Settling Devotional v. Copyright Royalty Board

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 27, 2015 Decided August 14, 2015

No. 13-1276

SETTLING DEVOTIONAL CLAIMANTS,

APPELLANT

v.

COPYRIGHT ROYALTY BOARD AND LIBRARY OF CONGRESS,

APPELLEES

WORLDWIDE SUBSIDY GROUP, DOING BUSINESS AS

INDEPENDENT PRODUCERS GROUP,

INTERVENOR

On Appeal from The Copyright Royalty Board

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.

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Brian D. Boydston was on the brief for intervenor

Independent Producers Group in support of appellees.

Before: BROWN, KAVANAUGH and MILLETT, Circuit

Judges.

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

3

Devotional Claimants’ methodological evidence could be

properly considered.

I

Statutory 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”), ---

F.3d ---, 2015 WL 3952243, at *1–*2 (D.C. Cir. June 30,

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, 2015 WL 3952243, at *1. 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)).

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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,

2015 WL 3952243, at *1 (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, 2015

WL 3952243, at *1. 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, 2015 WL 3952243, at *2;

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,

2015 WL 3952243, at *2; 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,

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oversee a period for discovery, and provide for a post-

discovery settlement conference period. See IPG II, 2015 WL

3952243, at *2; 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, 2015 WL 3952243, at *2.

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 2015 WL 3952243, at *2,

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

6

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.

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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 Ministries, Creflo A. Dollar

Ministries, and Life Outreach International. The Royalty

Judges concluded that IPG had come forward with sufficient

evidence of representational authority for each claimant “for

purposes of this preliminary stage of the proceeding.”

Memorandum Opinion and Order Following Preliminary

Hearing on Validity of Claims 6 (March 21, 2013) (“March

21 Op.”), J.A. 3177.

With respect to IPG’s seventh claimant, Billy Graham

Evangelistic Association (“Billy Graham”), the Royalty

Judges found that IPG had been authorized to file claims on

Billy Graham’s behalf for the years 2001 to 2003, but that the

agreements for 2002 and 2003 had been terminated by Billy

Graham in June 2005. Other correspondence, however,

supported the conclusion that, following a remonstrative letter

from IPG, Billy Graham later revoked this termination of

IPG’s authority. Taking a “dim view” of what they concluded

were IPG’s “mischaracterization of [Billy Graham’s] rights

1

Other motions challenged IPG’s claims in the program suppliers

and sports programming categories. Our decision in IPG II

addressed those disputes. See 2015 WL 3952243, at *4–*7.

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under the Copyright Act” and “strong-arm tactics [IPG] used

to seek to prevent [Billy Graham] from severing the

principal/agency relationship that [Billy Graham] had clearly

revoked,” March 21 Op. at 8, J.A. 3179, the Royalty Judges

nonetheless declined to dismiss the claims IPG had filed on

behalf of Billy Graham, since doing so would unfairly punish

Billy Graham. The Royalty Judges ordered IPG to obtain

written confirmation of Billy Graham’s continuing interest in

the royalty dispute and agreement to IPG’s representation.

At the close of their opinion, the Royalty Judges stated

that they would not hear any further testimony or review any

further exhibits on the denied claims and “d[id] not request

and w[ould] not accept revised Written Direct Statements

from the parties, relying instead on their respective abilities to

filter admissible from inadmissible material.” March 21 Op.

at 18, J.A. 3189.

Royalty Judge Roberts filed a dissenting opinion. In his

view, the March 21 Opinion had improperly left open the

status of certain claims and contemplated additional

challenges, while at the same time “expressly forbid[ding] the

parties from amending their Written Direct Statements prior

to hearings.” J.A. 6220. He further disagreed with the

majority opinion’s analysis of which claims could go forward

and, in particular, with the suggestion that Billy Graham

could pursue its own claims.

Following those two opinions, Billy Graham submitted a

letter on April 19 acknowledging IPG’s authority to represent

it for the 2002 and 2003 royalty years. With the last

outstanding representation issues thus resolved, the parties

exchanged rebuttal statements in the lead-up to a hearing on

the Phase II royalty distribution. The Devotional Claimants’

response included proposed testimony from a new witness,

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Alan Whitt, who had previously worked with the Motion

Picture Association of America (“MPAA”) in developing a

viewership-based model for assigning relative values to

individual programs. His proposed testimony offered data

derived from the database he had helped develop reflecting

the projected viewership of devotional programming in

distant markets for the years 2000 to 2003.

