Recording Industry Contests Ringtone Fees, Interest Set by Board

other parties to the proceeding offered competing rates. for under the � 115 license when the parties to the license fail to the recording industry association of america, known librarian of congress, 571 f.3d 1220, 1226-27 (d.c. cir. 2009) that there was no meaningful link between the selection of a 16 using their copyrighted work. v. factors include: (1) maximizing the availability of creative 804(b)(4). 115 statutory license. that license allows individuals to make sound recording and distribute it; if a musical work has been songwriters association international, 4099 (jan. 24, 2008); digital performance right in sound 10 rate royalty structure for cell phone ringtones, under which to impose a late fee benefiting copyright owners because, it contention that a penny-rate structure `would be disruptive as opposed to a percentage-of-revenue royalty, it did find copyright owners presented evidence indicating that 1070-71 (d.c. cir. 1989). copyright royalties when copyright owners and licensees fail is owed to individual copyright owners when a copyright is result, riaa contends the board should not be able to impose least among these difficulties were definitional problems such when setting terms and rates, they are not required to choose a 2 determination proceeding, 74 fed. reg. 4510, 4524 (jan. 26, review under that standard is deferential. see fcc v. fox 1999). at most, then, the board must "consider[]" the 115(c)(2). for purposes of the copyright act, a phonorecord make and distribute phonorecords (that is, sound recordings) copyright owner and user. id. at 4525. and under the fourth decision was reasonable and reasonably explained. we that can be found in the existing market for voluntary before the 30-day notice period has expired." government's give a licensee 30 days to cure any nonpayment before work is sold. by contrast, under a percentage-of-revenue proposed by that party when it was proffered as a second-best publishers' association, inc., kathryn e. wagner, vice penny-rate royalty structure of 24 cents per ringtone sold. section 115 ratemaking proceedings can occur every five at specified intervals, the board holds ratemaking and sell a cover version of bruce springsteen's 1975 hit born provided under this title." 17 u.s.c. � 803(c)(7). lindsay c. harrison, steven m. marks, susan b. chertkof, this problem is the fault of the copyright owners themselves. those two copyrights are legally distinct and may be owned terminate � 115 licenses for nonpayment. 17 u.s.c. � penny-rate royalty structure supported its adoption: "no 4516. in a market based on the sale of individual copyrighted efficient mechanism for capturing the value of the late payment, but in no way shall such terms prevent the case, not a chevron case. the board's rulings are subject to expressly tasked it with balancing the conflicting statutory consumer prices continue to decline' and should, therefore, be work performed by a specific artist. concluded "that a single penny-rate structure is best applied to ass'n of america v. copyright royalty tribunal, 662 f.2d 1, 9 owner. mechanical and digital phonorecord delivery rate adjustment distribution to the public without the consent of the copyright randolph, senior circuit judge. the copyright act authorizes copyright owners to composition and sound recordings, and (3) 15 cents per ringtone, the board did so here, explaining that a late fee would 803(d)(3); see 5 u.s.c. � 706(2)(a). as a general matter, our fee for � 115 royalty payments: "a determination of the associated with the ringtone, (2) 33.3 percent of the cost that would therefore affirm the board's determination. 11 free to choose among those rates, and courts are without fourth, riaa relatedly submits that the board failed to copyright � 8.04[a], at 8-58.5 (2009). for example, a � 115 where copyrighted works are bundled and sold as a service to to run, but that licensee could not make copies of purchased from itunes), the board set the � 115 royalty rate should be. although that mechanism has changed over time, return for their creative works and copyright users a fair payment obligation. see nimmer � 8.04[h][1], at 8-77. between the copyright owner and the licensee, the system indicates that a party can appeal an agency's adoption of a rate royalty board sets the terms and rates for copyright royalties rates under that license, the copyright act requires the board party might own the copyright in a particular artist's copyright holder from asserting other rights or remedies copyright owner a royalty for every phonorecord "made and made sense in the satellite digital radio context because it possibly serve as an incentive to make timely royalty 201.18(a)(6) ("in the case where the work has more than one a percentage-of-revenue royalty structure in other instances revenues. riaa has failed to present any basis for us to proxies need be formulated to establish the number of such 115] license has voluntarily and permanently parted with" the 4 recording of those words and musical notes. that cause late payment. by riaa's account, when more than opinion for the court filed by circuit judge the board's imposition of a late fee. exercise his rights under the [� 115] license only by as riaa, is a trade association representing companies that musical work that is the subject of the [� 115] license." 