Consolidation of 1992, 1993 and 1994 Digital Audio Recording Distribution Proceedings

LIBRARY OF CONGRESS

Copyright Office

[Docket No. RM 94-2B CARP-DD]

Consolidation of 1992, 1993 and 1994 Digital Audio Recording

Distribution Proceedings

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of consolidation of proceedings, royalty distribution,

and public meeting.

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SUMMARY: The Copyright Office is granting a motion to consolidate the

1992, 1993, and 1994 digital audio recording (DART) distribution

proceedings which will begin in 1995. In addition, the Office will make

distribution of the 1992 and 1993 Nonfeatured Musicians and Nonfeatured

Vocalists DART subfunds in July. The Office will hold a public meeting

to discuss the best evidence for the distribution of DART royalties in

September.

DATES: (1) The distribution of the royalties in the 1992 and 1993

Nonfeatured Musicians and Nonfeatured Vocalists DART subfunds will take

place July 28, 1994. (2) The public meeting to discuss best evidence

for distribution of royalties will take place 10 a.m., Tuesday,

September 27, 1994.

ADDRESSES: The public meeting will take place at the temporary CARP

hearing room, Suite 921, 1825 Connecticut Avenue, N.W., Washington, DC

20009.

FOR FURTHER INFORMATION CONTACT: Eric Schwartz, Acting General Counsel,

U.S. Copyright Office, Department 17, Library of Congress, Washington,

DC 20540. Telephone (202) 707-8380.

SUPPLEMENTARY INFORMATION:

I. Background

On December 17, 1993, Congress passed the Copyright Royalty

Tribunal Reform Act of 1993. This legislation dissolved the Tribunal

and established a new system of copyright arbitration royalty panels

(CARPs) to be supported by the Library of Congress and the Copyright

Office.

The first proceeding to be initiated under the new CARP system was

the distribution of the 1992 and the 1993 digital audio recording

technology (DART) royalties. The 1992 DART distribution proceeding was

begun by the Tribunal but was suspended when the Tribunal was

abolished, and needed to be started anew. The 1993 DART distribution

was begun by the Copyright Office under the new authority conferred by

the Copyright Royalty Tribunal Reform Act of 1993. On March 1, 1994, 59

FR 9773, we began the process of distributing DART royalties by asking

the claimants to the 1992 and 1993 DART funds for comments on the

following questions:

(a) Do any controversies exist concerning the distribution of 1992

and/or 1993 DART royalties?

(b) If controversies do exist, which subfunds do they exist in?

(c) If settlements have been reached, which parties have reached

settlement and which have not?

(d) Do the claimants believe it would be advisable to consolidate

the 1992 DART proceeding with the 1993 DART proceeding?

In addition, in the March 1, 1994, notice and in a subsequent

notice appearing May 16, 1994, 59 FR 25506, the Library of Congress and

the Copyright Office established the initial procedural dates that

would apply to the 1992 and 1993 DART proceedings, as follows:

June 10, 1994--comments from claimants due on whether controversies

exist in the distribution of 1992 and 1993 DART funds, and whether the

1992 and 1993 DART distribution proceedings should be consolidated.

June 15, 1994--precontroversy motions, and/or objections to any

listed arbitrators due from claimants who will be participating in the

1992 and/or 1993 DART distribution proceedings.

June 30, 1994--declaration by the Librarian of Congress to be made

as to whether any controversies exist in the distribution of 1992 and

1993 DART royalties, and, if they do, a declaring of the initiation of

CARP proceedings.

August 1, 1994--authorization by the Copyright Office of the

distribution of any royalties found not to be in controversy.

II. The Commentators

We received comments from the following claimants:

The Alliance of Artists and Recording Companies (AARC)

Ymistye L. White

Alicia Carolyn Evelyn

Eugene (Lambchops) Curry

James Cannings

Gear Publishing Company

Hideout Productions on behalf of Punch Enterprises, Inc. and Bob Seger

Sword and Stone Publishing, Inc.