The Devotional Claimants also presented additional

testimony from Dr. Brown, who attested that IPG’s

methodology was unreliable, “premised on faulty and

unsupported contentions for valuation of devotional

programming,” and “riddled with calculation errors.” J.A.

6445. Using the viewership projections compiled in Whitt’s

testimony, Dr. Brown also calculated the proportion of the

total viewership of devotional programming attributable to the

Devotional Claimants. He proposed that the Devotional

Claimants should receive between 65 and 75 percent of the

royalties in the devotional category for each year from 2000

to 2003, with IPG receiving the remainder.

At the allocation hearing, the Royalty Judges excluded

Whitt’s testimony, concluding that it constituted “testimony

regarding the development of information or data” that should

have been disclosed in the Devotional Claimants’ direct case.

J.A. 3839. Dr. Brown was allowed to testify without

objection, and his proposed rebuttal testimony was introduced

as an exhibit.

On July 10, 2013, the Royalty Judges issued their initial

allocation decision. 78 Fed. Reg. at 64,985. In assigning

royalty amounts for the separate program suppliers category,

the Royalty Judges “ultimately relied heavily” on the

viewership-based methodology put forward by the MPAA.

IPG II, 2015 WL 3952243, at *7; see also id. at *8. In doing

10

so, the Royalty Judges extensively criticized IPG’s proposed

methodology. They noted that IPG’s methodology was

advanced not by an econometric or statistical expert, but by

the “imperfect messenger” Raul Galaz, an IPG employee who

had no econometric or statistical expertise, but did have a

fraud conviction arising out of a previous copyright royalty

proceeding. 78 Fed. Reg. at 65,000. They also noted that the

methodology produced numerous results that could not be

justified. Id. at 65,000–65,001.

For similar reasons, the Royalty Judges dismissed the

validity of IPG’s model for the devotional category, finding

that “IPG’s formula produced absurd results in the Devotional

category, as it did in the Program Suppliers category.” 78

Fed. Reg. at 65,003. The Royalty Judges also dismissed the

Devotional Claimants’ argument that they should use the

same viewership-based model employed in the program

suppliers category as untimely raised and thus procedurally

barred. Id. In particular, the Royalty Judges noted that the

Devotional Claimants waited until their rebuttal case to

present Whitt’s testimony and the data on which Dr. Brown

relied to apply the methodology in question. Id. at 65,004.

The Royalty Judges stressed that, by providing Whitt’s

testimony just three weeks before the hearing, the Devotional

Claimants had “prejudiced IPG and, in essence, engaged in

trial by ambush, in violation of the letter and spirit of the

Judges’ procedural rules * * * [and] deprived IPG of the

opportunity to review the work undertaken by Mr. Whitt.” Id.

The Royalty Judges’ rejection of both parties’ proposed

methodologies left them empty-handed in allocating the

devotional-programming royalties. See 78 Fed. Reg. at

65,004. Explaining that they were “nevertheless[] obligated

to reach a determination based on the existing record,” the

Royalty Judges observed that, for the year 2000, the

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allocations proposed by IPG happened to fall within a range

proposed by the Devotional Claimants. Id. They ruled that

this “some degree of agreement” provided a basis for

awarding to IPG the 37.14% of royalties it proposed. Id. For

the year 2002, the Royalty Judges similarly found that IPG’s

proposed allocations were “almost equal to the lower bound”

of the range proposed by the Devotional Claimants. Id. They

thus concluded that it would be within the “zone of

reasonableness” to give effect to IPG’s number, holding that

IPG would receive 41.02% of the royalties. Id.

For the years 2001 and 2003, the Royalty Judges

recognized that the parties’ proposals were not even in the

same ballpark, 78 Fed. Reg. at 65,004, but stated that “there is

no record evidence explaining why the percentage allocations

for 2001 and 2003 should be so markedly different in those

years compared to 2000 and 2002.” Id. at 65,004–65,005.

The Royalty Judges accordingly allocated royalties for 2001

and 2003 by simply averaging the allocations for the two

other years. Under that approach, the Devotional Claimants

received 60.92% of the royalties for each year, and IPG

received 39.08%. Id. at 65,005.

