Ruling on Regulatory Interpretation for Business Establishment Services

<RULE> LIBRARY OF CONGRESS <SUBAGY>Copyright Royalty Board</SUBAGY> <CFR>37 CFR Part 384</CFR> <DEPDOC>[Docket No. 2012-1 CRB Business Establishments II; Docket No. 2007-1 CRB DTRA-BE]</DEPDOC> <SUBJECT>Ruling on Regulatory Interpretation for Business Establishment Services</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Copyright Royalty Board, Library of Congress. <HD SOURCE="HED">ACTION:</HD> Ruling on regulatory interpretation. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Copyright Royalty Judges publish their ruling on regulatory interpretation in a matter that was referred to them by the United States District Court for the District of Columbia. The regulation at issue is the definition of “Gross Proceeds” in the rates and terms set forth through settlements in the <E T="03">BES I</E> and <E T="03">BES II</E> proceedings in 37 CFR 384.3(a), which is used when calculating royalty payments paid to SoundExchange, a collective for copyright owners, in relation to digital transmissions of sound recordings pursuant to the statutory license in 17 U.S.C. 112. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> January 10, 2025 </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> The ruling is posted in eCRB at <E T="03">https://app.crb.gov/.</E> For access to the docket, go to eCRB, the Copyright Royalty Board's electronic filing and case management system, at <E T="03">https://app.crb.gov/,</E> and search for docket numbers 2012-1 CRB Business Establishments II and 2007-1 CRB DTRA-BES. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Anita Brown, CRB Program Specialist, at (202) 707-7658 or <E T="03">crb@loc.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Ruling on Regulatory Interpretation Referred by the United States District Court for the District of Columbia</HD> <HD SOURCE="HD1">Background</HD> On February 9, 2022, SoundExchange submitted a motion  <SU>1</SU> <FTREF/> to the Copyright Royalty Judges (Judges) to reopen certain proceedings addressing determinations of royalty rates and terms under the 17 U.S.C. 112 license for making ephemeral copies of sound recordings for transmission by a Business Establishment Service (BES) in three proceedings, <E T="03">BES I, BES II,</E> and <E T="03">BES III.</E> <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>  Motion of SoundExchange, Inc. to Reopen Business Establishment Service Rate Proceedings for the Limited Purpose of Interpreting Regulations on Referral from the U.S. District Court for the District of Columbia (February 9, 2022) (eCRB no. 26146) (Motion). </FTNT> <FTNT> <SU>2</SU>  Docket Nos. 2007-1 CRB DTRA-BE (2009-2013) (“ <E T="03">BES I”),</E> 2012-1 CRB Business Establishments II (2014-2018) (“ <E T="03">BES II</E> ”), and 17-CRB-0001-BER (2019-2023) (“ <E T="03">BES III</E> ”). </FTNT> SoundExchange's request arose from litigation before the U.S. District Court for the District of Columbia (District Court) in which SoundExchange alleged that Music Choice had failed to pay royalties due under 17 U.S.C. 112 for the license to reproduce and transmit ephemeral copies of sound recordings to business establishments. <E T="03">See SoundExchange, Inc.</E> v. <E T="03">Music Choice,</E> No. 19-999 (RBW) (D.D.C. Dec. 20, 2021) (District Court Action). The District Court determined it was appropriate to refer a matter of regulatory interpretation regarding 37 CFR 384.3(a) to the Judges under the doctrine of primary jurisdiction and found that the Judges have continuing jurisdiction to clarify the BES regulations, even though those regulations were originally formulated by the Copyright Arbitration Royalty Panel (CARP), a rate setting body that preceded the Copyright Royalty Board (Board). <E T="03">See</E> District Court Action, Memorandum Opinion at 9-10 (Dec. 20, 2021) (Memorandum Opinion) (attached to the Motion as Exhibit B) (citing Report of the Copyright Arbitration Royalty Panel to the Librarian of Congress, <E T="03">Rate Setting for Digital Performance Right in Sound Recordings and Ephemeral Recordings,</E> Docket No. 2000-9 CARP DTRA 1 & 2 at B-7 (Feb. 20, 2002) ( <E T="03">Web I</E> CARP Report)). The underlying dispute revolves around the definition of “Gross Proceeds” in the rates and terms set forth through settlements in the <E T="03">BES I</E> and <E T="03">BES II</E> proceedings in 37 CFR 384.3(a). <E T="03">Id.</E> at 4-5. <SU>3</SU> <FTREF/> “Music Choice asserts that `its “Gross Proceeds” are only an allocated portion of its actual proceeds corresponding to music channels offered <E T="03">solely</E> as part of its BES service.'” <E T="03">Id.</E> at 6-7. SoundExchange asserts that “`Music Choice must pay BES statutory royalties on fees and payments it receives from providing music channels used in its BES service, even if Music Choice also provides such channels as part of a different service.'” <E T="03">Id.