Digital Audio Recording Devices and Media; Statements of Account

LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM 92-8A]

Digital Audio Recording Devices and Media; Statements of Account

AGENCY: Copyright Office, Library of Congress.

ACTION: Interim regulation with request for comments.

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SUMMARY: The Copyright Office is issuing interim regulations governing

the administration of filings under the Audio Home Recording Act of

1992 (AHRA). This Act deal with rights with respect to digital audio

recording technology (DART), more specifically, parties who import and

distribute in the United States, or manufacture and distribute in the

United States, any digital audio recording device or digital audio

recording medium, are obligated to pay royalties. In addition to

sending the royalties to the Copyright Office, the importer or

manufacturer must file with the Office Statements of Account that

reflect the distribution of digital audio recording devices or media.

DATES: This interim regulation is effective February 1, 1994. Comments

should be in writing and received on or before April 4, 1994.

ADDRESSES: If sent by mail, ten copies should be addressed to:

Copyright Office, Library of Congress, Department 17, Washington, DC

20540. If hand delivered, ten copies should be brought to: Office of

the Copyright General Counsel, James Madison Memorial Building, room

407, First and Independence Avenue, SE., Washington, DC 20540.

FOR FURTHER INFORMATION CONTACT: Marybeth Peters, Acting General

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

Washington, DC 20540. Telephone (202) 707-8380.

SUPPLEMENTARY INFORMATION:

I. Background

This document relates to the filing of both quarterly and annual

Statements of Account and payment of royalties due under the new DART

provisions of the Copyright Code (17 U.S.C. chap. 10). On February 22,

1993, we published interim regulations on this subject (58 FR 9544

(1993)), and we are now issuing superseding interim regulations.

It should be noted that the manufacturers and importers covered by

the new law are subject to other requirements, in addition to those

dealt with here. For example, an obligation to file initial notices to

identify the product categories and technologies distributed in the

United States is provided by 17 U.S.C. 1003(b), and regulations

regarding the filing of initial notices of distribution were issued by

the Copyright Office at 57 FR 55464 (Nov. 25, 1992). In addition,

manufacturers and importers of digital recording and interface devices

must conform to the Serial Copy Management System or equivalent systems

as described by 17 U.S.C. 10021 as a condition of distribution in

the United States.

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\1\See S. Rep. No. 294, 102d Cong., 2d Sess. 64 (1992); H. Rep.

No. 873, 102 Cong. 2d. Sess., pt. 1, at 19 (1992); and H. Rep. No.

873, 102d Cong., 2d Sess., pt. 2, at 18 (1992).

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With respect to Statements of Account, paragraph (c)(1) of 17

U.S.C. 1003 provides:

Any importer or manufacturer that distributes any digital audio

recording device or digital audio recording medium that it

manufactured or imported shall file with the Register of Copyrights,

in such form and content as the Register shall prescribe by

regulation, such quarterly and annual Statements of Account with

respect to such distribution as the Register shall prescribe by

regulation.

Royalty payments are to be calculated in accordance with 17 U.S.C. 1004

and sent to the Copyright Office under 17 U.S.C. 1003(c)(3).

Following issuance in the Federal Register of the 1993 interim

regulation regarding Statement of Account filings, the Copyright Office

published notice of an informal public meeting to discuss both the

interim regulations (58 FR 29001 (May 18, 1993)) and the initial

edition of the quarterly Statement of Account form (DART/Q Form). The

public meeting was held at the Copyright Office on June 11, 1993.

Discussion of comments follows below in section III.

The DART/Q Form as initially published incorporated practical

modifications that were suggested by the parties in their comments on

the written interim regulations describing what a Statement of Account

should contain.

In response to comments received from interested parties, we have

made some revisions in the 1993 interim regulations, and we are now

issuing superseding interim regulations governing the filing of

Statement of Account Forms on both a quarterly (Form DART/Q) and an

annual (Form DART/A) basis. The regulations provide the filing dates,

frequency of filing, and content of the quarterly and annual Statements

of Account.

II. Review of 1993 Interim Regulations

A. Quarterly Statements of Account

Most of the comments and explanations accompanying the interim

regulations published on February 22, 1993 are still pertinent, but

some specific points are addressed here.

1. Forms

The 1993 interim regulations proposed four filings per fiscal or

calendar year: Three quarterly statements, and a fourth Statement of

Account combining the final quarterly statement and the required annual

statement. Each manufacturing and/or importing party who distributes

digital audio recording products files a quarterly form that contains

information concerning product categories, technologies, transfer

prices, series and model numbers, and units distributed. Comments we

received concerning quarterly Statements of Account are discussed below

in section III(A).

2. Filing Dates and Basis of Filing

The 1993 interim regulations required Statements of Account to be

submitted on either a calendar year or fiscal year basis, at the

election of the filing party. Under our proposal the elected filing

basis was to remain in effect for three years, with any change in the

basis to be permitted only after a request to and approval by the

Copyright Office. Comments on this provision are discussed below in

section III(A)(2).

