Mr. Clarida acknowledges, under the proposed regulations,
the copyright owners would receive royalties for the musical works
bundled with the other services. Mr. Clarida therefore is objecting to
the ``reasonableness'' of those rates. As noted supra, since he and
Gear were not ``participants'' to this proceeding, they cannot
challenge the reasonableness of the rates and terms of the settlement.
Therefore, the Judges adopt the settlement as proposed with the
exception of the provisions that the Register found to be contrary to
law.
List of Subjects in 37 CFR Part 385
Copyright, Phonorecords, Recordings.
Final Regulations
For the reasons set forth in the preamble, the Copyright Royalty
Judges amend Part 385 of Chapter III of title 37 of the Code of Federal
Regulations as follows:
PART 385--RATES AND TERMS FOR USE OF MUSICAL WORKS UNDER COMPULSORY
LICENSE FOR MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL
PHONORECORDS
0
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]
0
2. Section 385.4 is amended by removing ``(201.19(e)(7)(i)'' and adding
``Sec. 201.19(e)(7)(i)'' in its place.
0
3. Revise the heading of Subpart B to read as follows:
Subpart B--Interactive Streaming and Limited Downloads
0
4. Section 385.10 is amended by revising paragraph (b) and adding
paragraph (c) to 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.
0
5. Section 385.11 is amended as follows:
0
a. By adding in alphabetical order definitions for ``Affiliate'',
``Applicable consideration'', and ``GAAP'';
0
b. In paragraphs (1) and (2) of the definition of ``Limited download'',
by adding ``provider'' after ``service'';
0
c. In the definition of ``Offering'', by removing ``service's'' and
adding ``service provider's'' in its place, and by adding ``provider''
after ``service'';
0
d. By removing the definition of ``Publication date'';
0
e. In the definition of ``Relevant page'', by adding ``provider'' after
``service'' in the first sentence and by removing ``users for limited
downloads or interactive streams'' and adding ``users for licensed
activity'' in its place in the second sentence;
0
f. By revising the term ``Service'', to read ``Service provider'';
0
g. Amend the definition of ``Service revenue'' by:
0
i. In paragraph (1) introductory text, by removing ``U.S. Generally
Accepted Accounting Principles'' and adding ``GAAP'' in its place;
0
ii. In paragraphs (1)(i) and (ii), by adding ``provider'' after
``service'';
0
iii. In paragraph (1)(iii), by adding ``provider'' after ``by the
service'';
[[Page 67943]]
0
iv. In paragraph (2)(i), by removing ``service'' and adding ``service
provider'' in its place each place it appears; and
0
v. In paragraph (5) introductory text, 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
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.
* * * * *
0
6. Section 385.12 is amended as follows:
0
a. In paragraph (b) introductory text, by removing ``offering.'' and
adding ``offering taking into consideration service revenue and
expenses associated with such offering.'' in its place in the second
sentence;
0
b. In paragraph (b)(1) introductory text, by removing ``Service.'' and
adding ``Offering.'' in its place and by adding ``provider'' after
``service'';
0
c. In paragraph (b)(1)(i), by removing ``revenue as'' and adding
``revenue associated with the relevant offering as'' in its place;
0
d. In paragraph (b)(2):
0
i. By removing ``service, subtract'' and adding ``service provider,
subtract'' in its place in the first sentence;
0
ii. By removing ``by the service'' in the first sentence;
0
iii. By removing ``While'' and adding ``Although'' in its place in the
second sentence;
0
iv. By removing ``under its agreements with performing rights societies
as defined in 17 U.S.C. 101'' in the second sentence; and
0
v. 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 in the third
sentence;
0
e. In paragraph (b)(3) introductory text, by removing ``This is'' and
adding ``The payable royalty pool is'' in its place and by adding
``provider'' after ``service'';
0
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'' in the fourth sentence, and by
removing ``if the service is'' and adding ``if the service provider
is'' in the fifth sentence;
0
g. By revising paragraph (c); and
0
h. In paragraph (d) introductory text, by removing ``For licensed
activity on or after October 1, 2010, for'' and adding ``For'' in its
place.
The revision reads 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%.
