Statutory Royalty Rates for Digital Performance of Sound Recordings: Decision of the Copyright Royalty Board

Statutory Royalty Rates for
Digital Performance of Sound Recordings:
Decision of the Copyright Royalty Board
Updated October 19, 2008
Brian T. Yeh
Legislative Attorney
American Law Division

Statutory Royalty Rates for
Digital Performance of Sound Recordings:
Decision of the Copyright Royalty Board
Summary
On March 9, 2007, the Copyright Royalty Board (CRB) announced new
statutory royalty rates for certain digital transmissions of sound recordings for the
period January 1, 2006, through December 31, 2010. Implementation of these new
rates marks the expiration of a previous royalty rate agreement specifically designed
to benefit “small” Internet radio broadcasters, or “webcasters.” The new rates went
into effect on July 15, 2007. In an effort to reach a compromise payment
arrangement to serve as an alternative to the royalty rate scheme provided by the
CRB decision, private negotiations are currently ongoing between webcasters and the
entity representing sound recording copyright owners and artists, SoundExchange.
Two similar bills, H.R. 2060 and S. 1353, both titled the Internet Radio Equality
Act, were introduced in the 110^th Congress. The bills would nullify the CRB’s
decision, change the ratemaking standard, and institute transitional rates for the
current rate cycle (which is retroactive to 2006). Although Congress has addressed
the interests of small commercial webcasters in the past, the proposed legislation
appears to emphasize rate parity among statutory licensees who use different
transmission technology, i.e., satellite, cable, and the Internet. The bills, however,
permit webcasters to choose between different payment formats for the current cycle,
including one based on percentage of revenue, a method sought by small webcasters.
The Webcaster Settlement Act of 2008 (H.R. 7084) was introduced on
September 25, 2008, then approved by voice vote in the House on September 27 and
by unanimous consent in the Senate on September 30. It was signed by President
Bush on October 16 (P.L. 110-435). The purpose of the Webcaster Settlement Act
is to authorize SoundExchange to negotiate and enter into alternative royalty fee
agreements with webcasters that would replace the rates established under the CRB’s
decision, while Congress is in recess. (Under current law, such privately negotiated
agreements are not effective without congressional approval after the CRB has issued
a decision on royalties.) The act terminates SoundExchange’s authority to make
settlements on February 15, 2009. The act also provides that the terms of an
agreement may be effective until the end of 2016. The act also permits any
agreement to be precedential in future CRB ratemaking proceedings, if the parties to
the agreement so agreed. However, the act in no way obliges SoundExchange to
negotiate any agreement.
This report surveys both the legislative history of this issue, i.e., royalty rates for
eligible nonsubscription webcasters, the Board’s decision, and the public and
congressional response.

Contents
Statutory Licenses.................................................1
Background ......................................................3
Copyright Royalty Board Rates.......................................4
Rationale ........................................................5
Public Reaction...................................................7
Congressional Response............................................9^th^st
H.R. 2060, 110 Cong., 1 Sess. (2007), the Internet
Radio Equality Act....................................10^th^st
S. 1353, 110 Cong., 1 Sess. (2007), the Internet
Radio Equality Act....................................11
P.L. 110-435, the Webcaster Settlement Act of 2008.............11

Statutory Royalty Rates for
Digital Performance of Sound Recordings:
Decision of the Copyright Royalty Board
Statutory Licenses
Among the creative works that U.S. copyright law protects are sound
recordings,¹ which the Copyright Act defines as “works that result from the fixation
of a series of musical, spoken, or other sounds.”² Owners of copyrighted sound
recordings have exclusive rights to reproduce, adapt, or distribute their works, or to
perform them publicly by digital means.³ Normally, anyone who wants to exercise
any of the copyright owner’s exclusive rights must obtain the copyright owner’s
permission to do so, typically by direct negotiations between copyright owners and
users. However, the copyright law also provides several types of statutory, or
compulsory, licenses for sound recordings. These licenses allow third parties who
pay statutorily prescribed fees to use copyrighted sound recordings under certain
conditions and according to specific requirements, without having to negotiate
private licensing agreements.⁴
In 1998, in the Digital Millennium Copyright Act (DMCA),⁵ Congress amended
several statutory licensing statutes to provide for and clarify the treatment of different
types of Internet broadcasting, or “webcasting.” Some transmissions of sound
recordings are exempt from the public performance right,⁶ for example, a