Bopp du Wopp, Inc.

Jointly, the independent administrator of the Nonfeatured Musicians and

the Nonfeatured Vocalists subfund; the American Federation of Musicians

(AFM); the American Federation of Television and Radio Artists (AFTRA);

and the Recording Industry Association of America (RIAA).

Jointly, AARC, American Society of Composers, Authors and Publishers

(ASCAP), Broadcast Music, Inc. (BMI); Copyright Management, Inc. (CMI),

Gospel Music Coalition (GOSPEL); The Harry Fox Agency, Inc. (HFA);

SESAC, Inc. (SESAC), and the Songwriters Guild of America (SGA).

Jointly, ASCAP, BMI, CMI, GOSPEL, HFA, SESAC, and the SGA.

III. Motion to Consolidate and Stay Procedural Dates

The comments indicated that, while many settlements were reached,

there still existed some unresolved controversies in each of the

subfunds. Rather than requesting the immediate initiation of a CARP

proceeding to resolve these controversies, a joint motion was filed by

AARC, ASCAP, BMI, CMI, GOSPEL, HFA, SESAC, and SGA requesting that the

Librarian of Congress and the Copyright Office consolidate the 1992 and

the 1993 DART distribution proceedings with the 1994 DART distribution

proceedings that will start next year, and defer all consideration of

DART distributions until 1995.

As a consequence of their motion to consolidate, the joint

commentators also requested that the initial DART procedural dates of

June 15 (precontroversy motions and objections), June 30 (initiation of

proceedings), and August 1 (authorization of distributions) be stayed

until after the 1994 claims are filed in 1995.

A. Justification of Motion to Consolidate and Stay of Procedural Dates

In support of their motion to consolidate, the joint commentators

noted that the 1992 and the 1993 DART funds, which are the first funds

to be collected under the Audio Home Recording Act that took effect on

October 28, 1992, are quite small: a little over $100,000 for 1992, and

less than $500,000 for 1993. They anticipate that, because the DART

fund is new, many issues of first impression will have to be resolved,

but that the costs of such action will be such as to consume most, if

not all, of the fund. The joint commentators observed that the costs

borne by the copyright owners in a DART proceeding are not only their

own costs, but the costs of the Library of Congress, the Copyright

Office, and the arbitrators. In the interest of economy, therefore, the

joint commentators requested that the 1992 and 1993 distribution

proceedings be consolidated with the 1994 proceeding.

In addition, the joint commentators noted that the Library of

Congress and the Copyright Office have endeavored to adopt regulations

to govern the new CARP proceedings, but that the current regulations

are interim rules. Comments on the interim rules were due June 15,

1994, and reply comments are due July 15, 1994. The joint commentators

would prefer that a DART proceeding operate under the final rules that

result from these latest rounds of comments, rather than proceed under

the interim rules.

Last, the joint commentators stated that they will endeavor to use

the time between now and 1995 to gather the best information and data

relevant to a DART distribution proceeding, and to continue to work for

more settlements in each of the subfunds. To the extent that more

settlements are reached, fewer controversies will need to be brought

before the arbitrators, and fewer royalties will have to be spent on

the expense of a CARP proceeding.

B. Grant of Motion to Stay Procedural Dates and Establishment of

Comment Period

On June 21, 1994, the Library of Congress and the Copyright Office

issued an Order finding good cause to grant the motion to stay the

procedural dates of June 15, June 30, and August 1, established in this

proceeding.

Concerning the motion to consolidate the 1992, 1993, and 1994

distribution proceedings, the Order gave those persons who did not join

in the joint motion until June 24, 1994, to respond to it, as provided

by Sec. 251.45 of the Copyright Office rules.1

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\1\Section 251.45 provides that the comment period for

precontroversy motions is two weeks from the filing of the motion.

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C. Responses to the Motion to Consolidate Proceedings

Responses to the joint motion to consolidate proceedings were filed

by James Cannings, Eugene Curry, and Alicia Carolyn Evelyn.

