Copyright Arbitration Royalty Panels; Rules and Regulations; Interim Rule LIBRARY OF CONGRESS

Federal RegisterMay 9, 1994

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SUMMARY: The Copyright Office of the Library of Congress is issuing

interim regulations to revise the rules and regulations of the former

The Office is seeking comments on these interim rules, which will

govern the conduct of royalty distribution and rate adjustment

proceedings prescribed by the Copyright Royalty Tribunal Reform Act of

1993 until final regulations are adopted.

DATES: Effective May 9, 1994.

Written comments should be received by June 15, 1994. Reply

comments should be received by July 15, 1994.

ADDRESSES: Fifteen copies of written comments should be addressed, if

sent by mail, to: Copyright Arbitration Royalty Panel (CARP), P.O. Box

70977, Southwest Station, Washington, DC 20024. If delivered by hand,

copies should be brought to: Office of the General Counsel, Copyright

Office, room LM-407, James Madison Memorial Building, 101 Independence

Avenue, SE., Washington, DC 20540.

FOR FURTHER INFORMATION CONTACT: William Roberts, Senior Attorney, U.S.

8380.

SUPPLEMENTARY INFORMATION: The Copyright Royalty Tribunal Reform Act of

1993, Public Law 103-198, eliminated the Copyright Royalty Tribunal

(CRT) and replaced it with a system of ad hoc Copyright Arbitration

Royalty Panels (CARPs), administered by the Librarian of Congress and

the Copyright Office, for purposes of distributing royalties and

adjusting royalty rates for the various compulsory licenses and

statutory obligations of the Copyright Code. The CRT Reform Act, which

was effective immediately upon its enactment, directed the Librarian

and the Office to adopt the rules and regulations of the CRT found in

chapter 3 of 37 CFR, 17 U.S.C. 802(d), and provided that the CRT's

regulations were to remain in effect until the Librarian adopts

``supplemental or superseding regulations.'' The Office adopted the

CRT's rules and regulations on an interim basis on December 22, 1993,

and notified the public that it intended to begin a rulemaking

proceeding to revise and update those rules. 58 FR 67690 (1993).

Today's interim regulations are the latest result of that rulemaking

proceeding.

I. Notice of Proposed Rulemaking

On January 18, 1994, the Copyright Office of the Library of

Congress published a Notice of Proposed Rulemaking (NPRM) establishing

a new set of rules and regulations intended to revise those of the

former CRT. The NPRM contained long and substantial revisions required

by the dual structure of the royalty rate adjustment and distribution

system created by the CRT Reform Act. Instead of a single

administrative body (the CRT), the new system features a division of

authority. The Librarian and the Copyright Office are responsible for

doing the preliminary work necessary for the operation of both the

distribution and the rate adjustment proceedings, including the

organization and selection of the CARPs. The CARPs are given sole

authority to determine the appropriate distribution of royalties and

the royalty rates. Their determinations are later reviewed by the

Librarian of Congress. Since the CRT's rules were not designed to

implement a system such as this, we were obliged to institute this

rulemaking proceeding.

The NPRM proposed removal of parts 301 through 311 of chapter III

of 37 CFR and creation of subchapters A and B of chapter II. Subchapter

A comprises the Copyright Office's rules and procedures, consisting of

parts 201-211, which remain unchanged. New subchapter B, which is the

subject of this rulemaking, comprises parts 251-259, and is devoted

entirely to the rules and procedures of the CARPs. In the NPRM, part

251, the Copyright Arbitration Royalty Panel Rules of Procedure,

consisted of proposed regulations to govern the organization of the

CARPs, access to CARP meetings and records, rules governing the conduct

and course of proceedings, and procedures applicable to rate

adjustments and distributions. The NPRM also reserved a subsection for

standards of conduct for arbitrators, and sought comment as to what the

appropriate ethical and financial standards should be.

New part 252 proposed revised rules for the filing of claims to

cable copyright royalties, modeled after the system used by the CRT for

the filing of digital audio (DART) royalty claims. Parts 253 to 256--

Use of Certain Copyrighted Works in Connection With Noncommercial

Educational Broadcasting; Adjustment of Royalty Rate for Coin-Operated

Phonorecord Players; and Adjustment of Royalty Payable Under Compulsory

License for Making and Distributing Phonorecords--proposed only

technical changes to the former CRT's rules. Like part 252, part 257--

Filing of Claims to Satellite Carrier Royalty Fees--was modeled after

the royalty claim procedures used by the CRT for DART. Finally, parts

258 and 259--Adjustment of Royalty Fee for Secondary Transmissions by

Satellite Carriers and Filing of Claims to Digital Audio Recording

Devices and Media Royalty Payments--contained only minor technical

amendments. Since the CRT Reform Act eliminated the jukebox compulsory

license, 17 U.S.C. 116, and replaced it with a provision for negotiated

licenses, the NPRM proposed elimination of the CRT's rules governing

the filing of jukebox claims (formerly part 305 of 37 CFR).

Following issuance in the Federal Register of the NPRM, the

discuss the proposed regulations concerning rules and procedures for

February 1, 1994, at Hearing room 921 of the Office of the former

were noted in an unofficial transcript and became part of the

Administrative Record.1 Written comments on the proposed

rulemaking were due on or before February 15, 1994. Both oral and

written comments are reflected in our current proceeding.

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\1\Individuals wishing to inspect the unofficial transcript of

this meeting may contact the Copyright General Counsel's Office at

(202) 707-8380.

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The Office received a total of 11 comments.2 Many parties

filed joint comments, and some of the joint commentators also filed

separate comments. The commentator groups for each of the 11 comments

were as follows:

\2\The first ten comments were filed on time. The 11th comment,

from the Public Broadcasting Service, was filed April 21, 1994, more

than two months late, and included a motion for leave to file the

comment. The Copyright Office sees no reason why consideration of

the comment should be denied, and we are therefore granting PBS'

motion and considering the views expressed in the comment for this

rulemaking.

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Recording Industry Association of America, Inc and the Alliance of

Artists and Recording Companies, Inc. (referred to collectively as

``RIAA/AARC'');

National Music Publishers Association and the Harry Fox Agency

(collectively ``Music Publishers'');

Electronic Industries Association (``EIA'');

American Society of Composers, Authors and Publishers, Broadcast Music,

Inc., and SESAC, Inc. (collectively ``Performing Rights Societies'');

United Video Division of United Video Satellite Group, Inc. (``United

Video'');

National Cable Television Association (``NCTA'');

Program Suppliers, Joint Sports Claimants, the National Association of

Broadcasters, Public Broadcasting Service, American Society of

Composers, Authors and Publishers, Broadcast Music, Inc., SESAC, Inc.,

the Devotional Claimants, the Canadian Claimants, and National Public

Radio (collectively ``Copyright Owners'');3

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\3\ The parties comprising the Copyright Owners derive their

names from their ``Phase I'' categories in the former Tribunal's

cable royalty distribution proceedings. The Program Suppliers are

more than 100 producers and distributors of syndicated series,

movies, and television specials represented by the Motion Picture

Association of America. The Joint Sports Claimants consist of Major

League Baseball, the National Basketball Association, the National

Hockey League and the National Collegiate Athletic Association. NAB

represents claiming television and radio stations. PBS represents

claiming member television stations and producers of public

television programs. ASCAP, BMI and SESAC are three performing

rights societies, also known as the Music Claimants, representing

their members and affiliates. The Devotional Claimants consist of

several producers and syndicators of religious programming. The

Canadian Claimants represent Canadian programs broadcast by Canadian

television stations. NPR represents its claiming member radio

stations.

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Program Suppliers (``Program Suppliers'');

Joint Sports Claimants, the National Association of Broadcasters,

Public Broadcasting Service, the Devotional Claimants, the Canadian

Claimants, and National Public Radio (collectively ``Certain Copyright

Owners'').

Gospel Music Coalition and Copyright Management, Inc. (collectively

``Gospel Music'');

Public Broadcasting Service (``PBS'').

II. CRT Precedent and Pending Matters

The NPRM addressed a significant preliminary issue: How the

CRT at the time of its elimination. The Office stated that it was ``of

the firm opinion that it is not the successor agency or office to the

``preliminary finding that all proceedings pending before the Tribunal

at the time of its elimination were terminated at that time.'' 59 FR

2551 (1994). Parties wishing to have pending matters considered by

either the Office, or the CARPs, or both, would have to resubmit the

matters to the Office. Id.

The Office went on to discuss the precedential effect, if any, of

orders and rulings of the Tribunal issued in proceedings that were

pending before the Tribunal at the time of its termination. We

concluded:

The Office has no intention of questioning or reopening matters

decided by the former Tribunal with respect to ongoing proceedings.

However, we understand that the termination of pending Tribunal

proceedings and the requirement of new filings will likely raise

again some of the issues previously decided by the Tribunal. The

finding that, while we will look to the Tribunal's decisions and

orders for guidance, neither the Office nor the Copyright

Arbitration Royalty Panels are legally bound by those decisions. All

legal issues related to proceedings pending before the Tribunal at

the time of its elimination may therefore be resubmitted to the

for consideration. Id.

We also noted in a footnote to this paragraph:

The Copyright Office acknowledges that it is of course bound by

rate adjustments and distributions that the Tribunal had conducted

and concluded before its elimination. Thus, for example, the Office

will not entertain any petitions to reexamine cable distributions

for years earlier than 1990.

Id. at fn. 1.

These statements concerning the refiling of pending matters, and

the possible effect as legal precedent of CRT rulings in pending

proceedings, drew comments from two parties. The Copyright Owners

favored the Office's position that all pending CRT matters terminated

with enactment of the CRT Reform Act and would have to be refiled with

the Office, the CARPs, or both. Copyright Owners, comment at 2. They

noted that the largest single matter to be affected by this policy

decision is the 1990 cable distribution, and asked that the parties to

that proceeding be allowed to resubmit their cases with the Copyright

Office, but with two qualifications. First, according to the Copyright

Owners, the ``parties should be permitted to comment on the appropriate

dates for submittal of the 1990 cases and the start of the 1990 hearing

before a panel.'' Id. at 3. Second, they asked that the parties in the

1990 distribution not be restricted to evidence submitted to the CRT:

in other words, that they be allowed to update their cases in their

filings with the Office rather than being bound by what they previously

submitted to the Tribunal. Id. at 3-4.

On the issue of rulings by the CRT in pending proceedings, the

finding that these CRT rulings are not binding, but suggested ``slight

changes to the phrasing of the discussion.'' Id. at 4. According to the

statement--that neither it nor the CARPs are bound by CRT rulings--

applied only to matters pending at the time of the CRT's termination,

or whether it was intended to apply to all CRT decisions. If the

language in the NPRM was intended to refer to all CRT rulings, then the

of 17 U.S.C. 802(c). Id. at 4-5.

RIAA/AARC also questioned the NPRM's statement regarding treatment

of CRT precedent. Their comments suggest that they interpret the NPRM

as asserting that the Office and the CARPs are free to ignore CRT

precedent in all cases. RIAA/AARC, comment at 1. RIAA/AARC appears to

be arguing that any and all decisions of the CRT--not only those in

concluded matters but also those in matters pending on or before

December 17, 1993--represent legal precedent that is binding on the

Office and the CARPs. Id. at 2.

On reexamination of the NPRM, and especially in light of these

comments, we have to admit that our discussions both of the refiling of

pending matters and the legal effect of CRT decisions were unclear.

These are extremely important issues, and we will try to clear up the

confusion here.

First of all, the Office restates its ``firm opinion that it is not

the successor agency or office to the Copyright Royalty Tribunal.'' 59

FR 2551 (1994). Second, we adhere to the policy determination that any

proceeding still pending before the CRT on the date of its elimination,

December 17, 1993--whether it involved rate adjustment, distribution,

rulemaking, or administration--terminated as of that date. The legal

effect of that termination is that the proceeding has ceased to exist,

and that any rulings or decisions made by the Tribunal during the

proceeding are null and void and without any binding effect, as

precedent or otherwise, on the Copyright Office, the CARPs, or the

parties.

In cases where a proceeding was terminated by operation of the CRT

Reform Act on December 17, 1993, the parties will be obliged to refile

in the Copyright Office in accordance with these new CARP regulations,

and present their arguments and, as a general rule, their

evidence,4 as if there had never been a proceeding before the CRT.

Parties to the 1990 cable distribution are not bound by their earlier

filing with the CRT, and may refile their cases and evidence as they

see fit.5

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\4\A question was raised in the February 1, 1994, meeting as to

the possibility, when the 1990 cable distribution proceedings are

initiated by a CARP, of incorporating by reference, rather than

completely refiling, one or more long documents already filed by a

party in the suspended CRT proceedings. We agree that, to avoid

wasteful and needless duplication, the CARP should have the

prerogative to permit incorporation by reference.

\5\As recommended in the comments of the Copyright Owners, we

will at a later date invite the parties to the 1990 cable

distribution to comment on when the proceeding should commence

before the CARP.

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Section 802(c) of the Copyright Code requires the CARPs to ``act on

the basis of * * * prior decisions of the Copyright Royalty Tribunal.''

We emphasize, however, that this requirement applies only to

proceedings that were concluded by the Tribunal. For example, CRT

rulings from the 1989 cable distribution have precedential effect

because the 1989 distribution is a concluded proceeding, but rulings

made during the 1990 cable distribution are without precedential

effect.

We should add that, although rulings and orders from proceedings

that were pending before the CRT at the time of its elimination do not

constitute binding precedent, the Copyright Office will review those

rulings and orders for information and guidance if the same issues

arise during the course of a refiled proceeding, and will call them to

the attention of the CARP.

There is an important distinction to be made here. What we have

said so far applies to cases where a proceeding was underway at the CRT

before December 17, 1993, except for claims to royalties filed with the

CRT before its elimination. Royalty claims are required to be filed

during specific time periods set by the Copyright Code, and any valid

claims filed with the CRT before the statutory deadlines, and still

pending on December 17, 1993, are unaffected by the new law. For

example, the Code requires claims for DART royalties to be filed in

January and February of each year with respect to royalties from the

preceding calendar year. 17 U.S.C. 1007(a)(1). Claims to 1992 royalties

had to be filed with the CRT by February 28, 1993. It is not now

necessary to refile those claims with the Copyright Office, even though

1992 DART royalties have yet to be distributed. The Copyright Office

has received from the CRT all claims to 1992 DART royalties that had

been filed with the Tribunal, and it is therefore unnecessary, and

without legal effect, to refile those claims with the Office.

Finally, in connection with DART filings, an issue raised by one of

the commentators brings up questions related to those we have been

discussing. The comment of the Performing Rights Societies contests the

validity of the rule proposed in Sec. 259.2 of the NPRM, which would

require a performing rights society ``* * * to obtain from its members

or affiliates separate specific and written authorization signed by

members, affiliates or their representatives to file claims to the

Musical Works Fund * * *''. Performing Rights Societies, comment at 1.

This rule was promulgated by the CRT on October 18, 1993, and, as

directed by the CRT Reform Act, the Office adopted it in its December

22, 1993, regulation. 58 FR 67690 (1993). Our NPRM did not propose to

amend the regulation beyond renaming it and assigning it a new section

number (Sec. 259.2). The Performing Rights Societies filed a petition

for reconsideration of the rule with the CRT on November 3, 1993,

before the Tribunal was terminated, and are now asking for Copyright

Office consideration of the question in the context of this rulemaking.

Gospel Music has filed an opposition. Gospel Music, comment at 1-3.

