Settling Devotional Claimants v. Copyright Royalty Bd.

• Decision Date: 14 August 2015
• Docket Number: No. 13–1276.,13–1276.
• Citation: 116 U.S.P.Q.2d 1034,797 F.3d 1106
• Parties: SETTLING DEVOTIONAL CLAIMANTS, Appellant v. COPYRIGHT ROYALTY BOARD and Library of Congress, Appellees. Worldwide Subsidy Group, Doing Business as Independent Producers Group, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

797 F.3d 1106

116 U.S.P.Q.2d 1034

SETTLING DEVOTIONAL CLAIMANTS, Appellant

v. COPYRIGHT ROYALTY BOARD and Library of Congress, Appellees.Worldwide Subsidy Group, Doing Business as Independent Producers Group, Intervenor.

No. 13–1276.

United States Court of Appeals, District of Columbia Circuit.

Argued March 27, 2015.

Decided Aug. 14, 2015.

Matthew J. MacLean argued the cause for appellant Settling Devotional Claimants. With him on the briefs were Clifford M. Harrington and Victoria N. Lynch.

Sonia K. McNeil, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Stuart F. Delery, Assistant Attorney General at the time the brief was filed, and Mark R. Freeman, Attorney.

Brian D. Boydston was on the brief for intervenor Independent Producers Group in support of appellees.

Before BROWN, KAVANAUGH and MILLETT, Circuit Judges.

Opinion

Opinion for the Court filed by Circuit Judge MILLETT.

MILLETT, Circuit Judge:

Cable operators' retransmission of religious and devotional programming from 2000 to 2003 produced a pool of royalties that Congress charged the Copyright Royalty Judges with distributing to the copyright owners. The Appellant Settling Devotional Claimants (“Devotional Claimants”) and Intervenor Independent Producers Group (“IPG”) vigorously contested their respective shares of that pool before the Royalty Judges. The Devotional Claimants now appeal, arguing that the Royalty Judges wrongly calculated their share of the pie by allowing IPG to press claims without proper authority and refusing to accept the Devotional Claimants' evidence regarding how the relative value of claims should be calculated. They also argue that, after the Royalty Judges rejected both their and IPG's proposed methodologies, the Royalty Judges' final allocation simply split the difference between the two parties, and that decision was arbitrary and capricious and unsupported by substantial evidence.

We agree with the Devotional Claimants' latter claim. King Solomon was not subject to the Administrative Procedure Act; the Royalty Judges are. Congress thus required that the Royalty Judges' determinations rest on a focused analysis of the record, not an arbitrary splitting of the baby. We affirm the Royalty Judges' procedural rulings resolving which IPG claims could go forward and whether the Devotional Claimants' methodological evidence could be properly considered.

IStatutory Background

The statutory framework governing the distribution of royalties for the retransmission of copyrighted material by cable system operators is discussed in detail in Independent Producers Group v. Librarian of Congress (“IPG II ”), 792 F.3d 132, 134–36 (D.C.Cir.2015) ; and Independent Producers Group v. Library of Congress (“IPG I ”), 759 F.3d 100, 101–103 (D.C.Cir.2014). As relevant here, the Copyright Act, 17 U.S.C. §§ 101 et seq., is designed to further two potentially competing statutory policies—protecting intellectual property while also ensuring that information flows freely. One way the Copyright Act balances those interests is by providing in appropriate circumstances for compulsory licensing accompanied by royalty payments to the copyright holder. See IPG I, 759 F.3d at 101 ; see also 17 U.S.C. §§ 107 –122.

Cable retransmission is an area for which Congress designed such a compulsory licensing scheme. Under 17 U.S.C. § 111(c), a cable system operator may retransmit to its viewers copyrighted material initially aired on a broadcast station without obtaining the permission of the relevant copyright owners for that second transmission. The cable system operators, however, must deposit a statutorily prescribed royalty fee with the Register of Copyrights. IPG II, 792 F.3d at 134–35. Congress charged the Copyright Royalty Judges with annually distributing the pool of funds that accrues to the copyright holders. Id. (citing 17 U.S.C. § 801(b)(3) ).

Copyright owners and their agents who assert entitlement to those royalties must file a claim with the Royalty Judges in July of the year following the retransmission of their programming. See 17 U.S.C. § 111(d)(4)(A) ; 37 C.F.R. § 360.2. Once the claims have been filed, the Royalty Judges “determine whether there exists a controversy concerning the distribution of royalty fees.” 17 U.S.C. § 111(d)(4)(B). If all claimants have agreed on the proper distribution, the Royalty Judges may conclude that no controversy exists and distribute the fees consistent with the claimants' agreement. See IPG II, 792 F.3d at 134–35 (citing 17 U.S.C. §§ 111(d)(4)(B) —(d)(4)(C), 801(b)(7) ). In the absence of such agreement, the Royalty Judges must “conduct a proceeding to determine the distribution of royalty fees.” 17 U.S.C. § 111(d)(4)(B).