</E> at 7. <FTNT> <SU>3</SU>  Despite the fact that the regulations at issue were not drafted by Copyright Royalty Judges, but instead are the result of settlements by the settling proceeding participants, which the Judges are generally compelled, under 17 U.S.C. 801(b)(7)(a), to adopt, the Judges find that the relevant procedural history of these and predecessor proceedings does provide adequate basis for referral by the District Court under the doctrine of primary jurisdiction and the finding that the Judges have continuing jurisdiction. <E T="03">See</E> Final rule, <E T="03">Determination of Rates and Terms for Business Establishment Services,</E> Docket No. 2007-1 CRB DTRA-BE, 73 FR 16199 (Mar. 27, 2008) (BES I Determination) and Final rule, <E T="03">Determination of Rates and Terms for Business Establishment Services,</E> Docket No. 2012-1 CRB Business Establishments II, 78 FR 66276, 66277 (Nov. 5, 2013) ( <E T="03">BES II</E> Determination), citing 17 U.S.C. 801(b)(7)(a). </FTNT> Stated differently, the question is whether 37 CFR 384.3(a) requires BES providers to calculate royalties using their gross proceeds derived from the use of all licensed ephemeral copies used for the operation of the BES, or whether a BES may calculate royalties using their gross proceeds derived from the use of only those licensed ephemeral copies used for the “sole purpose” of the operation of the BES. The Memorandum Opinion stated that “[a]s a preliminary matter, the Court notes that the Board's definition of `Gross Proceeds' in 37 CFR 384.3(a)(2) is `ambiguous and do[es] not, on [its] face, make clear whether [Music Choice's] approaches were permissible under the regulations.' ” <E T="03">Id.</E> at 9 n.2. On March 22, 2022, after considering the Motion, Music Choice's response  <SU>4</SU> <FTREF/> and SoundExchange's reply, <SU>5</SU> <FTREF/> the Judges found that the claims to be addressed by the District Court only relate to time periods addressed by the <E T="03">BES I</E> and <E T="03">BES II</E> determinations and thus ordered the reopening of those two proceedings. The Judges ordered opening and reply briefing for the limited purpose of addressing the meaning of “Gross Proceeds” as defined in 37 CFR 384.3(a). <SU>6</SU> <FTREF/> <FTNT> <SU>4</SU>  Music Choice's Response in Opposition to SoundExchange's Motion to Reopen Business Establishment Service Rate Proceedings (Feb. 23, 2022) (eCRB no. 26201). </FTNT> <FTNT> <SU>5</SU>  SoundExchange's Reply in Support of its Motion to Reopen Business Establishment Service Rate Proceedings (Mar. 2, 2022) (eCRB no. 26246). </FTNT> <FTNT> <SU>6</SU>  Order Reopening Two Proceedings and Scheduling Briefing (Mar. 22, 2022) (eCRB no. 26360) (“Reopening Order”). The Judges observe that the Register of Copyrights has previously opined that the Judges have jurisdiction to clarify regulations that the Judges have adopted. <E T="03">See, Register's Memorandum Opinion on a Novel Question of Law</E> (Apr. 8, 2015) (Addressing the re-opened SDARS I proceeding and questions referred from the U.S. District Court for the District of Columbia). </FTNT> The relevant provision as set forth in the <E T="03">BES I</E> determination states: <EXTRACT> <FP>§ 384.3(a)</FP> For the making of any number of Ephemeral Recordings in the operation of a service pursuant to the limitation on exclusive rights specified by 17 U.S.C. 114(d)(1)(C)(iv), a Licensee shall pay 10% of such Licensee's “Gross Proceeds” derived from the use in such service of musical programs that are attributable to copyrighted recordings. “Gross Proceeds” as used in this section means all fees and payments, including those made in kind, received from any source before, during or after the License Period that are derived from the use of copyrighted sound recordings during the License Period pursuant to 17 U.S.C. 112(e) for the sole purpose of facilitating a transmission to the public of a performance of a sound recording under the limitation on exclusive rights specified in 17 U.S.C. 114(d)(1)(C)(iv). The attribution of Gross Proceeds to copyrighted recordings may be made on the basis of: (1) For classical programs, the proportion that the playing time of copyrighted classical recordings bears to the total playing time of all classical recordings in the program, and (2) For all other programs, the proportion that the number of copyrighted recordings bears to the total number of all recordings in the program. </EXTRACT> <FP> Final rule, <E T="03">Determination of Rates and Terms for Business Establishment Services,</E> Docket No. 2007-1 CRB DTRA-BE, 73 FR 16199, 16200 (Mar. 27, 2008) ( <E T="03">BES I</E> Determination). </FP> The relevant provision as set forth in the <E T="03">BES II</E> determination states: <EXTRACT> <FP>§ 384.3(a)</FP> For the making of any number of Ep ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 81k characters. 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