Although referred to as a ``comment,'' the letter from the

Performing Rights Societies is more in the nature of a petition to

address the issue anew. They say that they wish ``to petition to reopen

the Tribunal's former rulemaking proceeding,'' and to have the matter

addressed by the Copyright Office. The CRT had adopted a rule contrary

to the Performing Rights Societies' petition; if the Societies had not

petitioned the CRT for reconsideration, or if the CRT had acted one way

or the other on the reconsideration request before it expired, we would

consider the matter of the petition settled. As things stand, however,

the petition for reconsideration was a pending CRT matter, and the

``comment'' as a separate petition for rulemaking, not as part of this

rulemaking proceeding. The ``comment'' of Gospel Music will be treated

as an opposition to that petition. At a later date we will publish

notice of a separate rulemaking in response to the Performing Rights

Societies' petition, and will invite interested parties to comment at

that time. Section 259.2, as adopted in 58 FR 67690 (1993) and renamed

and renumbered in this rulemaking, remains in effect until the

conclusion of the separate proceeding.

III. Interim Regulations

Today's interim regulations reflect a comprehensive review of the

entire body of the former Tribunal's rules and regulations, and a

thorough analysis of the new procedures needed to implement the

bifurcated system of ad hoc arbitration panels administered by the

Librarian of Congress. The comments included a number of suggestions

and proposed amendments, most of which were constructive and many of

which we have adopted. In general the commentators were supportive of

the Office's overall approach and most of the language in the NPRM.

It was the consensus of the parties at the February 1, 1994, public

meeting that a reply period for comments on the proposed rules would be

desirable. At the time of the public meeting we thought it would be

impossible to provide periods for reply comments addressed either to

the responses to the NPRM or to these interim regulations; this was

because the CARP infrastructure must be in place before proceedings can

begin, and one of the deadlines for starting DART distribution

proceedings was supposed to fall on March 30, 1994.6 On further

consideration, however, the Office concluded that it would be virtually

impossible to carry out the necessary procedures for appointing

arbitrators before that date, and we issued a notice postponing the

deadline, see 59 FR 9773 (1994) (postponing time period for declaration

of controversy with respect to 1993 DART royalties to June 30, 1994).

Even so, there is still the need to implement the CARP rules

immediately, and to begin the screening and selection of potential

arbitrators.

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\6\Sec. 1007(b) of the Copyright Code states that, ``Within 30

days after the period established for the filing of claims [January-

February] * * *, the Librarian of Congress shall determine whether

there exists a controversy concerning the distribution of royalties

* * *'', and sec. 1007(c) states that, if a controversy exists,

``the Librarian shall * * * convene a copyright arbitration royalty

panel to determine the distribution of royalty payments.''

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In order to get revised regulations into effect immediately and, at

the same time, to offer an opportunity to see how they work in practice

and to elicit meaningful comments and suggestions, the Office is

adopting today's regulations on an interim basis.7 All proceedings

before the Office and the CARPs will be governed by the December 22,

1993, interim rules as amended by these interim rules, unless and until

they are further amended or superseded. Comments are due on June 15,

1994, and reply comments on July 15, 1994, whereupon the Office plans

to make another comprehensive review and analysis before adopting final

regulations.

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\7\These interim regulations consist of the earlier ``interim

regulations'' adopted by the Copyright Office on December 22, 1993,

58 FR 67690 (1993), as amended by today's changes.

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The Librarian and the Office are committed to creating the fairest,

most efficient possible system for adjusting royalty rates and

distributing royalties. We believe that the rules and procedures

adopted today will work, but during the coming months we will continue

to monitor the CARP experience very closely and to identify any

problems that need solving and any improvements that can be made.

The following is a section-by-section summary of the amended

regulations, together with a discussion of the applicable comments on

the corresponding provisions of the NPRM.

(a) Part 251--Copyright Arbitration Royalty Panels Rules of Procedure

Part 251 contains most of the rules and procedures governing the

operation of the CARPs, and therefore received the greatest number of

observations and suggestions from the commentators.

(1) Status of certain DART proceedings. As a preliminary matter, it

is important to consider the scope of part 251 with respect to digital

audio proceedings under chapter 10 of the Copyright Code. It is the

Office's reading of the CRT Reform Act that neither of the following is

to be a CARP proceeding:

(i) the proceeding raising the maximum rate for digital audio tape

royalties which, under 17 U.S.C 1004(a)(3), is to be handled solely by

the Librarian;

(ii) the arbitration proceeding under 17 U.S.C. 1010 to determine

if a digital audio recording or interface device is subject to royalty

payments. We reach this conclusion based on the 1993 amendments to

section 801 of the Copyright Code. Former section 801(b)(4), which

assigned to the Tribunal the authority to distribute DART royalties,

and ``to carry out its other responsibilities under chapter 10,'' was

deleted; except for DART royalty distribution, which reappears in the

new section 801(b)(3), that former authority was not reassigned to the

not proposed any regulations in this rulemaking as to the raising of

the DART maximum royalty payment or the status of a DART device. These

are matters that will be covered later in separate DART regulations.

We invite comments from the parties on the following:

Is our interpretation concerning the status of DART proceedings

under the CARP legislation correct?

If it is correct, to what extent does the Office have authority to

adopt regulations governing standards of conduct in DART proceedings?

(2) Organization of Part 251. Part 251, which tracks the original

format of the former Tribunal's regulations, is divided into seven

subparts, identified as subparts A through F.

Subpart A, entitled ``Organization,'' describes the composition and

selection process for the CARPs. Subparts B and C--``Public Access to

and Inspection of Records''--remain virtually the same as the former

Tribunal's rules, with only a few minor technical amendments. Subpart

D, ``Standards of Conduct,'' consists of a completely new set of rules

prescribing the financial and ethical requirements for arbitrators, and

governs ex parte communications, billing, sanctions for misconduct, and

other matters involving ethical standards. Subpart E, ``Procedures of

followed by the CARPs in conducting proceedings, including those

governing submission of evidence, conduct of hearings, reports of the

CARPs, and orders of the Librarian. Subparts F and G--``Rate Adjustment

Proceedings'' and ``Royalty Fee Distribution Proceedings''--provide

certain additional requirements inherent in rate adjustment and

distribution proceedings, and contain only a few changes of the former

Tribunal's rules.

The following summarizes the additions and changes in the various

subparts of part 251.

(b) Subpart A--Organization

As the NPRM explained, subpart A was in need of complete revision

because of the differences between the statutory organization of the

CRT and that of the CARPs. In addition to the changes proposed in the

NPRM, these interim regulations incorporate additional revisions based

on the comments and our own further review.

(1) Official address. The Copyright Office has secured a special

Post Office box for receiving mail relating to the CARPs and any other

matters arising under subchapter B of chapter II of this title (37

CFR). As the NPRM said, establishment of a single official address is

important, since arbitration proceedings will not necessarily take

place at a single location, within the Library of Congress or

elsewhere. There may sometimes be an incentive for parties to deliver

filings directly to the actual location where a CARP is meeting, but,

for the reasons summarized in the NPRM, we believe it would be a

mistake to allow official filings to go to locations different from the

mailing address specified in these regulations.

Therefore, all filings required by this subchapter, if sent by

mail, should be marked for delivery to the official address contained

in Sec. 251.1. The same address should be used for all correspondence

or inquiries concerning the CARPs, distributions of royalties, rate

adjustments, and other matters arising under this subchapter B. Note

that, under Sec. 251.44, the CARPs are required to establish procedures

under which filings may be delivered directly to them, as long as a

copy is also delivered to the official address.

(2) Purpose of the CARPs. Section 251.2 describes the royalty

distribution and rate adjustment responsibilities of the CARPs with

respect to the various compulsory licenses and statutory obligations

established under the Copyright Code.8 The Copyright Owners

requested deletion of the word ``television'' from the phrase ``cable

television'' in subsection (e), pointing out that fee distributions for

cable retransmissions under sections 111 of the statute cover radio as

well as television distant signal carriage. We have corrected

subsection (e) and have amended later references to ``cable

television'' to read simply ``cable.''

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\8\It is significant that, while adjustment of royalty rates for

the cable compulsory license is one of the duties of the CARPs

listed in Sec. 251.2, there is no similar provision for the

satellite carrier compulsory license. This is because the current

satellite rates were adjusted in 1992, before enactment of the CRT

Reform Act, and the satellite carrier license is due to expire on

December 31, 1994. Congress is currently moving legislation to

extend the duration of the license and provide for another

arbitrated adjustment of the royalty rates. The Office anticipates

that, when and if the pending satellite bill is enacted, it will

include a provision making the satellite arbitration a CARP

proceeding. In that event we will amend these rules to reflect the

legislative changes.

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(3) List of arbitrators--(i) The NPRM proposals. To facilitate the

process for selecting arbitrators, the NPRM proposed creation of a

yearly list of qualified arbitrators obtained from professional

arbitration associations or organizations. The association or

organization would supply the names of arbitrators meeting the

qualifications set out in Sec. 251.5, together with a brief summary of

each person's educational and employment history, qualifications, and

``any other information which the professional arbitration association

or organization may consider relevant.'' The Librarian would then

publish the list of qualified candidates in the Federal Register, and

this would constitute the master list from which all selections for

CARPs would be drawn for the calendar year.

(ii) Comments of copyright owners. The Copyright Owners recommended

several changes to Sec. 251.3 as proposed in the NPRM. Copyright

Owners, comment at 16-19.

First, they suggested that the Copyright Office solicit names of

qualified arbitrators from at least five professional arbitration

associations or organizations, including organizations that list former

judges. Although, according to their predictions, the cost of an

arbitration organization's list will be approximately $1,000, they

``think that it is appropriate for a reasonable amount of money to be

spent compiling these lists.'' Id. at 16. They also recommended

consultation with not-for-profit arbitration associations that make no

charge for their services.

Second, the Copyright Owners suggested that the master list be

confined to 50 names. This, they said, ``should provide a large enough

group from diverse sources to avoid repeating the solicitation process

in any one year.'' Id. at 17.

Third, to assist in the control of costs of the arbitration

process--a concern voiced by most of the commentators--the Copyright

Owners suggested that Sec. 251.3(a) be amended to expand the required

information provided to the Librarian by professional arbitration

organizations; they recommended that this information include a

description of the potential arbitrators' anticipated hourly, daily, or

annual fees, including per diem expense requirements. Id. at 18.

Fourth and finally, the Copyright Owners sought amendment of

Sec. 251.3(a)(2), which would require arbitration associations and

organizations to provide ``a brief summary of the member's employment

history.'' They took the position that a brief summary would not

provide adequate information upon which to formulate objections, and

asked for an amendment requiring information on the potential

arbitrators' ``areas of expertise, general nature of clients

represented and types of proceedings in which the member represented

clients.'' Id. at 19.

(iii) Changes in Sec. 251.3. On the whole we think the comments and

suggestions on lists of arbitrators make good sense, and we have

adopted most of them with modifications and additions of our own.

(A) Change in date for first lists provided by arbitration

associations. Subsection (a) is amended by deleting ``March 1, 1994''

and replacing it with ``on or before May 6, 1994'' as the date the

Office is to receive from arbitration associations the lists of

qualified arbitrators in accordance with Sec. 251.3. We are providing a

longer period in which to compile this year's lists since we could not

complete the process of selection by March 1, 1994, and since the

beginning of DART royalty distribution has been postponed from March 30

to June 30, 1994. See 59 FR 9773 (1994).

(B) References to ``member'' stricken. In the NPRM, Sec. 251.3

referred throughout to the persons to be included in the list as

``members'' of the associations and organizations submitting their

names. It now seems clear that this term would be questionable or

inaccurate in some cases. We have therefore substituted the phrase

``persons qualified to serve as arbitrators'' and the term ``person''

in the subsection.

question of whether the information provided by the arbitration

associations or organizations under subsection (a) would be available

to the public. This interim regulation has been amended to make clear

that this information will be available to the public for inspection

and copying, but only with respect to those potential arbitrators whose

names are published in the Librarian's list.

(D) Employment or professional affiliation history. As suggested in

the comments, we have amended subsection (a)(2) to call for more

detailed information about the person's professional career and

expertise. The interim regulation also calls for information about

clients represented and types of proceedings in which the person has

been involved, but only if that information is available to the

association or organization submitting the name. We recognize that a

potential arbitrator's client base is not always the type of

information available to a professional arbitration association or

organization, and that potential arbitrators may be reluctant to

disclose that kind of information publicly. Arbitrators will be

required to disclose this and other information to the Librarian as

part of their confidential financial disclosure statements, see

Sec. 251.32.

(E) Disclosures of fees to be charged. We agree with the points

made in the comments: That the costs of the arbitration process should

be kept as low as possible, that arbitrators' fees will comprise a

major part of the costs, and that the rates a particular arbitrator

will charge are an important element in the selection process. We have

therefore added a new subsection (a)(5) calling for detailed

information about the arbitrator's rates for fees. This information

should include the basis on which the fee is to be computed (hourly,

daily, etc.), any variation on that basis (overtime, etc.), and the

amount of the basic rate. (As further discussed in the preamble to

Sec. 251.38, recovery of expenses will be available only to the

arbitrators coming from outside the Washington, DC area, and then will

be limited to the Government per diem rate.)

(F) Date of publication of arbitrator list. For the reasons

mentioned above in connection with subsection (a), subsection (b) now

calls upon the Librarian to publish the arbitrator list after May 6,

1994, rather than after March 1. In future years the lists will be

published after January 1.

(G) Number of names on arbitration list. The Copyright Office

agrees with the comments of the Copyright Owners that the number of

names on an arbitrator list should not be left completely open, but we

do not agree that the regulations should set an exact number. We

believe that the interests of diversity will be served by publishing a

list of at least 30 arbitrators, as opposed to an exact number; this

should provide the flexibility necessary to the publication of a

balanced list, which in some years might require more than 30. As a

practical matter, the Office will try to produce a list that generally

contains about 50 names. However, since we do not anticipate

circumstances that would require a list with more than 75 names, we are

adopting that number as the upper limit.

(H) Number of arbitration associations or organizations. The

associations or organizations from which the Librarian will obtain

lists of potential arbitrators, and recommended that the number be set

at five. We agree that the number should be quantified and that under

the statute it must be more than one, but we think five is too many.

Several of the arbitration associations listed by the Copyright Owners

in an appendix to their comment each represent several thousand

arbitrators. The Office believes that three associations or

organizations are likely to provide more than enough eligible

candidates in most cases. The rule as now written, we think, is

flexible enough to provide diversity, including the presence of former

judges, on the arbitrator list.

(4) Arbitrator list: Objections. Under Sec. 251.4, objections to

individuals on an arbitration list published in the Federal Register in

accordance with Sec. 251.3 may be lodged with the Librarian, but only

by parties to a particular proceeding and only during a designated 30-

day time period that will begin and end before the proceeding starts.

In the case of rate adjustment proceedings the objection period

coincides with the pre-proceeding period for consideration of possible

settlements provided by Sec. 251.63. For royalty distribution

proceedings the period for objections is the same as the period for

precontroversy motions and objections prescribed by Sec. 251.45. In

both cases the Librarian's notice in the Federal Register will set out

the inclusive dates of the objection period. A party to the proceeding

may lodge objections to one or more of the potential arbitrators on the

Librarian's list; the grounds for each objection must be stated plainly

and in detail.

(i) Comments on objection procedures--(A) RIAA/AARC. In their

comments RIAA/AARC urged that, instead of tying the objection procedure

to specific proceedings, the regulations provide for an objection

period to come before publication of the annual list of arbitrators.

RIAA/AARC, comment at 2-3. In their view, the proposed system of

confirming objections to a period before the proceedings begin would

expose the objecting party to--

* * * the risk of having arbitrators against whom they had just

filed objections selected for the proceeding. This would inevitably

have a chilling effect on the parties, thereby negating the purpose

of the proceeding.