Mr. Cannings agreed with the consolidation of the 1992, 1993 and

1994 proceedings provided that the distribution methodology proposed by

Bopp du Wopp, Inc. is considered as one possible method by the

claimants. Mr. Cannings urged diligent and good faith efforts at

settlement before 1995.

Mr. Curry questioned whether the proposed consolidation of 1992,

1993 and 1994 would lead to another consolidation next year, then the

year after that, ad infinitum. Mr. Curry would agree to future years

being consolidated, i.e., 1994, 1995, and 1996, but wanted an immediate

distribution of 1992 and 1993 moneys this August.

Ms. Evelyn stated that she would object to the motion to

consolidate so long as public performance royalty issues she has raised

with BMI and ASCAP remain unresolved. She joined with Mr. Cannings in

support of Bopp du Wopp, Inc.'s proposed distribution methodology.

IV. Grant of Motion to Consolidate

The Library of Congress and the Copyright Office agree with the

arguments made by the joint commentators and hereby grant the motion to

consolidate the 1992, 1993, and 1994 DART royalty distribution

proceedings into one proceeding that will begin in 1995.

As we discussed in our notice of March 1, 1994, the Audio Home

Recording Act established certain statutory deadlines for the

commencement of DART distribution proceedings which, as the agency

delegated the responsibility, we were prepared to meet. However, as

observed by the Administrative Conference of the United States, 1

C.F.R. 305.78-3, there are special circumstances when the meeting of a

statutory deadline would not serve the public interest. Here, the

majority of the claimants themselves have asked for a waiving of the

statutory dates so that they might realize the economies that would

accrue from a consolidation of proceedings, and so that they might

continue settlement talks that could potentially avoid the cost of a

CARP proceeding altogether. Under these circumstances, to initiate a

CARP proceeding immediately will only serve to spend the claimants'

royalties needlessly, and will likely result in the claimants receiving

fewer royalties today than if they waited until 1995.2 In

addition, we see no financial harm in waiting until 1995. The

claimants' royalties will remain invested in United States Treasury

securities, and will continue to earn interest.

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\2\When confronted with the question of whether to nullify the

Copyright Royalty Tribunal's cable rate adjustment because the

Tribunal missed its statutory deadline by 28 days, the Court of

Appeals for the District of Columbia stated that ``Statutes that,

for guidance of a government official's discharge of duties, propose

to secure order, system, and dispatch in proceedings, are usually

construed as directory, whether or not worded in the imperative,

especially when the alternative is harshness or absurdity.'' The

Court also noted that ``agencies rigidly tied to a deadline * * *

would become Penelopes, forever engaged in unraveling the webs they

wove.'' National Cable Television Association v. Copyright Royalty

Tribunal, 724 F. 2d 176, 189, fn. 23 (D.C. Cir. 1983).

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The objection of Mr. Curry to consolidation is based on a concern

that consolidations will happen every year, and no moneys will ever be

distributed. We do not see that occurring. Our goal, and, we believe

that of the moving parties, is economy, not delay. The moving parties

do not want to see their royalties remaining with the government and

neither do we.

The objection of Ms. Evelyn is tied to her other issues with ASCAP

and BMI, and are not relevant to our consideration here.

As stated earlier, in our Order, dated June 21, 1994, we granted

the joint commentators' motion to stay all previously announced

procedural dates intended to govern a 1992 and 1993 DART royalty

distribution proceeding.3 Consistent with our ruling today to

consolidate the 1992, 1993, and 1994 proceedings, new procedural dates

will be established in 1995, in accordance with our yearly statutory

obligation under Chapter 10 of the Copyright Code to ascertain DART

controversies and to initiate DART proceedings.

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\3\As discussed below, in part VI, we are making a full

distribution of the Nonfeatured Musicians Subfund and the

Nonfeatured Vocalists Subfund on July 28, 1994. See, discussion

below, at VI.