The 1993 interim regulations require quarterly Statements of

Account to be filed at intervals of three months. During the first

stage of implementation of the AHRA the Office provided a transitional

schedule that did not require a separate quarterly DART statement for

the last part of 1992. The first quarterly statement covered the period

from October 28, 1992 (the date of enactment of the AHRA) to the end of

at least one full quarter, and was due either within 45 days following

the end of the first full quarter after October 28, 1992, or by May 15,

1993, whichever was later. Later quarterly statements are due within 45

days after the end of the relevant quarters.

Annual Statements of Account should reconcile quarterly figures and

provide information regarding yearly activity. Annual statements are

due two months after the close of the calendar or fiscal year covered

by the statement. Comments regarding annual Statements of Account are

discussed in section III(B).

3. Late Payments, Overpayments, Underpayments, and Refunds

The 1994 interim regulations allow for corrections of quarterly and

annual Statements of Account to rectify errors in payments of

royalties. An underpayment of five dollars ($5.00) or less will require

no action by the Office. The Licensing Division will notify the

manufacturing or importing party of underpayments of more than five

dollars so that party can make the necessary corrections or amended

filings.

If royalty payments are not made on time, copyright owners suffer

from loss of the current value of funds. Therefore, interest will be

imposed on underpayments and late payments.

The earlier interim regulations provide for refunds to be made by

the Copyright Office in connection with overpayments accompanying

annual Statements of Account. These superseding interim regulations

will also allow refunds of overpayments accompanying quarterly DART

statements.

4. Credits for Returns or Exports

The earlier 1993 interim regulations permitted credits to be taken

for returned or unsold recording devices; the credit was to be taken in

the first annual Statement of Account covering the actual period when

the recording devices were returned, or in the next succeeding annual

Statement of Account. The Copyright Office has decided to modify this

policy in this superseding interim regulation.

As revised, this new interim regulation permits manufacturers and

importers to take a credit for returns of both recording devices and

media on either quarterly or annual Statements of Account. Credits may

be taken when products are exported or returned to the manufacturers or

importers as unsold or defective. Whenever returned products for which

credit has been taken are later distributed in the United States, the

statutory royalty must be paid, and the distribution must be reported

on the appropriate Statement of Account. The Copyright Office has also

decided to allow a credit for exports. These regulations give filing

parties two years to take a credit.

5. Access to Statements of Account

In accordance with 17 U.S.C. 1003(c)(2), quarterly and annual

Statements of Account will not be made part of the Copyright Office's

public records or directly or indirectly disclosed to the general

public. Specific regulations governing confidential access by

interested parties, as defined in the AHRA, will be issued separately.

III. Discussion of Comments

A. Quarterly Statements of Account

The Office received two comments responding to the interim

regulations published on February 22, 1993. One was filed by the

American Institute of Certified Public Accountants (AICPA), and the

other was from the DART Coalition. In addition, the oral comments made

at the Office's public meeting on this subject are essentially

reflected in the parties' written comments, which are summarized here.

1. The American Institute of Certified Public Accountants (AICPA)

The AICPA is a national professional association representing

certified public accountants (CPA's) in public practice, industry,

government, and education. The group aids in developing standards for

audits and other services provided by CPAs, in administering the

Uniform CPA Examination, and in monitoring and enforcing compliance

with the profession's technical and ethical standards. The AICPA also

monitors and analyzes federal regulations that may affect accounting

and related matters.

The AICPA did not comment on the quarterly form. Their comments

related to CPAs' audits of annual DART Statements of Account, and are

discussed below at section III(B).

2. The DART Coalition

The DART Coalition consists of representatives of the Electronic

Industries Association, the National Music Publishers' Association,

Inc. and its subsidiary The Harry Fox Agency, Inc., the Recording

Industry Association of America, the Home Recording Rights Coalition,

the Alliance of Artists and Recording Companies, the American Society

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

Inc., the American Federation of Musicians of the United States and

Canada, the American Federation of Television and Radio Artists,

Copyright Management, Inc., and the Songwriters Guild of America.

The Copyright Office had proposed in the 1993 interim regulation

that a filing party be locked into election of a calendar or fiscal

filing basis for three years. The Coalition suggested that, where a

filing party shows good cause, it be allowed to change its accounting

period (calendar or fiscal) at any time. The DART Coalition noted that,

if its suggestion were to be accepted, a filing party should not be

allowed to change its filing status to alter the total aggregate

royalty payments. They suggested that the regulations require

notification of changes in filing status to include provisions to

equalize total aggregate payments under the new basis with those that

would have been made under the earlier basis. DART Coalition comments

at 3.

The DART Coalition also suggested clarification with regard to

products subject to Statements of Account and royalty payment

obligations: except for ``credits for returns and exported merchandise

and subsequent obligations with respect to products for which credits

have been claimed,'' the obligation should apply only to units first

distributed in the United States during the appropriate filing period.

DART Coalition comments at 5.

The DART Coalition suggested that in the reporting space for

tracking audio recording devices and media manufactured and distributed

or imported and distributed by a party, the terms ``product category''

and ``technology'' be expressed in the plural, and ``space should be

provided for multiple product categories and technologies.'' DART

Coalition comments at 6.