¹ 17 U.S.C. § 102(a)(7).
² 17 U.S.C. § 101.
³ 17 U.S.C. §§ 106(1)-(3) & (6). Note that owners of copyrighted sound recordings have no
legal entitlement to demand payment of royalties for the performance of their works by non-
digital means. Thus, terrestrial radio stations (AM and FM stations) that broadcast sound
recordings through analog means, need not compensate recording artists or record labels or
obtain their permission to perform the work to the public. The Performance Rights Act,^th
introduced in the 110 Congress (H.R. 4789 and S. 2500), would eliminate this royalty
exemption that applies to traditional radio stations and attempt to bring parity to the sound
recording performance royalty system.
⁴ For a general explanation of the mechanics of licensing copyrighted musical works (the
notes and lyrics of songs) and sound recordings, see CRS Report RL33631, Copyright
Licensing in Music Distribution, Reproduction, and Public Performance, by Brian T. Yeh.
⁵ P.L. 105-304 (October 28, 1995).
⁶ Activities that are exempt from the public performance right may be conducted without
having to seek prior authorization of the copyrighted work’s owner.

nonsubscription broadcast transmission;⁷ a retransmission of a radio station’s
broadcast within 150 miles of its transmitter; and a transmission to a business
establishment for use in the ordinary course of its business.⁸ In contrast, a digital
transmission by an “interactive service” is not exempt from the public performance
right, nor does it qualify for a statutory license. The owner of an interactive service
— one that enables a member of the public to request or customize the music that
he or she receives — must negotiate a license, including royalty rates, directly with
copyright owners.
But, two categories of webcasting that do qualify for a compulsory license are
specified “preexisting” subscription services (existing at the time of the DMCA’s
enactment)⁹ and “an eligible nonsubscription transmission.” A subscription service
is one that is limited to paying customers. The broader category of webcasters who
may qualify for the statutory license under 17 U.S.C. § 114(d) are those who transmit
music over the Internet on a nonsubscription, noninteractive basis.
A licensee under § 114 may also qualify for a statutory license under 17 U.S.C.
§ 112(e) to make multiple “ephemeral” — or temporary — copies of sound
recordings solely for the purpose of transmitting the work by an entity legally entitled
to publicly perform it.¹⁰

⁷ A “broadcast” transmission is defined as a transmission made by a terrestrial broadcast
station licensed by the FCC. 17 U.S.C. § 114(j)(3). FCC-licensed radio broadcasters argued
unsuccessfully that simultaneous Internet streaming of AM/FM broadcast signals was
exempt from the public performance license requirement for digital transmissions.
Bonneville International Corp. v. Peters, 347 F.3d 485 (3d Cir. 2003).
⁸ 17 U.S.C. § 114(d)(1).
⁹ Pursuant to definition under § 114(j), qualifying “preexisting” services include
“(10) A ‘preexisting satellite digital audio radio service’ is a subscription satellite
digital audio radio service provided pursuant to a satellite digital audio radio
service license issued by the Federal Communications Commission on or before
July 31, 1998, and any renewal of such license to the extent of the scope of the
original license, and may include a limited number of sample channels
representative of the subscription service that are made available on a
nonsubscription basis in order to promote the subscription service.
“(11) A ‘preexisting subscription service’ is a service that performs sound
recordings by means of noninteractive audio-only subscription digital audio
transmissions, which was in existence and was making such transmissions to the
public for a fee on or before July 31, 1998, and may include a limited number of
sample channels representative of the subscription service that are made
available on a nonsubscription basis in order to promote the subscription
service.” See 37 C.F.R. Part 260.
¹⁰ Ephemeral copies are reproductions of sound recordings made by webcasters or radio
stations to facilitate the “streaming” of their content on the Internet. The statutory license
for ephemeral copies is based upon the copyright owner’s right to control reproduction of
a protected work.

