Recording Industry Ass'n of America v. Copyright Royalty Tribunal

Decision Date27 August 1981
Docket Number81-1128,81-1002,Nos. 80-2545,81-1001,81-1129 and 81-1233,80-2579,s. 80-2545
Citation662 F.2d 1
Parties, 212 U.S.P.Q. 69, 1981 Copr.L.Dec. P 25,294 RECORDING INDUSTRY ASSOCIATION OF AMERICA, Petitioner, v. COPYRIGHT ROYALTY TRIBUNAL and the United States of America, Respondents, Amusement and Music Operators' Association, National Music Publishers' Association, Inc., National Association of Recording Merchandisers, American Guild of Authors and Composers and Nashville Songwriters Association International, Intervenors. to 81-1236.
CourtU.S. Court of Appeals — District of Columbia Circuit

Petitions for Review of Orders of the Copyright Royalty tribunal.

James F. Fitzpatrick with whom Cary H. Scherman was on the brief, for Recording Industry Association of America, Inc., petitioner in Nos. 80-2545, 80-2579, 81-1001 and 81-1128, intervenor in No. 81-1233.

Timothy N. Black, Washington, D. C., with whom Stephen A. Weiswasser and Lynn Bregman, Washington, D. C., were on the brief, for CBS Inc., petitioner in Nos. 81-1002 and 81-1129, intervenor in No. 81-1233.

Frederick F. Greenman, Jr., New York City, with whom Alvin Deutsch, Joseph M. Berl, and Bernard G. Schneider, New York City, were on the brief for American Guild of Authors and Composers, et al., petitioners in Nos. 81-1233, 81-1234, 81-1235 and 81-1236 and intervenors in Nos. 80-2545, 80-2579, 81-1001, 81-1002, 81-1128 and 81-1129.

Morris B. Abram, New York City, with whom Richard M. Zuckerman and Helen Hershkoff, New York City, were on the brief, for National Music Publishers' Association, Inc., intervenor in Nos. 80-2545, 80-2579, 81-1001, 81-1002, 81-1128 and 81-1129.

Bruce G. Forrest, Atty., Dept. of Justice, Washington, D. C., with whom Thomas S. Martin, Acting Asst. Atty. Gen., Charles F. C. Ruff, U.S. Atty., and William Kanter, Atty., Dept. of Justice, Washington, D. C., were on the brief, for respondents. John F. Cordes, Atty., Dept. of Justice, Washington, D. C., also entered an appearance for respondents.

Nicholas E. Allen, Philip F. Herrick, James Michael Bailey and Suzanne V. Richards, Washington, D. C., were on the brief, for Amusement and Music Operators' Association, Inc., intervenor in Nos. 80-2545, 80-2579, 81-1001, 81-1002 and 81-1233.

Charles B. Ruttenberg and James A. Kidney, Washington, D. C., were on the brief, for National Association of Recording Merchandisers, intervenor in Nos. 80-2545, 80-2579, 81-1001, 81-1002, 81-1128, 81-1129, 81-1233, 81-1234, 81-1235 and 81-1236.

Before WRIGHT, WILKEY and MIKVA, Circuit Judges.

MIKVA, Circuit Judge:

These consolidated cases present various challenges to a rulemaking proceeding of the Copyright Royalty Tribunal ("Tribunal"), in which the Tribunal increased the royalty payable under the compulsory license for making and distributing phonorecords of copyrighted musical works. Our consideration of these petitions was expedited because the new rates were scheduled to become effective on July 1, 1981. Oral argument was heard on June 18, 1981, and on June 23 a judgment was entered, upholding the Tribunal in part, and reversing and remanding in part.

We held that the Tribunal acted within its authority in adjusting the royalty rate and in assigning the increase an effective date of July 1, 1981, but that the Tribunal had exceeded its authority in adopting a procedure for interim rate adjustments that would require the Tribunal to convene annual proceedings for the exercise of discretion. The case was remanded to permit the Tribunal to adopt, if it so desired, an alternative scheme of interim rate adjustment. This opinion explains more fully the basis of that judgment.

I. THE COMPULSORY LICENSE AND THE COPYRIGHT ROYALTY TRIBUNAL

The royalty determinations challenged in this proceeding concern the compulsory license for phonorecords 1 under the Copyright Act, 17 U.S.C. §§ 101-810 (1976). Once the creator of a nondramatic musical work has allowed phonorecords of that work to be produced and distributed, the statute requires him to grant a license upon request to any other person who proposes to make and distribute phonorecords of the work, at a royalty rate set by law. Id. § 115. 2 This compulsory licensing scheme is one of several established by the Copyright Act, and determination of the appropriate royalty rates is one of the principal functions Congress has assigned to the Copyright Royalty Tribunal. 3

