The Copyright Royalty and Distribution Reform Act of 2004

Congressional research reportDec 16, 2004

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Order Code RS21512

Updated December 16, 2004

CRS Report for Congress

Received through the CRS Web

The Copyright Royalty

and Distribution Reform Act of 2004

Robin Jeweler

Legislative Attorney

American Law Division

Summary

P.L. 108-419, the Copyright Royalty and Distribution Reform Act of 2004

(CRDRA), was signed into law by President Bush on November 30, 2004. The law

makes extensive changes to the procedural framework for adjudicating royalty rates for

compulsory licenses under the Copyright Act. Compulsory licenses facilitate many

webcasting. The law repeals and reenacts chapter 8 of Title 17 of the U.S. Code, 17

U.S.C. §§ 801-805. The previous ad hoc three-member Copyright Arbitration Royalty

Panel is replaced by standing Copyright Royalty Judges appointed for six-year terms.

Background. The owner of a copyright generally has the exclusive right to control

use and distribution of the protected work. One who wishes to use the protected work

ordinarily gets permission directly from the owner (or his or her agent). The permission

may take any number of forms, a common one being a license agreement.

There are several provisions in the Copyright Act that create “statutory” or

compulsory licenses. In these situations, a user need not obtain permission for use from

the copyright owner; permission is “compulsory.” The user or licensee must abide by

statutorily imposed conditions and pay prescribed royalties. Among the statutory licenses

created in the Copyright Act are licenses to make and distribute phonorecords

(mechanical licenses);1 licenses for use of certain works by noncommercial broadcasters;2

and, licenses for specified secondary transmissions by cable television and satellite

17 U.S.C. § 115.

17 U.S.C. § 118.

Congressional Research Service ˜ The Library of Congress

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carriers.3 A more recent class of compulsory licenses covers digital transmissions of

sound recordings, which includes webcasting.4

The process of establishing royalty rates for statutory licenses is complex. The initial

royalty rate-setting procedure for webcasting licenses for eligible nonsubscription

transmissions proved difficult and controversial.5 Congress intervened with passage of

the Small Webcaster Settlement Act of 2002.6 This proceeding appears to be at least

partially responsible for a renewed examination of the rate-making process.7

The Copyright Act, prior to CRDRA, vested initial decision-making for statutory

royalty rates in a Copyright Arbitration Royalty Panel (CARP).8 At the behest of the

Librarian of Congress, upon the recommendation of the Copyright Office, a CARP was

convened to take testimony from interested parties and recommend a statutory royalty

rate. A CARP was made up of three professional arbitrators. At the conclusion of its

proceedings, it issued a report to the Librarian. The Librarian, upon the recommendation

of the Copyright Office, would adopt the fees proposed by the CARP unless its

determinations were found to be arbitrary or contrary to copyright law. If the Librarian

rejected the proposed fees, he could, after an examination of the record and an additional

30 days, issue an order setting them. An aggrieved party who was bound by the

Librarian’s decision had the right to appeal to the U.S. Court of Appeals for the D.C.

Circuit.

When the 1976 Copyright Act was originally enacted, administrative responsibility

for statutory royalty rates was reposed in a Copyright Royalty Tribunal composed of three

full-time Commissioners.9 Finding that the Tribunal’s workload did not justify the cost

of three Commissioners, Congress enacted the Copyright Royalty Tribunal Reform Act

of 1993 which established the CARP system.10 Among the perceived advantages of the

CARP system was the fact that the panels were established on an ad hoc basis thereby

saving the expense of full-time employees and were paid for by parties to the proceeding.

But the CARP process became the subject of congressional hearings during which

substantial criticism of the process was aired.11

17 U.S.C. §§ 111, 119, 122.

17 U.S.C. § 112, 114.

For background, see CRS Report RL31626, Copyright Law: Statutory Royalty Rates for

Webcasters.

P.L. 107-321.

“The CARP (Copyright Arbitration Royalty Panel) Structure and Process”: Hearing before

the Subcomm. on Courts, the Internet, and Intellectual Property of the House Comm. on the

Judiciary, 107th Cong., 2d Sess. 11 (2002)(Statement of Rep. Berman.).

17 U.S.C. §§ 801-803.

P.L. 94-553, § 101. 17 U.S.C. § 801 et seq. (Supp. III 1979).

P.L. 103-198. See H.Rept. 103-286, 103d Cong., 1st Sess. 9 (1993).

See note 7 supra and H.R. 1417, the Copyright Royalty and Distribution Reform Act: Hearing

before the Subcomm. on Courts, the Internet, and Intellectual Property of the House Comm. on

(continued...)

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In testimony at hearings before the House Subcomm. on Courts, the Internet, and

Intellectual Property, the following issues were among those raised :

although the CARP system was intended to save money, requiring the

parties before it to foot the costs of the proceeding results in some

interested parties being unable to participate because of the expense;12

appointing the panels on an as-needed basis results in a lack of stability

and precedent in the rate-making process, and, in light of the fact that the

royalty laws and economics of rate-making are extremely complex, an

absence of institutional expertise from panel to panel;13

procedural rules for practice before the CARP, such as those governing

discovery and the admission of evidence, are either too restrictive, or too

vague; deadlines for the CARP’s issuance of a ruling are inadequate;14

and

under the CARP system, proceeds from royalties derived from cable and

satellite licenses are used to subsidize the costs of unrelated compulsory

license proceedings. There was no mechanism for partial distribution of

uncontested royalties.15

P.L. 108-419, the Copyright Royalty and Distribution Reform Act of

2004 (CRDRA). H.R. 1417, 108th Cong. 1st Sess. (2003), was introduced on March 25,

2003 by Representative Lamar Smith. An amendment in the nature of a substitute was

reported favorably by the House Judiciary Committee on January 30, 2004.16 The bill was

approved without substantive discussion by the Senate Judiciary Committee on September

21, 2004 and passed the Senate with an amendment by Unanimous Consent on October

6, 2004. The House agreed to the Senate amendment on November 17, 2004. Both

chambers adopted a free-standing concurrent resolution making conforming amendments

and technical corrections.17

(...continued)

the Judiciary, 108th Cong., 1st Sess. (2003)(H.R. 1417 Hearing).