Background
The initial ratemaking proceeding for statutory royalty rates for webcasters for
the period 1998 through 2005 proved to be controversial, perhaps reflecting in some
degree the relative newness of both the DMCA and webcasting activity. A Copyright
Arbitration Royalty Panel (CARP) issued a recommendation for the initial statutory
royalty rate for eligible nonsubscription webcasters on February 20, 2002.¹¹ Small-
scale webcasters objected to the proposed rates. In accordance with then-existing
procedures, the Librarian of Congress, on the recommendation of the U.S. Copyright
Office, rejected the CARP’s recommendation and revised rates downward. Congress
interceded as well with enactment of the Small Webcasters Settlement Act (SWSA)
of 2002, P.L. 107-321. Although very complex, the law permitted more options than
the royalty rates established by the Librarian’s order. Qualifying small webcasters,
for example, could elect to pay royalties based on a percentage of revenue or
expenses rather than on a per-song per-listener basis. The rate agreement made¹²
pursuant to SWSA was published in the Federal Register but not codified in the
Code of Federal Regulations. However, by SWSA’s own terms, its provisions were¹³
not to be considered in subsequent ratemaking proceedings.
Subsequent to passage of the SWSA and the initial ratemaking proceeding,
Congress substantially revised the underlying adjudicative process. Enactment of the
Copyright Royalty and Distribution Reform Act of 2004, P.L. 108-419, abolished the
CARP system and substituted a Copyright Royalty Board composed of three standing¹⁴
Copyright Royalty Judges. Rates established pursuant to the original ratemaking
determination and SWSA were to remain in effect through 2005. As required by law,

¹¹ In the Matter of Rate Setting for Digital Performance Right in Sound Recordings and
Ephemeral Recordings, Report of the Copyright Arbitration Royalty Panel, February 20,
2002, at [http://www.copyright.gov/carp/webcasting_rates.pdf]. For more background, see
CRS Report RL31626, Copyright Law: Statutory Royalty Rates for Webcasters, by Robin
Jeweler.
¹² U.S. Copyright Office, Notification of Agreement Under the Small Webcaster Settlement
Act of 2002, 67 Fed. Reg. 78510-78513 (December 24, 2002), at [http://www.copyright.gov/
fedreg/2002/67fr78510.html ].
¹³ P.L. 107-321, § 4(c): “It is the intent of Congress that any royalty rates, rate structure,
definitions, terms, conditions, or notice and recordkeeping requirements, included in such
agreements shall be considered as a compromise motivated by the unique business,
economic and political circumstances of small webcasters, copyright owners, and performers
rather than as matters that would have been negotiated in the marketplace between a willing
buyer and a willing seller, or otherwise meet the objectives set forth in section 801(b).”
Congressional findings in § 2(5)-(6) also emphasize that Congress makes no determination
that the agreements reached between small webcasters and copyright owners are fair and
reasonable or represents terms that would be negotiated by a willing buyer and a willing
seller.
¹⁴ For more background, see CRS Report RS21512, The Copyright Royalty and Distribution
Reform Act of 2004, by Robin Jeweler.

the Copyright Royalty Board recently announced royalty rates for the period that
commences (retroactively) from January 1, 2006, through December 31, 2010.¹⁵
Copyright Royalty Board Rates
The general process for statutory license ratemaking factors in a three-month
period, during which interested parties are encouraged to negotiate a settlement
agreement. In the absence of an agreement, written statements and testimony are
gathered, discovery takes place, hearings are held, and the Copyright Royalty Board
issues a ruling.¹⁶
Notice announcing commencement of the subject proceedings was published¹⁷
on February 16, 2005. On March 9, 2007, the Copyright Royalty Board issued its
decision, which was published as a Final Rule and Order on May 1, 2007.¹⁸ The final
determination of the CRB establishes new rates for commercial and noncommercial
webcasters who qualify for the § 114 compulsory license;¹⁹ the decision is effective²⁰
on July 15, 2007. Rates are as follows:
^!For commercial webcasters: $.0008 per performance²¹ for 2006,
$.0011 per performance for 2007, $.0014 per performance for 2008,
$.0018 per performance for 2009, and $.0019 per performance for