That proceeding has two phases. In Phase I, the Royalty Judges apportion the total pool of royalties collected for a year across broad categories of retransmitted programming—such as sports, public television, or devotional (religious) shows—and assign a percentage of the overall fund to each category based on its comparative value. See IPG II, 792 F.3d at 134–35. In Phase II, the Royalty Judges divide up the amount allotted to each category among the individual claimants within that category. Id.

At the outset of each phase, the Royalty Judges announce the commencement of dispute proceedings in the Federal Register, which puts interested claimants on notice to file petitions to participate. See IPG II, 792 F.3d at 135–36 ; see also 17 U.S.C. § 803(b)(1)(A). The statute then provides for a three-month “voluntary negotiation period,” during which the parties attempt to reach agreement. See IPG II, 792 F.3d at 135–36 ; see also 17 U.S.C. § 803(b)(3). For claimants who have not resolved their disputes during this period, the Royalty Judges accept written submissions, oversee a period for discovery, and provide for a post-discovery settlement conference period. See IPG II, 792 F.3d at 135–36 ; IPG I, 759 F.3d at 102.

If the claimants remain at loggerheads, the Royalty Judges conduct a hearing and issue a final determination allocating payments. See IPG II, 792 F.3d at 135–36. That decision is subject to a 60–day period of review by the Register of Copyrights and then published in the Federal Register. IPG I, 759 F.3d at 102–103 (citing 17 U.S.C. §§ 802(f)(1)(D), 803(c)(6) ). A disappointed claimant may seek judicial review of the final decision in this court by appealing within 30 days of the Federal Register publication. IPG I, 759 F.3d at 103 (citing 17 U.S.C. § 803(d)(1) ).

Factual and Procedural Background

As in IPG II, this appeal challenges the Phase II determination of the Copyright Royalty Judges for the years 2000 to 2003. IPG II involved the sports programming and program suppliers categories, see 792 F.3d at 135–36, while this opinion addresses the allocation of royalties within the devotional programming category.

The Devotional Claimants are twenty-three religious ministries that own copyrights for devotional television programming. The group participated in the Royalty Judges' Phase I proceeding, which resulted in a partial settlement (including as to the devotional programming category) and, for the non-settling claimants, a final determination allocating royalties among the other programming categories. See Distribution of the 2000, 2001, 2002, and 2003 Cable Royalty Funds, 78 Fed.Reg. 64,984, 64,988 (Oct. 30, 2013).

The Phase II proceeding to allocate the devotional programming royalties began in February 2011, with only the Devotional Claimants and IPG filing petitions to participate. Both of them subsequently filed written direct statements summarizing their claims. IPG, employing a methodology of its own devising, asserted entitlement to a share of the royalties ranging from 37.30% to 53.10% for each year from 2000 to 2003. The Devotional Claimants claimed they were due 100% of the royalties because they knew of no other “valid, compensable claims” within the devotional category. J.A. 7638. Seeing no need to share the royalties, the Devotional Claimants' direct statement set forth no specific methodology or calculations to govern apportionment of the royalties between them and IPG.

The closest the Devotional Claimants came to an allocation methodology was the proposed testimony of Dr. William Brown, who discussed “potential quantifiable criteria” that the Royalty Judges should consider in making any allocation that may be required. J.A. 7650. While Dr. Brown endorsed a survey of cable system operators called the Bortz survey for making allocations among Phase I categories, he acknowledged that the Bortz survey did not include data needed to make the pending Phase II allocation. In the absence of such Phase II-relevant data, Dr. Brown suggested that viewership ratings could be “[a] valuable tool” in determining the “relative marketplace value of particular programs.” J.A. 7651. He noted that a different group had previously shown how such data could be used to help project relevant viewership levels. But Dr. Brown attempted no such projections or calculations for this case. Rather, his testimony ended with the general observation that, in a Phase II determination, “[t]he most useful quantifiable data is Nielsen viewing data, projected to distant cable households, supplemented, where applicable with Bortz study data.” J.A. 7652.

Both the Devotional Claimants and IPG challenged each other's authority to represent the claims of certain copyright holders. As relevant here, the Devotional Claimants objected in particular to IPG's asserted representation of seven of its eight claimants.¹

After conducting hearings in November and December 2012, the Royalty Judges issued a Memorandum Opinion and Order on March 21, 2013, addressing the preliminary evidentiary and procedural objections of the claimants. The decision dismissed IPG's claims as to three claimants, but rejected the Devotional Claimants' argument that IPG did not properly represent Benny Hinn...