The Devotional Claimants subsequently filed a petition

for rehearing, which the Royalty Judges denied. With respect

to the Devotional Claimants’ objection to the exclusion of

Whitt’s and Dr. Brown’s rebuttal testimony, the Royalty

Judges reiterated that 37 C.F.R. § 351.4(b) required that

Whitt’s testimony be included in the written direct statement.

They concluded that the Devotional Claimants had been

afforded “ample time” to submit an amended written direct

statement with this additional information and simply did not

do so. J.A. 6877. Finally, the Judges rejected a challenge to

the final allocation of royalties, emphasizing the overlap or

near-overlap in the parties’ proposals for two years and

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insisting that, for the other two years, the Royalty Judges had

not relied on IPG’s proposed allocations.

The Royalty Judges issued their final determination on

August 13, 2013. It was approved by the Librarian of

Congress and published in the Federal Register on October

30, 2013. This appeal followed.

II

Analysis

We have jurisdiction over the Devotional Claimants’

timely filed appeal pursuant to 17 U.S.C. § 803(d)(1). That

jurisdiction includes the Devotional Claimants’ objections to

the Royalty Judges’ March 21 procedural and evidentiary

order, because that earlier interlocutory order merges into and

is reviewable as part of the Royalty Judges’ final

determination. See IPG II, 2015 WL 3952243, at *4.

We review decisions of the Copyright Royalty Judges

under the familiar standards of the Administrative Procedure

Act, reversing only if their decision is arbitrary, capricious,

contrary to law, or not based on substantial evidence. See 17

U.S.C. § 803(d)(3) (incorporating by reference 5 U.S.C.

§ 706). Our review is “highly deferential,” Intercollegiate

Broadcast Sys., Inc. v. Copyright Royalty Board, 571 F.3d 69,

79 (D.C. Cir. 2009), and, in reviewing royalty distribution

decisions specifically, we ask only whether the Royalty

Judges’ assigned allocation percentages are “within a zone of

reasonableness,” Christian Broadcasting Network, Inc. v.

Copyright Royalty Tribunal, 720 F.2d 1295, 1304 (D.C. Cir.

1983) (internal quotation marks omitted).

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IPG’s Authority to Represent Four Claimants

The Devotional Claimants repeat on appeal their

objections to IPG’s representation of Benny Hinn Ministries,

Creflo A. Dollar Ministries, Life Outreach International, and

the Billy Graham Evangelistic Association. Those largely

factual inquiries implicating the Royalty Judges’ own

proceedings, however, fall squarely within the Royalty

Judges’ area of expertise. The only question before us is

whether the Royalty Judges’ rulings were supported by

substantial evidence and were not arbitrary or capricious.

Their decision crosses that deferential threshold.

The Devotional Claimants do not dispute that

representational authority turns on a factual inquiry into

“whether the claimant intended for its claim to be filed on its

behalf by another.” March 21 Op. at 4, J.A. 3175. Such

intent must be expressed prior to the filing of the relevant

claim. See Distribution of 1993, 1994, 1995, 1996 and 1997

Cable Royalty Funds, 66 Fed. Reg. 66,433–66,435 (Dec. 26,

2001) (noting Library of Congress’s determination that “what

the law requires[] is a factual determination as to which of the

owners and distributors identified [in a claim] were in fact

represented by [the filer] at the close of the filing period for

1997 cable claims”) (quoting Order in Docket No. 2002-2

CARP CD 93-97 at 7 (June 22, 2000)); see also 37 C.F.R.

§ 360.3(b)(1)(vi), (2)(ii), (2)(vii) (requiring declaration or

statement of authorization to be filed with claims for

compulsory license royalties).

For the Benny Hinn and Creflo Dollar Ministries, the

Royalty Judges rested their judgment on IPG’s evidence of

agreements in which each ministry authorized IPG “to apply

for and collect any and all monies distributed by audiovisual

copyright collection societies throughout the world (e.g.,

14

monies derived from rights set forth on Exhibit ‘A’ hereto)”

for works that the ministry owned or distributed. J.A. 6195,

6198. Exhibit A, in turn, included among the list of

recoverable monies “Cable and Satellite Retransmission

Royalties,” defined as “[r]oyalties and charges imposed by

law with respect to the retransmission by cable or satellite of

terrestrial broadcast signals.” J.A. 6197, 6201. IPG also

produced email correspondence in which the ministry

identified for IPG programs for which claims could be made.