2010. This includes fees for making an ephemeral recording under²²

17 U.S.C. § 112.

^!For noncommercial webcasters: (i) For Internet transmissions
totaling less than 159,140 Aggregate Tuning Hours (ATH) a month,

¹⁵ 17 U.S.C. § 804(b)(3).
¹⁶ Id.
¹⁷ 70 F^ED.R^EG. 7970 (2005).
¹⁸ Library of Congress, Copyright Royalty Board, Digital Performance Right in Sound
Recordings and Ephemeral Recordings, 72 F^ED.R^EG.24084 (May 1, 2007). See 37 C.F.R.
Part 380.
¹⁹ A noncommercial webcaster is a licensee that is tax exempt under § 501 of the Internal
Revenue Code, 26 U.S.C. § 501 or which is operated by a state entity for public purposes.

37 C.F.R. § 380.2.

²⁰ 72 F^ED.R^EG.at 24112 (establishing a deadline of 45 days after the end of the month in
which the CRB’s final determination of rates is published in the Federal Register, for the
payment of retroactive royalties for 2006 under the new rate scheme).
²¹ A performance is a single sound recording publicly performed by digital audio
transmission, heard by a single listener. 37 C.F.R. § 380.2(i). For example, if a webcaster
streams 30 songs to 100 listeners in the course of a day, the total would be 3000
performances for that day.
²² In the Copyright Royalty Board’s order denying rehearing, see infra, it authorized an
optional transitional Aggregate Tuning Hours (ATH) fee for the years 2006 and 2007. 37
C.F.R. § 380.3(a)(ii).

an annual per channel²³ or per station performance royalty of $500
in 2006, 2007, 2008, 2009, and 2010. (ii) For Internet transmissions
totaling more than 159,140 Aggregate Tuning Hours (ATH) a
month,²⁴ a performance royalty of $.0008 per performance for 2006,
$.0011 per performance for 2007, $.0014 per performance for 2008,
$.0018 per performance for 2009, and $.0019 per performance for
2010. These rates include fees for making an ephemeral recording
under 17 U.S.C. § 112.
^!Minimum fee. Commercial and noncommercial webcasters will pay
an annual, nonrefundable minimum fee of $500 for each calendar
year or part thereof.²⁵
This rate structure does not make special provision for “small” webcasters, who
were addressed in the SWSA by reference to revenues.
Rationale
The standard for establishing rates, set forth by statute, is known as the “willing
buyer/willing seller” standard.²⁶ The Board’s determination is informed by the initial

²³ The CRB did not provide a definition for a “channel.” However, under the CRB decision,
a webcaster that transmits multiple channels is responsible for paying $500 per channel.
Webcasters often have multiple channels; for example, among the largest commercial
webcasters, Yahoo, RealNeworks, and Pandora broadcast thousands of channels.
²⁴ Aggregate Tuning Hours is defined, in part, as “the total hours of programming ...
transmitted during the relevant period to all Listeners within the United States from all
channels and stations that provide audio programming[.]” 37 C.F.R. § 380.2(a). For
example, if a webcaster streamed one hour of music to 1 listener, the Aggregate Tuning
Hours for that webcaster would be 1. If 2 listeners each listened for half an hour, the ATH
would also be 1. If 10 listeners listened to 1 hour, the ATH would be 10, and so forth.
²⁵ 37 C.F.R. § 380.3.
²⁶ 17 U.S.C. § 114(f)(2)(B), provides in pertinent part:
In establishing rates and terms for transmissions by eligible nonsubscription
services and new subscription services, the Copyright Royalty Judges shall
establish rates and terms that most clearly represent the rates and terms that
would have been negotiated in the marketplace between a willing buyer and a
willing seller. In determining such rates and terms, the Copyright Royalty Judges
shall base [their] decision on economic, competitive and programming
information presented by the parties, including —
(i) whether use of the service may substitute for or may promote the sales
of phonorecords or otherwise may interfere with or may enhance the sound
recording copyright owner’s other streams of revenue from its sound recordings;
and
(ii) the relative roles of the copyright owner and the transmitting entity in
the copyrighted work and the service made available to the public with respect
to relative creative contribution, technological contribution, capital investment,
(continued...)