* * * * *
0
7. Section 385.13 is amended as follows:
0
a. In paragraphs (a)(1) through (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;
0
b. In paragraph (a)(4):
0
i. By adding ``providing licensed activity that is'' before ``made
available to end users'' in the first sentence;
0
ii. By adding ``(including products or services subject to other
subparts)'' before ``as part of a single transaction'' in the first
sentence;
0
iii. By removing ``subscription service separate'' and adding
``subscription service providing licensed activity separate'' in its
place in the first sentence; and
0
iv. By removing ``subscription service for a single price'' and adding
``subscription service providing licensed activity for a single price''
in its place in the first sentence;
0
c. By revising paragraphs (b) and (c);
0
d. By redesignating paragraph (d) as paragraph (e);
0
e. By adding a new paragraph (d); and
0
f. In newly redesignated paragraph (e):
0
i. By removing ``the service shall for the relevant offering calculate
its'' and adding ``the'' in its place in the first sentence; and
0
ii. By adding ``shall be calculated,'' before ``taking into account''
in the first sentence.
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
[[Page 67944]]
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 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 made 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.
* * * * *
0
8. Section 385.14 is amended as follows:
0
a. In paragraph (a)(1)(iii), by removing ``service'' and adding
``service provider'' in its place each place it appears;
0
b. In paragraph (a)(1)(iii)(A), by removing ``commencing on or after
October 1, 2010, except'' and adding ``other than'' in its place;
0
c. In paragraph (a)(3):
0
i. By removing ``the service shall provide'' and adding ``the service
provider shall provide'' in its place in the first sentence;
0
ii. By removing ``the service shall have'' and adding ``the service
provider shall have'' in its place in the first sentence;
0
iii. By removing ``service does not provide'' and adding ``service
provider does not provide'' in its place in the second sentence; and
0
iv. By removing ``the service (but'' and adding ``the service provider
(but'' in its place in the second sentence;
0
d. By revising paragraph (b)(1);
0
e. In paragraph (b)(4), by removing ``the service, and not'' and adding
``the service provider, and not'' in its place in the second sentence;
and
0
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.
0
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.
[[Page 67945]]
385.26 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 activity, as defined in Sec. 385.21, 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 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.
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 C, references in the
definition of ``Applicable consideration'' in Sec. 385.11 to licensed
activity shall mean licensed subpart C activity, as defined in this
section.
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 activity means, referring to subpart C of this
part--
(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 user prior to the end user's first request to
access such sound recordings by means of the service. The term locker
service 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
phonorecord deliveries, the number of digital phonorecord deliveries in
either configuration cannot exceed 20, and the musical works embodied
in each
[[Page 67946]]
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 this definition of ``Purchased content locker
service,'' whereby the locker service enables the purchaser to engage
in one or both of the qualifying activities indentified in paragraph
(2) of this 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 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 activity, as defined in
this section, and subpart C service revenue, as defined in this
section, respectively.
Subpart C offering means, referring to subpart C of this part, a
service provider's offering of licensed subpart C activity, as defined
in this section, 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 relevant page means, referring to subpart C of this part,
a page (including a Web page, screen or display) from which licensed
subpart C activity, as defined in this section, offered by a service
provider is directly available to end users, but only where the
offering of licensed subpart C activity, as defined in this section,
and content that directly relates to the offering of licensed subpart C
activity, as defined in this section, (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 activity, as
defined in this section, 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 activity, as defined in this section, from such page
(in most cases this will be the page where the transmission takes
place).
Subpart C service revenue. (1) Subject to paragraphs (2) through
(6) of the definition of ``Subpart C service revenue,'' as defined in
this section, and subject to GAAP, subpart C service revenue shall
mean, referring to subpart C of this part, the following:
(i) All revenue recognized by the service provider from end users
from the provision of licensed subpart C activity, as defined in this
section;
(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 activity, as defined in this section, (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 activity, as defined in this section); 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 relevant page, as defined in
this section, of the service or on any page that directly follows such
subpart C relevant page, as defined in this section, leading up to and
including the transmission of a musical work that constitutes licensed
subpart C activity, as defined in this section; provided that, in the
case where more than one service is actually available to end users
from a subpart C relevant page, as defined in this section, 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 service revenue,'' of this section 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 activity, as defined in this section, that they were
unable to use due to technical faults in the licensed subpart C
activity, as defined in this section, or other bona fide refunds or
credits issued to end users in the ordinary course of business.
[[Page 67947]]
(3) In each of the cases identified in paragraph (1) of the
definition of ``Subpart C service revenue'' of this section, such
revenue shall, for the avoidance of doubt, exclude revenue derived
solely in connection with services and activities other than licensed
subpart C activity, as defined in this section, provided that
advertising or sponsorship revenue shall be treated as provided in
paragraphs (2) and (4) of the definition of ``Subpart C service
revenue'' of this section. 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 activity, as
defined in this section.