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V. Inquiry Into Best Evidence

The concerns expressed by the commentators about the potential for

the costs of a DART proceeding to use up most or all of the DART

royalties available for distribution are valid, and are very much

shared by the Library and the Copyright Office. Two scenarios

especially concern us. One, there is the possibility of holding

extensive hearings for controversies where the amounts in dispute are

ultimately determined to be quite small. Two, even if the amounts in

controversy are sizable, there is the possibility of holding months-

long hearings about the validity of the evidence offered by the

parties, which again would ultimately use up the bulk of the royalties

in the DART funds, and the time allotted for arbitration. This is

especially likely because DART proceedings have never been held, and

there is no precedent concerning what is the most relevant evidence. We

note that at a similar stage in its regulatory history, the issue of

the best evidence for distributing jukebox royalties was the subject of

a full evidentiary hearing at the Copyright Royalty Tribunal, but,

nevertheless, resulted in the Tribunal deciding that no distribution

determination could be reached without further efforts at producing

better evidence.4 This is a situation we should like to avoid.

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\4\``The Tribunal considers that the record of the current

proceeding is insufficient as a basis on which we can make a

distribution of the 1979 jukebox royalties. * * * The Tribunal,

therefore, has elected not to make a distribution in this

proceeding.'' 1979 Jukebox Royalty Distribution, 46 FR 58139, 58142

(Nov. 30, 1981).

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Consequently, the Library of Congress and the Copyright Office will

hold a public meeting at 10 a.m., Tuesday, September 27, 1994 at the

temporary CARP hearing room, Suite 921, 1825 Connecticut Avenue, N.W.,

Washington, D.C. 20009. The purpose of the meeting is to discuss what

would be the best evidence for distribution of the Sound Recordings

Fund and the Musical Works Fund.

We note that section 1006(c) of the Copyright Code states that the

allocation of the Sound Recordings Fund shall be made according to the

extent sound recordings were distributed, and that the allocation of

the Musical Works Fund shall be made according to the extent musical

works were distributed or disseminated to the public in transmissions.

We should like, therefore, to know:

(a) Do industry data exist, or can industry data be produced, that

will demonstrate validly the distribution of sound recordings in the

United States?

(b) Do industry data exist, or can industry data be produced, that

will demonstrate validly the dissemination of musical works to the

public in transmissions in the United States?

(c) How should ``distributed'' be defined given the practice of

allowable returns? Should the arbitrators employ the rule adopted by

the Copyright Office with respect to section 115?5

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\5\ With respect to the 17 U.S.C. 115 mechanical license,

``distributed'' is defined as occurring when ``the person exercising

the compulsory license has voluntarily and permanently parted'' with

possession of the phonorecord. The Copyright Office has taken the

position that permanent distribution of phonorecords occurs one year

from the date that the compulsory licensee parts with possession, or

at the time when a sale of the phonorecord is recognized in

accordance with generally accepted accounting principles, or

according to the IRS' practices, whichever of these events comes

earlier. 42 FR 64889, 64892 (Dec. 29, 1977).

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(d) If methodologies exist for the production of data relating to

(a) and (b), what are the drawbacks of such methodologies?

(e) If methodologies exist for the production of data relating to

(a) and (b), would the data cover all distributions and all public

disseminations so that even the smallest or most specialized claimant

can be compared mathematically to the larger claimants?

(f) If the methodologies cannot cover the smaller claimants, what

measurements can be proposed to cover them?

(g) If conflicting methodologies exist, how do the parties propose

to resolve the conflicts?

We emphasize that we are not asking these questions to decide

distribution issues. Distribution issues are properly for the CARP

arbitrators. But if we can in any way help to focus and sharpen the

proceedings, the savings in time and expense before a CARP panel will

far outweigh the cost of this one public meeting. The public meeting

will give the parties an opportunity to explore the positions of each

claimant, facilitate concentrating on solving the evidentiary problems,

and reveal what further steps need to be taken. A public record of the

meeting will be made for those who do not attend, and for the benefit

of the CARP panel, if one is ultimately convened.