According to RIAA/AARC, a procedure under which potential parties to

any proceedings could lodge objections to names proposed for the master

list before it is published in final form would have the advantage of

expanding overall participation by the parties in the process of

choosing arbitrators. Id. at 3.

(B) Music publishers. The Music Publishers had an alternative

objection process to propose. They took the view that the NPRM's

disclosure requirements for arbitrators were insufficient, and for this

reason they recommended that the Librarian publish a ``select list'' of

10 to 15 names before proceedings begin, with the requirement that

those potential arbitrators file a financial disclosure statement.

Under this plan, parties to the proceeding would be allowed to review

the statements and then file their objections, if any. Music

Publishers, comment at 5.

(ii) Changes in Sec. 251.4. The Office is adopting amendments to

Sec. 251.4 resulting from our decision not to provide any pre-

proceeding period for discovery (discussed below in connection with

Secs. 251.45 and 251.63). Under the changes, the time period for filing

objections to arbitrators has been reduced to 30 days. After

consideration, however, we are unable to agree with the recommendations

of either the RIAA/AARC or the Music Publishers. The RIAA/AARC proposal

would require publication of a preliminary list that would be open to

objections, followed by publication of a ``clean'' list of arbitrators

whose names provoked no objections or who were found by the Librarian

to be acceptable despite the objection. This would require substantial

added administrative burdens, costs, and delays, and the

``preliminary'' lists would have to be long enough to insure a final

list of at least 30 names.

We are not convinced that the procedure we are adopting will

produce any chilling effect on participation by the parties. As we

stated in the NPRM, 59 FR 2552 (1994), no peremptory challenges will be

allowed, and all objections must be fully substantiated. Serious, well-

grounded objections will certainly disqualify an arbitrator from

selection to a CARP. Where the objections are not sufficient to prevent

an arbitrator from being selected, the ethics rules of subpart D should

be adequate to prevent biased decisions resulting from an objection.

Again, publication of ``select'' lists as proposed by the Music

Publishers would be an additional and costly administrative burden, and

would essentially eliminate the need for a master list. The conduct

rules of subpart D of this interim regulation will require individuals

appearing on the arbitrator list to file financial disclosure

statements with the Librarian, and this requirement should satisfy the

Music Publishers' primary concern.

(5) Qualifications of Arbitrators. Under Sec. 251.5, as proposed in

the NPRM, an individual must possess three basic qualifications to

serve as a CARP arbitrator: Admission to the practice of law; 10 or

more years of legal practice; and experience in conducting arbitration

proceedings or facilitating the resolution and settlement of disputes.

This proposal drew considerable comment from the parties, and there was

substantial disagreement among them as to whether the arbitrators

should all be lawyers.

(i) Comments on requirement for legal qualifications--(A) Certain

Owners''9 favored adoption of the lawyer requirement because, they

said, lawyers and judges have experience in operating under procedural

and evidentiary rules and applying precedent. Certain Copyright Owners,

comment at 3. They argued that there is ``no need for panel members to

possess any substantive expertise beyond knowledge and experience in

the adjudication and resolution of disputes.'' Id. at 4. If non-lawyers

were allowed to serve as arbitrators there might be some encouragement

for the selection of experts such as economists; this, according to the

comment, could ``distort the process'' by permitting the expert to

``dominate the panel's consideration of any disputed questions within

his or her area of expertise,'' and could create the potential for

``unilateral decisionmaking.'' Id. at 4-5.

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\9\This group was comprised of Sports Claimants, the NAB, PBS,

NPR, Devotional Claimants, and Canadian Claimants.

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(B) Program suppliers. Program Suppliers believed that non-lawyers

should be allowed to serve as arbitrators, although they proposed that

each CARP include at least one lawyer. Program Suppliers, comment at 2.

They welcomed the expertise a non-lawyer might bring to the arbitration

process. In their view the participation of a non-lawyer could promote

collegiality in the decision-making process, and they noted that the

CRT Reform Act contains no provision forbidding consideration of non-

lawyers. Id. at 6-7.

(ii) Comments on selection of former judges. The comments of

Certain Copyright Owners, Program Suppliers, and Copyright Owners

generally are agreed that the Librarian should give strong

consideration to the selection of former judges as arbitrators. They

proposed that Sec. 251.5(c) be amended to read that a potential

arbitrator must have ``[e]xperience in conducting arbitration

proceedings, or facilitating or presiding over the resolution and

settlement of disputes.'' (emphasis added). Certain Copyright Owners,

comment at 5; Program Suppliers, comment at 8; Copyright Owners,

comment at 21. This amendment, they said, would make clear that

individuals with judicial experience are qualified to serve on CARPs.

(iii) Comments on continuity of membership. There was considerable

disagreement on the issue of continuity of membership from one CARP to

another.

(A) Copyright owners. Noting Chairman Hughes' floor statement on

the desirability of continuity, the Copyright Owners argued that having

the same arbitrators on multiple CARPs is ``essential'' to the

efficient operation of the royalty rate adjustment and distribution

process. Copyright Owners, comment at 20. In their view, continuity

would ``ensure consistency in the decisionmaking process,'' thereby

fostering the likelihood of settlement among the parties to a

proceeding. Id. To encourage continuity, the Copyright Owners proposed

that Sec. 251.5 be amended by adding a new subsection (d) to include an

additional factor in the selection process, giving preference to any

arbitrator who had previously served on a panel:

(d) In addition, arbitrators who have previously served on a

CARP should be given a preference for selection to a subsequent

CARP; provided, however, that no arbitrator shall be selected as a

member of a CARP following the sixth anniversary of the date of his

or her first selection as a member of a CARP.

Id. at 20-21.

(B) Certain copyright users. Commentators representing two groups

of copyright users opposed the principle of continuity on the CARPs.

NCTA argued that creating a preference based on service on an earlier

CARP ``could favor those, such as copyright owners, who regularly

participate before the panels.'' NCTA, comment at 2. United Video

echoed NCTA's concern, stating its belief that the creation of ad hoc

arbitration panels was intended as Congress' remedy to the insular

nature of the CRT:

As a practical matter, the licensees have no desire to see the

CRT recreated in the guise of ``stable'' CARPs. Such ``stability''

would mean that copyright owners can yet again develop a body of

mystical, impenetrable, unreasoned standards into which compulsory

licensees are plunged every five years. . .''.

United Video, comment at 2. Both NCTA and United Video argued that, at

the very least, the Copyright Office should ensure that arbitrators who

have served on CARPs in distribution proceedings are not also chosen to

serve on CARPs in ratemaking proceedings. NCTA comment at 2; United

Video, comment at 2.

(iv) Amendment of Sec. 251.5. The Copyright Office has considered

the varying viewpoints of the parties on qualifications of arbitrators,

but we have decided to adopt Sec. 251.5 as proposed with only one

technical amendment to subsection (a). That subsection is intended to

require arbitrators to be admitted to the practice of law. Since

membership in a bar association is not synonomous with admission to the

practice of law, we are broadening the requirement accordingly.

(A) Legal qualifications. On the issue of whether arbitrators

should be lawyers, we continue to believe that the adjudicatory nature

of CARPs requires arbitrators to have experience in operating under

procedural and evidentiary rules, applying precedent, and evaluating

the legal significance of conflicting evidence. The importance of legal

training is underscored by the relatively short period (180 days)

allowed for conducting proceedings which are often long and

complicated. Arbitrators will be called upon to decide substantive and

procedural matters arising both during the hearings and in motions and

pleadings, and there would be little or no time to train non-lawyers in

how to handle them.

(B) Former judges. The Copyright Office believes that Sec. 251.5 as

drafted is certainly broad enough to allow appointment of former

judges. Subsection (c), which is taken directly from section 802(b) of

the Copyright Code, requires an arbitrator to have experience either in

conducting arbitration proceedings or in facilitating the resolution

and settlement of disputes. Unlike the Copyright Owners, we believe

that experience in ``facilitating the resolution and settlement of

disputes'' includes judges as well as mediators, and that the proposed

``presiding over'' language is unnecessary. The Office is therefore

adopting subsection (c) as proposed.

the Library has had experience in selecting arbitrators under

circumstances such as these, and for the present we think it is

important to maintain flexibility in the selection process. The CRT

Reform Act grants the Librarian considerable discretion in selecting

arbitrators, and he intends to exercise that discretion to guard

against any possibility of bias or undue influence. We therefore

believe it would be a mistake to be bound to any system of preferences

or exclusions in the selection process at this time. The Congress

expressly chose not to make continuity among panel members a

requirement. See 139 Cong. Rec. H10973 (daily ed. November 22, 1993)

(floor statement of Rep. Hughes) (``The Librarian certainly has

discretion to chose [sic] individuals willing to serve for 6 years. The

Senate decided not to make this a requirement, however, and I agree

with that decision.''). At the same time, we understand that under

certain circumstances, especially in the case of distribution

proceedings, continuity could have important advantages.

Without expressing it as a binding policy or writing it into the

regulations as a requirement, we agree with Chairman Hughes that, in

choosing arbitrators for future proceedings, the Librarian should look

to the quality of service and soundness of decision-making an

individual has displayed as a member of an earlier CARP. We also agree

that, in the selection process for a rate-adjustment CARP, the

familiarity a former arbitrator in a distribution proceeding has

demonstrated with respect to particular parties and their arguments

should be taken into account in weighing the possibility of bias.

Experience with the CARPs will help to determine, later on, whether

some system of preferences or exclusions should be written into these

regulations.

(6) Composition and selection of CARPs: Quorum requirements.

Section 251.6 of the NPRM described the procedure for selecting the

members and chairperson of a CARP, and dealt with quorum requirements

under various circumstances. Subsection (e) of the NPRM provided:

If for any reason one or more of the arbitrators selected by the

Librarian is unable to serve during the course of the proceedings,

the Librarian shall promptly appoint a replacement: Provided, that

once hearings have commenced, no such appointment shall be made and

the remaining arbitrators shall constitute a quorum necessary to the

determination of the proceeding.

This provision would leave the possibility of a single arbitrator

deciding an entire proceeding.

(i) Comments of copyright owners. To avoid the dangers inherent in

a rule that would allow a quorum of one, the Copyright Owners proposed

that subsection (e) be revised to read:

(e) If for any reason two of the arbitrators selected by the

Librarian are unable to serve during the course of the proceedings,

the Librarian will suspend the proceedings until at least one new

arbitrator is selected. Two arbitrators shall constitute a quorum

necessary to the determination of any proceeding.

(ii) Amendment of Sec. 251.6.--(A) Quorum requirement. The

adopting the requirement that two arbitrators constitute a quorum

necessary to the determination of a proceeding. Should a CARP panel be

reduced to one serving arbitrator for any reason, it would be necessary

either to replace one or both of the other arbitrators or terminate the

proceeding. However, there are inherent problems in adopting a process

of replacing arbitrators, especially after hearings have begun.

(B) Problems presented by replacement of arbitrators. Our concerns

go to the heart of the fairness of the proceedings and compliance with

the requirements of the Administrative Procedure Act. If a new

arbitrator is selected midway through hearings in a proceeding, he or

she will lose the benefit of earlier live testimony, and rights of

parties to the proceeding under the APA could be compromised. We also

recognize that proceedings cost a great deal of money, and that the

parties may be reluctant or financially unable to repeat the hearing

process in its entirety for the benefit of a new arbitrator. One

partial solution to the fairness problem might be to require all CARP

hearings to be recorded on videotape. As an alternative to terminating

the proceedings completely and starting the whole process anew,

videotaping might provide substantial monetary savings in the long run.

two will exist, and to provide rational, fair, and economical

procedures for replacing arbitrators, including chairpersons, in

various situations, the Copyright Office is adopting a compromise

provision. Where one or two of the arbitrators has left a CARP panel,

the Librarian of Congress may be called upon to suspend the proceedings

(thus tolling the running of the statutory periods).\10\ If the hearing

has not yet begun, the Librarian is obliged to bring a CARP back up to

its full complement of three members; but, if the hearing is underway,

no replacement will be made unless necessary to provide the required

quorum of two members.

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\10\The Copyright Office has added a new Sec. 251.8 to Subpart A

dealing with suspension of proceedings and tolling of the running of

statutory periods, including the 180-day hearing period. This new

section is discussed below.

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(a) Hearings Not Yet Begun. If hearings in the proceeding have not

yet begun and the CARP has fallen below its statutory three-person

complement (two arbitrators selected by the Librarian and a third

chosen--as member and chairperson--by the other two), the Librarian

will suspend the proceeding and inaugurate a procedure to bring the

CARP back up to three members. Where one or two vacancies are to be

filled, and either or both of the vacant seats were previously occupied

by arbitrators chosen by the Librarian, the Librarian will select the

necessary replacement or replacements. If there is one vacancy, and it

was previously occupied by the chairperson, the two remaining

arbitrators will select the replacement. If there are two vacancies,

and one was previously occupied by the chairperson, the Librarian will

select one replacement, and that person will join with the remaining

arbitrator to choose the replacement.

(b) Hearings begun. If hearings have begun, the Librarian will not

suspend the proceedings and select replacements unless it is necessary

to do so to achieve a quorum. In other words, if the hearing is

underway with the full complement of arbitrators and one drops out,

nothing need be done. However, if two of the three arbitrators drop out

at once, or if the hearing is going forward with two arbitrators and

one drops out, the Librarian will need to suspend the proceedings and

select one new arbitrator (not two) to provide the necessary quorum.

Where the hearing has started and the CARP loses its chairperson, a

problem arises since the Librarian has no authority under the statute

to fill the chair of a CARP. The solution in this situation is to ask

the two remaining arbitrators, or the one remaining arbitrator and the

newly-selected arbitrator, to decide between themselves which of the

two of them will serve as chairperson.

A more serious problem arises from the fact that a new arbitrator

in an ongoing hearing will not have had the benefit of hearing and

seeing the earlier testimony and arguments. In an effort to accommodate

the rights of the parties under the APA and, at the same time to save

time and money, the interim regulation requires that the Librarian's

selection of a replacement arbitrator in an ongoing hearing receive the

unanimous written agreement of all parties to the proceeding. If the

parties agree, the hearings will continue from the point of suspension;

if not, the Librarian will terminate the proceeding and start the whole

process anew.

(7) Suspension of proceedings. Several provisions of these interim

regulations, including those on the replacement of arbitrators under

Sec. 251.6 and the removal and replacement of an arbitrator for

misconduct under Subpart D, require the Librarian to suspend any

ongoing proceedings long enough to make the necessary replacement or

replacements. Upon considering the problem the Copyright Office has

concluded that these regulations should also contain a section

governing the conditions and procedures for suspensions, making clear

in particular that suspension tolls the running of the 180-day hearing

period or any other time period in effect. We have added this provision

as Sec. 251.8, at the end of subpart A.

Under subsection (a) of the new Sec. 251.8, whenever an arbitrator

must be replaced for any reason, the Librarian is obliged to order a

suspension of the proceeding by notice to all parties in writing, to

make the replacement expeditiously, and to give written notice to the

parties of the resumption of the proceeding ``from the time and point

at which it was suspended.'' Subsection (b) is intended to deal with

cases in which the Librarian is convinced that, because of temporary

situations such as serious illness or personal tragedy affecting an

arbitrator, it would be extremely difficult or impossible to continue

the proceeding for the time being. In these situations, not involving

replacement of an arbitrator, the proceeding may be suspended only with

the written consent of all parties, and for a stated period of one

month or less.

Section 251.8(c), which applies to all suspensions, provides that

the suspension ``shall result in a complete cessation of all aspects of

the proceeding, including the running of any statutory period provided

for completion of the proceeding.'' We believe it is necessary and

important during the time of suspension to toll the periods provided

for proceedings in the statute, particularly the 180-day period

prescribed by 17 U.S.C. 802(e). The tolling provision is intended to

allow sufficient time for selection of replacements without cutting

into and reducing the full period the arbitrators will need for hearing

the case and rendering a decision.

