ACEMLA v. Copyright Royalty Tribunal

• Decision Date: 11 June 1985
• Docket Number: No. 687,D,687
• Citation: 763 F.2d 101
• Parties: , 226 U.S.P.Q. 509, 1985 Copr.L.Dec. P 25,800 ACEMLA, Latin American Music And Latin American Music, Inc., Petitioner, v. COPYRIGHT ROYALTY TRIBUNAL, Respondent. American Society of Composers, Authors and Publishers, Broadcast Music, Inc., and SESAC, Inc., Intervenors. ocket 84-4136.
• Court: U.S. Court of Appeals — Second Circuit

Page 101

763 F.2d 101

53 USLW 2627, 226 U.S.P.Q. 509, 1985

Copr.L.Dec. P 25,800

ACEMLA, Latin American Music And Latin American Music, Inc. Petitioner, v. COPYRIGHT ROYALTY TRIBUNAL, Respondent American Society of Composers, Authors and Publishers Broadcast Music, Inc., and SESAC, Inc., Intervenors.

No. 687, Docket 84-4136.

United States Court of Appeals Second Circuit.

Argued Feb. 21, 1985.

Decided May 30, 1985.

As Amended June 11, 1985.

Mark W. Pennak, Appellate Staff Atty., Civ. Div., Dept. of Justice, Washington, D.C. (William Kanter, Appellate Staff Atty., Richard K. Willard, Acting Asst. Atty. Gen., Washington, D.C., of counsel), for respondent Copyright Royalty Tribunal.

Jose Luis Torres, New York City (Torres & Leonard, P.C., New York City, of counsel), for petitioners.

I. Fred Koenigsberg, New York City, for intervenors American Soc. of Composers, Authors and Publishers, Broadcast Music, Inc., and SESAC, Inc.

Bernard Korman, New York City, for American Soc. of Composers, Authors and Publishers.

Edward W. Chapin, New York City, for Broadcast Music, Inc.

Nicholas Arcomano, New York City, for SESAC, Inc.

Before VAN GRAAFEILAND, WINTER and PRATT, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

This is the tale of a bureaucratic Garden of Eden ^*. In 1977 congress created a new governmental paradise, called Compulsory Royalty Fees, and placed in it the Copyright Royalty Tribunal (CRT) to collect the fees and distribute them among those who might be entitled to them. Blessed with all the authority and discretion any governmental agency could ask for, the CRT was even granted the power to determine its own income by fixing the amount of fees to be collected.

As in Eden, the "creator" laid down a rule--here actually, two rules--for distributing the bounty of this paradise. Like Adam and Eve, the CRT has disobeyed the rules; unlike Adam and Eve, however, the CRT is not to be banished from Paradise but, instead, will be given a second opportunity to fulfill its mission--this time, we hope, in full compliance with the rules.

Petitioners claim that the CRT's 1982 Jukebox Royalty Distribution Determination wrongly denied them a share of the royalty fees collected from jukebox operators. Finding that the CRT's determination was not in accordance with law, we vacate the determination as to the disputed ten percent of the fund and remand for further proceedings.

I. BACKGROUND

In 1909 when congress passed the first copyright law, the reproduction of musical performances on coin-operated machines was deemed not to constitute a public performance for profit unless a fee was charged for admission to the place where the reproduction occurred. As a result, there was no copyright infringement when records were played on most jukeboxes and, of course, no royalty fees were paid. House Rep. No. 1476, 94th Cong., 2d Sess. 111-12, reprinted in 1976 U.S.Code Cong. & Ad.News 5659, 5727. To eliminate this "unconscionable", "grossly discriminatory", and "totally unjustified" exemption from copyright protection, id., congress in 1976 abolished this so-called "jukebox exemption" and provided in 17 U.S.C. Sec. 116 (1982) for the collection and distribution of annual royalty fees to be paid by jukebox operators for compulsory licenses which entitle them to use all copyrighted records in their jukeboxes. 17 U.S.C. Sec. 116(a)(2).

The royalty fees, whose amount is fixed by the CRT, 17 U.S.C. Sec. 801(b)(1), are paid to the Register of Copyrights and then, after a deduction to cover the costs of the copyright office, are deposited in the United States Treasury. 17 U.S.C. Sec. 116(c)(1). Ultimately, it is the responsibility of the CRT, an independent agency established "in the legislative branch", 17 U.S.C. Sec. 801(a), to distribute the fund annually. "[I]n cases where controversy exists" the CRT must determine "the distribution of such fees." 17 U.S.C. Sec. 801(b)(3).

This appeal is the first court challenge to the CRT's distribution of a jukebox fund. While there have been disagreements among competing claimants in prior years, those disputes were ultimately resolved either by agreement or, as in 1981, by acquiescence in the CRT's distribution order.