VI. The Nonfeatured Musicians and the Nonfeatured Vocalists

Subfunds

A. Background--1993

The Audio Home Recording Act established two funds: the Sound

Recordings Fund and the Musical Works Fund. Within the Sound Recordings

Fund, the Act further established four subfunds: the Copyright Owners

Subfund, the Featured Artists Subfund, the Nonfeatured Musicians

Subfund, and the Nonfeatured Vocalists Subfund.

With regard to the Nonfeatured Musicians Subfund and the

Nonfeatured Vocalists Subfund, the Act outlined certain specific

procedures. It required that ``2\5/8\ percent of the royalty payments

allocated to the Sound Recordings Fund shall be placed in an escrow

account managed by an independent administrator jointly appointed by

the interested copyright parties described in section 1001(7)(A) and

the American Federation of Musicians (or any successor entity) to be

distributed to nonfeatured musicians (whether or not members of the

American Federation of Musicians or any successor entity) who have

performed on sound recordings distributed in the United States.''

Similarly,``1\3/8\ percent of the royalty payments allocated to the

Sound Recordings Fund shall be placed in an escrow account managed by

an independent administrator jointly appointed by the interested

copyright parties described in section 1001(7)(A) and the American

Federation of Television and Radio Artists (or any successor entity) to

be distributed to nonfeatured vocalists (whether or not members of the

American Federation [of] Television and Radio Artists or any successor

entity) who have performed on sound recordings distributed in the

United States.'' 17 U.S.C. 1006.

In 1993, the Copyright Royalty Tribunal adopted a regulation,

ultimately reissued by the Library of Congress and the Copyright Office

when the Tribunal was abolished, that required the independent

administrator to give notice to the government of his or her selection

by March 31 of each year. 37 C.F.R. 311.4; 58 FR 53822 (1993).

In the same rulemaking, the Tribunal determined that it did not

have the jurisdiction to decide controversies within the two subfunds

that were administered by an independent administrator. The Tribunal

reasoned that, according to the wording of section 1006(a), its

authority over the distribution of royalties extended only to

``interested copyright parties'' and that nonfeatured performers,

whether musicians or vocalists, were not defined under the Audio Home

Recording Act as ``interested copyright parties.'' 58 FR 53822, 53824

(Oct. 18, 1993).

Therefore, the Tribunal concluded that its role in handling the

moneys for the two nonfeatured performer subfunds was simply a

ministerial task of distributing the royalties to the independent

administrator when a distribution was ready to be made. Id.

B. Background--1994

After the Tribunal's abolition, the Copyright Office began to

receive claims for 1993 DART royalties during January-February, 1994.

One claimant, Eugene Curry, filed a claim for the Nonfeatured Musicians

Subfund. Subsequently, the Office was informed that Edward Peters had

been appointed the independent administrator for both the Nonfeatured

Musicians Subfund and the Nonfeatured Vocalists Subfund.

The Copyright Office sent a letter to Mr. Curry and Mr. Peters

asking three questions: (a) who were the interested copyright parties

that participated in the selection of the independent administrator?;

(b) is there any controversy between Mr. Curry and Mr. Peters about the

distribution of Nonfeatured Musicians Subfund?; and (c) if there is a

controversy, how would Mr. Curry and Mr. Peters recommend the

resolution of the controversy? Letter, dated May 4, 1994.

Mr. Curry responded that there was a controversy between him and

Mr. Peters on the distribution of the subfund.

Mr. Peters responded that he was selected by RIAA and AFM6;

that, according to the Copyright Code and Tribunal precedent, the

Copyright Office has no authority to resolve disputes in the

nonfeatured subfunds; that, because the Copyright Office has no

authority, Mr. Curry should not have filed a claim with the Copyright

Office nor should the Office have processed his claim; that Mr. Curry

will be treated properly by Mr. Peters; and the fact of his non-union

membership will have no relevance whatever in the ultimate distribution

of the subfund.