In addition, the group suggested modification of the requirements

governing presentation of model number and transfer price information

to permit aggregation of products of the same model (or series) number

with the same applicable transfer price. DART Coalition comments at 6-

7.

Regarding information to be provided for stand-alone devices and

devices first distributed with other devices, the Coalition indicated

that the Office had not provided enough fee codes in the quarterly form

to cover all the types of devices that have to be reported. DART

Coalition comments at 7-9.

The Coalition also suggested that clarification be made as to when

royalties are payable. It recommended that language in the Office's

final regulations should indicate that royalties are due upon the

filing of quarterly or annual Statements of Account, not upon

distribution. DART Coalition comments at 9. In addition, the Coalition

suggested that because multiple transfer prices may apply to a given

product series or model, the language in the interim regulations should

be modified to provide for this possibility. Id.

Finally, the Coalition suggested that, regarding treatment of

monies that may be attributable to 1992 activities, any initial

quarterly Statements of Account that include partial fiscal or calendar

quarters ending in 1992 include estimates of payments attributable to

1992 and 1993 quarters. DART Coalition comments at 10.

B. Annual Statements of Account

Comments about annual Statement of Account forms were based upon

the language of the 1993 interim regulations governing the contents of

annual forms, rather than a draft of the form itself.

1. The American Institute of Certified Public Accountants

AICPA argued that the CPA who audits an annual statement should be

required to audit a separate ``schedule of royalties'' (a document not

anticipated or mentioned in the 1993 interim regulation) rather than

the annual statement itself. AICPA comments at 1. The comments

suggested that this separate schedule should relate only to the number

of devices and media distributed, their transfer prices, and the

cumulative amount of royalties. AICPA said that CPAs should not be

associated with the information contained in the fourth quarterly

statement or the entire annual statement, but instead should comment

only on the data that has been audited. AICPA wrote:

[W]e recommend that in addition to the Annual Statement of

Account, management prepares a ``schedule of royalties'' which the

CPA would audit. The appropriate information would be taken from the

Annual Statement of Account and, therefore, not result in additional

cost.

AICPA comments at 2. AICPA proposed that the auditing CPA should also

be permitted to ``express a qualified or adverse opinion or a

disclaimer of an opinion, and other comments.'' AICPA comments at 1.

This would meet generally accepted auditing standards, and would apply

in situations where conditions or circumstances beyond the auditor's

control cannot be audited, corrected, or honestly vouched for by the

CPA.

In addition, AICPA proposed that the language in the illustrative

CPA report which the Office had included in the 1993 interim

regulations be revised to be ``consistent with current authoritative

auditing literature.'' Id. Sample language was suggested to provide

information about accurate usage of terms associated with accounting

procedures. Regarding correct use of terms of art, or language used by

CPAs in the exercise of their duties, the AICPA suggested correction of

proposed language of section (4)(ii)(A) of the 1993 interim regulation.

The proposed language showing that CPAs ``certify'' financial

statements should be changed, because CPAs actually ``audit'' such

documents. The two terms have different meanings that give CPAs

different responsibilities. AICPA comments at 3.

Finally, the AICPA requested extending the filing date for annual

audited Statements of Account from two months to 90 or 120 days because

CPAs are busiest during January and February. AICPA comments at 4.

2. The DART Coalition

The Coalition commented on the 1993 interim regulations' provisions

governing the annual summary of the number of devices and media

manufactured or imported and distributed, and recommended several

changes. Rather than follow the Office's proposed breakdown of the

summary into ``product category,'' ``technology,'' and ``model

number,'' the group preferred an integrated summary based on models

within each category and technology. DART Coalition comments at 13.

The Coalition also commented on the provision on credits for

returns or exports. It was suggested that the credit provision be

* * * clarified to make clear that credits are applicable to

units on which a royalty payment has been made by the manufacturing

party that are (a) returned to the manufacturing party less than two

years following first distribution by the manufacturing party and

(b) originally `distributed' (i.e., transferred by the manufacturing

party for ultimate transfer to consumers in the United States),

which are thereafter exported by the manufacturing party within two

years following first distribution. A credit for exports would,

therefore, arise where the manufacturing party, after an initial,

internal distribution on which a royalty payment has been made,

subsequently exports.

DART Coalition comments at 14-15. Further clarification was suggested

to emphasize that a royalty payment is not triggered until distribution

takes place, and that, if a product is never distributed, no royalty is

paid and no need exists for a credit. DART Coalition comments at 15. In

addition, the Coalition asserted that an individual listing of returned

or exported digital audio recording products, as suggested by the

Office, would not be as efficient as presenting information by model,

with transfer price and applicable royalty credit ``in a format

comparable to that provided for the quarterly Statement of Account.''

DART Coalition comments at 16.

The Coalition had no comments, at the time of filing its comments

on the 1993 interim regulation, regarding accounting certification.