The Devotional Claimants argue that there was

insufficient evidence that the agreements were signed before

the claims were filed and that IPG needed to present

confirmatory testimony from the representatives of the

ministries. Looking through the highly deferential lens of

substantial evidence review, however, we hold that the

documentary agreements themselves provided sufficient

evidence that IPG was authorized to file claims on behalf of

the two ministries. The Devotional Claimants suggest that the

Royalty Judges’ decision contravened earlier precedent

requiring a heftier evidentiary showing in the distribution of

the 1997 cable royalty funds. But that distribution involved a

case in which there was actual evidence of backdating the

dates on which the contracts were signed. See 66 Fed. Reg. at

66,438–66,439. There was no analogous evidence here, and

thus it was not unreasonable for the Royalty Judges to rely on

the written representation agreements themselves, as

corroborated by subsequent email correspondence.

Finally, invoking our decision in National Broadcasting

Co. v. Copyright Royalty Tribunal (“NBC”), 848 F.2d 1289

(D.C. Cir. 1988), the Devotional Claimants argue that the

Royalty Judges’ reading of the phrase “audiovisual copyright

collection societ[y]” in the two agreements was the product of

impermissible contract interpretation that went beyond the

15

“face of these [contracts]” to consider their exhibits.

(Devotional Claimants’ Br. 9). That argument

misunderstands NBC. Disputes regarding who may claim

royalties generally raise two issues: “(1) the proper

distributee of the royalties allocated by the [agency] to [a

particular program]; and (2) the ownership of the copyright to

which the royalties attach.” NBC, 848 F.2d at 1293. NBC

made clear that the Royalty Judges have no authority to

decide the second question—the proper ownership of the

copyright. Id. Accordingly, when the Royalty Judges assign

a claim to a particular claimant as part of their allocation

process (the first question), the ruling “should not be seen at

all as adjudicating the contractual entitlement rights of [the

parties], but rather as setting forth a general rule for the

distribution of cable royalties in these cases,” and the

disposition “leaves the parties free to litigate their contractual

claims in an appropriate forum.” Id. at 1296.

That holding does not preclude the Royalty Judges from

looking at a contract in resolving the first question or other

antecedent questions concerning whether to allocate royalties

to a particular program in the first place. Instead, the statute’s

silence on how to resolve a dispute over an agency

relationship for purposes of royalty-allocation proceedings

leaves the Royalty Judges discretion to which we must defer.

See NBC, 848 F.2d at 1296 (deferring to the Copyright

Royalty Tribunal’s “presumption * * * in the face of

congressional silence” regarding allocation as “permissible

interpretation of the statute”).

In short, then, the Copyright Act does not confine the

Royalty Judges to a face-of-the-contract-only analysis of

representational authority in proceedings before them, and

nothing in the Royalty Judges’ consideration of the exhibits

to the Benny Hinn and Creflo Dollar agreements contravened

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NBC. While the Royalty Judges’ decision would not bind the

parties in any future contractual dispute, see NBC, 848 F.2d at

1293, 1296, it was an entirely appropriate step for the Royalty

Judges to take here.

For largely the same reasons, the Royalty Judges’

decision to allow IPG to continue to represent Life Outreach

also passes muster. Indeed, the agreement with Life Outreach

specifically identified monies associated with cable and

retransmission royalties under 17 U.S.C. §§ 111 and 119 as

within IPG’s authority to collect. While the Devotional

Claimants object to the absence of a date associated with

IPG’s signature on the agreement, we cannot say that the

Royalty Judges’ reliance on the date that Life Outreach’s

representative signed was unreasonable or based on

insubstantial evidence.

The Devotional Claimant’s objection to IPG’s

representation of Billy Graham focuses less on the evidence

of initial authorization than on Billy Graham’s subsequent

effort to terminate IPG’s representation. While the Royalty

Judges’ decision could have been clearer, it was clear enough

to be sustained on this point, too. 2

Billy Graham terminated IPG as its agent in June 2005,

which was after the filing date for claims for each of the

2

With respect to the question of initial authorization, the

Devotional Claimants highlight that two of the Billy Graham

agreements were not signed by IPG. But there was testimony

before the Royalty Judges that IPG had lost some copies of the

agreements. And the termination letter sent by Billy Graham is

itself evidence that there was a prior agreement to be terminated for

at least one of the years that the Devotional Claimants contest.

