[Federal Register: July 30, 1999 (Volume 64, Number 146)]
[Rules and Regulations]
[Page 41286-41289]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 201
[Docket No. RM 98-7C]
Notice and Recordkeeping for Making and Distributing Phonorecords
AGENCY: Copyright Office, Library of Congress.
ACTION: Interim regulations.
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SUMMARY: The Copyright Office is announcing interim regulations which
specify notice and recordkeeping requirements associated with the
making of digital phonorecord deliveries. The Digital Performance Right
in Sound Recordings Act of 1995 requires the Librarian of Congress to
establish these regulations to insure proper payment to copyright
owners for the use of their works.
EFFECTIVE DATE: The interim regulations shall become effective on
August 30, 1999.
FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or
Tanya M. Sandros, Attorney Advisor, Copyright Arbitration Royalty Panel
(``CARP''), P.O. Box 70977, Southwest Station, Washington, D.C. 20024.
Telephone: (202) 707-8380. Telefax: (202) 252-3423.
SUPPLEMENTARY INFORMATION:
Background
On November 1, 1995, Congress enacted the Digital Performance Right
in Sound Recordings Act of 1995 (``DPRA''), Pub. L. 104-39 (1995).
Among other things, this law clarifies that the compulsory license for
making and distributing phonorecords includes the distribution of a
phonorecord of a nondramatic musical work by means of a digital
phonorecord delivery. 17 U.S.C. 115(c)(3).
The DPRA requires the Librarian of Congress to ``establish
requirements by which copyright owners may receive reasonable notice of
the use of their works under this section, and under which records of
such use shall be kept and made available by persons making digital
phonorecord deliveries.'' 17 U.S.C. 115(c)(3)(D).
The Copyright Office initiated the process to promulgate
regulations on the subject of the notice and recordkeeping requirements
on September 4, 1998, with the publication of a Notice of Inquiry. 63
FR 47215 (September 4, 1998). The notice sought comment on whether the
existing regulations, 37 CFR 201.18 and 201.19, governing the
administration of the section 115 compulsory license, could be amended
to accommodate the additional notice and recordkeeping requirements.
Comments were due on October 19, 1998, and reply comments were due on
November 18, 1998.
On October 19, 1998, the Recording Industry Association of America
(``RIAA'') and the National Music Publishers' Association of America,
Inc. (``NMPA'') filed a joint petition with the Copyright Office. The
petition requested a six-month extension of the filing period in order
to allow these parties additional time to work out a joint proposal
that would address the complex technical and business issues involved
in the making of digital phonorecord deliveries (``DPDs''). In response
to the parties' concerns expressed in the petition and a second request
for additional time, the Copyright Office reopened the comment period
twice. 63 FR 65567 (November 27, 1998); 63 FR 69251 (December 16,
1998).
The Commenters
The Copyright Office received five comments from six parties: NMPA
and the Songwriters Guild of America (``SGA''), jointly; RIAA; Digital
Media Association (``DiMA''); Broadcast Music, Inc. (``BMI''), and the
American Society of Composers, Authors, and Publishers (``ASCAP'').
The Scope of This Proceeding
BMI and ASCAP filed comments to underscore their understanding that
the DPRA does not in any way diminish the right of public performance
and that the current rulemaking does not involve the right of public
performance, but rather is limited to the right of reproduction and the
right of distribution. BMI's and ASCAP's assessment as to the scope of
this proceeding is correct. It implicates only the rights of
reproduction and distribution in the making and distribution of
phonorecords, and not the right of public performance.
A Request for Interim Regulations
NMPA/SGA, RIAA, and DiMA indicate a strong preference for delaying
the adoption of final regulations on notice and recordkeeping because
the industry is in its infancy and business models to handle the
transactions involved in making DPDs are still evolving. These
commenters encourage the Office to adopt interim regulations for a
period of between six months to two years in order to allow continued
negotiations among industry representatives. BMI and ASCAP also have no
objections to adopting interim regulations so long as such amendments
do not apply to the right of public performance. The Copyright Office
agrees with the commenters and is adopting interim regulations for a
period of two years; however, a party with a substantial interest in
notice and recordkeeping requirements for DPDs may petition the Office
to reopen the rulemaking for good cause before the expiration of this
period. The interim regulations are promulgated without prejudice to
the parties who, at the appropriate time, may propose final regulations
that may differ significantly from the interim rules based upon the
developing business trends in the industry.