2 the penny rate inherently unreasonable. the board cents for every ringtone sold using their copyrighted work. varying in flavor, these arguments all follow the same essential option. cf. southern natural gas co. v. ferc, 877 f.2d 1066, established what is known as a penny-rate royalty structure other rights or remedies provided" by the copyright act. id. to the one it lodged against the 1.5 percent late fee, riaa 8 straightforward manner. when a copyright owner distributes for the district of columbia circuit proposals and taking into account relevant market practices, for cell phone ringtones.3 third, with respect to physical phonorecords new compromise, the board instituted proceedings to set terms of the penny rate it chose. see 74 fed. reg. at 4523. all; a licensee can meet its � 115 licensing obligation by right being licensed than a percentage-of-revenue rate. see because of the uncertainties caused by split payments. but reproductions," which are "readily calculable as the number into account when imposing the late fee. adequately address its argument about the problems presented line with reimbursing copyright owners for the use of their 2009). "to the extent that the statutory objectives determine satellite digital audio radio services, 73 fed. reg. 4080, a late fee in this compulsory license setting. the problem was non-existent. 74 fed. reg. at 4527 n.50. were absent here. for example, the board had previously concluded that a "nominal rate[] for ringtones" supports that presented by jointly held copyrights is really no problem at vehicle mfrs. ass'n v. state farm mut. auto. ins. co., 463 jay cohen argued the cause for intervenors national after the board issued its determination, riaa filed a motion compulsory license to make and distribute phonorecords of payments are late. third, riaa contends that a late fee is assistant attorney general, and scott r. mcintosh, attorney. owners."); id. � 201.19(a)(5) ("in the case where the work has 1 third, the board found that the simplicity of using a radio services, 73 fed. reg. 4080, 4086 (jan. 24, 2008). in 17 particular, the closely related webcasting and satellite digital rates and terms for preexisting subscription services and riaa also asserts that it was unreasonable for the board due dates. j.a. 433. though riaa disputed the magnitude years "or at such other times as the parties have agreed." id. � royalties among joint copyright owners. riaa suggests that industry association of america v. librarian of congress, the structure in which copyright owners would receive 18 cents of america, and carl w. hampe. and already in place in many parts of the market, minimizing third statutory criterion � respecting the relative roles of the 340 pleadings, motions, and orders. see mechanical and 7.27[c], at 7-243. the librarian.1 those proceedings in 2009, it announced one new � 115 protection. j.a. 618-19. way shall . . . prevent the copyright holder from asserting works to the public; (2) providing copyright owners a fair certain terms and rates governing the operation of the � 115 74 fed. reg. 4510, 4511 (jan. 26, 2009). inappropriate because the lateness of payments results in large evidence during the proceedings � considered by the board � b for example, the board referenced concerns about reduced digital phonorecord delivery rate determination proceeding, information about declining prices useful in structuring the u.s.c. � 115(a)(1). once that occurs, anyone may "obtain a and although the board considers market conditions owner a fair return � the board found that the new rates did � 803(c)(7). the congressional scheme clearly contemplates kavanaugh, circuit judge: by law, the copyright the imposition of a 1.5 percent per month late fee and (2) the one party owns a copyright in a work, those joint copyright over the much larger number of musical works reproduced" f.3d 748, 760-61 (d.c. cir. 2009). permanent downloads" because of "the efficiency of and equipment, etc. for the purpose of recording anew the 4 difficulties" presented by riaa's proposed percentage-of- licensing term and two new � 115 royalty rates. first, the were not relevant to the choice of a penny-rate royalty as the cause for appellee. with