IV. Public Meeting

On June 11, 1993, the Copyright Office held a public meeting

intended to exchange comments and information regarding the quarterly

Statement of Account as proposed in the 1993 interim regulations and as

published in the initial version of the DART/Q Form. Comments were

invited as well about the annual Statement of Account form, which had

been discussed in the interim regulations, but had not yet been

published. 58 FR 29001 (May 18, 1993). The meeting was informal and no

recording was made of the discussion, much of which covered points

raised in the previously-submitted written comments.

One new matter was raised: The possible use of spreadsheets as part

of the Statement of Account reporting form. The Office considers this a

suggestion that should be explored, but believes it does not need to be

incorporated in the regulations. The Licensing Division is currently

discussing the use of computer-generated forms with interested parties.

V. Policy Decisions

The Copyright Office has examined our 1993 interim regulations in

light of the comments received. We have accepted most of the

suggestions made by the parties, noting that they involve solutions to

practical problems and that the AHRA itself is the result of a

cooperative agreement among the interested parties.

The 1993 interim regulations published in 57 FR 9544 (Feb. 22,

1993), are superseded by this second set of 1994 interim regulations.

Several important modifications and additions are incorporated,

including treatment of the auditor's report to accompany the annual

Statement of Account, and fine tuning of the specific contents of

quarterly and annual statements. We have also decided to provide for

credits and for refunds on a quarterly as well as an annual basis, for

both devices and media, and to extend the credit to situations where

the products are exported. We also eliminate the former requirement

that a manufacturing or importing party filing DART statements is

locked into its choice of a filing basis for three years unless

permission to change is sought from and granted by the Register of

Copyrights. Although parties filing DART statements must note on the

forms whether they are filing on a calendar or a fiscal year basis,

changes in filing basis may be made by notifying the Register at least

two months before filing on the changed basis, with a written statement

of reasons as to why the change is to be made and a statement that such

a change will not affect the aggregate royalty due under the earlier

basis.

Based upon AICPA's recommendations concerning appropriate auditing

terminology and procedures, the Copyright Office is adopting procedures

for the primary auditor's report that allow the auditor to make his or

her report either on or attached to the DART/A Form.

The DART Coalition's concerns regarding the manner in which

products are to be aggregated on the Statements of Account by product

and technology has been addressed by clarifying that the Statement of

Account permits the reporting of each unique combination of product

category, technology, series or model number, fee code, source code,

and transfer price.

The Office also received comments during its rulemaking proceeding

RM 93-2, Auditing of and Confidential Access to Statements of Account,

that should be noted. The Electronic Industries Association (EIA),

commented that an audit may cost a party thousands of dollars, and

could ``create a barrier that would keep small manufacturers or

importers out of the digital audio market,'' a negative result not

contemplated by the Act. EIA comments at 17. EIA suggested that small

manufacturers or importers would benefit from an elective exemption

from the Act's audit requirement. The exemption would be available for

``filers that either (i) Do not engage an independent CPA to conduct an

annual financial audit or (ii) file an annual statement of account

showing a royalty payment due of less than five thousand dollars

($5,000).'' Id. The Office has considered this proposal, but has

concluded that it should not provide such a waiver in these regulations

covering the primary audit.

In an effort to facilitate easy and accurate filing of Statements

of Account, the Office has revised the DART/Q Form since its original

issue. Copies of the most current DART/Q and the new DART/A Forms are

available upon writing the Licensing Division, Copyright Office,

Library of Congress, Washington, DC 20557, by calling (202) 707-8150 or

by facsimile (202) 707-0905. Forms may be requested via facsimile for

informational purposes, but facsimile copies may not be submitted to

the Office.

List of Subjects in 37 CFR Part 201

Copyright, Digital audio recording products.

Interim Regulations

In consideration of the foregoing, the Copyright Office is amending

part 201 of 37 CFR chapter II, in the manner set forth below.

PART 201--[AMENDED]

1. The authority citation for part 201 continues to read as

follows:

Authority: Sec. 702, 90 Stat. 2541; 17 U.S.C. 702; Sec. 201.28

is also issued under Pub. L. 102-563, 106 Stat. 4237.

2. Section 201.28 is revised to read as follows:

Sec. 201.28 Statements of Account for digital audio recording devices

or media.

(a) General. This section prescribes rules pertaining to the filing

of Statements of Account and royalty fees in the Copyright Office as

required by 17 U.S.C. 1003(c) and 1004, in order to import and

distribute, or manufacture and distribute, in the United States any

digital audio recording device or digital audio recording medium.

(b) Definitions. For purposes of this section, the following

definitions apply:

(1) Annual statement of account is the statement required under 17

U.S.C. 1003, to be filed no later than two months after the close of

the accounting period covered by the annual statement.

(2) Device and medium have the same meaning as digital audio

recording device and digital audio recording medium, respectively, have

in 17 U.S.C. 1001.

(3) Digital audio recording product means digital audio recording

devices and digital audio recording media.

(4) Generally accepted auditing standards (GAAS), means the

auditing standards promulgated by the American Institute of Certified

Public Accountants.

(5) Manufacturing or importing party refers to any person or entity

that manufactures and distributes, and/or imports and distributes, any

digital audio recording device or digital audio recording medium in the

United States, and is required under 17 U.S.C. 1003 to file with the

Copyright Office quarterly and annual Statements of Account.

