Amusement and Music Operators Ass'n v. Copyright Royalty Tribunal

Decision Date16 April 1982
Docket Number81-1324 and 81-1482,Nos. 80-2837,s. 80-2837
Citation676 F.2d 1144
Parties, 1982 Copr.L.Dec. P 25,384, 8 Media L. Rep. 1435 AMUSEMENT AND MUSIC OPERATORS ASSOCIATION, Petitioner, v. COPYRIGHT ROYALTY TRIBUNAL, Respondent, Broadcast Music, Inc., Party-Respondent. AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, Petitioner, v. COPYRIGHT ROYALTY TRIBUNAL, Respondent. AMUSEMENT AND MUSIC OPERATORS ASSOCIATION, Petitioner, v. COPYRIGHT ROYALTY TRIBUNAL, Respondent.
CourtU.S. Court of Appeals — Seventh Circuit

Nicholas E. Allen, Herrick, Allen, Davis & Bailey, Washington, D. C., I. Fred Koenigsbert, New York City, for petitioners.

John Cordes, U. S. Dept. of Justice, Crim. Div., Charles T. Duncan, Peabody, Rivlin, Lambert Meyers, Washington, D. C., for respondent.

Before CUMMINGS, Chief Judge, CUDAHY, Circuit Judge, and CAMPBELL, Senior District Judge. *

CUDAHY, Circuit Judge.

On January 5, 1981, the Copyright Royalty Tribunal (the "Tribunal") published its final rule establishing the royalty fee payable by jukebox operators for the public performance of copyrighted nondramatic musical works. 46 Fed.Reg. 884 (1981); see 37 C.F.R. §§ 306.1-306.4 (1981). Various participants in these consolidated cases now seek judicial review of the Tribunal's rule, claiming inter alia that the fee established by the rule is either too high or too low and thus is not supported by the record or is arbitrary and capricious and violates the statutory requirement of reasonableness. After examining the voluminous record and briefs in this case, we find that the Tribunal's final rule is lawful in all respects. Accordingly, we deny the petition for review.

I. FACTS
A. Statutory Framework

The proceedings which are the subject of this appeal arise under the Copyright Revision Act of 1976 (the "Act"), 17 U.S.C. §§ 101-810 (Supp. I 1977). Under the Act, songs and tunes ("nondramatic musical works") may be copyrighted, but the exclusive rights associated with a copyright under section 106 of the Act are subject to the potential unilateral exploitation device known as the "compulsory license." See 17 U.S.C. §§ 115, 116(b) (Supp. I 1977). Most phonorecords are purchased for private use; they do not require any special licensing for this private use. However, the operators of "coin-operated phonorecord players," or jukeboxes, must secure a compulsory license for the public performance of phonorecords purchased for use in these jukeboxes. By statutory exemption, jukebox operators were for many decades not required to directly compensate the owners of the copyrighted music for the commercial performance of such music. See 17 U.S.C. § 1(e) (1976) (repealed). Congress eliminated this exemption applicable to phonorecords played on jukeboxes when it passed the new Act and developed a method to provide compensation from the operators of jukeboxes to the owners of the copyrighted music utilized by the operators.

Section 116 of the Act requires jukebox operators seeking compulsory licenses to file an application with the Register of Copyrights enumerating the number and location of their jukeboxes "and (to) deposit ... a royalty fee for the current calendar year of $8.00 for (each) phonorecord player." 17 U.S.C. § 116(b)(1) (Supp. I 1977). These fees are then distributed to copyright owners (after the deduction of administrative expenses) pursuant to section 116(c). The $8.00 fee was the first jukebox royalty provision in this country. The fee level, coming after an absence of any fee requirement for almost seventy years, "represents a compromise figure adopted in 1967 and, as a compromise, it is acceptable as the rate to be specified in section 116.... (The House Judiciary) Committee has accepted the $8 jukebox royalty in the expectation that it would be subject to periodic review." H.R.Rep.No. 1476, 94th Cong., 2d Sess. 113, 115 (1976), U.S.Code Cong. & Admin. News 1976, pp. 5659, 5728-5731.

