Beethoven.Com LLC v. Librarian of Congress

Decision Date14 January 2005
Docket NumberNo. 02-1246.,No. 02-1249.,No. 02-1248.,No. 02-1247.,No. 02-1244.,02-1244.,02-1247.,02-1249.,02-1246.,02-1248.
Citation394 F.3d 939
PartiesBEETHOVEN.COM LLC., et al., Petitioners v. LIBRARIAN OF CONGRESS, Respondent American Federation of Television and Radio Artists, et al., Intervenors
CourtU.S. Court of Appeals — District of Columbia Circuit

Michele J. Woods argued the cause for Copyright Owners/Performers petitioners. With her on the briefs were Ronald A. Schechter, Patricia Polach, Arthur Levine, and Laura P. Masurovsky. Cary H. Sherman and Robert A. Garrett entered appearances.

Mark W. Pennak, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were Peter D. Keisler, Assistant Attorney General, and William Kanter, Deputy Director.

Before: SENTELLE, HENDERSON and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge.

Three groups of Petitioners seek review of a final rule issued by Respondent Librarian of Congress ("Librarian"), setting copyright license rates for webcasters. See Determination of Reasonable Rates and Terms for the Digital Performance of Sound Recordings and Ephemeral Recordings, 67 Fed. Reg. 45,240 (July 8, 2002) ("Final Rule"). The Librarian's decision was based on proceedings before a Copyright Arbitration Royalty Panel ("CARP"). One group of Non-Participant Petitioners-Intervenors ("Non-Participants") did not participate formally in the CARP proceedings but challenges the rates set by the Librarian based on the CARP's recommendations. The Non-Participants also argue that the CARP process itself was flawed because it excluded small webcasters and those who could not afford arbitration fees, violating their rights to due process and freedom of expression. The Non-Participants include Beethoven.com and three other entities who seek to join or intervene in this case, as well as one, Education Information Corporation ("EIC") that only seeks to intervene. A second group of Petitioners-Copyright Owners and performers that include the Recording Industry Association of America ("RIAA") and other industry groups (jointly, "Owners")-argue that the Librarian set rates arbitrarily low by not adequately considering past agreements he had on the record. The third group of Participant Licensee Petitioners includes (1) radio broadcasters who simulcast via radio and internet ("Simulcasters") and (2) internet webcasters who broadcast solely over the internet ("Webcasters") (jointly, "Broadcasters"). These Broadcasters, who were parties to the CARP proceedings, claim that the Librarian's rates were arbitrary, contending that rates should be lowered because they were not based on real market factors. Respondent Librarian attacks the standing of the Non-Participants, while defending his rate determinations. Because we hold that the Non-Participants have no standing and seek to intervene only to impermissibly raise new issues, we deny their petition for review and do not permit intervention. As to the issues properly before us, raised by the Owners and Broadcasters, we find no reversible error and therefore dismiss their petitions for review. The Owners' challenge to the payment date set by the Librarian is moot.

I. Background
A. Statutory Background

Since the enactment of the Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39 (amending 17 U.S.C. §§ 106 & 114), copyright owners have had exclusive rights in performances of their works by digital audio transmission. The Digital Millennium Copyright Act of 1998 ("DMCA"), Pub. L. No. 105-304 (amending scattered sections of 17 U.S.C.), expanded copyright protection to non-subscription "webcasting" and created a statutory license in performances by webcast. 17 U.S.C. § 114(f)(2). The DMCA creates a six-month negotiation period for copyright owners and statutory licensees to privately determine rates and fees for these licenses. Id. § 114(f)(2)(A). If no agreement is reached at that time, the Librarian convenes a CARP to set rates and terms "that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller." Id. § 114(f)(2)(B). The CARP decision is to be based on "economic, competitive and programming information presented by the parties," including

(i) whether use of the service may substitute for or may promote the sales of phonorecords or otherwise may interfere with or may enhance the sound recording copyright owner's other streams of revenue from its sound recordings; and

(ii) the relative roles of the copyright owner and the transmitting entity in the copyrighted work and the service made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, and risk.