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royalty years at issue in this proceeding. Accordingly, for

purposes of this argument, IPG’s authority to have filed the

claims in the first instance is not at issue. The question,

instead, is whether IPG had authority to petition to participate

in the Phase II proceeding on behalf of Billy Graham. To do

so, IPG would again have had to be authorized to represent

Billy Graham at least by the latest point at which Billy

Graham could have filed its own petition to participate. See

37 C.F.R. § 351.1(b)(2)(ii)(E) (joint petition to participate

filed by copyright owners’ representative must include

certification that, “as of the date of submission of the joint

petition, such * * * representative has the authority and

consent of the participants to represent them in the royalty

distribution proceeding.”). 3

In finding such authority, the Royalty Judges relied in

part on correspondence between Denise Vernon, an IPG

executive, and Billy Graham reflecting that, at some

unspecified date, Vernon employed what the Royalty Judges

termed “strong-arm tactics” to induce Billy Graham to allow

continued representation by IPG. March 21 Op. at 8, J.A.

3179. Subsequent emails, which at least extended to after the

date by which Billy Graham would have had to file a petition

to participate, indicate that Billy Graham acceded to IPG’s

efforts to collect royalties for the years at issue. A witness for

IPG also testified that Billy Graham had “recanted” its initial

termination of IPG. J.A. 2907.

3

See also 37 C.F.R. § 351.1(d) (Royalty Judges “may, for

substantial good cause shown, and if there is no prejudice to the

participants that have already filed petitions, accept late petitions to

participate at any time up to the date that is 90 days before the date

on which participants in the proceeding are to file their written

direct statements”); 17 U.S.C. § 803(b)(1)(A)(ii) (same).

18

The record before the Royalty Judges certainly does not

demand the conclusion that Billy Graham’s “recantation” was

timely. But all that matters is that we cannot say that the

Royalty Judges lacked substantial evidence in finding that

Billy Graham’s reauthorization of IPG was timely made. See,

e.g., Christian Broadcasting Network, 720 F.2d at 1313

(concluding substantial evidence existed for the Copyright

Royalty Tribunal’s conclusion that it had made awards only to

bona fide copyright owners).

The Royalty Judges also obtained contemporaneous

corroboration from Billy Graham of IPG’s authority, and we

see nothing in the Copyright Act or the Royalty Judges’ rules

that precluded that measure. Indeed, given the questionable

representations that IPG made in obtaining that

reauthorization, the reconfirmation made sense. Accordingly,

given the very narrow scope of our review, we uphold the

Royalty Judges’ determinations concerning the scope of

IPG’s representation authority.

Exclusion of the Devotional Claimants’ Allocation

Methodology

The Devotional Claimants next object to the Royalty

Judges’ exclusion of testimony and evidence they presented in

their rebuttal case suggesting a possible viewership-based

valuation methodology for devotional programming royalties.

We conclude that the Royalty Judges’ application of their

own procedural regulations was reasonable.

The regulations governing proceedings before the

Royalty Judges provide that all parties who have filed a

petition to participate in a proceeding “must file a written

direct statement.” 37 C.F.R. § 351.4(a). A written direct

statement is defined by statute to mean “witness statements,

testimony, and exhibits to be presented in the proceedings,

19

and such other information that is necessary to establish * * *

the distribution of royalty payments * * * as set forth in

regulations issued by the Copyright Royalty Judges.”

17 U.S.C. § 803(b)(6)(C)(ii)(II). The Judges’ regulations, in

turn, provide that “[t]he written direct statement shall include

all testimony, including each witness’s background and

qualifications, along with all the exhibits.” 37 C.F.R.

§ 351.4(b)(1). In a royalty distribution proceeding, the parties

must further include in their direct statement their “percentage

or dollar claim to the fund,” but “[n]o party will be precluded

from revising its claim * * * at any time during the

proceeding up to, and including, the filing of the proposed

findings of fact and conclusions of law.” Id. § 351.4(b)(3).

Focusing on the requirement that the written direct

statement include “all testimony” a party intends to present,

the Royalty Judges concluded that the Devotional Claimants’

direct statement should have included analysis of how the

viewership-based methodology that they endorsed in general

terms would apply in a relative valuation of the claims

brought by the Devotional Claimants and IPG. The

Devotional Claimants challenge both that interpretation of

Section 351.4 and the reasonableness of its application.

We generally accord deference to an agency’s

interpretation of its own regulation “unless that interpretation

is plainly erroneous or inconsistent with the regulation.”

