SoundExchange, Inc. v. Copyright Royalty Bd., 16-1159

• Citation: 904 F.3d 41
• Decision Date: 18 September 2018
• Docket Number: C/w 16-1162,No. 16-1159,16-1159
• Parties: SOUNDEXCHANGE, INC., Appellant v. COPYRIGHT ROYALTY BOARD and Librarian of Congress, Appellees George Johnson, et al., Intervenors
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

904 F.3d 41

SOUNDEXCHANGE, INC., Appellant

v.COPYRIGHT ROYALTY BOARD and Librarian of Congress, Appellees

George Johnson, et al., Intervenors

No. 16-1159

C/w 16-1162

United States Court of Appeals, District of Columbia Circuit.

Argued February 8, 2018

Decided September 18, 2018

Benjamin J. Horwich, San Francisco, CA, argued the cause for appellant SoundExchange, Inc. With him on the briefs were Glenn D. Pomerantz, Los Angeles, CA, Kelly M. Klaus, San Francisco, CA, and Rose Leda Ehler, Los Angeles, CA.

George D. Johnson, pro se, argued the cause and filed briefs for appellant.

Sonia M. Carson, Attorney, U.S. Department of Justice, argued the cause for appellees. On the brief were Mark R. Freeman and Jennifer L. Utrecht, Attorneys.

Scott H. Angstreich, Washington, DC, argued the cause for intervenors National Association of Broadcasters, et al. With him on the joint brief were Michael K. Kellogg, Washington, DC, John Thorne, Washington, DC, Leslie V. Pope, Washington, DC, R. Bruce Rich, Todd D. Larson, New York, NY, and Gregory S. Silbert, New York, NY.

Catherine R. Gellis was on the brief for intervenor College Broadcasters, Inc. in support of appellees.

Before: Rogers, Griffith and Srinivasan, Circuit Judges.

Srinivasan, Circuit Judge:

This case concerns the rates paid by webcasters to license copyrights in digital sound recordings. Webcasters stream digital sound recordings to listeners over the Internet. A so-called "noninteractive" webcasting service chooses the recordings to play for listeners, whereas an "interactive" service allows an individual listener to select music on demand.

Congress established a statutory copyright license for noninteractive webcasters in the Copyright Act. The statutory license enables noninteractive webcasters to transmit recordings by paying a standard royalty rate rather than negotiating licensing agreements with copyright holders. Every five years, the Copyright Royalty Board sets the standard rates noninteractive webcasters must pay to play recordings over the Internet under the statutory license.

This appeal raises challenges to the Board’s most recent rate determination on a number of grounds. We sustain the Board’s determination in all respects.

I.

A.

Congress set out the statutory scheme for the protection and regulation of copyrights in the Copyright Act, 17 U.S.C. § 101 et seq. While the owner of a copyright in a musical work has long enjoyed an exclusive right to perform it to the public, id. § 106(4), the owner of a copyright in a particular sound recording of the work—e.g., a specific performance by a given artist—traditionally lacked an exclusive performance right. In 1995, Congress amended the Act to grant owners of copyrights in sound recordings the exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39, § 2, 109 Stat. 336, 336 (codified at 17 U.S.C. § 106(6) ).

Congress, though, subjected that right to a system of statutory licenses. The statutory licenses enable digital audio services to perform copyrighted sound recordings by paying predetermined royalty fees, without separately securing a copyright holder’s permission. See Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd. , 796 F.3d 111, 114 (D.C. Cir. 2015) (citing Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998) ).

The authority to set rates and terms for the statutory licenses resides with the Copyright Royalty Board, a group of three Copyright Royalty Judges appointed by the Librarian of Congress. 17 U.S.C. § 801. When the Board undertakes the process of setting a statutory license, it first allows interested parties to negotiate private license rates and terms. See id. § 803(b)(3); 37 C.F.R. § 351.2. For parties that do not reach a voluntary agreement, the Board holds adversarial proceedings to determine the standard rates and terms of the statutory license. See 37 C.F.R. § 351.3 et seq.

At the conclusion of its proceedings, the Board issues a final determination establishing the rates and terms and explaining its decisionmaking. Id. § 803(c)(3). The Board’s determination is reviewed by the Register of Copyrights for legal error, id. § 802(f)(1)(D), and published by the Librarian of Congress in the Federal Register, id. § 803(c)(6). The determination is subject to review in this court. Id. § 803(d)(1).

B.

