Royalty Fee Distributions

The Copyright Office distributes royalties collected under sections 111 and 119 and chapter 10 of the copyright law. In Fiscal Year 2002, the following distributions were made:

• On October 31, 2001: $104,020,510.78 comprising 50 percent of 1999 cable royalties and 50 percent of the 1999 satellite carrier fund.

• On February 14, 2002: $822,478.92 of the 1996 satellite carrier fund, $822,478.92 of the 1997 satellite carrier fund, and $500,000.00 of the 1998 satellite carrier fund.

• On June 27, 2002: a further distribution of the 1998 satellite carrier fund totaling $1,257,310.21.

• A full distribution for the 2001 Digital Audio Recording Technology (DART) Sound Recording Fund: June 27, 2002, the Nonfeatured Musicians Subfund and Nonfeatured Vocalists Subfund, totaling $103,042.70; and, July 25, 2002, the Copyright Owners Subfund and the Featured Artists Subfund, totaling $2,476,334.55.

Financial statements for royalty fees available for distribution in the cable and satellite statutory licenses and in the digital audio recording technology statutory obligation are reported and audited on a calendar-year basis. The calendar year 2001 financial statements are included in the appendices. Financial statements for royalty fees available for distribution in the cable and satellite statutory licenses and in the digital audio recording technology statutory obligation are reported and audited on a calendar-year basis. The calendar year 2001 financial statements are included in the appendices.

Remittance Collection and Electronic Filing

Pay.gov

The Licensing Division implemented a new form of electronic fund transfer (EFT) through a program called Pay.gov, which is an Internet-based remittance collection system developed and administered by the U.S. Treasury’s Financial Management Service. In an Automated Clearing House (ACH) debit, the remitter gives the Treasury permission to take funds from the remitter’s bank account. The ACH debit allows remitters to pay a cable television system, satellite carrier, or DART royalty fee from their office computer without the need to contact their financial institution. Use of Pay.gov will further increase the percentage of remittances via EFT, which facilitates quicker deposit and investment of royalties; eliminates lost, stolen, or mail-delayed checks; allows for tracing of payments; reduces operating costs; reduces paper handling; allows licensees to keep their funds longer; and obviates the need for remitters to spend time obtaining a cashier’s check, certified check, or money order. Pay.gov also requires the remitter to provide detailed information concerning the allocation of the remittance, which increases internal efficiencies, helps assure proper credit to accounts, and precludes return of the royalty fee to a remitter’s account, which might result in an interest assessment. Although over 90 percent of royalty fees are now received in the form of EFTs, the 10 percent not received in this form accounts for an estimated $20 million dollars annually.

E-Filing

The Licensing Division identified high-level requirements for the electronic filing of cable television system statements of account. The form sa 1-2 is the least complicated of the two cable forms and considered a good choice for electronic filing development. Electronic filings will be an important component of the reengineering process for licensing that began in late fy 2002 as part of the Office’s overall reengineering effort (see the Management section of this report for further details).

Copyright Arbitration Royalty Panels (CARP)

During fy 2002, the Copyright Office administered eight CARP proceedings that included five rate adjustment proceedings and three distribution proceedings. Of the five rate adjustment proceedings, four involved setting rates and terms for the section 114 digital performance right in sound recordings, and the section 112 statutory license for the making of ephemeral recordings to facilitate these transmissions. The fifth proceeding involved setting rates and terms for the section 118 statutory license rates and terms for the section 118 statutory license for the use of certain copyrighted works in connection with noncommercial broadcasting. Of the three distribution proceedings, two dealt with the distribution of royalty fees collected in accordance with the section 111 cable statutory license, and the last one concerned the distribution of royalty fees collected under the Audio Home Recording Act of 1992.