Decker v. Northwest Envtl. Defense Ctr., 133 S. Ct. 1326,

1337 (2013) (internal quotation marks omitted). Such

deference is perhaps particularly appropriate here because the

rule concerns the Copyright Royalty Judges’ own procedures.

Cf. National Ass’n of Broadcasters v. Copyright Royalty

Tribunal, 675 F.2d 367, 375 n.8 (D.C. Cir. 1982) (noting that

the Copyright Act “gives the [Copyright Royalty Judges’

predecessor] considerable freedom to determine its own

20

procedures”). Such deference may not even be needed,

though, because the Royalty Judges’ interpretation wholly

comports with the plain text of the regulation. It should be no

surprise that a requirement that a party present in its initial

direct statement “all testimony” necessary to establish its

claimed entitlement to royalties would obligate the party to

include in that statement the testimony applying its proposed

methodology to the case at hand. Indeed, linking the

proposed methodology to the facts of the case is the

testimonial heart of the matter. Abstract discussion of

potential methodologies, without any application, would do

nothing to support the party’s desired outcome.

Nor do the rules provide any reason to think that this

weighty evidence may be saved for the rebuttal case. Indeed,

in civil litigation generally, courts have recognized that a trial

court “has the discretion to ‘limit the scope of rebuttal

testimony to that which is directed to rebut new evidence or

new theories proffered in the defendant’s case-in-chief.” Toth

v. Grand Trunk R.R., 306 F.3d 335, 345 (6th Cir. 2002)

(quoting Martin v. Weaver, 666 F.2d 1013, 1020 (6th Cir.

1981)). When, as here, the proposed rebuttal testimony

“could have been included in the same witness’ direct

examination,” it may be excluded. Waterview Mgmt. Co. v.

FDIC, 203 F.3d 54, 1999 WL 503921, at *2 (D.C. Cir. May

20, 1990) (unpublished) (citing Geders v. United States, 425

U.S. 80, 86 (1976)). Nothing in the text of the regulations

suggests a different operation here. The Royalty Judges thus

acted within the bounds of reasonable discretion in affording

their rule an interpretation grounded in text and practice.

The Devotional Claimants point out that a predecessor to

the Royalty Judges once allocated royalties relying in part on

a study presented only in the rebuttal phase of the proceeding.

See Distribution of 1998 and 1999 Cable Royalty Funds,

21

69 Fed. Reg. 3,606, 3,619 (Jan. 26, 2004). In that case,

however, the Librarian turned aside an objection to the

consideration of the evidence in part by noting the very

limited use that was made of it. See id. Indeed, the Librarian

specifically noted that, had the Copyright Arbitration Royalty

Panel “fully credited [the study in question] and used it as the

basis for determining [the objecting party’s] award,” the

outcome may have been different. Id. That one-time

dispensation hardly evidences a binding precedential blessing

of parties lobbing in critical evidence, like the determinative

application of a decisional methodology, only at the rebuttal

phase.

The Devotional Claimants’ reliance on National

Association of Broadcasters as another case in which

evidence introduced during rebuttal was used is no help

either. No one even raised the admissibility issue in the case.

See 675 F.2d at 376.

We also hold that the Royalty Judges’ application of the

rule in this case was neither arbitrary nor capricious. The

Devotional Claimants assert that they did not know until after

the March 21 order that IPG in fact had valid claims to assert,

but by that point, the Royalty Judges had closed the door on

amended direct statements. See March 21 Op. at 18, J.A.

3189; see also 37 C.F.R. § 351.4(c) (“A participant in a

proceeding may amend a written direct statement based on

new information received during the discovery process,

within 15 days after the end of the discovery period.”). The

Devotional Claimants’ bad strategy call does not make

enforcement of written rules of which they had fair notice

arbitrary or capricious.

First, the Devotional Claimants had full notice prior to

the time an amended written direct statement would have

22

been due that IPG claimed a share of the royalties as well.

Any uncertainty about which claims IPG might be able to

represent—or hope that they would all be dismissed—was no

excuse for failing to prepare for the chance of a disputed

allocation. Indeed, the Devotional Claimants did not even

specifically object to one of IPG’s representations, so it was

more than likely that a contested allocation would go forward.

In any event, there was certainly nothing to prevent them

from timely identifying testimony by the August 2012

deadline, rather than making a tactical choice to wait until

May 2013—just 20 days before the hearing—to disclose their

anticipated testimony.

