The Copyright Royalty Board on Friday published in the Federal Register a call for interested parties to file Petitions to Participate in the proceeding to set the royalty rates to be paid by webcasters (including broadcasters who simulcast their programming through internet-delivered channels) in the period 2026-2030. These royalties are paid by webcasters to SoundExchange for the noninteractive streaming of sound recordings. The CRB is required to review these rates every five years. These proceedings are lengthy and include extensive discovery and a trial-like hearing to determine what royalty a “willing buyer and a willing seller” would agree to in a marketplace transaction. Because of the complexity of the process, the CRB starts the proceeding early in the year before the year in which the current royalty rate expires. So, as the current rates expire at the end of 2025, parties will need to sign up to participate in the proceeding to determine 2026-2030 rates by February 6, 2024 by filing a Petition to Participate. The Petition must describe the party’s interest in the proceeding and be accompanied by a filing fee of $150. The Federal Register notice provides other procedural details for filing these Petitions.
Once the Petitions to Participate are filed, the CRB will set out the rules and procedures to be followed in the proceeding. Initially, there is a 90 day period in which the parties can try to settle the case. While parties can settle at any time (subject to approval of the terms by the CRB), this initial 90-day period occurs before any litigation begins and offers parties the opportunity to avoid much of the cost of litigation. Once that period ends without a settlement, the litigation begins. Initial stages of the litigation (including the identification of witnesses, submission of the rate proposals and the evidence supporting those proposals, and the initial discovery) will likely all take place in 2024, with the hearing itself conducted in 2025, followed by final briefs summarizing the evidence and arguing about the conclusions to be drawn from that evidence. There are usually oral arguments held after the briefs are submitted. At that point, the three Copyright Royalty Judges will consider the evidence and the arguments and release their decisions late in 2025, so that parties know the new rates as of January 1, 2026. While there may be appeals of the decision that are argued well beyond the effective date of the new rates, the rates become effective while those appeals are pending.
Some of these CRB requests for Petitions to Participate are very straightforward – simply announcing that the proceeding is to begin, asking for Petitions to Participate, and setting out the procedures for filing. But sometimes the CRB asks legal questions in the Notices for the parties to consider and to address in their evidentiary submissions in the case. In last week’s notice, the CRB asked a number of questions about the ephemeral rights that are included in the rights covered by the royalty. These ephemeral rights give webcasters the right to make temporary copies of the sound recordings that they transmit to listeners. These server and digital buffer copies are part of the technology that allows music services to transmit their programming to listeners. Under copyright law, the right to make copies (the right of “reproduction”) is a different right than the right of the public performance. The royalties set by the CRB for webcasting cover both the performance and these ephemeral copies. In legal terms, these royalties cover the public performance right in the sound recording (Section 114 of the Copyright Act), as well as the ephemeral rights needed to make those performances (Section 112 of the Act).
The importance of this distinction is that the performance royalties, by statute, are split 50/50 between the copyright holder in the sound recording (typically the record company unless the recording artist owns their own masters) and the featured artists (45% to the named band or singer, and 5% to a fund for the background musicians). The portion of the royalty that covers the ephemeral copies goes fully to the copyright holder. In recent years, the parties have agreed that 5% of each royalty is attributable to the ephemeral copies so the majority of the royalty paid by any webcaster is actually received by the copyright holder.
In the Federal Register notice, the Judges ask if there really is any value to these ephemeral copies apart from the performance royalty. Do these ephemeral copies really have any true independent value? In other contexts, courts have ruled that these transitory copies necessitated by the technology that allows media to be transmitted through the internet do not have independent value (see our article here). The Commerce Department, in a study on intellectual property rights in a digital world, raised these issues, without resolving them, a decade ago (see our article here). The CRB’s questions ask for parties to address not only whether the ephemeral copies have independent value, but also whether that value is recognized in other music-industry agreements.
What do these questions really mean? It is hard to say. The CRB asked a series of questions in 2014 as to whether a percentage of revenue royalty was appropriate (as opposed to the per song per listener royalty that has traditional been applied in these proceedings) and whether different classes of webcasters should pay at different rates (see our article here). That suggested that the CRB might be interested in changing the nature of the royalties paid to SoundExchange. But, after the evidence was heard, the CRB did not adopt percentage of revenue royalties, nor did it adopt different royalties for different classes of commercial webcasters. So the questions this time about ephemeral royalties may in the long run not mean anything of significance.
As always, this is an important proceeding, and webcasters interested in expressing their views on what the royalties for 2026-2030 must step forward and file a petition to participate in the upcoming proceeding by February 4. As digital listening becomes more and more important, the decision of the CRB takes on added significance. Every broadcaster and webcaster should be paying attention to this proceeding and the decisions that the Judges will be making between now and December 31, 2025.