Rate Setting and Adjustments

Webcasting: Docket No. 2000-9 CARP DTRA1&2

On June 20, 2002, the Librarian of Congress issued a final order, setting rates and terms of payment for two statutory licenses that allow for the performance of a sound recording publicly by means of digital audio transmissions (“webcasting”) and the making of ephemeral recordings in furtherance of these transmissions. The rates and terms of payment cover the licensing period between October 28, 1998, the effective date of the Digital Millennium Copyright Act, and December 31, 2002, and are for those services making eligible nonsubscription transmissions. The announcement of the rates and terms concluded a particularly difficult rate adjustment proceeding that began on November 27, 1998, with the announcement of a six-month voluntary negotiation period and ended with the publication of the rates and terms on July 8, 2002, approximately three and one-half years later. In setting the rates, the Librarian reviewed the CARP’s February 20, 2002, report, and initially rejected that report on May 21, 2002. On July 8, 2002, the Librarian published his final order in which he announced his decision to accept the recommendation of the Register of Copyrights and halve the CARP-proposed rates applicable to Internet-only transmissions made by webcasters and commercial broadcasters, while accepting the CARP-proposed rates for Internet retransmissions of radio broadcasts made by these same services. Through this process, the Librarian established a rate of $0.0007 per performance for all Internet transmissions made by webcasters and commercial broadcasters, and a base rate of $0.0002 per performance for Internet retransmissions of over-the-air AM/FM broadcasts made by noncommercial broadcasters other than the Corporation for Public Broadcasting. The order also set the rate for making ephemeral recordings under the statutory license at 8.8 percent of the performance rate and a minimum annual fee of $500 for all licensees other than exempt business-to-business services whose minimum annual fee is $10,000.

These rates, as well as other parts of the Librarian’s decision, are the subject of a number of appeals, which at the end of the fiscal year were pending before the United States Court of Appeals for the District of Columbia Circuit.

Public Performance of Sound Recordings: Docket No. 2002-1 CARP DTRA3

Public performance of sound recordings is related to webcasting. When webcasters operate under the section 114 license, they are paying for the performance right in the sound recording. On January 30, 2002, the Copyright Office announced the six-month voluntary negotiation period to set rates and terms of payments for the public performance of sound recordings by means of eligible nonsubscription transmissions and the making of ephemeral recordings in furtherance of these performances during the next license period. The rates to be set in this proceeding cover those transmissions made between January 1, 2003, and December 31, 2004. Although interested parties have filed petitions to convene a CARP, no hearing schedule had been set at the close of the fiscal year.

Public Performance of Sound Recordings: Docket Nos. 2001-2 CARP DTNSRA and 2001-1 CARP DSTRA 2

During fy 2001, the Copyright Office began two additional CARP proceedings to set rates and terms of payment for the public performance of sound recordings under section 114 for two different categories of services: preexisting services, including satellite digital audio radio services, and new types of subscription services. During the six-month negotiation period mandated by statute, parties with an interest in setting these rates were unable to reach an industry-wide agreement for use of the sound recordings pursuant to the statutory license. The Copyright Office then initiated the hearing phase of the proceeding by requesting that all parties interested in participating in either or both proceedings file notices of intent to participate no later than December 20, 2001. After receipt of all notices of intent to participate, the Office set a hearing schedule for the proceeding to establish rates for the pre-existing services.

Non-Commercial Educational Broadcasting: Docket No. 2002-4 CARP NCBRA

On April 1, 2002, the Copyright Office initiated a rate adjustment proceeding to establish the rates and terms for the non-commercial educational broadcasting compulsory license, section 118 of the copyright law, with its announcement of a six-week voluntary negotiation period. Broadcast Music, Inc.; National Religious Broadcasters Music License Committee; WCPE-FM; the National Federation of Community Broadcasters; the Harry Fox Agency; the Society of European Stage Authors and Composers; the American Society of Composers, Authors, and Publishers; National Public Radio; the Public Broadcasting Service; the Corporation for Public Broadcasting; and the American Council on Education took part in these discussions and succeeded in negotiating voluntary settlements. By the end of the fiscal year, all parties had submitted their proposed settlements to the Copyright Office for further consideration. The proposed rates shall go into effect on January 1, 2003, if they are adopted, following the notice and comment period that was in progress as the fiscal year ended.

