IP Law Daily, COPYRIGHT NEWS: Royalty Judges can consider direct agreements between webcasters and copyright owners, (Sep 28, 2015)

By Thomas Long, J.D.

In proceedings to set and adjust rates and terms of royalty payments under statutory licenses, the Copyright Royalty Judges are not barred by the Webcaster Settlement Act of 2009 (WSA) from admitting into evidence or otherwise considering provisions of directly negotiated licensing agreements between copyright owners and various webcasters that incorporate or reflect provisions in a WSA agreement between the webcasters and SoundExchange, Inc., according to a decision by Maria A. Pallante, Register of Copyrights and Director of the Copyright Office. However, although the WSA prohibits consideration of the individual provisions of royalty agreements implemented under the WSA, SoundExchange would be able to introduce evidence or argument concerning the existence of the WSA agreements, including their general influence or impact on the negotiations of the direct agreements.

The proceeding at issue involved the establishment of royalty rates and terms for webcasters’ digital performance of sound recordings and the making of ephemeral recordings under the statutory licenses set forth in Sections 112(e) and 114(f)(2) of the Copyright Act, for the period beginning January 1, 2016 and ending on December 31, 2020. Royalties for the use of sound recordings under these statutory licenses are collected from webcasters by the receiving agent SoundExchange, which then distributes them to sound recording copyright owners. The rates and terms established in the current proceeding will replace existing royalty rates and terms applicable to webcasters that were agreed to and implemented under the WSA.

The WSA and similar preceding statutes were codified at Section 114 of the Copyright Act. In their current form, Section 114 allows parties to agree to alternative rates in lieu of those set by the Judges for uses through December 31, 2015, but it also forecloses consideration of the provisions of those agreements by the Judges in rate-setting proceedings.

As permitted under the WSA, SoundExchange entered into settlement agreements (“WSA agreements”) with various webcasters to replace the rates set by the Judges. Under the enabling legislation, the rates and terms in each of these WSA agreements are to be made available “to any webcasters meeting the respective eligibility conditions of the agreements as an alternative to the rates and terms of any determination by the [Judges].”

One WSA agreement with SoundExchange was known as the “Pureplay Agreement.” Various webcasters relied on the Pureplay Agreement for certain uses of sound recordings. In addition, a number of individual webcasters—including Pandora Media, Inc., and iHeartMedia, Inc.—also entered into directly negotiated license agreements with individual record labels, rather than with SoundExchange.

According to SoundExchange, direct agreements sought to be introduced by the webcasting parties in the instant rate-setting proceeding incorporated substantive provisions or are otherwise influenced by the Pureplay Agreement and, therefore, should be excluded from the current proceeding. The Judges asked the Register to clarify whether the WSA barred evidence regarding these direct agreements.

In the Register’s opinion, the text and legislative history of Section 114(f)(5)(C) indicated that the Judges should not be barred from considering direct license agreements containing provisions that are copied from, are substantively identical to, have been influenced by, or refer to, the provisions of a WSA agreement.

A reading of the entirety of Section 114(f)(5) made it clear that the material excluded under subparagraph (C) was limited to the provisions of actual settlement agreements entered into pursuant to the WSA. Subparagraph (C) bars consideration of “subparagraph (A)” and “any provisions of any agreement entered into pursuant to subparagraph (A).” Subparagraph (A) permitted SoundExchange and webcasters to enter into the WSA agreements. A direct agreement, because it would not involve SoundExchange, would not be made under subparagraph (A) and therefore could not fall under the bar of subparagraph (C). The legislative history also referred to a specific agreement under the WSA—specifically, the agreement with SoundExchange that it was authorizing under the legislation.

Although the Register found that the Judges may take into consideration direct licenses that incorporate or otherwise reflect WSA agreement terms, the Register also found that the Judges were entitled to weigh the value of any such evidence in light of the overall circumstances of the marketplace, including any general impact of the WSA agreements. The Judges are tasked with replicating a “hypothetical market” where “the webcasting statutory license [does] not exist.” In accomplishing this task, the Judges can look to “the rates and terms for comparable types of digital audio transmission services and comparable circumstances under voluntary license agreements.” When considering a voluntary agreement, the CRJs may consider whether an agreement was made in the “shadow” of a statutory rate or WSA agreement in evaluating its worth as a benchmark, the Register said.

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