The Act also provided for the establishment of the Tribunal as the administrative agency "to make determinations concerning the adjustment of reasonable copyright royalty rates as provided in section ( ) ... 116." 17 U.S.C. § 801(b)(1) (Supp. I 1977). As a procedure for the determination of reasonable royalty rates, section 801(b)(1) of the Act directed the Tribunal to establish a rate that best achieves several specified objectives. 1 Pursuant to a timetable set out

in the Act, see 17 U.S.C. § 804 (Supp. I 1977), the Tribunal was directed to commence proceedings in January, 1980, to determine whether an adjustment of the jukebox royalty fee established in 1976 by Congress in connection with the compulsory licensing ($8 per year per box) was warranted under the criteria of section 801(b)(1). The Tribunal's final decision was due by the end of 1980. 17 U.S.C. § 804(e) (Supp. I 1977). After that date, the final decision might be changed only in new rulemaking proceedings initiated by petition of a person with a "significant interest." This option to undertake a new rulemaking is available "in 1990 and in each subsequent tenth calendar year thereafter." 17 U.S.C. §§ 804(a)(2) and (a)(2) (c) (Supp. I 1977).

B. Tribunal Proceedings

Four organizations responded to the Tribunal's Federal Register notice commencing the jukebox royalty proceedings. See 45 Fed.Reg. 62 (1980). Copyright owners were represented by the three principal performing rights societies: American Society of Composers, Authors and Publishers (ASCAP); Broadcast Music, Inc. (BMI); and SESAC, Inc. The jukebox industry was represented by the Amusement and Music Operators Association (AMOA). The Tribunal conducted seven days of hearings and reviewed numerous economic studies and other exhibits. After these proceedings, the Tribunal considered proposed findings and conclusions submitted by ASCAP, BMI and AMOA. On December 10, 1980, the Tribunal adopted its decision at a public session and on January 5, 1981, the Tribunal's final rule was published together with its statement detailing "the criteria that the Tribunal determined to be applicable to the particular proceeding, the various facts it found relevant to its determination in that proceeding, and the specific reasons for its determination." 17 U.S.C. § 803(b) (Supp. I 1977); see 46 Fed. Reg. 884-91 (1981).

The Tribunal ruled upon a number of legal contentions that were raised during the proceedings, the most significant of which concerned the "burden of proof," the structure of rates allowed by the Act and the necessity for calculating rates of return. AMOA contended that the burden of proof to justify any increase above the $8.00 fee set by Congress rested on the copyright owners. The Tribunal rejected this contention, reasoning that since the statute required an initial determination of the reasonableness of the $8.00 fee during 1980 (without the need of an initial petition) and then permitted new determinations once every decade only upon the petition of interested parties, Congress could not have intended to make the copyright owners "petitioners" shouldering the burden of proof in the initial proceedings. In effect, the Tribunal found that none of the parties had the burden of proof in the initial mandatory proceeding.

AMOA also argued that the Tribunal lacked the statutory authority to create a rate structure that would allow the Tribunal to automatically adjust the fee during the term of a proposed rate 2 to reflect deterioration of the fee's real value due to inflation. In support of this argument, AMOA noted that the statutory provisions related to the jukebox compulsory license (sections 116 and 804) employed only the term "rates" when outlining the Tribunal's Finally, the Tribunal also rejected AMOA's argument that, when establishing a royalty fee, the Act required the Tribunal to calculate individual compensation or returns to individual copyright owners from their ownership of copyrighted music rather than permitting reliance on a collective rate of return applicable to the copyright owners as a group. The Tribunal found that the legislative history of the Act evinced no intent that the Tribunal regulate the internal operations of the performing rights societies. The Tribunal's authority was strictly limited to setting applicable royalty fees and establishing the distribution to claimants. The Act in section 116(c)(4)(B) specifically provides that royalty fees are to be distributed to the performing arts organizations.

authority rather than the phrase "terms and rates," which is found in the provision applicable to public broadcasting. See 17 U.S.C. § 118(b) (Supp. I 1977). The Tribunal rejected AMOA's argument. Holding that the word "terms" was employed in the public broadcast provision to insure that the Tribunal could control such ancillary matters as payment methods, the Tribunal concluded that nothing in the Act or its legislative history could be construed to proscribe the application of annual cost of living adjustments to the jukebox royalty fee.

The Tribunal determined in its order of January 5, 1981, that the royalties payable by jukebox operators to the owners of copyrighted music should be set at a level of $50.00 per jukebox per year. Purportedly recognizing its obligation to balance fairness to copyright owners with its duty to avoid disruption of the jukebox industry, see note 1 supra, the Tribunal provided for the implementation of the $50.00 per year fee in two stages. The Tribunal ordered jukebox operators to pay only $25.00 per jukebox in 1982 and 1983; thereafter, the operators would be liable for the full $50.00 fee. Finally, the Tribunal also determined to subject the royalty fee to a cost-of-living adjustment in 1987.

The Tribunal apparently reached its conclusions as to the level of royalty fees by relying primarily on marketplace analogies. According to the Tribunal, certain "marketplace parallels" could serve as appropriate benchmarks...

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