Id. The same standards are to be used to determine the statutory license rate for "ephemeral recordings," the temporary copies necessary to facilitate the transmission of sound recordings during internet broadcasting. Id. § 112(e).

Any person entitled to a statutory license may become a party to the CARP rate-setting proceedings by submitting "relevant information and proposals" to the CARP. 17 U.S.C. § 802(c). Parties are entitled to discovery, presentation of evidence and witnesses, and a formal trial-type hearing before an arbitrator. 37 C.F.R. §§ 251.41, 251.43, 251.45. The CARP then acts on the basis of the written record and precedent from the Copyright Royalty Tribunal, other CARP decisions, and the Librarian. Costs of the arbitration are imposed on the parties to the CARP proceeding, with the CARP determining the allocation of costs among the parties. 17 U.S.C. § 802(c).

Within 90 days after receiving the CARP report, the Librarian must either adopt or reject its determination, adopting it unless the rates and terms are "arbitrary or contrary to the applicable provisions" of the statute. 17 U.S.C. § 802(f). If the Librarian rejects the report he may set a fee based on the record before the CARP. Id. "[A]ny aggrieved party who would be bound by the determination" may challenge the Librarian's decision before this Court. Id. § 802(g). This Court then has jurisdiction to "modify or vacate a decision of the Librarian only if it finds, on the basis of the record before the Librarian, that the Librarian acted in an arbitrary manner." Id.

B. The CARP and the Librarian's Decision

The CARP proceeding at issue here was instituted to set rates and terms for statutory licenses during the period between October 28, 1998 and December 31, 2002, after the period for voluntary negotiation had expired. None of the Non-Participants took steps to join the CARP proceedings by filing Notices of Intent to Participate. One Non-Participant, EIC, wrote a letter to the CARP asking permission to present an amicus-type pleading because it had only limited interest in the results and could not afford to participate in the full proceedings. This request was denied. The Owners and Broadcasters did take part in the CARP arbitration. The CARP completed its proceedings on February 1, 2002 and presented its report to the Librarian on February 20, 2002. See Rate Setting for Digital Performance Right in Sound Recordings and Ephemeral Recordings, Docket No. 2000-9, available at http:// www.copyright.gov/carp/webcasting_rates.pdf ("CARP Report").

During the private negotiation period prior to the CARP arbitration, the RIAA formed a committee of five major record labels to develop and carry out a common strategy for engaging in collective negotiations with prospective licensees. This committee ultimately negotiated 26 agreements which RIAA submitted to the CARP as evidence of market valuation of the licenses. The CARP determined that the RIAA strategy was targeted at supra-competitive licensing fees to conform with its view of the "sweet spot" for the royalty rates. CARP Report at 48. RIAA then would only close deals that hit its "sweet spot" to create a favorable record before the CARP, generally with businesses driven by factors other than the value of the sound performance rights. Id. The CARP found that the rates in 25 of these agreements were higher than the majority of buyers was willing to pay and thus did not establish a reliable benchmark. Id. at 51. Nonetheless, it did accord them some weight by using them to justify rounding ephemeral recording rates from 8.8 percent of performance fees up to 9 percent. Id. at 104. To corroborate the rates in the 26 benchmark agreements, RIAA also submitted 115 record label licensing agreements between individual record companies and licensees. The CARP disregarded all of these agreements because they did not involve the same digital performance rights at issue in the proceeding. Id. at 71.

The one RIAA benchmark given "great weight" by the CARP was an agreement between RIAA and Yahoo!, Inc. ("Yahoo!"), a company recognized to be a "major player" in making sound recording transmissions (the "RIAA-Yahoo! agreement"). CARP Report at 60-61. This weight was not without qualifications, however. The CARP found that due to Yahoo!'s dominant role in the industry it stood to bear a substantial portion of any arbitration costs and thus was willing to accept an inflated royalty rate to avoid these costs. Id. at 68. Yahoo! also testified that it anticipated significant savings in arbitration fees and opportunity costs by making an agreement with RIAA. Id. Even so, the rates negotiated by Yahoo!...

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