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\6\ RIAA, as a representative of copyright owners in sound

recordings, is entitled to participate in the selection of the

independent administrator. Other claimants to the Copyright Owners

Subfund of the Sound Recordings Fund are also entitled to

participate.

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Separately, the Copyright Office received a joint comment from Mr.

Peters, AFM, AFTRA, and the RIAA arguing in greater detail that the

Audio Home Recording Act and the Tribunal's decision in 1993 support

the conclusion that the independent administrator is to receive the

allocated royalties for the two nonfeatured performers subfunds

directly, and is not subject to the authority of the Copyright Office

or the CARP panel in resolving disputes in those subfunds.

C. Discussion

The Library of Congress and the Copyright Office have reviewed the

Audio Home Recording Act and the Tribunal's 1993 decision, and agree

with the joint commentators, AFM, AFTRA, RIAA and Mr. Peters, that the

independent administrator is to receive the royalties from the two

nonfeatured performers subfunds directly from the Copyright Office, and

that disputes as to his (or her) distribution of those funds are not

subject to the jurisdiction of a CARP panel.

Our purpose in sending the May 4 letter to Mr. Curry and Mr. Peters

was to facilitate a settlement. The provisions of the Audio Home

Recording Act are unique among other provisions governing statutory

royalties in that they open up the possibility of a dispute in a

royalty fund without offering an administrative remedy. How to handle

such a dispute was not a question that was faced by the Tribunal in

1993, because in that year there were no claims filed at all in the

nonfeatured performers subfunds. This year, Mr. Curry's claim, and his

subsequent notice that he is in controversy, presents the issue

foursquare.

Recognizing the plain meaning of the statute, we agree that the

royalties in the two nonfeatured performers subfunds are to be

distributed directly to the independent administrator. We also

recognize that claimants to those two subfunds do not file claims with

the Copyright Office. They need to contact the independent

administrator directly.

But we believe there is a function for the Copyright Office to

perform. Each year, to the extent that the Copyright Office receives

expressions of interest to receive royalties from those two subfunds,

we will forward the names to the independent administrator.7 In

addition, the Copyright Office will maintain a public file that will

consist of (a) the names of those expressing interest in the subfunds;

(b) the notice of the independent administrator; (c) any correspondence

concerning the two subfunds; and (d) any notification of the final

disposition of any dispute within the subfunds. The notification is not

required, but is being requested to complete the public record. It is

also noted that we are not asking for a notification of the disposition

of all moneys in the subfunds, just those is dispute. We recognize and

will continue the Tribunal's policy of not inquiring into the

distribution of settled claims.

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\7\ This year, in addition to Mr. Curry, James Cannings filed a

claim for the Nonfeatured Musicians Subfund and the Nonfeatured

Vocalists Subfund. Mr. Cannings' claims were filed after the

February 28, 1994 deadline, and would have been returned as untimely

filed if they were claims subject to the Copyright Office's

jurisdiction. However, in light of our ruling today, the statutory

deadline in 17 U.S.C. 1007(a)(1) does not apply to claims beyond the

Copyright Office's jurisdiction. Therefore, his claims are also

being forwarded to the independent administrator for resolution.

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D. Distribution Notice

In light of the above discussion, we are ordering a full

distribution of the royalties available in the 1992 and 1993

Nonfeatured Musicians and Nonfeatured Vocalists Subfunds to Mr. Edward

Peters, the independent administrator, on July 28, 1994. This

distribution will constitute the final distribution in those subfunds,

except (a) in the event that there are any late payments, a subsequent

distribution will be made to the independent administrator that

represents those subfunds' share of the late payment; and (b) in the

event that any refund is ultimately found to be required, the

independent administrator will need to repay the Office the subfunds'

share of the refund.

Dated: July 7, 1994.

Barbara Ringer,

Acting Register of Copyrights.

Approved by:

James H. Billington,

The Librarian of Congress.

[FR Doc. 94-16963 Filed 7-12-94; 8:45 am]

BILLING CODE 1410-09-P