Distribution Proceedings

The Office also administered three CARP distribution proceedings. Two of the proceedings pertained to the distribution of cable royalty fees. One proceeding concerned the distribution of the 1998 and 1999 cable royalty fees among Phase I claimants, and the second proceeding concerned the resolution of a Phase II controversy in the Program Suppliers category over the distribution of the 1997 cable royalty fees. The third and final distribution concerned the distribution of the 1999, 2000, and 2001 digital audio recording royalty fees allocated to the Musical Works Funds for those years.

1998 and 1999 Cable Royalty Fees: Docket No. 2001-8 CARP CD 98-99

On November 20, 2001, the Copyright Office announced a hearing schedule for a Phase I proceeding to determine the distribution of the 1999 cable royalty fees collected under section 111 of the copyright law. At the same time, the Office requested comment on the advisability of consolidating this proceeding with the Phase I proceeding to determine the distribution of the 1998 cable royalty fees. After consideration of the comments and the efficiencies associated with consolidating like proceedings, the Office issued an order announcing a new hearing schedule for a consolidated 1998 and 1999 cable distribution proceeding. Under this new schedule, hearings will be conducted during fy 2003.

1997 Royalty Fees: Docket No. 2000-2 CARP CD 93-97

All controversies but one surrounding the distribution of the 1993, 1994, 1995, 1996, and 1997 cable royalty fees were settled through the negotiation process. A single Phase II controversy between the Motion Picture Association of America (MPAA) and the Independent Producers Group (IPG) remained over the distribution of the 1997 royalty fees in the Programs Suppliers category. Consequently, the Copyright Office convened a CARP on October 17, 2000, to resolve the last remaining dispute between these parties. This Panel submitted its report to the Librarian on April 16, 2001.

On June 5, 2001, after review of the CARP’s report and the petitions to modify the report, the Librarian accepted the Register’s recommendation and issued an order rejecting the Panel’s decision, stating that the Panel acted arbitrarily. He remanded the case to the Panel for reconsideration. In light of the Librarian’s June 5 order, the Panel reconsidered its report and submitted a modified decision to the Librarian on June 20, 2001. After carefully reviewing the Panel’s revised report and the parties’ petitions to modify it, the Librarian of Congress, upon the recommendation of the Register of Copyrights, announced his rejection of both the initial and revised reports of the CARP on December 26, 2001. He also remanded the case for a new proceeding before a new CARP. Both parties to this proceeding have filed petitions to review the Librarian’s order with the United States Court of Appeals for the District of Columbia Circuit. The parties have discussed settlement; but as of September 30, 2002, the parties had not reached a settlement.

1999, 2000, and 2001 Royalty Fees: Docket No. 2002-6 CARP DD 99-01

On July 16, 2002, the Copyright Office published a notice in the Federal Register directing all parties with claims to shares of the royalty fees collected in 1999, 2000, and 2001 for the distribution of digital audio recording devices and media to file comments with the Office. The purpose of the comments was to notify the Office of the existence and extent of all controversies regarding the distribution of these fees. The notice also directed interested parties to file their Notices of Intent to Participate in the distribution proceeding. Based upon these submissions, the Office ascertained that there was a single controversy over the distribution of these fees between one songwriter and the remaining claimants who have reached a confidential settlement with regard to their respective distribution shares. Hearings to resolve this issue will be conducted during the next fiscal year.

Claims Filed for Royalty Fees

The Copyright Office received and processed claims from copyright owners who are entitled to receive royalty fees generated from the use of their copyrighted works during 2001 under the terms of the cable, satellite, and DART compulsory licenses. In January and February of 2002, the Office received 40 claims for DART royalty fees. In July 2002, it received 532 claims for cable royalty fees and 227 claims for satellite royalty fees. Distribution proceedings will begin for these royalty funds some time after the Office ascertains whether a controversy exists among the claimants concerning the distribution of the funds.

[Regulations related to statutory licenses are listed in the Regulatory Activities, Policy Assistance, and Litigation portion of this report.]