Tellingly, the MPAA was faced with similar uncertainties

in the program suppliers category. But when the MPAA

received IPG’s direct statement claiming a share of the

royalties, the MPAA timely filed an amended written direct

statement specifying how a relative valuation should be

calculated under its proposed methodology. The Devotional

Claimants could have done the same.

Second, the Devotional Claimants point out that, on the

eve of the hearing, IPG was permitted to provide a great deal

of additional data, reflecting recalculations performed in

response to an error identified in its initial methodology. See

78 Fed. Reg. at 65,001–65,002. They argue that the disparate

treatment of their late evidence and IPG’s was arbitrary and

capricious. We disagree. IPG’s submission was a correction

to data that had been presented along with IPG’s applied

methodology in IPG’s direct statement, affording the

Devotional Claimants fair notice. The Royalty Judges could

reasonably conclude that such amendments were far less

prejudicial than interjecting the application of an allocation

methodology for the very first time in rebuttal just weeks

before the hearing was to begin.

23

Third, the Devotional Claimants are wrong to argue that,

because Dr. Brown’s written rebuttal testimony was accepted

into evidence without objection, the Royalty Judges were also

obligated to consider the portions of this testimony applying a

viewership-based methodology to the devotional

programming category. “In for a penny, in for a pound” is not

an evidentiary rule binding the Royalty Judges. That is

especially true when, as here, the foundation for Dr. Brown’s

rebuttal testimony was the excluded testimony of Whitt. With

Dr. Brown’s testimony stripped of its proffered factual basis,

the Royalty Judges reasonably concluded that they could not

give it any weight.

To be sure, as the Devotional Claimants note, experts

may base their opinion on facts that may otherwise be

inadmissible. See FED. R. EVID. 703 (“If experts in the

particular field would reasonably rely on those kinds of facts

or data in forming an opinion on the subject, they need not be

admissible for the opinion to be admitted.”). But the

Devotional Claimants do not claim to have made any showing

before the Royalty Judges that Dr. Brown’s testimony had

been based on the kinds of facts on which an expert would

reasonably rely.

The Ultimate Allocation Decision

The Devotional Claimants’ final objection is to the

Royalty Judges’ decision to go forward with the allocation of

royalties despite having rejected every proposed methodology

making that decision for the devotional programming

royalties. As to this final challenge, we agree that, despite its

Solomonic pedigree, the Royalty Judges’ approach was

quintessentially arbitrary and capricious.

With respect to the royalties from the year 2000, the

Royalty Judges ruled that there was a functional agreement—

24

or at least “some degree” of agreement—between the parties

to the extent that IPG’s proposed allocation percentages

happened to fall within the range proposed by the Devotional

Claimants. 78 Fed. Reg. at 65,004. We are told on appeal

that the parties “effectively” agreed on this point. Gov’t Br.

50.

We cannot agree. Settling royalty distributions by

agreement reflects a separate avenue for resolving royalty

distributions under the Copyright Act, subject to its own

requirements. See 17 U.S.C. § 801(b)(7)(A)(i) (providing that

Royalty Judges may use agreement as the basis for a royalty

distribution provided that the parties that would be bound by

the determination have an opportunity to comment). In this

case, any intersection of the two parties’ numbers was the

product of accident, not agreement, as evidenced by the fact

that the Devotional Claimants were awarded almost 5% less

of the total fund than they had requested. Indeed, even to find

overlap in the parties’ numbers at all, the Royalty Judges

adopted a “two wrongs make a right” methodology,

(i) crediting IPG percentages that were derived from a

discredited methodology and partially based on claims that

the Royalty Judges had ruled IPG could not bring, and

(ii) giving effect to allocations derived from a methodology

that the Royalty Judges had refused to consider. In the face of

that actual non-agreement, simply picking a number out of

IPG’s flawed and otherwise-rejected proposal just because it

happened to roughly coincide with the lowest bound proposed

by the Devotional Claimants falls beyond the bounds of

reasoned decisionmaking.

It gets still worse for subsequent royalty years, in which

even the fig leaf of “some degree” of agreement fell away.

