Wyden, Chaffetz Introduce Bills for Reducing Royalty Rates Paid by Online Radio Services

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By Anandashankar Mazumdar  

Companion bills introduced in the Senate and House of Representatives on Sept. 21 would direct the Copyright Royalty Board to set royalties paid by online music services under the same standards as those that apply to royalties paid by cable and satellite services.

The bills would also alter the method of appointing the copyright royalty judges, a provision intended to respond to a constitutional obstacle thrown up by a July court decision.

The Internet Radio Fairness Act of 2012 (S. 3609 and H.R. 6480) seeks to “adopt fair standards and procedures by which determinations of the Copyright Royalty Judges are made with respect to webcasting.” The legislation is sponsored by Rep. Jason E. Chaffetz (R-Utah) and Rep. Jared S. Polis (D-Colo.) in the House and by Sen. Ronald L. Wyden (D-Ore.) in the Senate.

Wyden said in a written statement that the current statutory scheme was “imposed to directly disadvantage Internet radio compared to other broadcasters of digital music.” He said:

The purpose of the IRFA is to remove the barriers to innovation in digital broadcasting, enable new webcasters to start up and create jobs and increase competition in the music marketplace. IRFA intends to expand the broadcast digital market so that artists can obtain broader exposure and more compensation for their music.  


According to a statement released by Chaffetz, internet-based radio services currently pay royalties that amount to more than 55 percent of their revenue, compared to cable and satellite services, which pay between 7 percent and 16 percent.

The intent of the legislation is to “level the playing field” for internet services, Chaffetz said.

Polis noted that internet services allow users to create playlists that have replaced the time-consuming method of creating mix tapes from his college days.

“Our laws shouldn't penalize the innovators who made that leap and created jobs by forcing them to pay outrageous royalties that are far greater than their competitors['],” Polis said.

Appointments Clause Issue Addressed.

Section 2 of S. 3609 deals with the appointment of the Copyright Royalty Board, amending 17 U.S.C. §801(a) to specify that the judges are to be appointed by the president rather than the librarian of Congress.

This proposal comes a few months after a decision by a federal appeals court that the statutory provision creating the board violates the Appointments Clause of the Constitution (Intercollegiate Broadcasting System Inc. v. Copyright Royalty Bd. and Library of Congress, D.C. Cir., No. 11-1083, 7/6/12).

According to that decision, the powers of the Copyright Royalty Board are significant enough that they should be appointed by the president rather than by the librarian, as currently specified.

The bill also sets minimum qualifications for judges, namely, they must be lawyers and have at least 10 years' legal experience and “significant experience in adjudicating arbitrations or court trials.” The chief judge must have at least seven years' experience in adjudication.

Standards Altered.

Section 3 of the bill would amend 17 U.S.C. 112(e), which relates to the Section 114 statutory license for public performances of a phonorecord by way of a non-interactive digital audio transmission.

The legislation would specify that the “minimum fee” currently mandated by Section 112(e)(3) would be a “minimum annual fee.”

Furthermore, the bill would delete the current standard for setting rates, which states that the board must determine the “rates that most clearly represent the fees that would have been negotiated in the marketplace between a willing buyer and a willing seller.”

Instead, the bill would direct the Copyright Royalty Board to apply the Section 801(b)(1) standard when determining marketplace rates for internet radio, which sets forth the following goals for rate-setting:

 (A) To maximize the availability of creative works to the public.  

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.  

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.  

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.  


Furthermore, copyright owners would bear the burden of establishing that:

the fees and terms that they seek satisfy the requirements of [Section 801(b)(1)], and do not exceed the fees to which most copyright owners and users would agree under competitive market circumstances.  

The board would also be required to take into consideration the public interest in the fostering of online services as well as the reasonable return required for an online service to survive. Furthermore, the board would be prohibited from “disfavor[ing] percentage of revenue-based fees” and would be required to establish a fee structure that encourages competition.

According to the legislation, the board would also be required to take into consideration any value in the form of promotional benefits rendered by the performance of works by internet radio services.

The board would also be prohibited from using prior fee-setting decisions as benchmarks for future determinations once the standards have been altered.

Loosening Rules for Ephemeral Copies, Other Provisions.

Section 4 of the bill is aimed at “modernization of conditions governing ephemeral recording exemption and statutory licenses.”

Specifically, it removes any restrictions on ephemeral or incidental copying, which under the current text of Section 112(a)(1) is limited to one copy that must be deleted after six months.

This provision, according to Wyden, is aimed in part at allowing internet services to make digital backups of their legally acquired content, so long “as they are used solely for facilitating webcasting.”

Simulcasting of broadcasting programming on the internet would also be facilitated under the legislation.

Section 5 of the bill is aimed at permitting copyright owners to negotiate licenses independently of established royalty collectives.

Section 6 would require the Copyright Royalty Board to apply the Federal Rules of Civil Procedure and the Federal Rules of Evidence in its proceedings. This provision also sets forth a series of procedural rules for rate-setting proceedings before the board.

Under Section 7, the Library of Congress--in cooperation with the IP czar and the Patent and Trademark Office--would develop recommendations for establishing a “global music rights database” that would facilitate the identification of copyright owners of musical compositions and sound recordings.

The two bills have been referred to the judiciary committees in their respective houses.

S. 3609 at http://pub.bna.com/ptcj/S3609Sept21.pdf

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