Proposed Amendments to 37 CFR 201.18 and 201.19
Section 115(b)(1) of the Copyright Act, title 17 of the United
States Code, requires ``[a]ny person who wishes to obtain a compulsory
license under this section . . . [to] serve notice of intention to do
so on the copyright owner.'' This section also requires the Copyright
Office to prescribe regulations specifying the form, content, and
manner of service of the notice of intention. Section 201.18 of title
37 of the Code of Federal Regulations meets this requirement.
Similarly, the regulations in Sec. 201.19 address the requirement that
each compulsory licensee file monthly and annual
[[Page 41287]]
statements of account for each section 115 compulsory license in
accordance with 17 U.S.C. 115(c)(5).
NMPA/SGA, RIAA, and DiMA proposed amendments to Secs. 201.18 and
201.19 that would adapt these rules to digital phonorecord deliveries
at least for purposes of filing notices of intention to use the license
and statements of account. However, NMPA and SGA do not believe that
amending the current regulations will be sufficient to address the
requirements of section 115(c)(3)(D), of title 17 of the United States
Code, relating to notice and recordkeeping. They contend that the
requirements of section 115(c)(3)(D) are separate and distinct from the
requirements to file a notice of intention to use the license and
statements of account specified in sections 115(b)(1) and (c)(5),
respectively, but acknowledge that the requirements share some common
ground. On the other hand, RIAA states that it believes the proposed
amendments would fulfill the notice and recordkeeping requirements set
out in 17 U.S.C. 115(c)(3)(D), in addition to the traditional
requirements for filing a notice of intention to use the license and
statements of account set out in 17 U.S.C. 115(b)(1) and (c)(5). Reply
comments of RIAA at 5 n.1.
While acknowledging the potential need to draft additional
amendments, for purposes of the interim regulations the Copyright
Office accepts RIAA's analysis on this point. The interim regulations
will require those users who avail themselves of the section 115
license for the purpose of making DPDs to file a notice of intention to
use the license and statements of account with the copyright owner in
those cases where the public records of the Copyright Office identify
the owner. Certainly, direct notice to the copyright owner fulfills the
section 115(c)(3)(D) requirement for notice, and the detailed
statements of account filed with the copyright owner should provide
sufficient information to document the use of the copyrighted works to
meet the recordkeeping requirement. Nevertheless, the Office supports
NMPA/SGA's suggestion for further discussion on these issues,
especially as to whether the current regulations, as amended herein, go
far enough to prescribe how ``records of such use shall be kept and
made available by persons making digital phonorecord deliveries.'' 17
U.S.C. 115(c)(3)(D).
As to the actual amendments proposed, we note that each party
proposed modest changes to the existing rules that would allow a user
to take advantage of the compulsory license, but that the commenters
differed in their view on whether the traditional concepts of
``relinquished from possession,'' ``phonorecord reserves,'' or
``returns'' applied to DPDs. NMPA/SGA contend that the terms,
``voluntarily distributed,'' ``reserves,'' and ``returns'' do not
properly apply to DPDs as used in the current regulations. ``NMPA and
SGA are not aware of any `returns' of DPDs or even how such returns
could technically be accomplished. Accordingly, we see no basis to
provide for `reserves' with respect to such `returns' of DPDs.''
Further comments of NMPA and SGA at 4 n.3.
RIAA and DiMA, however, have less trouble applying these same
concepts to DPDs. Citing the possibility of a failed transmission or an
incomplete reproduction, RIAA and DiMA foresee a need to be able to
offer DPD recipients credits or replacements. RIAA argues that ``(w)hen
the relevant commercial arrangements provide for a credit or
replacement and generally accepted accounting principles require such
treatment, RIAA believes that a maker of DPDs should have the
opportunity to make mechanical royalty payments reflecting such credits
or replacements and any corresponding reserve.'' Reply comments of RIAA
at 4; see also DiMA at 3. Similarly, DiMA foresees a business model
that allows a distributor to prepay for a preset number of DPDs in
conjunction with the right to return the unsold portion for a credit or
as an offset. Both approaches incorporate the concepts of ``reserves''
and ``returns,'' and require that the rules define the term
``voluntarily distributed'' as it relates to a DPD. Under either model,
the user must be able to account for and receive credit for the
``returns'' and the ``reserves.''