Meetings

Subpart C--Public Access to and Inspection of Records

The Copyright Office is adopting all of subparts B and C, as

proposed in the NPRM, with changes regarding recordings and photographs

at open meetings. The Copyright Owners requested a minor change in

Sec. 251.12, which governs the conduct of open meetings held by a CARP,

to say that the right of a witness to withhold authorization of a

recording of his or her testimony does not apply to the official

transcript. We agree, but on further consideration we think Sec. 251.12

could have been too strict in operation. We see no reason why the CARP

proceedings should not be conducted with the greatest possible

openness.

Section 251.12 now reads that the public and the news media will be

able to take photographs and to make audio or video records of the

proceedings, so long as the CARP is informed in advance and nothing is

done to disrupt the proceedings. The permission of the participants in

the proceedings would not be required.

(d) Subpart D--Standards of Conduct

The CRT Reform Act amended section 802(b) of the Copyright Code to

provide that the ``Librarian of Congress, upon recommendation of the

conduct which shall govern arbitrators and the proceedings under this

chapter.'' The need to provide standards of conduct for arbitrators in

these regulations is particularly important because the CARP

arbitrators are not employees of the Federal Government. They are

private individuals to whom controversies are being referred under this

particular form of alternative dispute resolution. Since the

established standards of conduct for government employees are not

applicable to the CARP arbitrators, these regulations must adopt those

and other standards in the specific provisions of part 251.

Instead of proposing specific regulations in our NPRM, we asked for

recommendations as to what standards of conduct should apply to the

CARP arbitrators.

(1) Comments and recommendations. Three of the written comments

addressed standards of conduct.

(i) RIAA/AARC. The RIAA/AARC strongly supported a code of conduct.

On the ground that the characteristics of CARP arbitrators are closest

to those of administrative law judges, they recommended that the Office

base its regulations on the ``Model Code of Judicial Conduct for

Federal Administrative Law Judges,'' and attached to their comment

pertinent provisions of the Code. RIAA, comments at 3-4, and Appendix.

(ii) Music publishers. The Music Publishers also suggested that the

Office adopt rules based on the ``Model Code of Judicial Conduct,'' and

emphasized that the rule should prohibit all ex parte communications

with the CARPs. Music Publishers, comments at 10.

(iii) Copyright owners. The Copyright Owners advocated strict

standards, noting that royalty distributions can involve hundreds of

millions of dollars. They specifically recommended that the Librarian

investigate persons under consideration as arbitrators for conflicts of

interest, and that, if any conflicts are found to exist before or

during the proceeding, the particular individual be disqualified. With

respect to employment of a potential or actual arbitrator by any

interested party, they recommended a pre-employment ban of five years

and a post-employment ban of three years. In their view, however,

current conflicts of interest or recent past employment with an

interested party need not be disqualifying if the parties to the

proceeding unanimously waive the disqualification. The Copyright Owners

also recommended that strict regulations be adopted to prohibit ex

parte communications, or any other appearances of impropriety, and to

rule out unreasonable billing by the arbitrators. Copyright Owners,

comments at 25-29.

(2) Meeting with endispute representatives. As the result of

questions raised during an informal meeting of Copyright Office

officials with two representatives from Endispute, an arbitration

association, we have made some modifications to our sections on billing

(Secs. 251.3, 251.38, 251.54) and our definition of employment

(Sec. 251.36). Those modifications are explained below in our

discussion of each applicable section. A summary of our meeting with

Endispute has been placed in the comment file of this docket and is

available for public inspection.

(3) Basic conclusions. In formulating our interim rules for

standards of conduct, the Copyright Office has considered the

recommendations of the parties, and has incorporated some of them, as

explained below. On the fundamental question of the model to follow,

however, we have decided to base the rules on those promulgated by the

Office of Government Ethics (OGE), rather than the codes of judicial

conduct or codes governing administrative law judges. OGE's rules are

more detailed and rely less on self-reporting or recusal. We believe it

is important that the standards be clearly expressed so that the public

is assured of fairness and the arbitrators know precisely what is

expected of them. It is also important that, rather than merely

expressing good intentions, the rules be enforceable and enforced.

(4) Interim regulations on standards of conduct. Part D of these

interim regulations (Secs. 251.30-39) reflects the Copyright Office's

conclusions as to the general and specific standards to govern the

conduct of CARP arbitrators. The following is a summary of these

interim rules, and we solicit detailed comments on any or all of them.

(i) Basic obligations of arbitrators. Section 251.30 provides the

basic obligations of the arbitrators in general terms. It is derived

from Title 5, Sec. 2635.101 of the rules of the Office of Government

Ethics, as modified to meet circumstances applicable to the CARP

arbitrators.

The general obligations set out in Sec. 251.30 apply both to the

arbitrators selected to preside in a particular proceeding and to the

arbitrators who are listed as available but who have not yet been

selected. They specify that arbitrators: Shall not use their position

for private gain; shall not hold any conflicts of interest; shall not

solicit or accept gifts from interested parties; shall not reveal

nonpublic information; shall not give preferential treatment to any

party, shall not engage in outside activities that conflict with their

duties; shall not seek employment with any interested party; and shall

endeavor to avoid all appearances of impropriety.

In establishing these general obligations, the Copyright Office has

also incorporated provisions from the Model Code for Administrative Law

Judges recommended by the RIAA/AARC. These provisions address the

behavior of arbitrators at hearing: To maintain order and decorum, to

be patient, dignified, and courteous to the parties and witnesses, and

to dispose of business promptly. RIAA, comment at Appendix.

These general obligations are to be considered just as binding as

the specific obligations that follow in Secs. 251.31-38. They are meant

to cover situations not anticipated by the specific sections, but which

nonetheless would constitute a violation of ethical standards.

Complaints based on these general provisions are as valid, and must be

taken as seriously, as those based on specific obligations. While most

of the general obligations have more specific counterparts in the

obligations spelled out in Secs. 251.31-38, some do not. One example is

Sec. 251.30(f), which prohibits bias on the part of an arbitrator. A

specific rule on bias would probably be futile because it could not

envision all possible situations; but, if supported, a charge of bias

could be grounds for disqualification.

(ii) Financial interests. Section 251.31 specifies what constitutes

a financial conflict of interest that would result in an automatic

disqualification to serve. This section does not cover all areas of

potential bias; it applies only to those that involve a current

financial conflict and would result in automatic disqualification.

Other areas of potential bias would be covered by the objection

procedure in Sec. 251.4, as discussed above in connection with that

section and below in connection with these Standards of Conduct

regulations.

(A) Distribution proceedings. Section 251.31 states that, in a

distribution proceeding, the arbitrator may not have a financial

interest in any claimant to that proceeding, or in any copyright owner

that ultimately receives royalties from a claimant to the proceeding,

whether or not the claimant is party to a voluntary settlement. The

reason for disqualifying anyone with a financial interest in a party

that has already settled its dispute is that, since distributions are

annual proceedings, the arbitrator might otherwise be tempted to insert

precedent that could help that party in the following year's

controversy.

As noted, the prohibition against financial conflicts applies more

widely than merely to interests in claimants to the proceeding. It also

covers interests in copyright owners who receive royalties from a

claimant to the proceeding, such as a television producer who does not

file a claim herself but receives royalties from a syndicator who does.

(B) Rate adjustment proceedings. In a rate adjustment proceeding

the arbitrator may not have a financial interest in any copyright owner

or user entity that would be affected by the outcome of the proceeding.

distribution and rate adjustment proceedings, Sec. 251.31(b) defines

``direct or indirect financial interest'' to include employment and

other affiliations, ownerships of securities, and deriving any income,

however small, from an interested party. Section 251.31(c) makes two

specific exceptions to the definition of ``financial interest'': (1)

Where the individual's money is invested in a mutual fund or blind

trust and he or she cannot control the investment decisions; and (2)

where the individual is receiving fixed post-employment benefits that

would not be affected by the outcome of the proceeding, such as

benefits from health insurance or a pension.

(D) Curing a conflict of interest. Section 251.32(b) provides two

ways to cure a conflict of interest: (1) The potential arbitrator may

divest himself or herself of the interest that caused the

disqualification; or (2) the parties may be asked to consider the

nature and degree of the conflict and, if all parties agree that the

conflict is not sufficient to result in disqualification, the

individual may serve.

(E) Objection procedure. Even if the arbitrator does not have a

financial conflict of interest, parties who nonetheless believe a

potential for bias exists for any other reason may petition the

Librarian under the objection procedure described in Sec. 251.4.

Parties will have available to them the employment history,

affiliations, and the general nature of the clients represented by the

potential arbitrators upon which to base their objections. The

Librarian will rule on objections on a case-by-case basis.

(F) Interests of relatives and associates. Section 251.31(d)

specifies that the financial interests of the arbitrator's spouse,

minor child, and business associates are to be imputed to the

arbitrator. This paragraph is derived directly from Sec. 2635.402(b)(2)

of the OGE's regulations.

(iii) Financial disclosure statement. Section 251.32 requires all

listed arbitrators to file confidential financial disclosure statements

with the Librarian, within one month following publication in the

Federal Register of the annual list of arbitrators containing their

names. To maintain the confidentiality of the statements, only the

Librarian and designated Library staff will be permitted to review

them. The Librarian will not select any arbitrator who has a conflict

of interest as defined in Sec. 251.31. When the two selected

arbitrators pick their chairperson, they will have to consult first

with the Librarian to see that the person they nominate has no conflict

of interest. If the Librarian finds that a conflict does exist, the two

selected arbitrators will be asked to choose another arbitrator who has

no conflict of interest.

After the panel is selected, the arbitrators will have one week to

file updated financial disclosure forms with the Librarian: This

requirement is intended to ensure that no conflicts had developed

between the time the arbitrators were listed and the time they were

selected. If any conflicts arise during the later course of the

proceeding, or if any change in an arbitrator's financial interests

presenting a disqualifying conflict of interest is found during the

hearing to have gone unreported, the Librarian will suspend the

proceeding in accordance with Sec. 251.8 of these interim regulations

and replace the arbitrator with another arbitrator from the arbitrator

list.

(iv) Ex Parte communications. Section 251.33 sets out the varying

circumstances under which a ban is imposed on ex parte communications

with: (1) The Librarian of Congress or the Register of Copyrights; (2)

staff of the Library or the Copyright Office; (3) persons selected as

arbitrators in a proceeding; and (4) persons named in the current list

of qualified arbitrators. The section also describes what anyone

receiving a prohibited communication must do, and the possible

consequences of a violation of the rule.

(A) Prohibited communications--(aa) Communications with librarian

or register. (1) Who is banned from communicating: Anyone outside the

Library of Congress or Copyright Office;

(2) What communications are banned: The merits or status of any

matter, procedural or substantive, relating to royalty distribution or

rate adjustment;

(3) When communications are banned: Any time.

(4) Exceptions: Statements on public policies involved in CARP

operations where the discussion is unrelated to specific proceedings;

for example, a discussion on the advisability of amending the copyright

statute.

(bb) Communications with Library of Congress or Copyright Office

staff. (1) Who is banned from communicating: anyone outside the Library

or the Office;

(2) What communications are banned: The substantive merits of any

past, pending, or future royalty distribution or rate adjustment

proceeding;

(3) When communications are banned: Any time.

(4) Exceptions: procedural inquiries. If the employee does not know

the answer, he or she will relay the question to the CARP and pass the

answer back to the inquirer.

(cc) Arbitrators selected by the librarian. (1) Who is banned from

communicating: Interested parties or anyone acting at their instance;

(2) What communications are banned: Total ban on all communications

for any reason.

(3) When communications are banned: A period beginning with the

arbitrator's selection and ending with the filing of the CARP's report,

and, if the matter is remanded, the period starting with the

reconvening of the CARP, and ending with the filing of the final

report.

(4) Exceptions: None

(dd) Arbitrators listed as qualified in current list. (1) Who is

banned from communicating: Interested parties or anyone acting at their

instance;

(2) What communications are banned: The merits of any past,

pending, or future royalty distribution or rate adjustment proceeding;

(3) When communications are banned: The period when the

individual's name appears on the Librarian's current list of qualified

arbitrators;

(4) Exceptions: None.

(B) Action required by recipients of banned communication. Anyone

who receives a prohibited communication is required immediately to end

the communication and place on the public record of the proceeding the

actual communication, if written or recorded, or a description of the

communication, if oral, together with a memorandum describing any

further responses. The communication may not be considered by the CARP

unless and until it is properly submitted into evidence by one of the

parties.

(iii) Action taken by librarian or CARP. Either the Librarian or

the CARP may require the party responsible for the prohibited

communication to show cause why that party's interest in the proceeding

should not be dismissed or otherwise adversely affected. This provision

is derived from section 557 of the Administrative Procedure Act.

(v) Gifts and other things of monetary value. Section 351.34 deals

with the ethical question of when, if ever, an arbitrator may accept

gifts or other things of monetary value ``from a person or organization

having an interest that would be affected by the outcome of the

proceeding,'' whether or not there was any intent to influence the

outcome. The ban would be total for arbitrators actually selected for a

CARP, and somewhat less stringent for individuals named as qualified on

the Librarian's current list. The prohibition covers both direct and

indirect solicitation and acceptance of gifts or things of value; it

extends to gifts or other monetary benefits to the individual's family,

or to a charity, if provided with the knowledge of or at the instance

of the selected or listed arbitrator.

(A) Selected arbitrators. For arbitrators who have been selected to

serve on a CARP, Sec. 251.34 establishes a total ban on the

solicitation or acceptance of any gifts or other monetary benefits, no

matter how small in value. The prohibition would be in effect from the

time of the arbitrator's selection through the submission of the CARP

report, and during any court-ordered remand.

(B) Listed arbitrators. The ban also applies to arbitrators named

on the Librarian's current list, but with two exceptions: (1)

Acceptance of gifts or other things, including meals, where their value

is less than $20 per occasion and less than $50 in a calendar year; and

(2) acceptance of gifts or other things when the circumstances make it

clear that the action was motivated purely by family and personal

relationships. These two exceptions are derived from the OGE's

regulations, and are intended to make plain that nominal, unsolicited

benefits cannot be used to disqualify a potential arbitrator. They are

not intended to encourage gift-giving under any circumstances,

especially where, as here, arms-length relationships should be the rule

rather than the exception.

(vi) Outside employment and other activities. Section 251.35

specifies that, once an arbitrator has been selected for a CARP and

until all possibility of a court-ordered remand is ended, the

arbitrator is required to refrain from any outside activity that would

raise a question about the individual's ability to render an impartial

decision. This ban extends beyond matters that could be considered a

financial conflict of interest, and beyond receipt of gifts or other

things of value. The following are examples of prohibited activities:

giving free legal advice; attending a gathering sponsored by an

interested party; giving a speech related to the proceedings; or

accepting direct or indirect payment of honoraria. The ban on honoraria

covers appearances, speeches, and articles that are related to the

proceeding or, if the offer is from an interested party, that are

related to any matter.

(vii) Pre-arbitration and post-arbitration employment restrictions.

Section 251.36 provides that no arbitrator will be selected for a CARP

if he or she had been employed within the previous five years by a

party financially interested in the proceeding, although this rule may

be waived under certain circumstances with the unanimous consent of the

parties. The section also prohibits arbitrators from arranging future

employment with any party to the proceeding, and from entering into

employment with any party for three years after the date of the CARP

report. ``Employment'' for these purposes is given its most expansive

meaning to include any business relationship that involves the

providing of personal services, but not including service as an

arbitrator, mediator, or neutral. The five-year rule for pre-

arbitration employment, and the three-year rule for post-arbitration

employment, is based on the comments of the Copyright Owners. Copyright

Owners, comment at 26-27. The definition of ``employment'' comes from

Sec. 2635.603(a) of the OGE's regulations. The exception for employment

as an arbitrator, mediator, or neutral was adopted following our

discussion with Endispute.