The Board conducts a separate ratesetting proceeding for each statutory license it administers, and each license pertains to a distinct category of transmission service. See 17 U.S.C. § 801(b)(1). One license covers webcasters. Every five years, the Board holds proceedings to determine the "reasonable rates and terms of royalty payments" governing the webcaster statutory license for the ensuing five-year period. Id. § 114(f)(2)(A).

The statutory license for webcasters applies solely to noninteractive services, i.e., services that select the songs they play for listeners. Id. One example of a noninteractive webcaster is a Pandora music channel. By contrast, an interactive webcaster—i.e., one that allows each listener to pick particular songs to hear on demand—must negotiate its copyright licenses on the open market. Id . § 114(d)(2)(A)(i). An example of an interactive service is Spotify’s basic service.

The Board must "establish rates and terms" for the webcaster statutory license "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 Act further directs the Board to base its "decision on economic, competitive and programming information presented by the parties." Id. The Board may also consider the rates and terms negotiated for comparable services and "comparable circumstances under voluntary license agreements." Id. Additionally, the rates and terms set by the Board "shall distinguish among the different types of" webcaster services, id. § 114(f)(2)(A), meaning that distinct segments of webcasters—such as noncommercial services—receive their own rates and terms.

In carrying out those statutory directives, the Board has developed a benchmark-based process. See Determination of Royalty Rates for Digital Performance Right in Sound Recordings and Ephemeral Recordings (Web III Remand ), 79 Fed. Reg. 23,102, 23,110 (Apr. 25, 2014). First, interested parties submit information they think should guide the Board’s ratesetting. That information includes "voluntary license agreements" negotiated for comparable services, 17 U.S.C. § 114(f)(2)(B), which the parties believe the Board can use as benchmark rates. The Board assesses whether the voluntary agreements adequately reflect rates "that would have been negotiated in the marketplace between a willing buyer and a willing seller." Id. If not, the Board determines whether it can adjust the agreements to render them useful benchmarks. See Web III Remand , 79 Fed. Reg. at 23,115.

The Board uses the accepted benchmarks to establish a "zone of reasonableness" and fixes the statutory license rate within that zone. See id. at 23,110. The Board then repeats that process for each segment of webcaster services for which it sets distinct rates.

C.

The Board’s previous ratesetting determinations for the webcaster statutory license have been reviewed (and largely upheld) by this court. See Intercollegiate Broad. Sys., Inc. , 796 F.3d 111 (D.C. Cir. 2015) ; Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd. , 574 F.3d 748 (D.C. Cir. 2009) ; Beethoven.com LLC v. Librarian of Cong. , 394 F.3d 939 (D.C. Cir. 2005). This case concerns the Board’s fourth ratesetting proceeding for webcasters, which set the rates and terms of the statutory license for 2016 to 2020.

The proceeding included a six-week hearing, in which the Board admitted some 660 exhibits consisting of more than 12,000 pages of documents and heard the oral testimony of 47 witnesses. Determination of Royalty Rates and Terms for Ephemeral Recording and Webcasting Digital Performance of Sound Recordings ( Web IV ), 81 Fed. Reg. 26,316, 26,317 (May 2, 2016). Fifteen parties participated, id. at 26,316 –17, including the two parties who bring this appeal: (i) SoundExchange, Inc., a collective management organization representing holders of copyrights in sound recordings, which receives royalty payments under the webcaster statutory license and distributes the payments to copyright holders; and (ii) George Johnson (dba GEO Music), an independent singer/songwriter.

Several parties submitted voluntarily negotiated agreements for the Board to consult as benchmarks. The Board adopted several of those proposed benchmarks, using them to set distinct rates for (i) ad-based commercial noninteractive webcaster services and (ii) subscription-based commercial noninteractive webcaster services. Id. at 26,404. Ad-based services do not charge listeners a fee and earn revenue by broadcasting advertisements between songs. Subscription-based services charge listeners a fee and play music streams uninterrupted by advertisements.

1. With respect to the rates for ad-based services, two webcaster companies that offer such services—Pandora Media and iHeartMedia—each proposed a benchmark agreement derived from the ad-based, noninteractive services market. Pandora based its proposal on a royalty agreement it had negotiated with Merlin, an agency representing thousands of independent record companies. 81 Fed. Reg. at 26,355 –56. iHeart based its proposal on an agreement it had negotiated with Warner, a major record label. 81 Fed. Reg. at 26,375.

Both Pandora’s and iHeart’s proposed ad-based benchmark agreements contained a feature known as "steering." "Steering" involves technology enabling a webcaster to alter the natural frequency of performances under its algorithm. If a webcaster chooses to "steer" in favor of a given record label, it will play songs from artists on the label more often...