her on the brief were tony west, no way counsel against the imposition of a late fee. the co-owners . . . shall be sufficient with respect to all co- subject to periodic inflation adjustments. mechanical and digital that argument is unpersuasive. even if it were true that royalty contracts with digital music services like itunes. j.a. owners and users; and (4) minimizing any disruptive impact second, when looking to market analogies, the board the board also considered other relevant market metrics. royalty agreements provide copyright owners with late-fee 24,107 (may 1, 2007). the copyright owners presented revenues when rejecting the copyright owners' request that for rehearing. the board denied the motion. copyright owner � even when many individuals have a stake (such as the recording industry association of america, the songwriters guild of america, and nashville works (like the ringtone market) as opposed to a market television stations, 129 s. ct. 1800, 1810 (2009); motor preexisting subscription services and satellite digital audio based on factors in addition to the number of ringtones sold, strikes a balance "between providing an effective incentive to royalties. riaa contends that uncertainty about what amount brief were lynn b. bayard, david w. brown, jay rosenthal, if it lies within a zone of reasonableness." recording indus. payments totaling more than $2.1 billion arrived after their claimed adverse impact on projected future revenues reg. 4510, 4515 (jan. 26, 2009). regulations for the copyright royalty board, 70 fed. reg. specific statutory limit. in other words, this is a state farm can satisfy its obligation to pay a royalty by paying any one revenue royalty structure. id. as the board recognized, not ratemaking). the board is a three-person panel appointed by license termination is rather weak, if any such incentive exists in 1996, the parties with an interest in the � 115 license replaced by a percentage rate system in order to satisfy 801(b) concluded that a percentage-of-revenue royalty structure failed to do so here. second, riaa asserts that the late fee is govern the board's decision to impose a late fee, as well as its respect to all co-owners."). create, manufacture, and distribute sound recordings. it melville b. nimmer & david nimmer, nimmer on registered with the copyright office, the licensee owes the because the � 115 license issues without any agreement applying the � 801(b)(1) criteria, the board settled on a the copyright royalty board currently serves as the regulations governing the operation of the � 115 license copyright royalty [board] may include terms with respect to objective. mechanical and digital phonorecord delivery rate riaa also argues that plummeting ringtone prices render late fees. (d.c. cir. 1981) (internal quotation marks omitted). music publishers' association, inc., et al. with him on the income; (3) recognizing the relative roles of the copyright late fee. part from uncertainty about the appropriate division of considered and rejected this argument, stating: "riaa's shrill the "musical work" and a copyright in the "sound recording." publishers' association) agreed on various terms and rates for of withholding payment by simply waiting until the copyright owners possess a termination right that can be invoked when we first consider riaa's challenge to the 1.5 percent structure of the ringtone royalty rate imposed by the board � the licensee to make payments timely on the one hand and not when the board published its final determination from owner initiates termination and then making the payment have been paid for the mechanical rights to the equivalent musical in short, a copyright owner's ability to terminate a � 115 distributed in accordance with the [� 115] license." id. � of account on one co-owner . . . shall be sufficient with fee for late royalty payments. it also implemented a penny- falling ringtone prices. the greater of (1) a penny rate ranging from 10 to 25 cents; (2) 15 penny-rate royalty in this court. not so. this court's case law divided interests in a copyright made it difficult to make selecting the penny-rate royalty structure. challenges those two aspects of the board's decision, arguing work "to the public," � 115's provisions are triggered. 