(viii) Use of nonpublic information. As noted earlier, it is our

intention that CARP proceedings be conducted as openly as possible. In

proceedings such as these, however, there will necessarily be

information that must be kept confidential, and Sec. 251.37 deals with

these situations. Arbitrators are not to reveal any information from

filings, pleadings, or evidence that the CARP has ruled to be

confidential. Nor, unless required by law, are arbitrators to disclose

any of the following: Intra-panel communications, or communications

between the Library and the panel, intended to be confidential; draft

rulings or decisions; and the final CARP report before it is submitted

to the Librarian. Section 251.37(c) also prohibits an arbitrator from

using nonpublic information for personal profit or for the profit of

anyone else. This provision was derived from Sec. 2635.703 of the OGE's

regulations.

(ix) Billing and commitment to standards. In response to requests

from the parties that these regulations seek to ensure that

arbitrators' charges are reasonable, we have adopted the following

provisions on billing:

(A) Bound by initial proposal. Arbitrators will be bound by the

hourly or daily charge they proposed when their names were first

submitted for listing by the Librarian. See Sec. 251.3. They will not

be allowed to charge in excess of those rates. We think this

requirement will induce arbitrators to quote reasonable rates, since

they know that their selection by the Librarian will be based in part

on this factor.

In our discussions with Endispute a suggestion was made to allow

arbitrators to charge a reasonable cancellation fee if a proceeding is

settled early, to compensate them for having cleared their schedules.

We have not adopted the proposal in these interim regulations, but we

solicit comments on whether a cancellation fee is justifiable and, if

so, how it might be worked into the overall CARP scheme for paying

arbitrators.

(B) Incidental expenses. Arbitrators residing within the

Washington, DC metropolitan area11 will not be allowed to bill for

incidental expenses such as local travel, meals, telephone calls,

postage, and the like. All their incidental expenses will have to be

absorbed entirely in the hourly or daily rate the arbitrator proposes.

Arbitrators can, and doubtless will, take their incidental expenses

into account when proposing their rate. In addition, as required by

section 801(d) of the Copyright Code, the Library and the Copyright

Office will provide the CARPs with necessary administrative services,

and this will sharply reduce some of the arbitrators' incidental

expenses. Arbitrators who reside outside the Washington, DC

metropolitan area will be allowed to add their expenses for travel,

lodging, and meals to their bills so long as these expenses do not

exceed the applicable government rate.12

---------------------------------------------------------------------------

\1\1The Washington, DC metropolitan area is comprised of the

District of Columbia, the independent cities of Alexandria, Fairfax,

and Falls Church, the Virginia counties of Arlington, Fairfax, and

Loudoun, and the Maryland counties of Montgomery and Prince Georges.

\1\2As of January 1, 1994, the government rate for the

Washington, DC metropolitan area is lodging not to exceed $113 a

day, and $36 for meals ($8 breakfast, $8 lunch, $20 dinner).

---------------------------------------------------------------------------

detailed account of the work they performed during their billed time.

This should give the parties a means of reviewing the reasonableness of

the charges.

(D) No billing for support services. Except for support services

provided by the Library of Congress and the Copyright Office, the

arbitrators will be required and expected to perform their own work,

including research, analysis of the record, and decision-writing.

Although it might be argued that delegating some more routine work to

others could lower the bill, this practice would undermine the full use

of the arbitrators' experience and expertise, which were the reasons

for their selection.

(E) Signed agreement. Finally, the Library will require all

arbitrators to sign an agreement at the time of their selection,

stating that they will abide by all of the standards of conduct and

billing restrictions specified in this subpart. Failure to sign the

agreement will preclude selection of the individual for a CARP.

(x) Sanctions and remedies. Section 251.39 specifies some of the

sanctions and remedies for the violation of the standards of conduct

provided by this subpart. The listings, which are not exhaustive, are

divided into subsections laying out the sanctions and remedies

applicable to: (1) Selected arbitrators; (2) listed arbitrators; and

(3) interested parties who engaged in ethical violations. A final

subsection, applicable to any and all violations of the standards of

conduct under these regulations, authorizes the Librarian of Congress

to refer the matter to the Department of Justice or other law

enforcement authority for criminal prosecution. The following is a

summary of Sec. 251.39:

(A) Selected arbitrators. Sanctions and remedies applicable only

against arbitrators selected to serve on a CARP: Removal from the

proceeding;

(B) Selected and listed arbitrators. Sanctions and remedies

applicable against both arbitrators selected to serve on a CARP and

persons listed as qualified in the Librarian's current list:

(aa) Permanent removal of the person's name from the current and

any future list of available arbitrators published by the Librarian;

(bb) Referral of the matter to the organized bar of which the

person is a member for possible disciplinary action; and

(cc) Referral of the matter to competent law enforcement authority

for possible criminal prosecution.

applicable against interested parties or individuals who violate the

ethical standards established by this regulation:

(aa) Referral of the matter to the organized bar or professional

association of which the offending individual is a member for possible

disciplinary action;

(bb) Barring the offending individual from current appearances

before the CARP, from future appearances, or both;

(cc) Designation of an issue in the current or in a future

proceeding, requiring the party to show cause why its interest should

not be dismissed, denied, or otherwise adversely affected; and

(dd) Referral of the matter to competent law enforcement authority

for possible criminal prosecution.

On the question of referral of cases for criminal prosecution we

note that, although arbitrators are not Federal Government employees,

we are firmly of the opinion that U.S. criminal provisions do apply to

attempts to influence them. Title 18 U.S.C. 201, which prohibits the

influencing of public officials, defines public officials as

* * * an officer or employee or person acting for or on behalf of

the United States, or any department, agency or branch of Government

thereof, including the District of Columbia, in any official

function, under or by authority of any such department, agency, or

branch of Government, or a juror. [emphasis supplied]

We believe that arbitrators are persons acting for or on behalf of the

Library of Congress by the authority of the Librarian. Therefore,

although we certainly hope the situation never arises, we will not

hesitate to refer for criminal prosecution attempts to influence the

arbitrators.

Questions may well be asked as to how the Library of Congress would

go about removing a selected arbitrator from a proceeding under this

subpart, and the legal basis for such an action. We believe that the

appropriate procedure for the Librarian would involve suspension of the

proceeding under Sec. 251.8, issuance of an order declaring the

arbitrator's seat vacant and the reasons for that action, and

appointment of a replacement under Sec. 251.6. The legal basis for the

action would be the arbitrator's violation of these regulations, and

the breach of his or her contract with the Librarian of Congress under

which the individual was committed to observe these regulations. We

invite comments on these conclusions, and on other possible sanctions

and remedies for violations of these rules.

(xi) Appendix to this preamble: Examples of typical fact

situations. In setting these standards of conduct, the Office is aware

that the interests that could be affected by rate adjustment and

royalty distribution proceedings are quite extensive. We therefore wish

to make sure, especially in the area of financial conflicts of

interest, that we have set the standard at an appropriate point. Should

we cast the net wider in our efforts to anticipate bias, or, on the

contrary, have we gone too far? As an appendix to this preamble, we

have set out ten examples (with their related section numbers) of

situations that seem likely to occur in the next few years. We solicit

comments as to whether or not these situations should be grounds for

eliminating an arbitrator from consideration by the Librarian to serve

on a panel. Please note that these examples are intended solely to

focus thought and elicit opinions; they are in no way intended to

suggest our opinions on how they should be answered.

(e) Subpart E--Procedures of Copyright Arbitration Royalty Panels

(1) Formal hearings--(i) Phase I and Phase II proceedings. In cable

royalty distribution proceedings, the former Tribunal traditionally

divided the proceeding into two phases. In Phase I, the Tribunal

determined the percentage allocation of the royalty pool among nine

categories of claimants.13 Then, if there were any disputes within

a claimant category, the Tribunal would move to Phase II and make a

suballocation. However, this procedure was ``common law'' at the

Tribunal and was not embodied in Sec. 251.41, which states only that

formal hearings will be conducted for royalty distribution. It was not

adopted, even as ``common law,'' for satellite royalty distribution

proceedings because the first three yearly funds were completely

settled.

---------------------------------------------------------------------------

\1\3The nine Phase I categories were: Program Suppliers, Sports,

Commercial Television, Music, Noncommercial Educational Television,

Devotional Claimants, Canadian Claimants, Noncommercial Educational

Radio, and Commercial Radio. The claimant categories resulted mostly

from the way the claimants themselves coalesced before the Tribunal,

as they were entitled to do under section 111.

---------------------------------------------------------------------------

We solicit comments on the following:

Is the procedure of dividing a cable distribution proceeding into

Phases I and II a precedent that is binding on the Copyright Office?

If not, should it nonetheless be followed?

If it should be followed, should we adopt rules governing the

procedure?

Should those rules include a definition of each of the Phase I

categories?

(ii) ``Paper'' proceedings. As proposed, Sec. 251.41(b) of the NPRM

permitted the parties to petition the Librarian to have their

controversy decided solely on the submission of written pleadings.

However, the section did not identify the basis on which the Librarian

would rule in favor of the petition. The Music Publishers urged that

the basis should be the same as that for summary judgment set forth in

Rule 56 of the Federal Rules of Civil Procedure: ``that there is no

genuine issue as to any material fact.'' Music Publishers, comment at

9-10.

The Copyright Owners proposed a procedure called ``summary

decision,'' which would use the same standard: ``no genuine issue for a

hearing.'' They also proposed including a procedure for ``motions to

dismiss'' for disposing of claims or petitions, which would be handled

within the same framework. Motions for ``summary decision'' and

``motion to dismiss'' could be filed with the CARP panel or, if no

panel had been constituted, with the Librarian. Copyright Owners,

comment at 24.

The Office agrees with Music Publishers and Copyright Owners: the

grounds for granting a petition for a ``paper hearing'' should be that

no genuine issue exists as to any material fact. We have added a second

ground supporting petitions for ``paper hearings'': if all parties to

the proceeding agree to the petition.

As under the NPRM, petitions asking that a controversy be decided

on the basis of written pleadings may be filed with the Librarian

during the 30-day pre-hearing periods provided in Secs. 251.45 and

251.63. If the Librarian finds that there is no factual issue requiring

a formal hearing, or that all parties agree that the petition should be

granted, he or she may decide in favor of ``paper proceedings.'' Unlike

the NPRM, however, Sec. 252.41 now gives the Librarian alternative

discretion to designate the request for a paper proceeding as an issue

for the CARP. Similarly, the procedure for a motion to dismiss, to be

found in Sec. 251.45(b), is to file it with the Librarian who may, in

his or her discretion, decide the motion to dismiss or designate it an

issue for the panel.

(2) Suspension or waiver of rules. Section 251.42 provides that a

CARP, for purposes of that panel's individual proceeding only, may

waive the procedural provisions of the rules upon a showing of good

cause. Copyright Owners have asked that any waiver of the procedural

rules by the panel be allowed only if all the parties to the proceeding

agree. Copyright Owners, comment at 23.

The Copyright Owners may be concerned that the discretion of the

panel to waive rules could lead to a denial of due process, but the

proposal to allow waivers only with the unanimous consent of the

parties may go too far in the opposite direction. It might hinder a

CARP's efforts to do justice in an individual instance, and it might

give the party opposing the waiver unfair leverage. For example, the

panel might want to waive the rules that allow only direct and rebuttal

testimony, thus permitting surrebuttal testimony in the interest of

getting more information. If unanimous consent were needed for the

waiver, however, the party that might be disadvantaged by the

additional information would have a veto.

The Office has decided to retain this provision as written, but we

will closely monitor the circumstances under which future CARPs find

good cause to suspend or waive the rules. Should any patterns of

unfairness or denial of due process begin to emerge, we will revisit

this provision.

(3) Filing and service of written cases and pleadings--(i)

Attestation of Written Testimony. Section 251.44(d) requires that the

written testimony of each witness be accompanied by an affidavit or

declaration. Copyright Owners asked that this requirement be deleted

and be made optional because witnesses testify orally under oath, and,

in essence, swear twice. Copyright Owners, comment at 23. However,

because some testimony is stipulated and is entered into the record

without oral testimony, we have decided to retain the provision.

(ii) Typographical error. With regard to subsection (e)(1) of

Sec. 251.44, the Copyright Owners noted a typographical error: The word

``not'' was inadvertently left out when the subparagraph was carried

over from the former Tribunal's rules. Copyright Owners, comment at 23.

The correction has been made.

(iii) Service list. Subsection (f) requires the parties to a

proceeding to serve everyone on the service list when making a filing

with the CARP or the Librarian. The Copyright Owners asked that the

section be amended to require the Librarian to develop a service list

for each proceeding and distribute it to the parties so that they can

comply with the requirements of service. The Copyright Owners also

asked for the rule to specify that each party to a proceeding has an

obligation to inform the Librarian of changes in its name or address

affecting the service list. Copyright Owners, comment at 23. These are

both good suggestions with which we agree, and we have amended the

subsection accordingly.

(iv) Oppositions and replies. Copyright Owners requested that one

or more new paragraphs be added to Sec. 251.44 to provide for automatic

pleading cycles whenever motions are filed in a proceeding. They

recommended that oppositions to motions be filed within ten days and

replies to oppositions be filed within five days of the date of

service. Copyright Owners, comment at 23-24. The former Tribunal's

rules did not contain provisions on these points, which we agree will

be useful. Accordingly we have added a new subsection (g) to

Sec. 251.44.

(4) Precontroversy motions and discovery. Section 251.45, as

proposed in the NPRM, provided a period for precontroversy exchange of

documents and discovery, and the filing of precontroversy motions and

objections. The resolution of these precontroversy actions would have

been made by the Librarian.

(i) Comments of copyright owners. The Copyright Owners supported,

in principle, the concept of a period of discovery to take place before

the 180-day arbitration period, as a means of reducing hearing costs

and focusing the issues to be decided. However, they argued that

precontroversy discovery would be a ``wasted effort'' if it were to

occur before the filing of the written direct cases, and that discovery

requests should be focused on actual written cases rather than general

information. They also urged that resolution of precontroversy matters

should be made by the CARP, not by the Librarian, because the panel

would ultimately be the body to determine the relevance of the

proffered facts. Copyright Owners, comment at 6-9. To achieve what the

based on written direct cases--it would be necessary to have the

written direct cases filed, and the CARP empaneled, before the

beginning of the 180-day arbitration period.

To accomplish this goal in accordance with the provisions of the

made between ``the commencement of proceedings,'' 17 U.S.C. 803(d), and

the ``notice initiating an arbitration proceeding,'' 17 U.S.C. 802 (b)

and (e). Under this theory the Office would first declare the

``commencement of proceedings'' and thereupon require the filing of

written direct cases and empanel the CARP; discovery motions and

objections would be ruled on by the CARP. After discovery is complete

the Office would then ``initiate an arbitration proceeding,'' and at

that point the 180-day arbitration period would begin to run. Copyright

Owners, comment at 9-12.