(4) For purposes of paragraph (1) of the definition of ``Subpart C
service revenue'' of this section, 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 service
revenue'' of this section 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 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 service revenue'' of this section 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 activity, as defined in Sec. 385.21, 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 activity, as defined in Sec. 385.21, shall be calculated as
provided in this paragraph (b). If a service provides different subpart
C offerings, as defined in Sec. 385.21, royalties must be separately
calculated with respect to each such subpart C offering, as defined in
Sec. 385.21, 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 Sec. 385.23.
(1) Step 1: Calculate the All-In Royalty for the Subpart C
Offering, as Defined in Sec. 385.21. For each accounting period, the
all-in royalty for each subpart C offering, as defined in Sec. 385.21,
of the service provider is the greater of:
(i) The applicable percentage of subpart C service revenue, as
defined in Sec. 385.21, associated with the relevant offering as set
forth in Sec. 385.23(a) (excluding any subpart C service revenue, as
defined in Sec. 385.21, derived solely from licensed subpart C
activity, as defined in Sec. 385.21, uses subject to the free trial
royalty rate); and
(ii) The minimum specified in Sec. 385.23(a) for the subpart C
offering, as defined in Sec. 385.21, 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 activity, as defined in
Sec. 385.21, for a particular subpart C offering, as defined in Sec.
385.21, during the accounting period. From the amount determined in
step 1 in paragraph (b)(1) of this section, for each subpart C
offering, as defined in Sec. 385.21, of the service provider, subtract
the total amount of royalties for public performance of musical works
that has been or will be expensed
[[Page 67948]]
pursuant to public performance licenses in connection with uses of
musical works through such subpart C offering, as defined in Sec.
385.21, during the accounting period that constitute licensed subpart C
activity, as defined in Sec. 385.21, (other than licensed subpart C
activity, as defined in Sec. 385.21, subject to the free trial royalty
rate), or in connection with previewing of such subpart C offering, as
defined in Sec. 385.21, during the accounting period. Although this
amount may be the total of the payments with respect to the service for
that subpart C offering, as defined in Sec. 385.21, 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 activity, as
defined in Sec. 385.21, or previewing of such licensed subpart C
activity, as defined in Sec. 385.21. In the case where the service is
also engaging in the public performance of musical works that does not
constitute licensed subpart C activity, as defined in Sec. 385.21, the
amount to be subtracted for public performance payments shall be the
amount of such payments allocable to licensed subpart C activity, as
defined in Sec. 385.21, uses (other than free trial royalty rate
uses), and previewing of such uses, in connection with the relevant
subpart C offering, as defined in Sec. 385.21, 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 activity, as defined in Sec. 385.21,
through a particular subpart C offering, as defined in Sec. 385.21,
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 offering, as
defined in Sec. 385.21. 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 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 service revenue, as defined in Sec. 385.21, 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 (C) of this section for the paid
locker service, the licensed subpart C activity, as defined in Sec.
385.21, 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 activity, as defined in Sec. 385.21, 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
[[Page 67949]]
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.
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
activity, as defined in Sec. 385.21:
(1) Mixed service bundle. In the case of a mixed service bundle,
the percentage of subpart C service revenue, as defined in Sec.
385.21, 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 service revenue, as defined in Sec. 385.21, 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 service revenue, as defined in Sec. 385.21,
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 service revenue, as defined in Sec. 385.21,
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 service revenue, as
defined in Sec. 385.21, 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 service revenue,'' as defined in Sec. 385.21, 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 offering, as defined in Sec. 385.21, 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 activity, as defined in Sec. 385.21, 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 activity, as defined in Sec. 385.21, 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
[[Page 67950]]
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 activity, as defined in Sec.
385.21--
(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 activity, as defined in Sec. 385.21,
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 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 offering, as
defined in Sec. 385.21, 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 offering, as defined in Sec. 385.21;
(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 activity, as defined in Sec.
385.21, 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
activity, as defined in Sec. 385.21, in the ordinary course of
business, but in no event for less than 5 years from the conclusion of
the licensed subpart C activity, as defined in Sec. 385.21, 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
[[Page 67951]]
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) 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 activity, as defined in Sec. 385.21,
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 activity, as defined in Sec. 385.21, 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 activity, as defined in Sec.
385.21, solely for the purpose of providing such licensed subpart C
activity, as defined in Sec. 385.21 (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: August 21, 2013.
Suzanne M. Barnett,
Chief Copyright Royalty Judge.
Approved by:
James H. Billington,
Librarian of Congress.
[FR Doc. 2013-25454 Filed 11-12-13; 8:45 am]
BILLING CODE 1410-72-P