The 1982 fund at issue here totalled approximately $3,000,000. We were told on oral argument that the fund for 1984 would be approximately $6,000,000. In view of the rapidly increasing annual amount in the jukebox fund available for distribution by the CRT, it is particularly important not only for this appeal, but also for future distribution proceedings, to focus carefully on those few statutory limits that congress has placed on this unique agency. Thus, on this maiden courtroom voyage for the jukebox fund distribution statute, we proceed cautiously, having a special regard for the objectives congress sought to achieve.

A. Statutory Scheme for Distribution of the Fund.

The Copyright Act and the CRT's regulations promulgated thereunder, 37 C.F.R. Secs. 301.1 to 308.2, contemplate a yearly filing of claims by all persons who claim to be entitled to share in the net compulsory license fees collected for the past year. See 17 U.S.C. Sec. 116(c)(2); 37 C.F.R. Sec. 305.2 (1984). Claims may be filed by two classes of claimants: (A) copyright owners who are not affiliated with a performing rights society, 17 U.S.C. Sec. 116(c)(4)(A), and (B) performing rights societies, 17 U.S.C. Sec. 116(c)(4)(B). A "performing rights society" is defined as "an association or corporation that licenses the public performance of nondramatic musical works on behalf of the copyright owners, such as the American Society of Composers, Authors and Publishers, Broadcast Music, Inc., and SESAC, Inc." 17 U.S.C. Sec. 116(e)(3). The three societies named in this statutory definition are the intervenors on this appeal.

The act gives claimants the opportunity to agree among themselves as to the portion of the fund to which each is entitled. They may do so without presenting to the CRT any data in support of an agreed-upon distribution, and such agreements are exempted from any prohibitions of the antitrust laws. 17 U.S.C. Sec. 116(c)(2).

If adverse claims to the fund remain unresolved the CRT shall, after October 1 of each year, determine that a controversy exists. 17 U.S.C. Sec. 116(c)(3). If the controversy relates to only a portion of the fund, the remaining undisputed portion may be distributed immediately. 17 U.S.C. Sec. 116(c)(4)(C). As to any controversy, the CRT is instructed to conduct a proceeding to determine the final distribution of the fund. 17 U.S.C. Sec. 801(b)(3). Distribution is to be made, first, to copyright owners not affiliated with a performing rights society, 17 U.S.C. Sec. 116(c)(4)(A), with the remainder to be distributed to the performing rights societies as they shall agree, or failing agreement, the distribution shall be "the pro rata share to which such performing rights societies prove entitlement." 17 U.S.C. Sec. 116(c)(4)(B).

Upon determining that a controversy exists, the CRT is required to publish in the Federal Register a notice of commencement of proceedings to determine the proper distribution. 17 U.S.C. Sec. 804(d). Proceedings are to be initiated "without delay", and a final determination is to be rendered within one year of publication of the notice. 17 U.S.C. Sec. 804(e). When a final determination is reached, the CRT must "state in detail the criteria * * * 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." 17 U.S.C. Sec. 803(b). The CRT is free, however, to "adopt regulations, not inconsistent with law, governing its procedure and methods of operation." 17 U.S.C. Sec. 803(a). Within thirty days of publication in the Federal Register of the CRT's final determination, an aggrieved party may seek judicial review by appeal to the United States Court of Appeals. 17 U.S.C. Sec. 810.

B. Distributions of the Funds for 1978 through 1981.

The first distribution of the fund was for the year 1978. That year the only claimants were the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI) and SESAC, Inc. (SESAC), who were the performing rights societies specifically mentioned in the act. As encouraged by congress, they reached a voluntary agreement on how they would share the fund. Under the statute, therefore, no proceeding was necessary, and the CRT distributed the fund according to the terms of the societies' agreement.

In 1979, an additional performing rights society, the Italian Book Company (IBC), claimed entitlement to a portion of the fund. Since no voluntary distribution agreement was reached the CRT declared a controversy and commenced a distribution proceeding in which each society presented evidence. ASCAP's evidence included a comparison of license revenues received by the different societies, comparisons of non-license revenues, and surveys showing performances in media other than jukeboxes. BMI presented a survey of jukebox performances, trade charts showing the popularity of copyrighted works, and a survey of radio performances of copyrighted works. SESAC based its claim of entitlement on its share of license revenues. IBC's submission stated that it owned the copyrights to a majority of Italian songs likely to be performed on jukeboxes located in pizza places. 46 Fed.Reg. 58,139, 58,140-42 (1979).

The CRT rejected these submissions as an insufficient basis upon which to make a distribution. ASCAP's submission was "too general for us to find in it any guidance on how to distribute royalties". BMI's survey was "subject to * * * criticism and doubt concerning its methodology and execution". Consequently, the CRT requested the parties to "submit proposals for a joint survey" of actual jukebox performances. Instead of agreeing upon and conducting the requested survey, however, ...