17 persuasive evidence that would in any way quantify any the board sets the terms and rates for often samples a popular song. it set the rate at 24 cents per a licensee could pull together a group of musicians to record overturn that conclusion. playing time. persuasively points out, the termination provision "cannot they were due. some of the evidence in the record suggested determination proceeding, 74 fed. reg. 4510, 4528 (jan. 26, u.s. 29, 43 (1983). and we give "substantial deference" to authority to set aside the particular rate chosen by the [board] making [the] phonorecords is to distribute them to the public like itunes embody two distinct copyrights � a copyright in and scott a. zebrak. david a. handzo entered an appearance. of the problem, none of the parties to the proceeding claimed late fee that exactly matches a market rate. such a rule consolidated with 09-1205 board found that the rate structure it chose was reasonable do so. 17 u.s.c. � 801(b)(1). when establishing terms and sarang v. damle, attorney, entered an appearance. phonorecords that fall within the scope of the � 115 license. in the words and musical arrangement of a song, and another ringtone sold.2 the compulsory license. they also agreed that the settlement (kavanaugh, j., concurring). percentage-of-revenue royalty structure under which later. in 2006, after the parties found they could not reach a of a copyrighted musical work without reaching any kind of inc. v. librarian of congress, 571 f.3d 1220, 1225 (d.c. cir. or a lack of standing bars riaa from challenging the board's not deprive copyright owners of a fair return on their creative and rates themselves. as part of its statutory mandate, the argument. the statute both grants the copyright owners a policy considerations . . . is not supported by the record of a percentage of retail revenue ranging from 10 to 15 percent; rulemaking body for this system. see generally procedural the factors listed in � 801(b)(1) of the copyright act phonorecord. id. in other words, the licensee's sale of its 115(c)(6). riaa argues that the presence of that provision days of live testimony, more than 140 exhibits, and more than songwriter's guild of america, and the national music ii is "distributed" � and an obligation to pay the copyright stores, or digitally available on the internet through services criterion � minimizing disruptive impact on the industry � the include authorization to make exact copies of an existing overdue royalties, measured from the date payment is due. payments were frequently made to copyright owners after librarian of congress, although almost always intermingled in a single song, of appointment of the members of the copyright royalty board. that they were arbitrary and capricious for purposes of the and (3) a percentage of gross revenue ranging from 9 to 20 when copyright owners and licensees fail to negotiate terms both the board's final determination and the order denying 18 in the board's view, the penny rate provided "the most the copyright act provides that the board "may kavanaugh. 24 cents per ringtone sold. percentage-of-revenue rate. first, using an argument similar as previously discussed, although existing market rates reproduction and distribution rights at issue." 74 fed. reg. at recorded and copyrighted by another artist, a licensee "may 7 imposition of a penny-rate royalty structure for ringtones. though imposition of a penny-rate royalty structure for ringtones at ringtone contracts typically provide for royalty payments at so ordered. senior vice-president & general counsel, national music d late. amorphous factors, the board concluded that the 1.5 percent the board expressly recognized that marketplace objectives adequately but to differing degrees, the [board] is on the briefs were steven r. englund, jared o. freedman, agreement with the copyright owner. that right does not license in no ways bars the imposition of a late fee. a of units in transactions between the parties." 74 fed. reg. at 2009). as to the second criterion � affording the copyright needs a mechanism to figure out how much the licensee owes evidence in this proceeding. . . . riaa [does not] offer any board instituted a late payment of 1.5 percent per month for 30,901 (may 31, 2005) (discussing the history of royalty for ringtones. under that rate, copyright owners receive 24 in carrying out its statutory responsibilities under 17 most songs played on the radio, sold on cds in music must be considered," which we held to be "a reasonable the � 115 licensing regime operates in a fairly purposes of this section, the term copyright owner, in the case copyright owners would receive 15 percent of the wholesale owner a royalty created � when "the person exercising the [� intervenors phonorecord delivery rate determination proceeding, 74 fed. structure . . . ." 74 fed. reg. at 4516. stemming from the continued application of a penny-rate (like cds) and permanent digital downloads (like those we therefore reject this argument as a basis for upsetting riaa now appeals two aspects of the board's ruling: (1) riaa relatedly argues that the board failed to adequately board sets royalty terms and rates for what is known as the � per ringtone sold.4 making the fee so high that it is punitive on the other hand." in short, the board appropriately took market evidence percent. 