(ii) Amendment of Sec. 251.45. We agree with the Copyright Owners

that precontroversy discovery before the filing of written direct cases

would not be productive. At worst it could raise the costs of

litigation and become a fishing expedition to harass an opposing

claimant. However, as a matter of statutory construction, the Office

cannot agree that the ``commencement of proceedings'' can be

conceptually separated from ``initiating an arbitration proceeding'' so

as to permit the CARP to sit earlier than the 180-day arbitration

period. Section 802(b), which first uses the phrase ``initiating an

arbitration proceeding,'' employs it in the context of ``a notice in

the Federal Register initiating an arbitration proceeding under section

803 * * *'' In Sec. 803, the notice to which Sec. 802(b) refers is the

``notice of commencement of proceedings.'' Therefore, the phrases refer

to each other and must be considered synonymous. Although, as noted in

the NPRM, Chairman Hughes in his statement accompanying the CRT Reform

Act recommended that our regulations provide for precontroversy

discovery ``to the extent practicable,'' we have come to the conclusion

that there is no way to accomplish this goal under the statutory

scheme.

We have therefore amended Sec. 251.45 to eliminate the proposal for

precontroversy discovery, and we have not adopted the Copyright Owners'

recommendation to have discovery of written direct cases ruled on by

the Panel before the 180-day period, because we do not believe that the

statute allows for it.

(5) Transcript and record. We have reviewed Sec. 251.49 on our own

motion. The former Tribunal's rules required persons wishing a copy of

the hearing transcript to purchase it from the official reporter, but

we think the public should not only be able to inspect the transcript

but also to make their own copies. We have therefore amended the

section to provide that, during the proceeding, the public will have

the opportunity to copy the transcript at a location specified by the

CARP chairperson. After the proceeding, the transcript and the rest of

the written record will be available at the Copyright Office for

copying.

In addition, partly for reasons discussed above in connection with

Sec. 251.6, we solicit comments on whether the hearing sessions should

be recorded on video as well as audio tape. Videotaping would add to

the costs of the proceeding, but it would have several advantages: (1)

Ensuring the accuracy of the official transcript, (2) allowing the

arbitrators to reach a better decision by helping them to review the

case more accurately, and (3) affording arbitrators who missed any

portion of the proceeding, because of illness or because they were

appointed after the proceeding had begun, an opportunity to make up for

their absences.

(6) Assessment of costs of arbitration panels. Section 251.54

provides for the assessment of the costs of the Arbitration Panels.

(i) Comments on assessments in distribution proceedings. The

to provide that, in distribution proceedings, the costs of the CARPs be

deducted from the relevant royalty fund. Copyright Owners, comment at

24. RIAA/AARC, comment at 4. The Office finds that it does not

currently have authority to adopt this proposal. Section 802(h)(1) of

the Copyright Code states: ``The Librarian of Congress and the Register

of Copyrights may * * * deduct from royalty fees * * * the reasonable

costs incurred by the Library of Congress and the Copyright Office

under this chapter.'' It does not provide that the Office can deduct

the costs incurred by the CARP.

We agree that this is an unsatisfactory result. The Librarian of

Congress, with input from the Copyright Office, is in the process of

drafting ``financial reform'' legislation that would deal with this

problem among other fiscal matters affecting the Library; we hope that

the legislation will be introduced and enacted in the 103rd Congress.

As currently drafted, title V of the proposed bill would add the

following provision dealing with the point at issue here:

In distribution proceedings, the Librarian of Congress and the

collected under this title the reasonable costs incurred by the

deductions at such intervals and in such manner as the Librarian of

Congress shall by regulation provide. Such deduction shall be made

before the fees are distributed to any copyright claimants.

Claimants shall bear the costs of the copyright arbitration royalty

panels in direct proportion to their share in the distribution.

We invite further comments on this problem. Should the proposed

legislation be enacted we would, of course, go forward with additional

regulatory proceedings aimed at implementing it.

(ii) Comments and assessments in ratemaking proceedings. NCTAs

expressed concern about the assessment of costs in a ratemaking

proceeding. Section 251.54(a)(1) repeats the statutory language from

Sec. 802(c): ``In the case of a rate adjustment proceeding, the parties

to the proceeding shall bear the entire cost thereof in such manner and

proportion as the panel shall direct.'' NCTA believes that it would be

unfair for it to be assessed part of the costs of a rate adjustment

proceeding it did not initiate; speculating that it could find itself

defending an existing rate only because some other party petitioned to

have it reconsidered. NCTA asked that the arbitrators be instructed to

proceed on the presumption that the party seeking the rate adjustment

should bear the costs of the proceeding. NCTA, comment at 3.

When the Tribunal was in existence, the costs of a rate adjustment

proceeding were borne by the taxpayers, because the only authority the

Tribunal had to assess its costs to the parties was for distribution

proceedings. See, former 17 U.S.C. 807. Therefore, neither the

petitioners nor the nonpetitioners paid any of the costs of a rate

adjustment proceeding. With the adoption of the CRT Reform Act,

Congress made a policy decision that taxpayers no longer would pay for

the rate adjustment proceedings, and that the costs would be entirely

borne by the parties. However, we cannot find any suggestion, nor is

there any reason to believe, that Congress wanted to put the costs of

the proceeding on the petitioner alone. On the contrary, Congress

expressly stated that all the parties to a ratemaking proceeding shall

pay, and left it to the panel to decide only the manner and proportion

of their payments. The effect of putting the costs on the petitioner

would be to make petitioners pay a high price for the periodic rate

reviews that are already scheduled and contemplated by Congress.

NCTA's concern about a frivolous petitioner for rate adjustment may

be justified. However, Sec. 803 of the Copyright Code provides that

only petitioners with a significant interest in the rate can initiate a

rate adjustment proceeding. Therefore, frivolous petitions or petitions

from noninterested persons will be dismissed. However, once a

petitioner with a significant interest petitions, the rate review

becomes a matter of the public interest, because any member of the

public may potentially pay, be a recipient of, or be affected by the

rate. Therefore, since the burden should be shared by both the owners

and users in an inquiry as to which rate would best serve the public

interest, we cannot agree with NCTA's request.

(iii) Comments on billing cycle. Endispute expressed concern with

the NPRM's proposal to have the arbitrators bill the parties only after

the submission of the panel's report to the Librarian. In a 180-day

proceeding, the arbitrators might have to wait seven to eight months

before receiving any compensation. Endispute urged that the arbitrators

be able to bill the parties monthly, but this would raise difficulties

in a distribution proceeding. There, the parties, by law, are to pay

the arbitrators in proportion to their share of the fund, but their

share will not be known until the end of the proceeding.

Because of this problem we have not included a provision for

monthly billing in this interim regulation. At the same time we are

soliciting comments on the advisability of monthly billing and how it

might be accomplished, given the statutory requirement that parties pay

in proportion to their share of the fund. We are also interested in

comments on the feasibility of alternatives to monthly billing, such as

requiring the parties to make advance partial payments until a final

bill can be prepared.

(4) Amendment of Sec. 251.54. After reviewing the question of

assessments, we have decided to modify the rule to take account of the

possibility that, after the CARP has made its report, the Librarian may

change the final distribution percentages or the percentages may be

changed because of a court-ordered remand. As amended, the section

requires the parties who have paid the arbitrators according to earlier

percentages to reimburse each other to reflect the final percentages.

(f) Subpart F--Rate Adjustment Proceedings

(1) Scope and commencement of adjustment proceedings. In its

comments EIA challenged the Office's characterization in Secs. 251.60

and 251.61 of the authority to raise the DART royalty maximum as a

``rate'' adjustment proceeding. They argued that the charge--2% of the

transfer price--cannot be changed by the Librarian, and that only the

maximum of $8/$12 per device can. EIA, comment at 3-4. Whether the word

``rate'' encompasses only the applicable percentage, or whether it also

includes the floors and ceilings on that percentage, does not have to

be addressed here because, as noted above, the review of the DART

royalty maximum by the Librarian is not a CARP proceeding. Therefore,

the Office has deleted the references to it in Secs. 251.60 and 251.61.

(2) Period for consideration. Section 251.63 provides a 30-day

period before a rate adjustment proceeding to give the parties an

opportunity to settle their differences.

(i) Comments of copyright owners. The Copyright Owners have asked

that the first sentence be amended to clarify that the period is for

consideration ``of settlement.'' Copyright Owners, comment at 25. The

Office concurs, but has further modified the phrase to read

``consideration of their settlement.'' This is because it cannot be

known officially who all the parties to a rate adjustment proceeding

will be until the proceeding is initiated and everyone has had an

opportunity to file notices of intent to participate. Therefore, pre-

proceeding settlements can be reached only by those parties who make

themselves known to each other, and the most that can be achieved is a

settlement of their differences.

(ii) Comments of music publishers. The Music Publishers asked how a

rate settlement reached during the period before convening of the CARP

could be approved by the Librarian. Music Publishers, comment at 7-8.

If there is a settlement among the known parties, no approval by the

Librarian is necessary. Either it will result in a withdrawal of the

rate petition, or it will become the jointly-held position of the

parties to the settlement as to what the new rate should be. Once their

jointly-held position becomes known, it cannot be considered a full

settlement until the rate is proposed to the United States public,

either in a notice-and-comment proceeding or in a CARP

proceeding.14

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\1\4The settlement that was reached in the 1987 mechanical

license rate adjustment among Music Publishers, RIAA and the

Songwriters Guild of America (SGA) was not approved as a final

disposition of the rate adjustment by the Tribunal. It was proposed

to the public in a notice-and-comment proceeding to see if the

jointly-held position of these three organizations should become the

basis of the Tribunal's rate adjustment. The comments agreed with

Music Publishers/RIAA/SGA's proposal, and only then did the Tribunal

adopt it. 1987 Adjustment of the Mechanical Royalty Rate, 52 FR

22637 (1987).

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(iii) Request for comments. The Office has made no changes in the

interim rule. However, we are interested in comments concerning the 30-

day settlement period in rate adjustment proceedings. We have two

specific questions:

If a settlement is reached, would it be a useful alternative to the

convening of a CARP for the Library/Office to propose the agreed-upon

rate to the public in a notice-and-comment proceeding?

Does the Librarian have authority to adopt such a procedure, or

would the convening of a CARP be required?

(3) Assessment of costs. Section 251.65 is based on Sec. 802(h)(1)

of the statute as amended by the CRT Reform Act, which allows the

Librarian of Congress and the Copyright Office to assess their

reasonable costs to the parties ``to the most recent relevant

arbitration proceeding.'' EIA commented that this assessment is only

permitted, according to Sec. 802(h)(1), ``if no royalty pool exists

from which their costs can be deducted.'' EIA, comment at 4. EIA's

point is well-taken, and the Office has modified the section

accordingly.

EIA requested further that the costs of the proceeding to raise the

DART royalty maximum by the Librarian be assessed to the DART royalty

pool. EIA, comment at 5. However, as noted above, this proceeding is

not a CARP proceeding and is therefore not germane to this rulemaking.

(g) Subpart G--Royalty Fee Distribution Proceedings

The Copyright Office is adopting subpart G as proposed in the NPRM

with one technical amendment. The reference to ``cable television'' in

Sec. 251.72(a) and Sec. 251.73 is being changed to read ``cable,'' as

noted in the preamble discussion to Sec. 251.2.

(h) Part 252--Filing of Claims to Cable Royalty Fees

Part 252 prescribes the filing requirements for claims to cable

royalties. As noted in the NPRM, the procedural system for filing cable

claims borrows heavily from the one adopted by the former Tribunal for

the filing of digital audio claims. See 58 FR 53822 (1993).

(1) Content of claims. Section 252.3 prescribes the general

requirements for the submission and content of cable royalty claims.

(i) Joint claimants. The CRT's requirements for filing DART claims

included provisions dealing with joint claims. In setting out the

required content of claims, subsection (a)(3) provides:

If the claim is a joint claim, a concise statement of the

authorization for the filing of the joint claim. For this purpose a

performing rights society shall not be required to obtain from its

members or affiliates separate authorizations, apart from their

standard agreements.

Subsection (e), as adopted from the CRT's regulations and proposed in

the NPRM, provided:

All claimants filing a joint claim shall make available to the

claimants covered by the joint claim.

(A) Comments of PBS. According to PBS, when it comes to joint

claims it is unclear, under subsections (a)(3) and (e) of Sec. 252.3,

how to satisfy the requirement in subsection (a)(4) for identifying a

secondary transmission that ``establish[es] the basis for the claim.''

Would the requirement be satisfied by identifying at least one

secondary transmission for at least one of the claimants included

within a joint claim? Or is it necessary to identify at least one such

transmission for each individual claimant included within the joint

claim? PBS, comment at 2.

PBS argues that the former interpretation is the correct one, since

the requirement in subsection (e) for filing a list identifying all

joint claimants would not be necessary if each joint claimant had to

identify a secondary transmission. Further support for this

interpretation is drawn from the fact that Sec. 252.3 is adopted from

the filing requirements for DART, which clearly do not require each

joint claimant to identify one or more of his or her songs that were

the subject of a digital transmission. PBS, comment at 2-3.

PBS asks us to clarify this matter and amend Sec. 251.3 so as not

to require identification of a secondary transmission for each joint

claimant. They note that they currently spend upwards of 300 hours a

year on this requirement,15 which they argue serves no substantive

purpose beyond providing a jurisdictional basis for a party to

participate.

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\1\5It is clear that under Sec. 302.7 of the former Tribunal's

rules each joint claimant was required to identify at least one

secondary transmission of its copyrighted works.

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(B) Amendment of Sec. 252.3(e). We acknowledge that Sec. 252.3 as

proposed in the NPRM muddies the waters for the filing of cable royalty

claims, and of satellite royalty claims as well. We are troubled,

however, by changing what had been a longstanding requirement at the

Tribunal for obliging all claimants to identify at least one secondary

transmission of their copyrighted works. While such requirement does

undoubtably add to the time and expense burdens of joint claimants such

as PBS, it is not without purpose. The law states plainly that cable

compulsory license royalties are only to be distributed to ``copyright

owners who claim that their works were the subject of secondary

transmissions by cable systems during the relevant semiannual period.''

17 U.S.C. 111(d)(3). To support such a claim, each claimant may

reasonably be asked to identify at least one secondary transmission of

his or her work, thus permitting the Copyright Office to screen the

claims and dismiss any claimants who are clearly not eligible for

royalty fees. The requirement will also help to reduce time spent by a

CARP determining which claimants have a valid claim: If only one

secondary transmission is identified for one of the joint claimants,

then it could not readily be determined if the other claimants were

even eligible for cable royalties.

In an effort to end this confusion we are deleting subsection (e)

with its requirement that joint claimants submit a list identifying all

the claimants. Instead, we are amending subsection (a)(4) to require

that each claimant to a joint claim, other than a joint claim filed by

a performing rights society on behalf of its members or affiliates,

must identify at least one secondary transmission of his or her works.

(ii) Address and name change. Subsection (c) of Sec. 253.3 provides

that ``[i]n the event that the legal name and/or address of the

claimant changes after the filing of a claim, the claimant shall notify

the Copyright Office of such change within 30 days of the change.''

Failure to provide this notification could, under certain

circumstances, make the claim subject to dismissal. Copyright Owners

request that subsection (c) be deleted in its entirety because ``it

could be an unnecessary draconian trap for the unwary (or wary)

claimant.'' Copyright Owners, comment at 25.

It is not the intention of the Copyright Office that subsection (c)

should be used to dismiss otherwise valid claims. The concern is that

the Office must be able to communicate with the claimants, especially

if an action requires prompt disposition. To take one example, suppose

one party files a motion to dismiss another party's claim, and the

claimant has moved and there is no response. There would be no means to

find out whether the first party's motion is valid in that situation.

Subsection (c) is intended to give the Office authority to dismiss for

failure to prosecute a claim in cases where the Office was not given

timely notice of the change of address or name.

At the same time, we acknowledge the possibility that the 30-day

deadline for notifying the Office of an address or name change could

work hardships. We have therefore amended subsection (c) to provide

that dismissal may only occur after the Office has made a good faith

attempt to communicate with the claimant, and the effort failed because

the claimant did not inform the Office of a change in legal name or

address.