The phonorecord compulsory licensing system dates back to 1909, when Congress first extended a composer's copyright protection to include the right to control manufacture of "parts of instruments serving to reproduce mechanically the musical work." 4 Industry representatives expressed a fear that this protection ran the risk of "establishing a great music monopoly" because the Aeolian Company, a manufacturer of player-piano rolls, was acquiring exclusive contract rights from composers and publishers. See H.R. Rep. No. 2222, 60th Cong., 2d Sess. 7 (1909). 5 The music industry has undergone major transformations in the intervening years, but record producers have continued to argue that a danger of monopolization and discriminatory practices exists, and Congress has concluded that a compulsory licensing system is still warranted. See H.R. Rep. No. 1476, 94th Cong., 2d Sess. 107 (1976) U.S.Code Cong. & Admin.News, p. 5659 (hereinafter cited as 1976 House Report); H.R. Rep. No. 83, 90th Cong., 1st Sess. 66-67 (1967).

Although the availability of the compulsory license under the 1909 Act has been very important to the structure of the recording industry, the statutory procedures for invoking the license have rarely been used. 6 The usual effect of the system is to make the statutory royalty rate a ceiling on the price copyright owners can charge for use of their songs under negotiated contracts: if the owner demands a higher price in voluntary negotiations, the manufacturer can turn to the statutory scheme, but if the owner is willing to accept less than the statutory rate, he is free to do so. 7 Today, the vast majority of contracts for use of copyrighted musical works involve voluntary payment at precisely the statutory rate. See Adjustment of Royalty Payable Under Compulsory License for Making and Distributing Phonorecords, 46 Fed.Reg. 10,466, 10,479-80 (1981); S.Rep. No. 473, 94th Cong., 1st Sess. 93-94 (1975) (hereinafter cited as 1975 Senate Report). This was not the case earlier in the century, because the statutory rate was then high enough in terms of purchasing power to allow a greater range for individual bargaining. 8 The 1909 Act had set the royalty rate at two cents for each "part" (e. g., disc) manufactured, and this rate remained unchanged until the passage of the 1976 Copyright Act, which increased the statutory rate to 23/4 cents per copy and provided for further adjustments by the Copyright Royalty Tribunal.

The inadequacy of the two-cent rate after half a century of economic change had long been recognized. See, e. g., H.R. Rep. No. 83, 90th Cong., 1st Sess. 67 (1967). Nonetheless, the rate increase was continually delayed by the battle over comprehensive copyright law revision and as the years passed, spokesmen for the opposing interests returned to argue over further incremental adjustments. Ultimately Congress found it "neither feasible nor desirable that these rates should be adjusted exclusively by the normal legislative process." 1975 Senate Report at 155. 9 Congress chose instead to make a first, approximate modification of the royalty rate, and to delegate the authority to make future adjustments to an independent tribunal. 17 U.S.C. § 801(b) (1976).

The Senate and the House proposed entirely different structures for the independent body that would determine rates. The Senate version provided an ad hoc tribunal convened by the Register of Copyrights whenever a rate proceeding was necessary; the American Arbitration Association was to name three of its members to form the panel, and this choice would be binding unless parties made well-founded objections. S. 22, 94th Cong., 1st Sess. § 803 (1975) (hereinafter cited as Senate Bill), see 1975 Senate Report at 36, 157. Rate adjustments could be vetoed by resolution of either house of Congress, and judicial review was provided only when a party charged that a proceeding for distribution of collected royalty fees was tainted by partiality, corruption, fraud, or other misconduct. 10 Senate Bill §§ 807, 809; see 1975 Senate Report at 37, 158.

The House, in contrast, proposed a permanent body, the Copyright Royalty Commission. The Commission would function like a traditional administrative agency. Its three members would be appointed by the President for five-year terms, and its proceedings would be subject to the Administrative Procedure Act, including the normal scope of judicial review. See 1976 House Report at 41-44, 174, 179. The legislative veto was eliminated. Id. at 179.

As the conference report stated, the structure finally chosen for the Tribunal "conforms in general to the House bill, but with several changes." H.R. Rep. No. 1733, 94th Cong., 2d Sess. 82 (1976) U.S.Code Cong. & Admin.News, p. 5823 (hereinafter cited as Conference Report ). The Act establishes "an independent Copyright Royalty Tribunal in the legislative branch." 17 U.S.C. § 801(a) (1976). 11 The Tribunal is composed of five commissioners appointed by the President with the advice and consent of the Senate for seven-year terms. Id. § 802. The Tribunal is subject to the APA, and is directed to adopt regulations "governing its procedure and methods of operation" and to accompany its final decisions by a statement of "the criteria that (it) determined to be applicable to the particular proceeding, the various facts that it found relevant to its determination in that proceeding, and the specific reasons for its determination." Id. § 803. 12 The APA also governs...

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