(6) Product category of a device or medium is a general class of

products made up of functionally equivalent digital audio recording

products with substantially the same use in substantially the same

environment, including, for example, hand-held portable integrated

combination units (``boomboxes''); portable personal recorders; stand-

alone home recorders (``tape decks''); home combination systems (``rack

systems''); automobile recorders; configurations of tape media

(standard cassettes or microcassettes); and configurations of disc

media, such as 2\1/2\ inch, 3 inch, or 5 inch discs.

(7) Primary auditor is the certified public accountant retained by

the manufacturing or importing party to audit the amounts reported in

the annual Statement of Account submitted to the Copyright Office. The

primary auditor may be the certified public accountant engaged by the

manufacturing or importing party to perform the annual audit of the

party's financial statement.

(8) Quarterly statement of account is the statement accompanying

royalty payments required under 17 U.S.C. 1003, to be filed for each of

the first three quarters of the accounting year, and no later than 45

days after the close of the quarterly period covered by the statement.

(9) Technology of a device or medium is a digital audio recording

product-type distinguished by different technical processes for

digitally recording musical sounds, such as digital audio tape

recorders (DAT), digital compact cassettes (DCC), or recordable compact

discs, including minidiscs (MD).

(10) Distribute, manufacture, transfer price, and serial copying

have the meanings set forth in 17 U.S.C. 1001.

(c) Accounting periods and filing deadlines. (1) Election of filing

basis. Statements of Account may be filed on either a calendar or

fiscal year basis at the election of the manufacturing party. The

election of a calendar or fiscal year basis must be made when the

manufacturing or importing party files its first quarterly Statement of

Account by appropriate designation on the Form DART/Q submitted.

Thereafter the specific calendar or fiscal-year accounting period must

be designated on each quarterly Statement of Account. The filing basis

may be changed at any time upon notification in writing to the Register

of Copyrights, accompanied by a statement of reasons as to why the

change is to be made and a statement that such change will not affect

the aggregate royalties due under the earlier basis. The notification

of change in filing basis must be made at least two months before the

date the next quarterly Statement of Account is due to be filed.

(2) Quarterly filings. Quarterly Statements of Account shall be

filed on Form DART/Q and shall cover a three-month period corresponding

to the calendar or fiscal year of the filing party. A quarterly

statement shall be filed no later than 45 days after the close of the

period it covers.

(3) Annual filings. Annual Statements of Account shall be filed on

Form DART/A and shall cover both the fourth quarter of an accounting

year and the aggregate of the entire year corresponding to the calendar

or fiscal accounting year elected. An annual statement shall be filed

no later than two months after the close of the period it covers. As a

transitional measure, however, the first annual Statement of Account

filed after October 28, 1992, is not due until March 1, 1994, or two

months after the end of the calendar or fiscal year in which the

manufacturing or importing party first filed a quarterly Statement of

Account, whichever is later. The first annual Statement of Account

shall cover the entire period from October 28, 1992, to the end of the

full accounting year. The appropriate royalty payment, calculated

according to the instructions contained in Form DART/A, shall accompany

the annual Statement of Account covering royalties due for the filing

year: that is, royalties for the fourth quarter and any additional

royalties that are due because of adjustments in the aggregate amounts

of devices or media distributed.

(4) Early or late filings. Statements of Account and royalty fees

received before the end of the particular accounting period covered by

the statement will not be processed by the Office. The statement must

be filed after the close of the relevant accounting period. Statements

of Account and royalty fees received after the 45-day deadline for

quarterly statements or the two month deadline for annual statements

will be accepted for whatever legal effect they may have and will be

assessed the appropriate interest charge for the late filing.

(d) Forms. (1) Each quarterly or annual Statement of Account shall

be submitted on the appropriate form prescribed by the Copyright

Office. Computation of the royalty fee shall be in accordance with the

procedures set forth in the forms and this section. Statement of

Account forms are available from the Licensing Division, Library of

Congress. Forms and other information may be requested from the

Licensing Division by facsimile transmission (FAX), but copies of

Statement of Account forms transmitted to the Office by FAX will not be

accepted.

(2) Forms prescribed by the Copyright Office are designated

Quarterly Statement of Account for Digital Audio Recording Products

(Form DART/Q) and Annual Statement of Account for Digital Audio

Recording Products (Form DART/A).

(e) Contents of quarterly Statements of Account. (1) Quarterly

period and filing. Any quarterly Statement of Account shall cover the

full quarter of the calendar or fiscal accounting year for the

particular quarter for which it is filed. A separate quarterly

statement shall be filed for each quarter of the first three quarters

of the accounting year during which there is any activity relevant to

the payment of royalties under 17 U.S.C. 1004. The annual Statement of

Account identified in paragraph (f) of this section incorporates the

fourth quarter of the accounting year.