royalty proceedings of the CARP, which it refers to as “Webcaster I.” In essence,
both the previous CARP and the current Copyright Royalty Board attempt to
implement the statutorily mandated standard to reach a royalty rate. Explaining its
interpretation of the governing language, the CRB wrote:
Webcaster I clarified the relationship of the statutory factors to the willing
buyer/willing seller standard. The standard requires a determination of the rates
that a willing buyer and willing seller would agree upon in the marketplace. In
making this determination, the two factors in section 114(f)(2)(B)(i) and (ii) must
be considered, but neither factor defines the standard. They do not constitute
additional standards, nor should they be used to adjust the rates determined by
the willing buyer/willing seller standard. The statutory factors are merely to be
considered, along with other relevant factors, to determine the rates under the²⁷
willing buyer/willing seller standard.
The Board considered the proposals of representatives for “small” webcasters
that rates be structured as a percentage of revenue, but ultimately rejected them:
In short, among the parties on both sides who have proposed rates covering
Commercial Webcasters, only Small Commercial Webcasters propose a fee
structure based solely on revenue. However, in making their proposal, this group
of five webcasters clearly is unconcerned with the actual structure of the fee,
except to the extent that a revenue-based fee structure — especially one in which
the percent of revenue fee is a single digit number (i.e., 5%) — can protect them
against the possibility that their costs would ever exceed their revenues.... Small
Commercial Webcasters’ focus on the amount of the fee, rather than how it
should be structured, is further underlined by the absence of evidence submitted
by this group to identify a basis for applying a pure revenue-based structure to
them. While, at times, they suggest that their situation as small commercial
webcasters requires this type of structure, there is no evidence in the record about
how the Copyright Royalty Judges would delineate between small webcasters²⁸
and large webcasters.
And, in a substantive footnote, the Board expressed its view that it lacks
statutory authority to carve out royalty rate niches for the emergent business models
promoted by small commercial webcasters:
It must be emphasized that, in reaching a determination, the Copyright Royalty
Judges cannot guarantee a profitable business to every market entrant. Indeed,
the normal free market processes typically weed out those entities that have poor
business models or are inefficient. To allow inefficient market participants to
continue to use as much music as they want and for as long a time period as they
want without compensating copyright owners on the same basis as more efficient
market participants trivializes the property rights of copyright owners.
Furthermore, it would involve the Copyright Royalty Judges in making a policy

²⁶ (...continued)
cost, and risk.
²⁷ 72 F^ED.R^EG. at 24087.
²⁸ Id. at 24088-89 (footnotes and citations omitted).