(2) Compliance with statutory dates. Section 252.4 implements the

statutory requirement that cable claims must be made in the month of

July for royalties from the preceding calendar year. Subsection (b)

provides that a cable claim is timely filed if it is mailed with the

U.S. Postal Service and bears a U.S. postmark during the month of July.

(i) Comments of copyright owners: Canadian and Mexican mailings.

The Copyright Owners have asked that the provision for a July U.S.

postmark be expanded to include mailings from Canadian and Mexican post

offices. Copyright Owners, comment at 25. The Copyright Owners did not

document their request, and the Office is uncertain about the authority

or feasibility of acceding to it. We have therefore decided not to

accept the Copyright Owners' proposed amendment at this time, but we

invite them, and any other interested parties, to provide further

information and comments on the question.

(ii) Amendments of Sec. 252.4. After reviewing the timeliness

requirement, we have decided to add a new subsection (b) to Sec. 252.4,

in recognition of Sec. 703 of the Copyright Code.16 The new

subsection provides that, when the last day of July falls on a

Saturday, Sunday, holiday, or other nonbusiness day in the District of

Columbia or the Federal Government, the Copyright Office will accept

claims received in the Office on the first business day in August, and

will also accept claims bearing a U.S. postmark dated on the first

August business day.

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\1\6Section 703 of the Copyright Code states, ``In any case in

which time limits are prescribed under this title for the

performance of an action in the Copyright Office, and in which the

last day of the prescribed period falls on a Saturday, Sunday,

holiday, or other nonbusiness day within the District of Columbia or

the Federal Government, the action may be taken on the next

succeeding business day, and is effective as of the date when the

period expired.''

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The Copyright Office is also amending Sec. 252.4 by making a

consequential change in subsection (c), and by adding new subsections

(d) and (e). Subsection (d) provides that no claim may be filed by

facsimile transmission. Under new subsection (e), parties whose claims

were not timely received by the Office will be given an opportunity to

offer proof of delivery. A claimant who sent a claim which was properly

addressed17 and properly mailed, but which was nonetheless

received late by the Copyright Office or was not received at all, may

still be able to prove the validity of his or her filing. If the claim

was sent by certified mail, return receipt requested, we will accept

the claim if the claimant can produce the receipt showing that it was

properly mailed. We will not accept as evidence either the affidavit of

an officer or employee of the claimant, or the affidavit of a U.S.

postal worker.

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\1\7A claim addressed to the former Tribunal will not be

considered properly addressed.

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(3) Proof of fixation of works. Section 252.5 of our earlier

interim regulation, which was imported from the CRT rules, provided a

detailed procedure for proving fixation of a work for which a cable

claim had been filed. The Copyright Owners have asked that the section

be deleted in its entirety because it is no longer necessary. Copyright

Owners, comment at 25. The Copyright Office agrees. If there are any

future controversies involving whether a work was fixed in a tangible

medium, they can be resolved under the general authority of the Library

and the CARPs to issue dispositive determinations during the course of

a proceeding.

(4) Copies of claims. In place of ``Proof of fixation of works,''

the Copyright Office is adopting a new text in Sec. 252.5. The new

section provides that all claimants must submit an original and two

copies of their claims to cable royalty fees.

(i) Part 257--Filing of Claims to Satellite Carrier Royalty Fees

Although none of the commentators requested any changes in part

257, the Copyright Office is making several amendments modeled after,

and for the same reasons as, the changes made in part 252. Subsection

257.3(a)(4) is amended, and subsection (e) is deleted, to clarify that

each claimant in a joint claim must identify at least one secondary

transmission of his or her works. (See the discussion of filing of

cable claims under Sec. 252.3 above.) Subsection (c) is amended to

allow the Copyright Office to dismiss a claim if it has made a good

faith effort to contact a claimant, but has failed because the claimant

has not informed the Office of a change in name or address. Section

251.4--Compliance with Statutory Dates--is amended by allowing

claimants to file on the first business day in August whenever July 31

falls on a non-business day, adding a prohibition of submission of

claims by facsimile transmission, and allowing claimants to offer proof

of mailing for claims properly mailed but not received by the Copyright

Office. Finally, Sec. 251.5--Proof of Fixation of Works--is eliminated

and replaced with a provision requiring claimants to submit an original

and two copies of each claim to satellite carrier royalty fees.

(j) Part 259--Filing of Claims to Digital Audio Recording Devices and

Media Royalty Payments

Corresponding to our amendments to the rules for filing cable and

satellite claims, we are making the same changes with regard to filing

a DART claim. Section 259.3(c) removes the provision for requiring name

and address changes to be filed within 30 days, and replaces it with a

general obligation to report changes. Section 259.4 is amended by

adding a new subsection (e) which prohibits the filing by facsimile

transmission of the notice of appointment of an independent

administrator. Section 259.5 is changed to allow claimants to file on

the first business day in March whenever the last day in February falls

on a Federal Government nonbusiness day, to prohibit the filing of

claims by facsimile transmission, and to allow claimants who send their

claims by certified mail, return receipt requested, to offer proof of

mailing if the Copyright Office has not timely received the claim. A

new section Sec. 259.6, modeled after Sec. 252.6 and Sec. 257.5, is

added to part 259 requiring the filing of an original and two copies of

claims to DART royalties.

Appendix A to Subpart D--Standards of Conduct

Note: The following Appendix will not appear in the Code of

Federal Regulations.

We use this Appendix to offer ten examples of hypothetical

situations that are intended to probe the proper extent of the

restrictions on financial interests. Many of them refer to Phase I or

Phase II of the former Tribunal's cable proceedings. This is not

intended to presume the actual structure of the CARP proceedings, but

rather to improve the quality of the comments by providing concrete

situations.

Sec. 251.31(a)(1)

Example 1: An arbitrator is being considered for a cable

controversy among five Phase I categories. He has a financial

interest in a claimant that is in one of the other Phase I

categories which has settled its interest in the proceeding. Does he

have a financial conflict of interest?

Example 2: An arbitrator is being considered for a Phase I cable

controversy that includes the Commercial Television Station

category. She has a financial interest in a commercial broadcast

station. However, the station is not a claimant in the proceeding

because it is not carried as a distant signal by any cable system.

Does she have a financial conflict of interest?

Example 3: An arbitrator is being considered for a cable

controversy in which there is a complete Phase I settlement, but

there is one Phase II controversy. He has a financial interest in a

claimant outside of the Phase II category that has the controversy.

Does he have a financial conflict of interest?

Example 4: An arbitrator has a financial interest in a motion

picture production company which does not file a claim for cable

royalties. However, the distributor who syndicates the company's

movies to television does file claims for royalties, and remits to

the film producer a percentage of all his syndication revenues. Does

the arbitrator have a financial conflict of interest?

Sec. 251.31(a)(2)

Example 5: An arbitrator is being considered for a cable rate

adjustment proceeding that would review the 3.75% rate. She has a

financial interest in a cable system that grosses less than $292,000

per half year. The 3.75% rate only applies to cable systems that

gross more than $292,000 per half year. Does she have a financial

conflict of interest?

Example 6: An arbitrator is being considered for a cable rate

adjustment proceeding that would review the 3.75%. He has a

financial interest in a cable network which negotiates carriage on

cable systems in the private marketplace. Does he have a financial

conflict of interest?

Sec. 251.31(b)

Example 7: An arbitrator is being considered for a satellite

carrier distribution proceeding. He is an affiliate of a performing

rights society, and receives, on average, $100 a year for a song he

wrote 30 years ago. Does he have a financial conflict of interest?

Sec. 251.31(c)(1)

Example 8: An arbitrator is being considered for a mechanical

rate adjustment hearing. He has a stock mutual fund which is

currently invested in several recording companies. Does he have a

financial conflict of interest?

Sec. 251.31(c)(2)

Example 9: An arbitrator is being considered for a Phase I cable

distribution proceeding. From 1960 to 1970, she worked for a program

syndicator. She is now receiving a fixed pension from the syndicator

for her ten years' work. Does she have a financial conflict of

interest?

Sec. 251.36(c)

Example 10: An arbitrator has presided over a cable rate

adjustment proceeding which reviewed the 3.75% rate. The time for

all appeals has passed, and no one has appealed. The arbitrator

returns to private practice and a cable system wants to hire the

arbitrator to be its attorney on matters before the FCC. During the

proceeding, the cable industry was represented by NCTA and CATA. The

cable system that wants to hire the arbitrator was not a party to

the proceeding, nor did it authorize NCTA or CATA to represent it in

the proceeding; however, the cable system was affected by the change

in the 3.75% rate. Can the arbitrator take the cable system on as a

client?

List of Subjects

37 CFR Parts 251 and 301

Administrative practice and procedure, Hearing and appeal

procedures.

37 CFR Parts 252 and 302

Cable television, Claims, Copyright.

37 CFR Parts 253 and 304

37 CFR Parts 254 and 306

37 CFR Parts 255 and 307

37 CFR Parts 256 and 308

Cable television, Rates.

37 CFR Parts 257 and 309

Cable television, Claims.

37 CFR Parts 258 and 310

37 CFR Parts 259 and 311

Claims, Copyright, Digital audio recording devices, and Media.

37 CFR Parts 303

37 CFR Parts 305

Claims, Jukeboxes.

Interim Rules

For the reasons set out in the preamble, 37 CFR chapters II and III

are amended under authority of 17 U.S.C. 802(d) as follows:

1. Part 301 of chapter III is removed.

1a. Existing parts 201 through 211 are designated as subchapter A,

and a new heading for subchapter A is added to read as follows:

Subchapter A--Copyright Office and Procedures.

1b. New subchapter B--Copyright Arbitration Royalty Panel Rules and

Procedures--is added to chapter II consisting of parts 251-259.

2. A new part 251 is added to subchapter B of chapter II to read as

follows:

PART 251--COPYRIGHT ARBITRATION ROYALTY PANEL RULES OF PROCEDURE

Subpart A--Organization

Sec.

251.1 Official address.

251.2 Purpose of Copyright Arbitration Royalty Panels.

251.3 Arbitrator lists.

251.4 Arbitrator lists: Objections.

251.5 Qualifications of the arbitrators.

251.6 Composition and selection of Copyright Arbitration Royalty

Panels.

251.7 Actions of Copyright Arbitration Royalty Panels.

251.8 Suspension of Proceedings.

Subpart B--Public Access to Copyright Arbitration Royalty Panel

Meetings

251.11 Open meetings.

251.12 Conduct of open meetings.

251.13 Closed meetings.

251.14 Procedure for closed meetings.

251.15 Transcripts of closed meetings.

251.16 Requests to open or closed meetings.

Subpart C--Public Access to and Inspection of Records

251.21 Public records.

251.22 Public access.

251.23 FOIA and Privacy Act.

Subpart D--Standards of Conduct

251.30 Basic obligations of arbitrators.

251.31 Financial interests.

251.32 Financial disclosure statement.

251.33 Ex parte communications.

251.34 Gifts and other things of monetary value.

251.35 Outside employment and other activities.

251.36 Pre-arbitration and post-arbitration employment

restrictions.

251.37 Use of nonpublic information.

251.38 Billing and commitment to standards.

251.39 Remedies.

Subpart E--Procedures of Copyright Arbitration Royalty Panels

251.40 Scope.

251.41 Formal hearings.

251.42 Suspension or waiver of rules.

251.43 Written cases.

251.44 Filing and service of written cases and pleadings.

251.45 Precontroversy motions, and discovery.

251.46 Conduct of hearings: Role of arbitrators.

251.47 Conduct of hearings: Witnesses and counsel.

251.48 Rules of evidence.

251.49 Transcript and record.

251.50 Rulings and orders.

251.51 Closing the hearing.

251.52 Proposed findings and conclusions.

251.53 Report to the Librarian of Congress.

251.54 Assessment of costs of arbitration panels.

251.55 Post-panel motions.

251.56 Order of the Librarian of Congress.

251.57 Effective date of order.

251.58 Judicial review.

Subpart F--Rate Adjustment Proceedings

251.60 Scope.

251.61 Commencement of adjustment proceedings.

251.62 Content of petition.

251.63 Period for consideration.

251.64 Disposition of petition: Initiation of arbitration

proceeding.

251.65 Deduction of costs of rate adjustment proceedings.

Subpart G--Royalty Fee Distribution Proceedings

251.70 Scope.

251.71 Commencement of proceedings.

251.72 Determination of controversy.

251.73 Declaration of controversy: Initiation of arbitration

proceeding.

251.74 Deduction of costs of distribution proceedings.

Authority: 17 U.S.C. 801-803.

Subpart A--Organization

Sec. 251.1 Official address.

Station, Washington, DC 20024.

Sec. 251.2 Purpose of Copyright Arbitration Royalty Panels.

The Librarian of Congress, upon the recommendation of the Register

of Copyrights, may appoint and convene a Copyright Arbitration Royalty

Panel (CARP) for the following purposes:

(a) To make determinations concerning copyright royalty rates for

the cable compulsory license, 17 U.S.C. 111.

(b) To make determinations concerning copyright royalty rates for

making and distributing phonorecords, 17 U.S.C. 115.

coin-operated phonorecord players (jukeboxes) whenever a negotiated

license authorized by 17 U.S.C. 116 expires or is terminated and is not

replaced by another such license agreement.

(d) To make determinations concerning royalty rates and terms for

the use by noncommercial educational broadcast stations of certain

copyrighted works, 17 U.S.C. 118.

(e) To distribute cable and satellite carrier royalty fees and

digital audio recording devices and media payments under 17 U.S.C. 111,

119, and chapter 10, respectively, deposited with the Register of

Copyrights.

Sec. 251.3 Arbitrator lists.

(a) Any professional arbitration association or organization may

submit, on or before May 6, 1994, and before January 1 of each year

thereafter, a list of persons qualified to serve as arbitrators on a

following for each person:

(1) The full name, address, and telephone number of the person.

(2) The current position and name of the person's employer, if any,

along with a brief summary of the person's employment history,

including areas of expertise, and, if available, a description of the

general nature of clients represented and the types of proceedings in

which the person represented clients.

(3) A brief description of the educational background of the

person, including teaching positions and membership in professional

associations, if any.

(4) A statement of the facts and information which qualify the

person to serve as an arbitrator under Sec. 251.5.

(5) A description or schedule detailing fees proposed to be charged

by the person for service on a CARP.

(6) Any other information which the professional arbitration

association or organization may consider relevant.

(b) After May 6, 1994, and after January 1 of each year thereafter,

the Librarian of Congress shall publish in the Federal Register a list

of at least 30, but not more than 75 persons, submitted to the

Librarian from at least three professional arbitration associations or

organizations. The persons so listed must satisfy the qualifications

and requirements of this subchapter and can reasonably be expected to

be available to serve as arbitrators on a Copyright Arbitration Royalty

Panel during that calendar year. This list will constitute the

``arbitrator list'' referred to in this subchapter. With respect to

persons on the arbitrator list, the Librarian will make available for

copying and inspection the information provided under paragraph (a) of

this section.

Sec. 251.4 Arbitrator lists: Objections.

(a) In the case of a rate adjustment proceeding, any party to a

proceeding may, during the 30-day period specified in Sec. 251.63, file

an objection with the Librarian of Congress to one or more of the

persons contained on the arbitrator list for that proceeding. Such

objection shall plainly state the grounds and reasons for each person

claimed to be objectionable.

(b) In the case of a royalty distribution proceeding, any party to

the proceeding may, during the 30-day time period specified in

Sec. 251.45(a), file an objection with the Librarian of Congress to one

or more of the persons contained on the arbitrator list for the

proceeding. Such objection shall plainly state the grounds and reasons

for each person claimed to be objectionable.