The Copyright Office has weighed the arguments of the commenting
parties and agrees with RIAA that a distributor should be allowed to
provide a replacement DPD in order to rectify a problem on the
receiving end of the transmission, or to account for a failed
transmission or an incomplete reproduction. However, the Office has
found no basis for adopting the concept of ``reserves'' to DPDs.
Therefore, the interim regulations require accounting for all DPDs,
both attempted and completed, but at the same time, provide a mechanism
whereby a distributor may adjust for failed transmissions and
replacement DPDs made for the purpose of delivering a complete and
usable DPD to an intended recipient. We also adopt DiMA's suggestion to
add the term, ``digital phonorecord delivery,'' to the list of
phonorecord configurations in Secs. 201.18(c)(1)(vi) and
201.19(e)(3)(ii)(D).
To effect the proposed scheme, it is necessary to ascertain when a
DPD is made, manufactured, or distributed for purposes of the section
115 license such that the obligation to pay the royalty fee attaches.
RIAA and NMPA/SGA define the point as the ``date the digital delivery
is completed,'' but neither commenter offered any insight on how to
ascertain the date of completion. The answer to this question is of
critical import, because royalties will be paid only for those DPDs
which are completed. In anticipation of this problem, DiMA suggests
amending Sec. 201.19(a)(5) to define the concept of ``voluntarily and
permanently part(ing) with,'' a DPD as ``the time when the delivery and
making of the digital phonorecord can be confirmed as completed.'' DiMA
at 3. According to DiMA, the transmitting entity could confirm ``that
the transmission arrived intact,'' DiMA at 3, but it need not do so.
Instead, DiMA proposes a presumption in favor of a successful
transmission in the absence of a notification from the intended
recipient that the transmission or reproduction failed.
The Copyright Office finds that DiMA's approach sets the mark too
far down the line when determining the point at which delivery is
complete because it leaves the resolution of when the DPD actually
occurs in the hands of the intended recipient. This approach fails to
account for a misdirected DPD or for a successful transmission to a
recipient who, for whatever reason, cannot access and utilize the
phonorecord. Therefore, for purposes of the interim regulations, the
Office will start with a rebuttable presumption that a DPD is complete
on the date the transmission is made. However, the Office recognizes
that if a transmission fails or results in an incomplete reproduction,
as determined by means within the sole control of the distributor, no
delivery has occurred and no copyright liability accrues. In such
cases, the distributor may overcome the presumption by explaining when
and why the transmission failed and deduct one unit DPD from the
monthly total. A distributor may also deduct a unit DPD from the
monthly tally for a retransmission of a sound recording to an intended
recipient in the case where although the initial transmission to the
intended recipient resulted in a specifically identifiable reproduction
of that sound recording, for some reason it remained inaccessible to
the intended recipient.
[[Page 41288]]
This interpretation comports with the statutory definition of a
digital phonorecord delivery. Section 115(d)(1) defines a digital
phonorecord delivery as ``each individual delivery of a phonorecord by
digital transmission of a sound recording which results in a
specifically identifiable reproduction by or for any transmission
recipient.'' The statutory definition requires only that transmission
of an identifiable reproduction of a sound recording be successfully
completed. It does not require that the intended recipient actually
receive and verify receipt of a usable reproduction. The key factor is
the delivery of a specifically identifiable reproduction of a sound
recording and not verification by an intended recipient. Consequently,
receipt of an identifiable, but unusable reproduction still will
require payment of an initial copyright royalty fee. Under such
circumstances, the distributor may retransmit a phonorecord of the same
sound recording and treat the retransmission as a replacement for the
initial phonorecord.
The Office takes this approach because it accounts for every
transaction without imposing additional liability on the distributor in
those cases where replacements need to be supplied to a customer. While
it is arguable that each transmission constitutes a separate DPD, the
Office has determined that it is unreasonable to impose additional
costs for replacements on a distributor, since retransmissions are not
likely to increase the risk of further copying at the expense of the
copyright owner. A recipient who wishes to make further copies can do
so easily from a single reproduction of the sound recording. Such is
the nature of the digital environment. Therefore, the Copyright Office
can see no reason to prevent a distributor from making multiple
transmissions to the same recipient for the sole purpose of completing
the DPD of a particular sound recording, nor can it see any reason why
a customer would request a second transmission once he or she has
received a complete and usable file. Consequently, the interim
regulations will allow a maker of DPDs to adjust the total monthly
count of DPDs to account for subsequent transmissions of a sound
recording made to an intended recipient in an attempt to complete
delivery of the initial request. However, this does not mean that the
distributor can avoid payment on an initial transmission which results
in a specifically identifiable reproduction, or extend a credit to a
customer for a different sound recording because the customer was
unable to make use of the initial DPD.
