SUPPLEMENTARY INFORMATION:

Background

Sections 112 and 114 of the Copyright Act, title 17 of the United States Code, are the statutory licenses governing the public performance of sound recordings by certain types of eligible services ^[1] by means of a digital audio transmission. 17 U.S.C. 112(e), 114. Services operating under these licenses are required to, among other things, pay royalty fees and report to copyright owners of sound recordings on the use of their works. Id. The Copyright Act directs the Copyright Royalty Judges (“Judges”) to determine the royalty rates to be paid, 17 U.S.C. 114(f)(1)(A), (f)(2)(A) and 17 U.S.C. 112(e)(3), and to establish regulations to give copyright owners reasonable notice of the use of their works and create and maintain records of use for delivery to copyright owners. 17 U.S.C. 114(f)(4)(A) and 17 U.S.C. 112(e)(4). The purpose of the notice and recordkeeping requirement is to ensure that the royalties collected under the statutory licenses are distributed by a central source—a Collective—or other agents designated to receive royalties from the Collective to the correct recipients. The Judges promulgated final notice and recordkeeping regulations on October 13, 2009.^[2] See74 FR 52418.

On March 24, 2011, SoundExchange, Inc., the entity designated by the Judges as the Collective, petitioned the Judges to commence a rulemaking proceeding to consider adopting regulations to authorize SoundExchange “to use proxy reporting data to distribute to copyright owners and performers certain sound recording royalties for periods before 2010 that are otherwise undistributable due to licensees' failure to provide reports of use” or their provision of “reports of use that are so deficient as to be unusable.” Petition of SoundExchange, Inc., for a Rulemaking to Authorize Use of a Proxy to Distribute Certain Pre-2010 Sound Recordings at 1 and 2 (March 24, 2011). The proxy proposed by SoundExchange uses “available data for services of the same license type, for the same year.” Id at 9. SoundExchange stated that the proxy would be used to distribute $28 million in royalties, which represents 4.5% of all the royalties collected for the relevant timeframe—April 1, 2004, through December 31, 2009. Id. at 2. In ( printed page 45696) support of its request, SoundExchange noted that a proxy had been utilized once before when the lack of reports of use rendered the reasonable distribution of royalties difficult if not impossible. Id. at 3. In that instance, reporting data did not exist for the period from when the statutory licenses first became available for services other than preexisting subscription services (October 1998) to the promulgation of interim notice and recordkeeping regulations (March 2004).^[3] See Notice and Recordkeeping for Use of Sound Recordings Under Statutory License, Docket No. RM 2002-1G, Final rule,69 FR 58241. There the proxy data was used to distribute 100% of the royalties collected for that time period. Id.

On April 19, 2011, the Judges published a notice of proposed rulemaking (“NPRM”) seeking comment on SoundExchange's proposal. 76 FR 21833. In addition to soliciting comments on the proposal, the Judges invited comment on, among other things, the reasonableness, fairness and appropriateness of the use of the proposed proxy and sought comment on possible alternatives to the proposed proxy. Id. at 21834-35 (April 19, 2011). Comments were due May 19, 2011.

The Judges received a single comment from SoundExchange in response to the NPRM. SoundExchange noted that since the filing of its petition, additional reports of use had been provided allowing a further distribution of royalties, thereby reducing the amount of undistributable royalties to $19.4 million, or about 3% of the total royalties collected for the April 1, 2004, to December 31, 2009, period. Comments of SoundExchange, Inc. at 1. In response to the questions posed in the NPRM, SoundExchange reiterated that the proposed proxy would be applied to a much smaller percentage of royalties than the one the Copyright Office approved for the October 1998 to March 2004 period. See e.g.,id. at 4, 5. SoundExchange also recounted its efforts in arriving at the proposed proxy and noted that it “has not devised any alternative that would be demonstrably more fair.” Id. at 5.

Given that the proxy will be applied to a small percentage of royalties for the relevant time period and that no viable alternatives have been provided, the Judges are adopting as final the proposed regulations as set forth in the NPRM allowing for the use of the proxy proposed by SoundExchange for the distribution of royalties for the period of April1, 2004, through December 31, 2009. Adoption of the proposed regulations, especially in the absence of opposition to the proposed proxy, will promote the expeditious distribution of the affected royalties.

The Judges also are adopting as final the technical corrections to part 382 proposed by SoundExchange as set forth in the NPRM reflecting the renumbering of certain sections in part 370 resulting from the Judges' adoption of final notice and recordkeeping regulations in October 2009.

Final Regulations

For the reasons set forth in the preamble, the Copyright Royalty Judges amend 37 CFR parts 370 and 382 as follows:

1. The authority citation for part 370 continues to read as follows:

Authority: 17 U.S.C. 112(e)(4), 114(f)(4)(A).

2. Section 370.3 is amended by adding new paragraph (i) to read as follows:

3. Section 370.4 is amended by adding new paragraph (f) to read as follows:

4. The authority citation of part 382 continues to read as follows:

Authority: 17 U.S.C. 112(e), 114, and 801(b)(1).

5. Section 382.3(c)(1) is amended by removing “§ 370.2” and adding “§ 370.3” in its place.

6. Section 382.13(f)(1) is amended by removing “§ 370.3” and adding “§ 370.4” in its place.