Sec. 251.5 Qualifications of the arbitrators.

In order to serve as an arbitrator to a Copyright Arbitration

Royalty Panel, a person must, at a minimum, have the following

qualifications:

(a) Admitted to the practice of law in any state, territory, trust

territory, or possession of the United States.

(b) Ten or more years of legal practice.

facilitating the resolution and settlement of disputes.

Sec. 251.6 Composition and selection of Copyright Arbitration Royalty

Panels.

(a) Within ten days after publication of a notice in the Federal

Librarian of Congress will, upon recommendation of the Register of

Copyrights, select two arbitrators from the arbitrator list for that

calendar year.

(b) The two arbitrators so selected shall, within 10 days of their

selection, choose a third arbitrator from the same arbitrator list. The

third arbitrator shall serve as the chairperson of the panel during the

course of the proceedings.

third, the Librarian will promptly select the third arbitrator from the

same arbitrator list.

(d) The third arbitrator so chosen shall serve as the chairperson

of the panel during the course of the proceeding. In all matters,

procedural or substantive, the chairperson shall act according to the

majority wishes of the panel.

(e) Two arbitrators shall constitute a quorum necessary to the

determination of any proceeding.

(f) If, before the commencement of hearings in a proceeding, one or

more of the arbitrators is unable to continue service on the CARP, the

Librarian will suspend the proceeding as provided by Sec. 251.8, and

will inaugurate a procedure to bring the CARP up to the full complement

of three arbitrators. Where one or two vacancies exist, and either or

both of the vacant seats were previously occupied by arbitrators

selected by the Librarian, the Librarian will select the necessary

replacements from the current arbitrator list. If there is one vacancy,

and it was previously occupied by the chairperson, the two remaining

arbitrators shall select the replacement from the arbitrator list, and

the person chosen shall serve as chairperson. If there are two vacant

seats, and one of them was previously occupied by the chairperson, the

Librarian will select one replacement from the arbitrator list, and

that person shall join with the remaining arbitrator to choose the

replacement, who shall serve as chairperson.

(g) After hearings have commenced, the Librarian will not suspend

the proceedings or inaugurate a replacement procedure unless it is

necessary in order for the CARP to have a quorum. If the hearing is

underway and two arbitrators are unable to continue service, or if the

hearing had been proceeding with two arbitrators and one of them is no

longer able to serve, the Librarian will suspend the proceedings under

Sec. 251.8 and seek the unanimous written agreement of the parties to

the proceeding for the Librarian to select a replacement. In the

absence of such an agreement, the Librarian will terminate the

proceeding. If such agreement is obtained, the Librarian will select

one arbitrator from the arbitrator list.

(h) If, after hearings have commenced, the chairperson of the CARP

is no longer able to serve, the Librarian will ask the two remaining

arbitrators, or the one remaining arbitrator and the newly-selected

arbitrator, to agree between themselves which of them will serve as

chairperson. In the absence of such an agreement, the Librarian will

terminate the proceeding.

Sec. 251.7 Actions of Copyright Arbitration Royalty Panels.

Any action of a Copyright Arbitration Royalty Panel requiring

publication in the Federal Register according to 17 U.S.C. or the rules

and regulations of this subchapter shall be published under the

authority of the Librarian of Congress and the Register of Copyrights.

Under no circumstances shall a CARP engage in rulemaking designed to

amend, supplement, or supersede any of the rules and regulations of

this subchapter, or seek to have any such action published in the

Federal Register.

Sec. 251.8 Suspension of proceedings.

(a) Where it becomes necessary to replace a selected arbitrator

under Sec. 251.6 or to remove and replace a selected arbitrator under

subpart D of this part, the Librarian will order a suspension of any

ongoing hearing or other proceeding by notice in writing to all

parties. Immediately after issuing the order of suspension, and without

delay, the Librarian will take the necessary steps to replace the

arbitrator or arbitrators, and upon such replacement will issue an

order, by notice in writing to all parties, resuming the proceeding

from the time and point at which it was suspended.

(b) Where, for any other reason, such as a serious medical or

family emergency affecting an arbitrator, the Librarian considers a

suspension of a proceeding necessary and fully justified, he may, with

the unanimous written consent of all parties to the proceeding, order a

suspension of the proceeding for a stated period not to exceed one

month.

cessation of all aspects of the proceeding, including the running of

any period provided by statute for the completion of the proceeding.

Subpart B--Public Access to Copyright Arbitration Royalty Panel

Meetings

Sec. 251.11 Open meetings.

(a) All meetings of a Copyright Arbitration Royalty Panel shall be

open to the public, with the exception of meetings that are listed in

Sec. 251.13.

(b) At the beginning of each proceeding, the CARP shall develop the

original schedule of the proceeding which shall be published in the

Federal Register at least seven calendar days in advance of the first

meeting. Such announcement shall state the times, dates, and place of

the meetings, the testimony to be heard, whether any of the meetings

are to be closed, and, if so, which ones, and the name and telephone

number of the person to contact for further information.

announced in open meeting and issued as orders to the parties

participating in the proceeding, and the changes will be noted in the

docket file of the proceeding.

In addition, the contact person for the proceeding shall make any

additional efforts to publicize the change as are practicable.

(d) If it is decided that the publication of the original schedule

must be made on shorter notice than seven days, that decision must be

made by a recorded vote of the panel and included in the announcement.

Sec. 251.12 Conduct of open meetings.

Meetings of a Copyright Arbitration Royalty Panel will be conducted

in a manner to ensure the greatest degree of openness possible.

Reasonable access for the public will be provided at all public

sessions. Any person may take photographs, and make audio or video

recordings of the proceedings, so long as the panel is informed in

advance. The chairperson has the discretion to regulate the time,

place, and manner of the taking of photographs or the audio or video

recording of the proceedings to ensure the order and decorum of the

proceedings. The right of the public to be present does not include the

right to participate or make comments.

Sec. 251.13 Closed meetings.

In the following circumstances, a Copyright Arbitration Royalty

Panel may close its meetings or withhold information from the public:

(a) If the matter to be discussed has been specifically authorized

to be kept secret by Executive Order, in the interests of national

defense or foreign policy; or

(b) If the matter relates solely to the internal practices of a

statute (other than 5 U.S.C. 552) and there is no discretion on the

issue; or

(d) If the matter involves privileged or confidential trade secrets

or financial information; or

(e) If the result might be to accuse any person of a crime or

formally censure him or her; or

(f) If there would be clearly unwarranted invasion of personal

privacy; or

(g) If there would be disclosure of investigatory records compiled

for law enforcement, or information that if written would be contained

in such records, and to the extent disclosure would:

(1) Interfere with enforcement proceedings; or

(2) Deprive a person of the right to a fair trial or impartial

adjudication; or

(3) Constitute an unwarranted invasion of personal privacy; or

(4) Disclose the identity of a confidential source or, in the case

of a criminal investigation or a national security intelligence

investigation, disclose confidential information furnished only by a

confidential source; or

(5) Disclose investigative techniques and procedures; or

(6) Endanger the life or safety of law enforcement personnel.

(h) If premature disclosure of the information would frustrate a

already disclosed the concept or nature of the proposed action, or is

required by law to make disclosure before taking final action; or

(i) If the matter concerns a CARP's participation in a civil action

or proceeding or in an action in a foreign court or international

tribunal, or an arbitration, or a particular case of formal agency

adjudication pursuant to 5 U.S.C. 554, or otherwise involving a

determination on the record after opportunity for a hearing; or

(j) If a motion or objection has been raised in an open meeting and

the panel determines that it is in the best interests of the proceeding

to deliberate on such motion or objection in closed session.

Sec. 251.14 Procedure for closed meetings.

(a) Meetings may be closed, or information withheld from the

public, only by a recorded vote of a majority of arbitrators of a

meeting or to withhold information, must be voted on separately, unless

a series of meetings is involved, in which case the CARP may vote to

keep the discussions closed for 30 days, starting from the first

meetings. If the CARP feels that information about a closed meeting

must be withheld, the decision to do so must also be the subject of a

recorded vote.

(b) Before a discussion to close a meeting or withhold information,

the chairperson of a CARP must certify that such an action is

permissible, and the chairperson shall cite the appropriate exemption

under Sec. 251.13. This certification shall be included in the

announcement of the meeting and be maintained as part of the record of

proceedings of that CARP.

published in the Federal Register as soon as possible:

(1) The vote of each arbitrator; and

(2) The appropriate exemption under Sec. 251.13; and

(3) A list of all persons expected to attend the meeting and their

affiliation.

Sec. 251.15 Transcripts of closed meetings.

(a) All meetings closed to the public shall be subject either to a

complete transcript or, in the case of Sec. 251.13(h) and at the

discretion of the Copyright Arbitration Royalty Panel, detailed

minutes. Detailed minutes shall describe all matters discussed,

identify all documents considered, summarize action taken as well as

the reasons for it, and record all roll call votes as well as any views

expressed.

(b) Such transcripts or minutes shall be kept by the Copyright

Office for at least two years, or for at least one year after the

conclusion of the proceedings, whichever is later. Any portion of

transcripts of meetings which the chairperson of a CARP does not feel

is exempt from disclosure under Sec. 251.13 will ordinarily be

available to the public within 20 working days of the meeting.

Transcripts or minutes of closed meetings will be reviewed by the

chairperson at the end of the proceedings of the panel and, if at that

time the chairperson determines that they should be disclosed, he or

she will resubmit the question to the CARP to gain authorization for

their disclosure.

Sec. 251.16 Requests to open or close meetings.

(a) Any person may request a Copyright Arbitration Royalty Panel to

open or close a meeting or disclose or withhold information. Such

request must be captioned ``Request to Open'' or ``Request to Close'' a

meeting on a specified date concerning a specific subject. The person

making the request must state his or her reasons, and include his or

her name, address, and telephone number.

(b) In the case of a request to open a meeting that a CARP has

previously voted closed, the panel must receive the request within 3

working days of the meeting's announcement. Otherwise the request will

not be heeded, and the person making the request will be so notified.

An original and three copies of the request must be submitted.

question must be brought to a vote before the panel. If the request is

granted, an amended meeting announcement will be issued and the person

making the request notified. If a vote is not taken, or if after a vote

the request is denied, said person will also be notified promptly.

Subpart C--Public Access to and Inspection of Records

Sec. 251.21 Public records.

(a) All official determinations of a Copyright Arbitration Royalty

Panel will be published in the Federal Register in accordance with

Sec. 251.7 and include the relevant facts and reasons for those

determinations.

(b) All records of a CARP, and all records of the Librarian of

Congress assembled and/or created under 17 U.S.C. 801 and 802, are

available for inspection and copying at the address provided in

Sec. 251.1 with the exception of:

(1) Records that relate solely to the internal personnel rules and

practices of the Copyright Office or the Library of Congress;

(2) Records exempted by statute from disclosure;

(3) Interoffice memoranda or correspondence not available by law

except to a party in litigation with a CARP, the Copyright Office, or

the Library of Congress;

(4) Personnel, medical, or similar files whose disclosure would be

an invasion of personal privacy;

(5) Communications among arbitrators of a CARP concerning the

drafting of decisions, opinions, reports, and findings on any CARP

matter or proceeding;

(6) Communications among the Librarian of Congress and staff of the

reports, selection of arbitrators, or findings on any matter or

proceeding conducted under 17 U.S.C. chapter 8;

(7) Offers of settlement that have not been accepted, unless they

have been made public by the offeror;

(8) Records not herein listed but which may be withheld as

``exempted'' if a CARP or the Librarian of Congress finds compelling

reasons for such action.

Sec. 251.22 Public access.

(a) Location of Records. All of the following records relating to

rate adjustment and distribution proceedings under this subchapter

shall be maintained at the Copyright Office:

(1) Records required to be filed with the Copyright Office; or

(2) Records submitted to or produced by the Copyright Office or

Library of Congress under 17 U.S.C. 801 and 802, or

(3) Records submitted to or produced by a Copyright Arbitration

Royalty Panel during the course of a concluded proceeding. In the case

of records submitted to or produced by a CARP that is currently

conducting a proceeding, such records shall be maintained by the

chairperson of that panel at the location of the hearing or at a

location specified by the panel. Upon conclusion of the proceeding, all

records shall be delivered by the chairperson to the Copyright Office.

(b) Requesting information. Requests for information or access to

records described in Sec. 251.21 shall be directed to the Copyright

Office at the address listed in Sec. 251.1. No requests shall be

directed to or accepted by a Copyright Arbitration Royalty Panel. In

the case of records in the possession of a CARP, the Copyright Office

shall make arrangements with the panel for access and copying by the

person making the request.

are $0.40 per page. Fees for searching for records, certification of

documents, and other costs incurred are as provided in 17 U.S.C. 705,

708.

Sec. 251.23 FOIA and Privacy Act.

Freedom of Information Act and Privacy Act provisions applicable to

CARP proceedings can be found in parts 203 and 204 of subchapter A of

this chapter.

Subpart D--Standards of Conduct

Sec. 251.30 Basic obligations of arbitrators.

(a) Definitions. For purposes of these regulations, the following

terms shall have the meanings given in this subsection:

(1) A ``selected arbitrator'' is a person named by the Librarian of

Congress, or by other selected arbitrators, for service on a particular

CARP panel, in accordance with Sec. 251.6 of these regulations;

(2) A ``listed arbitrator'' is a person named in the ``arbitration

list'' published in accordance with Sec. 251.3 of these regulations.

(b) General principles applicable to arbitrators. Selected

arbitrators are persons acting on behalf of the United States, and the

following general principles apply to them. Where a situation is not

covered by standards set forth specifically in this subpart, selected

arbitrators shall apply these general principles in all cases in

determining whether their conduct is proper. Listed arbitrators shall

apply these principles where applicable.

(1) Arbitrators are engaged in a matter of trust that requires them

to place ethical and legal principles above private gain.

(2) Arbitrators shall not hold financial interests that conflict

with the conscientious performance of their service.

(3) Arbitrators shall not engage in financial transactions using

nonpublic information or allow the improper use of such information to

further any private interest.

(4) Selected arbitrators shall not solicit or accept any gift or

other item of monetary value from any person or entity whose interests

may be affected by the arbitrators' decisions. Listed arbitrators may

accept gifts of nominal value or gifts from friends and family as

specified in Sec. 251.34(b).

(5) Arbitrators shall put forth their honest efforts in the

performance of their service.

(6) Arbitrators shall act impartially and not give preferential

treatment to any individual, organization, or entity whose interests

may be affected by the arbitrators' decisions.

(7) Arbitrators shall not engage in outside employment or

activities, including seeking or negotiating for employment, that

conflicts with the performance of their service.

(8) Arbitrators shall endeavor to avoid any actions creating the

appearance that they are violating the law or the ethical standards set

forth in this subpart.

(9) Arbitrators shall maintain order and decorum in the

proceedings, be patient, dignified, and courteous to the parties,

witnesses, and their representatives, and dispose promptly the business

before them.

Sec. 251.31 Financial interests.

(a) No selected arbitrator shall have a direct or indirect

financial interest--

(1) in the case of a distribution proceeding, in any claimant to

the proceeding whether or not in a voluntary settlement agreement, or

any copyright owner who receives royalties from such claimants because

of their representation;

(2) in the case of a rate adjustment proceeding, in any individual,

organization or entity that would be affected by the outcome of the

proceeding.

(b) ``Direct or indirect financial interest'' shall include: being

employed by, being a consultant to, being a representative or agent

for, being a member or affiliate of, being a partner of, holding any

office in, owning any stocks, bonds, or other securities, or deriving

any income from the prohibited entity.

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