The Office rejects RIAA's proposal to adopt a regulatory scheme
that would allow a distributor of DPDs to offer credits to a consumer
in the event of a purported faulty or incomplete transmission, because
the potential for abuse is too high. This is true because there is no
apparent means to verify whether a request for a credit is legitimate.
Nothing would prevent a customer from claiming a credit upon the mere
assertion that the DPD was incomplete, even though the initial DPD was
properly made. The intended recipient could then use the credit to
order a different DPD, ultimately receiving two DPDs for the price of
one. Such a result is contrary to the purpose of the compulsory license
and must be avoided. For purposes of the compulsory license, the
royalty obligation accrues upon the initial transmission of the
phonorecord. Corrections for defective transmissions or for replacement
DPDs are made as adjustments to the total number of transmissions. Such
offsets benefit the distributor only, and may not be extended to the
consumer directly under the auspices of the statutory license. Of
course, a distributor may decide to grant a credit to a consumer who
does not receive a complete reproduction or cannot access a file, but
that decision does not alter how the distributor meets his obligations
under the statutory license.
The Copyright Office also rejects DiMA's concept of reserves. Under
its model, a distributor would prepay for the right to deliver a preset
number of DPDs, and consequently, would have need of a system that
allowed the distributor to receive a credit or offset for the
authorized DPDs that never occurred. Yet, under section 115, the
distributor incurs no copyright liability until the DPD is completed.
For this reason, the Office can see no rationale for prepaying a
copyright owner for DPDs which may not occur, when all that is needed
is an accurate accounting mechanism for registering those that do. Of
course, a distributor may enter into a contractual relationship with a
copyright owner which calls for prepayment. In such cases, the parties
could provide for additional credits or offsets.
In addition, the Office has not adopted the suggested language that
would require the recipient to delete or destroy an original DPD before
a second transmission is made, since such actions cannot be verified
nor do they seem calculated to alleviate any identifiable problem.
However, if the technology develops to the point where such actions
prove useful in controlling the distribution of sound recordings by
means of a digital transmission, an interested party may petition for
reconsideration of the regulations on this point.
We adopt these amendments on an interim basis in order to adapt the
existing regulatory framework to the immediate needs of the compulsory
licensee who wishes to make DPDs in today's marketplace. Nevertheless,
we acknowledge that the developing technologies associated with making
DPDs may require a different system for notice and recordkeeping and
will consider any new proposals, suggestions, or adjustments when we
revisit the issue before finalizing regulations governing the notice
and recordkeeping requirements associated with making DPDs.
Regulatory Flexibility Act
Although the Copyright Office, as a department of the Library of
Congress and part of the legislative branch, is not an ``agency''
subject to the Regulatory Flexibility Act, 5 U.S.C. 601-612, the
Register of Copyrights has considered the effect of these interim
regulations on small businesses. The Register has determined that the
regulations would not have a significant economic impact on a
substantial number of small entities that would require provision of
special relief for small entities in the regulations. The interim
regulations are designed to minimize any significant economic impact on
small entities.
List of Subjects in 37 CFR Part 201
Copyright.
Interim Regulations
For the reasons set forth in the preamble, part 201 of title 37 of
the Code of Federal Regulations is amended as follows:
PART 201--GENERAL PROVISIONS
1. The authority citation for part 201 continues to read as
follows:
Authority: 17 U.S.C. 702.
2. Section 201.18 is amended as follows:
(a) By adding a new paragraph (a)(4); and
(b) In paragraph (c)(1)(vi), by adding the phrase ``a digital
phonorecord delivery,'' in the parenthetical clause before the words
``or a combination of them''.
The new paragraph (a)(4) reads as follows:
[[Page 41289]]
Sec. 201.18 Notice of intention to obtain a compulsory license for
making and distributing phonorecords of nondramatic musical works.