For 2002, the Royalty Judges chose IPG’s (otherwise infirm)

proposed allocation solely because it was deemed to be close

25

enough to the lower bound proposed by the Devotional

Claimants. The decision gives no hint as to how close is close

enough, nor any explanation for why they picked IPG’s

proposal in lieu of the supposedly close-enough lowest bound

of the range proposed by the Devotional Claimants. And for

2001 and 2003, the Judges, with a blank slate of an

evidentiary record, simply split the difference of the

allocations from the two other years.

That cannot be sustained. The Royalty Judges’

obligation is to make reasoned decisions supported by the

written record before them. See 17 U.S.C. § 803(c)(3). They

do not satisfy that burden by bridging over a lacuna in the

record with a purported agreement that does not actually exist.

That is not to say that royalty distributions must be

perfect. “[A]n agency’s choice of a particular number or

percentage is not reviewable for exact precision, but simply

for broad reasonableness.” National Ass’n of Broadcasters,

675 F.2d at 374. Indeed, “mathematical exactitude in these

matters appears well-nigh impossible; rough justice in

dividing up the royalty pie seems to be the inevitable result of

the process that Congress ordained.” National Ass’n of

Broadcasters v. Copyright Royalty Tribunal, 772 F.2d 922,

926 (D.C. Cir. 1985) (citation omitted). And we have on rare

occasion sustained a superficially similar rough-justice

approach. But in those cases, the administrative body relied

on some relevant and creditable methodological evidence,

even if it was “far from perfect,” National Cable Television

Ass’n, Inc. v. Copyright Royalty Tribunal, 724 F.2d 176, 184

(D.C. Cir. 1983), or “fairly but not wholly satisfactory,”

Association of American Publishers, Inc. v. Governors of U.S.

Postal Service, 485 F.2d 768, 773 (D.C. Cir. 1973). In this

case, even that minimal foundation is lacking.

26

We thus face here on a larger scale the type of situation

we confronted in Intercollegiate Broadcast System, Inc. v.

Copyright Royalty Board, 571 F.3d 69 (D.C. Cir. 2009). In

that case, the Royalty Judges’ rate-setting decision adopted a

certain minimum fee to be charged to each noncommercial

webcasting channel or station to cover administrative costs.

See id. at 86–87. There the Royalty Judges relied on a single

party’s proposed fee amount, notwithstanding the lack of any

demonstrated link between the proposal and the expenses it

was designed to compensate. Id. at 87. We rejected that

approach, holding that the Royalty Judges’ decision was

“inconsistent with rational decisionmaking.” Id.

A reasoned justification “requires more than an absence

of contrary evidence; it requires substantial evidence to

support a decision.” Intercollegiate Broadcast, 571 F.3d at

87. That is missing here. And making matters still worse, the

Royalty Judges’ approach to allocation was “first presented in

the Judges’ determination and not advanced by any

participant.” Id.

Perhaps the Royalty Judges’ decision was driven by the

statutory mandate to decide the case within eleven months of

the end of the settlement conference period. See 17 U.S.C.

§ 803(c)(1). In an appropriate case, the conditions imposed

on the Royalty Judges and the resource constraints they face

may be relevant to our consideration of the reasoned nature of

their decisionmaking. See National Cable Television Ass’n,

724 F.2d at 187. But the bottom-line obligation to produce a

reasoned decision remains. Moreover, the Royalty Judges

were not limited to the deficient methodological evidence the

parties put before them. The Copyright Act permits the

Royalty Judges to request information even from a

nonparticipant if relevant to a material issue of fact. 17

U.S.C. § 803(b)(6)(C)(ix). Indeed, the Royalty Judges have

27

made use of similar initiatives before to obtain additional

methodological evidence. See 66 Fed. Reg. at 66,441.

For those reasons, we vacate the Royalty Judges’

allocation of royalties in the devotional programming

category for 2000 to 2003. We leave to the Royalty Judges

on remand how to balance their legitimate interest in

preventing parties before them from engaging in trial by

ambush with the need to have a sufficient factual basis to

make a reasoned decision.

III

Conclusion

We hold that the Royalty Judges reasonably determined

that IPG had the authority to represent the four claimants

challenged by the Devotional Claimants on appeal. The

Royalty Judges also reasonably declined to consider the

Devotional Claimants’ methodological evidence given its

untimely presentation. We conclude, however, that the

Royalty Judges’ ultimate royalty allocation, in the wake of the

evidentiary gap left by their rejection of all proffered

methodologies, was arbitrary and capricious. We

consequently vacate that portion of the determination and

remand for further proceedings consistent with this opinion.

So ordered.