74 fed. reg. at 4518. standard of the administrative procedure act. 17 u.s.c. � riaa has not raised a constitutional challenge to the method penny rate � as being more directly tied to the nature of the composition � the notes and lyrics of the song as they appear argument. and as we have already discussed, the problem of any work having more than one copyright owner, means riaa's motion for a rehearing specifically addressed that appellee users; and (4) minimizing any disruptive impact on the penny-rate royalty structure for ringtones and future ringtone to balance four general and sometimes conflicting policy riaa contends that a penny rate is unreasonable in light of example, the copyright owners endorsed a rate structure in which united states court of appeals form: because riaa endorsed a penny-rate structure as a less unnecessary in the � 115 licensing context because copyright works. id. the board also found that the penny rate met the consider riaa's assertion that a late fee was unreasonable recording industry association of america, inc., on sheet music. the sound recording is the recorded musical 5 would be difficult to measure how much a given work was 3 has validated the board's preference for a royalty system the board concluded that a penny rate was superior to a u.s.c. � 115(c)(3)(d). as this court explained in recording for private use." id. assuming the copyright has been system, the royalty paid to copyright owners would vary the recording industry association of america participated as a party in the � 115 licensing proceedings. ringtones � a sound cell phones can make when they ring that f.3d 748, 755-56 (d.c. cir. 2009); soundexchange, inc. v. existing market for voluntary licenses. jointly held is often the underlying reason that payments are tying all of those strands together, the board ultimately reproductions presents no such problems." 74 fed. reg. at 2009) (internal quotation marks omitted). with respect to the first statutory criterion it had to consider � departs from market analogies for voluntary licenses. second, in 2006, the register of copyrights ruled that ringtones are correspond with the practices in other similar markets � in cf. intercollegiate broad. sys., inc. v. copyright royalty bd., 574 4516. that simplicity contrasts sharply with the "salient administration gained from a single structure when spread contemplate that scenario and set forth a solution. a licensee on two separate grounds, riaa now challenges the although the board concluded that falling ringtone prices in the proceeding before the board, riaa argued for a consumers (like satellite radio) figuring out how many times a 19 paul m. smith argued the cause for appellant. with him with respect to those terms and rates would expire 10 years 801(b)(1)" when setting the terms of the � 115 license. 17 at the greater of 9.1 cents per song or 1.75 cents per minute of librarian has interpreted a seventh circuit "precedent to review in this court under the arbitrary and capricious late fee comports with the statutory objectives because it terminating the license. id. � 115(c)(6). as the government revenue derived from the sale of a ringtone. as a less for voluntary licenses do not bind the board when making its the congressional framework makes good sense because 9 copyrighted musical works � as opposed to sound recordings. 2 the copyright owner and what the terms for paying that rate license. the process was long and complicated, involving 28 maximizing the availability of creative work � the board u.s.c. � 115, the board instituted a 1.5 percent per month late copyright owners receive 24 cents for every ringtone sold recognizing the relative roles of the copyright owners and percentage-of-revenue rate for several reasons. 4515. objectives enumerated in the copyright act. soundexchange, 3 section 115 of the copyright act allows an individual to the government and intervenors argue that waiver, estoppel, set "reasonable terms and rates" for royalty payments made i intercollegiate broad. sys., inc. v. copyright royalty bd., 574 their creative works and copyright users a fair income; (3) paying any one owner of a jointly owned copyright. consider rates and terms under voluntary license agreements" actually used. see determination of rates and terms for assembling his own musicians, singers, recording engineers 14 b on the industries involved. applying those broad and rather in a copyright. see 37 c.f.r. � 201.18(a)(5) ("for the national music publishers' association, inc., second, it established a royalty rate for cellular phone in addition to the mandatory "objectives set forth in section the incentive to make timely payments in order to avoid � 115 objectives: (1) maximizing the availability of creative works any one of the co-owners.") (emphasis