Intercollegiate Broad. Sys. v. Copyright Royalty

Decision Date10 July 2009
Docket NumberNo. 07-1174.,No. 07-1168.,No. 07-1172.,No. 07-1123.,No. 07-1178.,No. 07-1177.,07-1123.,07-1168.,07-1172.,07-1174.,07-1177.,07-1178.
PartiesINTERCOLLEGIATE BROADCAST SYSTEM, INCORPORATED, A Rhode Island Non-Profit Corporation and Harvard Radio Broadcasting Company, Inc., A Massachusetts Eleemosynary Corporation, Appellants v. COPYRIGHT ROYALTY BOARD, Library of Congress, Appellee Soundexchange, Inc., Intervenor.
CourtU.S. Court of Appeals — District of Columbia Circuit

Christopher J. Wright and David D. Oxenford argued the causes for appellants Commercial Webcasters and Small Commercial Webcasters. With them on the briefs were Jonathan Massey and Kenneth L. Steinthal. Joseph C. Cavender, Fernando R. Laguarda, and Ronald G. London entered appearances.

Bruce G. Joseph argued the cause for appellants Noncommercial Broadcasters. With him on the briefs were Seth D. Greenstein, Robert S. Schwartz, Karyn K.

Ablin, William Malone, James R. Hobson, and Matthew Schettenhelm.

Mark R. Freeman, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the briefs were Gregory G. Katsas, Assistant Attorney General, and Scott R. McIntosh and Sarang Vijay Damle, Attorneys. Anthony A. Yang, Attorney, entered an appearance.

Paul M. Smith argued the cause for intervenor SoundExchange, Inc. With him on the briefs were Thomas J. Perrelli, David A. Handzo, and Craig A. Cowie.

Before: SENTELLE, Chief Judge, and ROGERS and GRIFFITH, Circuit Judges.

Opinion for the Court filed PER CURIAM.

PER CURIAM:

Appellants seek review of a final determination of the Copyright Royalty Judges, setting rates and terms relating to webcasting. See Digital Performance Right in Sound Recordings and Ephemeral Recordings ("Order"), 72 Fed.Reg. 24,084 (May 1, 2007). Webcasting is the process of transmitting sound recordings over the Internet. This case consolidates five separate appeals. A group of "commercial webcaster" appellants led by the Digital Media Association ("DiMA") argues that the rates for commercial webcasters set by the Judges were unreasonable and that the absence of a cap on minimum fees paid per licensee was arbitrary and capricious. Several "small commercial webcaster" appellants argue that the Judges' refusal to permit them to pay royalties as a percentage of revenues was arbitrary and capricious. "Noncommercial broadcaster" appellants—including the Collegiate Broadcasters, Inc., Intercollegiate Broadcasting System, Inc., and the National Religious Broadcasters Noncommercial Music License Committee—argue that the Judges set unreasonable rates for noncommercial webcasters, that they established a $500 minimum fee per station without substantial evidence, and that they improperly deferred consideration of record-keeping requirements to a later proceeding. Appellant Royalty Logic, Inc., a contender to serve as the clearinghouse (or "collective") for royalty payments, argues that the Judges exceeded their statutory authority by naming SoundExchange, Inc. the sole royalty collective.1 Respondent Copyright Royalty Board defends the Judges' determination. (The Board is "the institutional entity in the Library of Congress that ... house[s]" the Judges. 37 C.F.R. § 301.1.) SoundExchange intervened to defend the Judges' determination.

Months after the briefing schedule had been set, Royalty Logic moved to file supplementary briefs on the issue of whether the appointment of the Copyright Royalty Judges violated the Appointments Clause of the Constitution of the United States. A motions panel of this court granted the motion "without prejudice to the merits panel deciding whether or not to consider" the issue, and set a supplemental briefing schedule, soliciting briefs from Royalty Logic, the Board, and SoundExchange. Royalty Logic argued that the Judges' appointment violated the Constitution. SoundExchange and the Board argued it did not, and argued further that Royalty Logic had forfeited consideration of the issue by not raising it in initial briefing before this court. We hold that Royalty Logic has forfeited the Appointments Clause issue. We vacate the $500 minimum fee for both noncommercials and commercials, and remand those portions of the determination for reconsideration by the Copyright Royalty Judges. In all other respects, we affirm the determination.