H.R. 1417 Hearing, supra. (Statement of Marybeth Peters, Register of Copyrights) at

[http://www.house.gov/judiciary/peters040103.htm].

Id.

Id. (Statement of Bruce Rich).

Id .(Statement of Robert Alan Garrett).

H.Rept. 108-408, 108th Cong., 2d Sess. (2004). A substitute version was approved by the

House Judiciary Subcommittee on Courts, the Internet and Intellectual Property on May 20, 2003.

On March 3, 2004, the bill went to the floor of the House under suspension of the rules and

passed with 406 votes, with none in opposition.

Sen. Con. Res. 145, 108th Cong., 2d Sess. (2004). Among its provisions is one intended to

reconcile language regarding voluntary, negotiated agreements regarding rates otherwise

governed by compulsory licenses for satellite broadcasts in the Satellite Home Viewer Extension

(continued...)

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The CRDRA makes extensive changes to procedures for adjudicating compulsory

license royalties. It repeals 17 U.S.C. §§ 801-803 and replaces it with new §§ 801-805.

The ad hoc three-person CARP is replaced by a 3 full-time Copyright Royalty Judges

(CRJs), each appointed for a six-year term by the Librarian of Congress in consultation

with the Register of Copyrights.

Among the duties expressly conferred upon the CRJs is the authority:

to make determinations concerning reasonable terms and royalty rates for

specified statutory licenses according to delineated standards;

to authorize distribution of specified royalty fees and adhere to specified

procedures where appropriate distribution is in controversy;

to accept or reject royalty claims and rate adjustment petitions;

to arbitrate disputes over whether manufacturers, importers, and

distributors are required to pay royalties under the Audio Home

Recording Act, 17 U.S.C. § § 1001- 1010;

to incorporate, or, where appropriate, decline to incorporate negotiated

agreements as the basis for statutory terms and rates and distribution of

royalty payments; and

to make necessary procedural and evidentiary rulings.18

Amended § 802 governs the term, qualifications, and conditions of the CRJs’ tenure.

Each judge must be an attorney with at least seven years of legal experience. The Chief

hearings or court trials and may hire 3 full-time staff members. Of the other two CRJs,

one must have expertise in the area of copyright law and the other economics.

The Copyright Royalty Judges are independent, but may consult in writing and on

the record with the Register of Copyrights on any matter other than a question of fact. In

resolving a novel question of law, i.e., one of first impression under the Copyright Act,

the Register may be required to submit a written opinion interpreting the law. And, the

underlie or are contained in final determinations for legal error. Upon the finding of error,

the Register is to issue a written opinion correcting it, which will become a part of the

record of the proceeding.

(...continued)

and Reauthorization Act of 2004. 150 CONG. REC. H9847 (daily ed. Nov. 17, 2004)(Statement

of Rep. Sensenbrenner.) See also CRS Report RS21768, Satellite Television: Reauthorization

of the Satellite Home Viewer Improvement Act (SHVIA)–Background and Key Issues by Marcia

S. Smith.

P.L. 108-419, § 3 replacing 17 U.S.C. § 801.

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The Librarian of Congress may remove a Copyright Royalty Judge for cause,

including any disqualifying mental or physical disability.

Amended § 803 prescribes rules of practice for proceedings before the CRJs. The

determinations by majority vote. A three-month period for voluntary negotiations will be

instituted after the date for filing of petitions to participate in a proceeding. The law

includes a streamlined small claims procedure for distribution of royalties. A “small

claim” is defined as an uncontested amount in controversy of $10,000 or less. The CRJs

are permitted to decide small claim controversies based upon limited, written filings. The

claimant is exempt from the filing fee. The CRJs also have discretionary authority to

decide other appropriate issues on paper pleadings only when there are no genuine issues

of material fact.

Detailed rules are established for the issuance of regulations and rules of practice –

including evidentiary and discovery procedures – for matters before the Judges.

Decisions of the CRJs are to be rendered no later than 11 months after a 21-day settlement

conference period, but also no later than 15 days before the expiration of then current

statutory rates and terms. Appeals are to be taken directly to the U.S. Court of Appeals

for the D.C. Circuit. The previous practice of intermediate review by the Librarian of

Congress is omitted. The costs of a proceeding, exclusive of administrative costs such

as the judges and staff salaries, will be supported primarily by filing fees thus

minimizing the financial burden on participants. Terms for the continuation of royalty

rate payments during gaps when a royalty period expires but official adjustments or

voluntarily negotiated agreements are not yet in effect are provided.

Amended § 804 addresses the time frames for instituting and concluding royalty

adjudications under the Copyright Act’s various statutory licenses.

New § 805 establishes a general rule for voluntarily negotiated agreements. When

voluntarily negotiated rates are implemented, they may remain in effect for such time as

would otherwise apply although the CRJs can adjust them pursuant to voluntary

negotiations to reflect inflation.

Sections 4 and 5, respectively, of the CRDRA deal with definitions and extensive

technical amendments primarily to license and royalty provisions in the Copyright Act.

Section 6 establishes that the law will generally take effect within six months of

enactment. The Librarian of Congress is directed to appoint one or more interim CRJs

within 90 days of enactment if permanent ones are not appointed within that time frame.

The status of specified proceedings that are in progress when the law takes effect is

addressed.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.