(2) General content. Each quarterly Statement of Account shall be

filed on Form DART/Q, the ``Quarterly Statement of Account for Digital

Audio Recording Products,'' and shall include a clear statement of the

following information:

(i) A designation of the calendar or fiscal year of the annual

reporting period;

(ii) A designation of the period, including the beginning and

ending day, month, and year of the period covered by the quarter;

(iii) The full legal name of the manufacturing and/or importing

party, together with any ``doing-business-as'' names used by such

person or entity for the purpose of conducting the business of

manufacturing, importing, or distributing digital audio recording

products;

(iv) The full mailing address of the manufacturing or importing

party, including a specific number and street name, or rural route and

box number, of the place of business of the person or entity. A post

office box or similar designation will not be sufficient for this

purpose except where it is the only address that can be used in that

geographic location;

(v) A designation of the manufacturing or importing party status,

i.e., ``Manufacturer,'' ``Importer,'' or ``Manufacturer and Importer;''

(vi) The designation ``Product Categories'' together with the

product categories of the digital audio recording products manufactured

or imported and distributed during the quarter covered by the

statement;

(vii) The designation ``Technologies'' together with the

technologies of the digital audio recording products manufactured or

imported and distributed under the AHRA during the quarter covered by

the statement;

(viii) The designation ``Series or Model Number'' followed by the

model or series numbers of the digital audio recording products

manufactured or imported and distributed under the AHRA during the

quarter covered by the statement;

(ix) The ``fee code'' associated with the product;

(x) The ``source code'' for the product category;

(xi) The ``transfer price'' of the product;

(xii) The ``number of units distributed'' for each product;

(xiii) The ``minimum fee per unit'' for each product;

(xiv) The statutory royalty ``rate'' for digital audio recording

devices or media;

(xv) The ``rate fee'' for each product;

(xvi) The appropriate ``maximum fee per unit'' for each product;

(xvii) The ``maximum fee'' for each product; and

(xviii) A computation of the total royalty payable for the quarter

covered by the statement. Filing parties may not round off the figures

they list in Space C, the computation section of the form, except for

the figure representing the total royalty fee due; in that case,

numbers ending in 50 to 99 cents may be rounded up to the next dollar,

and numbers ending in one to 49 cents may be rounded down to the next

dollar;

(3) Royalty payments and accounting. (i) The royalty specified in

17 U.S.C. 1004 shall accompany the quarterly and annual Statements of

Account. No royalty is payable for redistribution of the same product

item unless a credit has been taken for such items. Where royalties are

payable for the period covered by the statement, the Statement of

Account shall contain the following information for each unique

combination of product category, technology, series or model number,

fee code, source code, and transfer price:

(A) The total number of digital audio recording media distributed,

multiplied by the statutory royalty rate of three percent (3%) of the

transfer price;

(B) The total number of digital audio recording devices distributed

for which the statutory royalty rate of two percent (2%) of the

transfer price is payable, multiplied by such percentage rate of the

transfer price;

(C) The total number of digital audio recording devices distributed

for which the statutory maximum royalty is limited to eight dollars

($8.00), multiplied by such eight dollar amount;

(D) The total number of digital audio recording devices distributed

for which the statutory maximum royalty is limited to twelve dollars

($12.00), multiplied by such twelve dollar amount; and

(E) The total number of digital audio recording devices distributed

for which the statutory minimum royalty is limited to one dollar

($1.00), multiplied by such one dollar amount.

(ii) The amount of the royalty payment shall be calculated in

accordance with the instructions specified in the quarterly Statement

of Account form. Payment of the royalty fee must be in the form of a

certified check, cashier's check, money order, or electronic payment

payable to the Register of Copyrights.

(4) Reduction of royalty fee. (i) Section 1004(a)(2)(A) of title 17

U.S. Code, provides an instance in which royalty payments may be

reduced if the digital audio recording device and such other devices

are part of a physically integrated unit, the royalty payment shall be

based on the transfer price of the unit, but shall be reduced by any

royalty payment made on any digital audio recording device included

within the unit that was not first distributed in combination with the

unit.

(ii) Notice of this provision together with directions for possible

application to a product is contained in the DART/Q Form.

(5) Contact party. Each Statement of Account shall include the

name, address, and telephone and facsimile (FAX) numbers of an

individual whom the Copyright Office can write or call about the

Statement of Account.

(6) Credits for returned or exported products. When digital audio

recording products first distributed in the United States for ultimate

transfer to United States consumers are returned to the manufacturer or

importer as unsold or defective merchandise, or are exported, the

manufacturing or importing party may take a credit to be deducted from

the royalties payable for the period when the products were returned or

exported. The credit may be taken only for returns or exports made

within two years following the date royalties were paid for the

products. This credit must be reflected in the manufacturing or

importing party's quarterly or annual Statement of Account. If the

manufacturer or importer later redistributes in the United States any

products for which a credit has been taken, these products must be

listed on the Statement of Account, and a new computation of the

royalty fee must be made based on the transfer price of the products at

the time of the new distribution.

(7) Oath and signature. Each Statement of Account shall include the

handwritten signature of an authorized officer, principal, or agent of

the filing party. The signature shall be accompanied by:

(i) The printed or typewritten name of the person signing the

quarterly Statement of Account;

(ii) The date the document is signed;

(iii) The following certification:

I, the undersigned, hereby certify that I am an authorized

officer, principal, or agent of the ``manufacturing or importing

party'' identified in Space B.