decision rather than applying the willing buyer/willing seller standard of the²⁹
Copyright Act.
In setting the rates, the Board looked to proposed “benchmark” agreements to
determine what a hypothetical buyer and seller would agree to in the marketplace.
It rejected the proposals advanced by the radio broadcasters and small commercial
webcasters that the appropriate benchmark was the fee paid to performing rights
organizations (PROs), such as ASCAP, BMI and SESAC, for the digital public
performance of the underlying musical composition. It also rejected a proposal that
analog over-the-air broadcast music radio be used as a benchmark, with reference to
musical composition royalties paid by such broadcasters to the PROs. Based on the
evidence before it, the Copyright Royalty Board found that the most appropriate
benchmark agreements are those in the market for interactive webcasting covering³⁰
the digital performance of sound recordings, with appropriate adjustments.
In summary, the Copyright Royalty Board’s decision, like that of its
predecessor, the CARP, declines to delineate a separate class or to integrate a
separate market analysis on behalf of “small” webcasters.
Public Reaction
The expiration of the option to pay a percentage of revenues, to be replaced by
a minium payment, per-song per- listener formula, was, predictably, not well received³¹
in the small webcasting business community, among others. Some Members of
Congress voiced concern as well.³²
Parties to the proceeding are appealing the Board’s decision. On April 16, 2007,³³
the Copyright Royalty Board issued an order denying rehearing. On May 30, 2007,
several parties, including the Digital Media Association, National Public Radio, and
a coalition of small commercial webcasters filed suit in the U.S. Court of Appeals for
the D.C. Circuit requesting a stay pending their appeal of the Board’s decision.³⁴ The
motion alleges that the Board’s decision is arbitrary and capricious in several

²⁹ Id. note 8 at 24088.
³⁰ Id. at 24092.
³¹ See, e.g., Robert Levine, “A Fee Per Song Can Ruin Us, Internet Radio Companies Say,”
T^HEN.Y.T^IME^S, March 19, 2007 at C4. Doc Searles, Internet Radio on Death Row, posted
March 8, 2007 at [http://www.linuxjournal.com/comment/reply/1000196]; Carey Lening,
“Policy Group Advocates Tech-Neutral Competitive Sound Recording Royalty Rates,” 74
BNAP^ATENT,T^RADEM^A^RK&C^OP^YRI^GHTJ.93 (May 18, 2007).
³² “Royalty Board Sets Webcasting Royalties, Lawmakers Quick to Respond,” 73 BNA
P^ATENT,T^RADEM^A^RK&C^OP^YRI^GHTJ.1809 (March 9, 2007).
³³ U.S. Copyright Royalty Judges, Order Denying Motions for Rehearing at
[ ht t p: / / www.l oc.gov/ cr b/ pr oceedi ngs / 2005-1/ mot i on-deni al .pdf ] .
³⁴ Digital Media Assoc. v. Copyright Royalty Board, No. 07-1172 (D.C.Cir. May 30, 2007).
Motion for stay pending appeal available online at BNAP^ATENT,T^RADEM^A^RK&
C^OP^YRI^GHTJ.,at [http://pub.bna.com/ptcj/DMAMay31.pdf].

respects, but particularly with regard to the requirement of a minimum fee “per
station” or “per channel.”³⁵ On July 9, 2007, a three-judge panel of the court of
appeals denied the emergency motion to delay the CRB decision pending the parties’
appeal.³⁶ A decision in the case has not yet been reached as of the date of this report.
Meanwhile, in parallel to the judicial proceedings, private negotiations between
SoundExchange, the organization charged with collecting and distributing
performance royalties, and both large and small webcasters are currently ongoing, in
an attempt to reach a compromise royalty rate agreement that would serve as an
alternative to the payment scheme provided by the CRB decision. Should the
negotiations between the parties fail to reach a settlement, webcasters who did not
remit the required royalty payments by the July 15, 2007, deadline may be
responsible for substantial late fees, as interest has been accruing on overdue
payments since that date.³⁷
In response to a request from the House Judiciary Subcommittee on Courts, the
Internet and Intellectual Property, SoundExchange offered in May 2007 to extend the
terms of the SWSA, with some modifications, to certain qualified small webcasters
through 2010.³⁸ “Small” webcasters, those with annual revenues of less than $1.25
million, could pay royalties based on a percentage of revenue model, that is, fees of
10 percent of all gross revenue up to $250,000, and 12 percent for gross revenue
above that amount. SoundExchange’s proposal for small webcasters, however, has
been met by criticism that the deal would effectively restrict small webcasters from
becoming larger, more profitable businesses and would limit the diversity of music
that may be played.³⁹

