In a Previous Rate-Setting Proceeding for Some Sound Recordings, the Standard Addressing the Disruptive Impact on the Industries Contributed to a Lower Copyright Royalty Rate, but the Effect of Its Proposed Removal Is Unclear

Every day, thousands of AM/FM radio stations, as well as satellite radio, cable radio, and Webcasters, use sound recordings to provide music to their listeners. As a form of intellectual property, sound recordings are protected by copyright law. The copyright holder (e.g., a record company or performer) may use a license to grant third parties permission to use sound recordings, in return for compensation and compliance with other conditions of the license. Congress established a statutory copyright regime, including a statutory license, which among other things, avoids the potential problems associated with thousands of music service providers seeking licenses from many copyright holders. Under this regime, a party may invoke a statutory license to allow it to use sound recordings under certain conditions and according to specific requirements, in exchange for payment of a set royalty amount. Since 1976, the Copyright Royalty Tribunal, Copyright Arbitration Royalty Panels, and Copyright Royalty Judges have been responsible, successively, for recommending or setting rates, terms, and conditions for statutory licenses. In the Copyright Act of 1976, Congress established the Copyright Royalty Tribunal. The Copyright Royalty Tribunal operated until 1993, when Congress abolished it and authorized the Librarian of Congress, upon the recommendation of the Register of Copyrights, to appoint and convene Copyright Arbitration Royalty Panels. The Copyright Arbitration Royalty Panel system consisted of ad hoc arbitration panels; each Copyright Arbitration Royalty Panel was selected for a particular proceeding. In the Copyright Royalty and Distribution Reform Act of 2004, Congress replaced the Copyright Arbitration Royalty Panel system with the Copyright Royalty Judges. The three Copyright Royalty Judges are housed in the Copyright Royalty Board, an establishment created within the Library of Congress. The Copyright Royalty Judges are now responsible for establishing and adjusting the rates and terms of statutory licenses, among other things. When establishing or adjusting royalty rates for statutory licenses, the Copyright Royalty Judges gather evidence and hear relevant testimony, and consider standards codified in law. The judges may consult the Register of Copyrights, whose timely decision on questions of copyright law is binding on the judges. The Copyright Royalty Judges establish or adjust royalty rates for statutory licenses using one of two standards: 1) Willing buyer-willing seller, and 2) Section 801(b)(1). Congress is considering legislation that would alter copyright law as it pertains to sound recordings. As requested, this report examines how the section 801(b)(1)(D) standard has been applied in previous rate setting proceedings.