Penalties for fraud and false statements are provided under 18 U.S.C.

1001 et. seq.

(f) Contents of annual Statements of Account. (1) General contents.

Each annual Statement of Account shall be filed on form DART/A,

``Annual Statement of Account for Digital Audio Recording Products.''

It must be filed by any importer or manufacturer that distributed in

the United States, during a given calendar or fiscal year, any digital

audio recording device or digital audio recording medium. The annual

statement shall cover the aggregate of the distribution of devices and

media for the entire year corresponding to the calendar or fiscal year

elected. The annual Statement of Account shall contain the information,

oath, and certification prescribed in paragraphs (e)(2)(i) through

(e)(7)(iii) of this section, and shall cover the entire accounting

year, including the fourth quarter distribution, and shall also provide

for the reconciliation of the aggregated accounting of digital audio

recording devices and media for the reported accounting year.

(2) Reconciliation. Any royalty payment due under sections 1003 and

1004 of title 17 that was not previously paid with the filing party's

first three quarterly Statements of Account, shall be reconciled in the

annual statement. Reconciliation in the annual Statement of Account

provides for adjustments for reductions, refunds, underpayments,

overpayments, credits, and royalty payments paid in Quarters 1, 2, and

3, and shall be computed in accordance with the instructions included

in the annual Statement of Account. Errors that require reconciliation

shall be corrected immediately upon discovery.

(3) Accountant's opinion. Each annual Statement of Account or any

amended annual Statement of Account shall be audited by the primary

auditor as defined in paragraph (b)(7) of this section. An amendment

may be submitted to the Office either as a result of responses to

questions raised by a Licensing Division examiner or on the initiative

of the manufacturing or importing party to correct an error in the

original Statement of Account.

(i) The audit shall be performed in accordance with generally

accepted auditing standards (GAAS). The audit may be performed in

conjunction with an annual audit of the manufacturing or importing

party's financial statements.

(ii) The CPA shall issue a report, the ``primary auditor's

report,'' reflecting his or her opinion as to whether the annual

statement presents fairly, in all material respects, the number of

digital audio recording devices and media that were imported and

distributed, or manufactured and distributed, by the manufacturing or

importing party during the relevant year, and the amount of royalty

payments applicable to them under 17 U.S.C. chapter 10, in accordance

with that law and these regulations.

(iii) The primary auditor's report shall be filed with the

Copyright Office together with the annual Statement of Account, within

two months after the end of the annual period for which the annual

Statement of Account is prepared. The report may be qualified to the

extent necessary and appropriate.

(iv) The Copyright Office does not provide a specific form, or

require a specific format, for the CPA's review; however, in addition

to the above, certain items must be named as audited items. These

include the variables necessary to complete Space C of the Statement of

Account form. The CPA may place his or her opinion, which will serve as

the ``primary auditor's report,'' in the space provided on Form DART/A,

or may attach a separate sheet or sheets containing the opinion.

(v) The auditor's report shall be signed by an individual, or in

the name of a partnership or a corporation, and shall include city and

state of execution, certificate number, jurisdiction of certificate,

and date of opinion. The certificate number and jurisdiction are not

required if the report is signed in the name of a partnership or a

corporation.

(g) Documentation. All filing parties shall keep and retain in

their possession, for at least three years from the date of filing, all

records and documents necessary and appropriate to support fully the

information set forth in quarterly and annual statements that they

file.

(h) Corrections, supplemental payments, and refunds. (1) General.

Upon compliance with the procedures and within the time limits set

forth in this paragraph (h), corrections to quarterly and annual

Statements of Account will be placed on record, and supplemental

royalty fee payments will be received for deposit, or refunds without

interest will be issued, in the following cases:

(i) Where, with respect to the accounting period covered by the

quarterly or annual Statement of Account, any of the information given

in the statement filed in the Copyright Office is incorrect or

incomplete; or

(ii) Where, for any reason except that mentioned in paragraph

(h)(2) of this section, calculation of the royalty fee payable for a

particular accounting period was incorrect, and the amount deposited in

the Copyright Office for that period was either too high or too low.

(2) Corrections to quarterly or annual Statements of Account will

not be placed on file, supplemental royalty fee payments will not be

received for deposit, and refunds will not be issued, where the

information in the Statements of Account, the royalty fee calculations,

or the payments were correct as of the date on which the accounting

period ended, but changes (for example, cases where digital audio

recording media were exported) took place later.

(3) Requests that corrections to annual or quarterly Statements of

Account be accepted, that fee payments be accepted, or that refunds be

issued shall be addressed to the Licensing Division of the Copyright

Office, and shall meet the following conditions:

(i) The request shall be made in writing and must clearly identify

the manufacturing or importing party making the request, the accounting

period in question, and the purpose of the request. A request for a

refund must be received in the Copyright Office before the expiration

of two months from the last day of the applicable Statement of Account

filing period. A request made by telephone or by telegraphic or similar

unsigned communication will be considered to meet this requirement if

it clearly identifies the basis of the request, is received in the

Copyright Office within the two-month period, and a written request

meeting all the conditions of this paragraph (h)(3) is also received in

the Copyright Office within 14 days after the end of such two-month

period.