(a) * * *
(4) For the purposes of this section, a digital phonorecord
delivery shall be treated as a type of phonorecord configuration, and a
digital phonorecord delivery shall be treated as a phonorecord
manufactured, made, and distributed on the date the phonorecord is
digitally transmitted.
* * * * *
3. Section 201.19 is amended as follows:
(a) By redesignating paragraphs (a)(5), (a)(6) and (a)(7) as
(a)(6), (a)(8) and (a)(9) respectively;
(b) By adding a new paragraph (a)(5);
(c) By revising the first sentence of newly designated paragraph
(a)(6);
(d) By adding new paragraphs (a)(7), (a)(10), and (a)(11);
(e) In paragraph (e)(3)(i)(A), by adding the phrase ``, including
digital phonorecord deliveries,'' after the phrase ``The number of
phonorecords'';
(f) In paragraph (e)(3)(i)(B), by removing the word ``or'' after
the fourth undesignated clause ``Returned to the compulsory licensee
for credit or exchange;'' and adding two new clauses to the end of the
section;
(g) By revising paragraph (e)(3)(ii)(D);
(h) By adding a new paragraph (e)(3)(ii)(E); and
(i) In paragraph (e)(4)(ii), by adding paragraphs (d) and (e) to
Step 4.
The additions and revisions to Sec. 201.19 read as follows:
Sec. 201.19 Royalties and statements of account under compulsory
license for making and distributing phonorecords of nondramatic musical
works.
(a) * * *
(5) For the purposes of this section, a digital phonorecord
delivery shall be treated as a type of phonorecord configuration, and a
digital phonorecord delivery shall be treated as a phonorecord, with
the following clarifications:
(i) A digital phonorecord delivery shall be treated as a
phonorecord made and distributed on the date the phonorecord is
digitally transmitted; and
(ii) A digital phonorecord delivery shall be treated as having been
voluntarily distributed and relinquished from possession, and a
compulsory licensee shall be treated as having permanently parted with
possession of a digital phonorecord delivery, on the date that the
phonorecord is digitally transmitted.
(6) Except as provided in paragraph (a)(5), a phonorecord is
considered voluntarily distributed if the compulsory licensee has
voluntarily and permanently parted with possession of the phonorecord.
* * * * *
(7) To the extent that the terms reserve, credit and return appear
in this section, such provisions shall not apply to digital phonorecord
deliveries.
* * * * *
(10) An incomplete transmission is any digital transmission of a
sound recording which, as determined by means within the sole control
of the distributor, does not result in a specifically identifiable
reproduction of the entire sound recording by or for any transmission
recipient.
(11) A retransmission is a subsequent digital transmission of the
same sound recording initially transmitted to an identified recipient
for the purpose of completing the delivery of a complete and usable
reproduction of that sound recording to that recipient.
* * * * *
(e) * * *
(3) * * *
(i) * * *
(B) * * *
Never delivered due to a failed transmission; or
Digitally retransmitted in order to complete a digital
phonorecord delivery.
* * * * *
(ii) * * *
(D) Each phonorecord configuration involved (for example: single
disk, long-playing disk, cartridge, cassette, reel-to-reel, digital
phonorecord delivery, or a combination of them).
(E) The date of and a reason for each incomplete transmission.
* * * * *
(4) * * *
(ii) * * *
Step 4: * * *
(d) Incomplete transmissions. If, in the month covered by the
Monthly Statement, there are any digital transmissions of a sound
recording which do not result in specifically identifiable
reproductions of the entire sound recording by or for any transmission
recipient, as determined by means within the sole control of the
distributor, the number of such phonorecords is subtracted from the
Step 3 subtotal.
(e) Retransmitted digital phonorecords. If, in the month covered by
the Monthly Statement, there are retransmissions of a digital
phonorecord to a recipient who did not receive a complete and usable
phonorecord during an initial transmission, and such transmissions are
made for the sole purpose of delivering a complete and usable
reproduction of the initially requested sound recording to that
recipient, the number of such retransmitted digital phonorecords is
subtracted from the Step 3 subtotal.
* * * * *
Dated: July 15, 1999.
Marybeth Peters,
Register of Copyrights.
James H. Billington,
The Librarian of Congress.
[FR Doc. 99-19458 Filed 7-29-99; 8:45 am]
BILLING CODE 1410-30-P