I. Background
A. Statutory Background

Recorded music may be protected by two copyrights. One copyright protects the "musical work" written by a composer and usually owned by a music publisher. The other protects the "sound recording" and is owned by the producer of the sound recording. See 17 U.S.C. §§ 101-102. The copyright owners of musical works, but not those of sound recordings, have long enjoyed exclusive rights to public performances of their works. Id. § 106(4). The practical effect of this scheme is that when radio stations play a song, they must pay a royalty to the musical work owner but not the sound recording owner. See id. §§ 106(4), 114(a).

In 1995, Congress passed the Digital Performance Right in Sound Recordings Act, Pub.L. No. 104-39, granting the owners of sound recordings an exclusive right in performance "by means of a digital audio transmission." 17 U.S.C. § 106(6); see Beethoven.com LLC v. Librarian of Cong., 394 F.3d 939, 942 (D.C.Cir.2005). The Digital Millennium Copyright Act of 1998, Pub.L. No. 105-304, "created a statutory license in performances by webcast," to serve Internet broadcasters and to provide a means of paying copyright owners. Beethoven.com, 394 F.3d at 942; see 17 U.S.C. § 114(d)(2), (f)(2). To govern the broadcast of sound recordings, Congress also created a licensing scheme for so-called "ephemeral" recordings, "the temporary copies necessary to facilitate the transmission of sound recordings during internet broadcasting." Beethoven.com, 394 F.3d at 942-43; see 17 U.S.C. § 112(e)(4).

Congress has delegated authority to set rates for these rights and licenses under several statutory schemes. The most recent, passed in 2005, directed the Librarian of Congress to appoint three Copyright Royalty Judges who serve staggered, six-year terms. See 17 U.S.C. § 801, et seq. These Judges conduct complex, adversarial proceedings, described in 17 U.S.C. § 803 and 37 C.F.R. § 351, et seq., and ultimately set "reasonable rates and terms" for royalty payments from digital performances. 17 U.S.C. § 114(f).

In delegating authority, Congress required the Judges to follow certain statutory guidelines. The schedule of rates and terms must "distinguish among the different types of eligible nonsubscription transmission services then in operation and shall include a minimum fee for each such type of service." Id. § 114(f)(2)(B). Rates should "most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller." Id. "In determining such rates and terms," the Judges must "base [their] decision on economic, competitive and programming information presented by the parties." Id. Specifically, they must consider whether "the service may substitute for or may promote the sales of phonorecords" or otherwise affect the "copyright owner's other streams of revenue." Id. § 114(f)(2)(B)(i). The Judges must also consider "the relative roles of the copyright owner and the transmitting entity" with respect to "relative creative contribution, technological contribution, capital investment, cost, and risk." Id. § 114(f)(2)(B)(ii). Finally, "[i]n establishing such rates and terms," the Judges "may consider the rates and terms for comparable types of digital audio transmission services and comparable circumstances under voluntary license agreements described in subparagraph (A)." Id. § 114(f)(2)(B). Identical statutory language applies to "reasonable rates and terms" for ephemeral recordings. Id. § 112(e).

B. This Proceeding

The rates and terms for webcasting are established according to a webcasting statutory license. See 17 U.S.C. § 112(e)(4); id. § 114(d)(2), (f)(2). If parties can agree, rates and terms of a license may be set through voluntary negotiation. Id. § 114(f)(3). For all parties that do not agree, the Copyright Royalty Judges conduct adversarial proceedings and issue a determination. Id. § 803. The resulting rate changes are retroactive. Id. § 803(d)(2).

This case represents such an adversarial proceeding. The Judges received notices from 28 parties of their intention to submit written direct statements at the start of the process, and another five submitted written direct statements after a final attempt at negotiation failed. Order, 72 Fed.Reg. at 24,084. Following discovery, the participants presented testimony from a total of 39 witnesses. Id. at 24,084-85. Additional written rebuttal statements were then admitted, followed by more discovery. Id. at 24,085. At the end of this second discovery period, participants presented rebuttal testimony from 27 witnesses, and the record was closed. Id. In addition to the written statements, the Judges "heard 48 days of testimony, which filled 13,288 pages of transcript, and 192 exhibits were admitted." Id. Following the evidentiary phase of the proceeding, the participants filed proposed findings of fact and conclusions of law with responses three days later. Id. A week passed before closing arguments, when the matter was submitted to the Judges. Id.

The Judges' initial determination set rates and terms for digital performances and related ephemeral recordings, and determined other details of the statutory licenses for commercial and noncommercial webcasters. Specifically, it designated per play rates for commercial webcasters that will increase gradually over the covered period—from January 1, 2006 through December 31,...

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