omitted); id. � president & counsel, national music publishers' association, selected rates be adjusted annually for inflation. id. the librarian of congress and removable only for cause by would, in effect, nullify the congressional authorization for determination of the amount of that fee. recall that those recording of the copyright owner's work triggers the royalty we next consider riaa's challenge to the royalty rates fee. moreover, by the terms of the statute, that late fee "in no at all. under the terms of the statute, a copyright owner must licenses. by riaa's account, there are no late fees in the preference for a penny-rate royalty structure. kelsi brown corkran, u.s. department of justice, argued first, the board determined that a penny rate was more in after weighing the costs and benefits of the parties' as relevant here, the copyright act requires the board to proceedings for licenses issued under the copyright act. mean that marketplace analogies, along with other evidence, copyrighted work is used (i.e., sold) is much easier. timely payments to each copyright owner, that fact would in board, it waived its right to challenge (or is estopped from renders a late fee unnecessary. ringtones as well as physical phonorecords and digital preferred alternative to a percentage-of-revenue structure before the and licensed separately. one party might own the copyright the work" under � 115 so long as the "primary purpose in 6 their own recordings of copyrighted musical works for iii but the copyright act itself refutes this either-or see 17 u.s.c. � 102. the musical work is the musical we find nothing unreasonable about the board's riaa does not contend that the board contravened any both a termination right and a late fee. on appeal of an order of the copyright royalty board challenging, or lacks standing to challenge) the imposition of the preferred alternative, riaa sought a penny-rate royalty as disagreements about what constituted "revenues." id. under the � 115 licensing regime. 74 fed. reg. at 4517 n.21. before: garland and kavanaugh, circuit judges, and 12 radio industries. 74 fed. reg. at 4527; see determination of termination right and authorizes the board to impose a late fee. c the ratemaking decisions of the board because congress that from january 2000 to september 2007, over 41,000 recordings and ephemeral recordings, 72 fed. reg. 24,084, copyright owner, the service of the notice on any one of the appellant says, copyright owners are often the source of the problems no. 09-1075 riaa argues that the late fee must be tethered to late fees any disruptive impact. id. interpretation of the precedent." 176 f.3d 528, 534 (d.c. cir. inc., charles j. sanders, special counsel, songwriters guild proceedings, 71 fed. reg. 64,303 (nov. 1, 2006). payments, because the licensee can avoid any consequences the case of ringtones, "measuring the quantity of industries involved. id. � 801(b)(1)(a)-(d). to the public; (2) providing copyright owners a fair return for mechanical and digital phonorecord delivery rate objections in turn. that the major record labels have late fee clauses in their alleges that the penny-rate royalty structure inappropriately by co-copyright owners. we will consider each of those 523-24. and riaa acknowledged that at least a handful of as part of the � 115 licensing proceedings, the board determinations, the board considered those rates when more than one copyright owner, the service of the statement the copyright act authorizes the board to impose a late owner will receive 24 cents every time a ringtone using their works. under the board's determination, every copyright to negotiate terms and rates themselves. see nimmer � springsteen's recording of that song and sell them. we affirm the copyright royalty board's determination. 13 b based on the number of copyrighted works sold � like the justify our overturning the board's 1.5 percent per month late the board examined the relevant data and determined specifically, the fact that it is a penny rate rather than a that track those found in the marketplace and that the board riaa argues that the board must set royalty terms and rates riaa levies several challenges to the late fee. first, determined that many of the concerns driving the adoption of administrative procedure act. we conclude that the board's this case involves licenses in a limited category of a range of reasonable royalty rates that would serve all [the] voluntary market for the copyrights that � 115 covers. as a they would receive the greater of (1) 15 percent of all revenue in sum, riaa has failed to raise any argument that would br. at 40. argued march 12, 2010 decided june 22, 2010 * * * a owners often fail to decide who is entitled to what share of the such as the price charged to the end consumer. this court