(ii) The request must clearly identify the incorrect or incomplete

information formerly filed and must provide the correct or additional

information.

(iii) In the case where a royalty fee was miscalculated and the

amount deposited with the Copyright Office was too large or too small,

the request must be accompanied by an affidavit under the official seal

of any officer authorized to administer oaths within the United States,

or a statement in accordance with 28 U.S.C. 1746, made and signed in

accordance with paragraph (e)(7) of this section. The affidavit or

statement shall describe the reasons why the royalty fee was improperly

calculated and include a detailed analysis of the proper royalty

calculation.

(iv) Following final processing, all requests will be filed with

the original Statement of Account in the records of the Copyright

Office. Nothing contained in this paragraph shall be considered to

relieve manufacturing or importing parties of their full obligations

under title 17 of the United States Code, and the filing of a

correction or supplemental payment shall have only such effect as may

be attributed to it by a court of competent jurisdiction.

(v)(A) The request must be accompanied by a filing fee in the

amount of $20 for each Statement of Account involved. Payment of this

fee may be in the form of a personal or company check, or a certified

check, cashier's check, or money order, payable to the Register of

Copyrights. No request will be processed until the appropriate filing

fees are received.

(B) Requests that a supplemental royalty fee payment be deposited

must be accompanied by a remittance in the full amount of such fee.

Payment of the supplemental royalty fee must be in the form of a

certified check, cashier's check, money order, or electronic payment

payable to the Register of Copyrights. No such request will be

processed until an acceptable remittance in the full amount of the

supplemental royalty fee has been received.

(vi) All requests submitted under paragraph (h) of this section

must be signed by the manufacturing or importing party named in the

Statement of Account, or the duly authorized agent of that party in

accordance with paragraph (e)(7) of this section.

(vii) A request for a refund is not necessary where the Licensing

Division, during its examination of a Statement of Account or related

document, discovers an error that has resulted in a royalty

overpayment. In this case, the Licensing Division will forward the

royalty refund to the manufacturing or importing party named in the

Statement of Account. The Copyright Office will not pay interest on any

royalty refunds.

(i) Examination of Statements of Account by the Copyright Office.

(1) Upon receiving a Statement of Account and royalty fee, the

Copyright Office will make an official record of the actual date when

such statement and fee were physically received in the Copyright

Office. Thereafter, the Licensing Division will examine the statement

for obvious errors or omissions appearing on the face of the documents

and will require that any such obvious errors or omissions be corrected

before final processing of the document is completed. If, as the result

of communications between the Copyright Office and the manufacturer or

importer, an additional fee is deposited or changes or additions are

made in the Statement of Account, the date that additional deposit or

information was actually received in the Office will be added to the

official record.

(2) Completion by the Copyright Office of the final processing of a

Statement of Account and royalty fee deposit shall establish only the

fact of such completion and the date or dates of receipt shown in the

official record. It shall not be considered a determination that the

Statement of Account was, in fact, properly prepared and accurate, that

the correct amount of the royalty was deposited, that the statutory

time limits for filing had been met, or that any other requirements of

17 U.S.C. 1001 et. seq. were fulfilled.

(j) Interest on late payments or underpayments. (1) Royalty

payments submitted as a result of late payments or underpayments shall

include interest, which shall begin to accrue on the first day after

the close of the period for filing Statements of Account for all late

payments or underpayments of royalties occurring within that accounting

period. The accrual period for interest shall end on the date appearing

on the certified check, cashier's check, money order, or electronic

payment submitted by the manufacturing or importing party, if the

payment is received by the Copyright Office within five business days

of that date. If the payment is not received by the Copyright Office

within five business days of its date, the accrual period shall end on

the date of actual receipt by the Copyright Office.

(2) The interest rate applicable to a specific accounting period

shall be the Current Value of Funds rate in accordance with the

Treasury Financial Manual, at 1 TFM 6-8025.40, in effect on the first

business day after the close of the filing deadline for the relevant

accounting period. The interest rate for a particular accounting period

may be obtained by consulting the Federal Register for the applicable

Current Value of Funds Rate, or by contacting the Licensing Division of

the Copyright Office.

(3) Interest is not required to be paid on any royalty underpayment

or late payment from a particular accounting period if the interest

charge is five dollars ($5.00) or less.

(k) Confidentiality of Statements of Account. Public access to the

Copyright Office files of Statements of Account for digital audio

recording products shall not be provided. Access will only be granted

to interested copyright parties in accordance with regulations

prescribed by the Register of Copyrights pursuant to 17 U.S.C. 1003(c).

Dated: January 26, 1994.

Barbara Ringer,

Acting Register of Copyrights.

Approved by:

James H. Billington,

Librarian of Congress.

[FR Doc. 94-2066 Filed 1-31-94; 8:45 am]

BILLING CODE 1410-08-P