³⁵ Plaintiff/Appellants argue that a minimum fee per channel or station would lead to billions
of dollars in royalty payments, when the prior minimum fee for each licensee, regardless
of channels or stations, could not exceed $2500. Id. at 11.
³⁶ Carey Lening, “Inslee Vows Not to Let Web ‘Music Die,’ But Court Won’t Delay New
Royalty Rates,” 74 BNAP^ATENT,T^RADEM^A^RK&C^OP^YRI^GHTJ. 1826 (July 13, 2007).
³⁷ Jeff Cox, “Internet Radio Gets a Reprieve,” CNNMoney.com (July 17, 2007), at
[http://money.cnn.com/2007/07/17/technology/internet_radio/].
³⁸ Press Release, SoundExchange, “SoundExchange Extends Offer to Small Webcasters,”
May 22, 2007, available at [http://sev.prnewswire.com/entertainment/20070522/
DCT U07222052007-1.html ].
³⁹ See David Oxenford, “Another Offer From SoundExchange — Still Not a Solution,” at
[http://www.broadcastlawblog.com/archives/internet-radio-another-offer-from-soundexc
hange-still-not-a-solution.html]. These critics observe that the agreement only allows the
small webcasters to play sound recordings from SoundExchange members, which does not
include many independent artists and record labels. Webcasters interested in playing music
made by artists not represented by SoundExchange must pay the full royalty rates set forth
in the Copyright Royalty Board’s decision. Id.

Another proposal that has been discussed and subsequently agreed to between
several of the largest webcasters and SoundExchange is a $50,000 per year cap on
the $500 annual-per-channel minimum fee through 2010.⁴⁰ In exchange for this cap,
the webcasters have agreed to provide SoundExchange with a comprehensive annual
accounting of all songs performed (24 hours a day, 365 days a year) and to form a
committee with SoundExchange to evaluate the issue of unauthorized copying of
Internet radio streams (a practice known as “streamripping,” or the process of
converting ephermeral Internet-streamed content into permanent recordings). The
agreement does not require webcasters to implement technological measures aimed
at preventing their listeners from engaging in streamripping, however.⁴¹
In a unilateral offer put forth by SoundExchange, qualified small webcasters
(those earning $1.25 million or less in total revenues) would be permitted to stream
sound recordings of all SoundExchange members by paying royalties under the old
percentage-of-revenue scheme.⁴² Over twenty small webcasters have since accepted
this offer, the terms of which are retroactive to January 1, 2006, and continue through
December 31, 2010.⁴³
Although the parties have agreed to cap the annual-per-channel minimum
royalty fee at $50,000, the actual royalty rates (per-song, per-listener) mandated by
the CRB’s decision have not yet been altered through settlement negotiations. These
royalty rates, which increase each year until 2010, are still a cause for concern among
webcasters that did not accept or did not qualify for SoundExchange’s offer to small
webcasters.
Congressional Response
Two bills related to the CRB’s decision were introduced in the 110^th Congress
that would nullify the Board’s decision and substitute different rates and terms.
Another bill was introduced and passed by the 110^th Congress that authorizes
SoundExchange to enter into settlement agreements with webcasters that effectively
replace the CRB’s decision.

⁴⁰ Press Release, SaveNetRadio, “Agreement Reached to Remove Billion Dollar Threat to
Webcasters,” August 23, 2007, at
[ h t t p : / / w w w .sav enetradio.org / press_ro o m / p r e s s _ r e l e a s e s / 070823-mi nimum_fee_cap.pdf].
⁴¹ Press Release, SoundExchange, “SoundExchange Reaches Accord on Minimum Fee
Cap,” August 23, 2007, available at [http://www.prnewswire.com/cgi-bin/
st or i e s.pl ?ACCT =104&ST ORY=/ www/ st or y/ 08-23-2007/ 0004650734&EDAT E=] .
⁴² Press Release, SoundExchange, “SoundExchange Offers Small Webcasters Discounted
Rate Agreement Through 2010,” August 21, 2007, available at
[http://sev.prnews wi re.com/ent ertainme nt/20070821/DC0192021082007-1.html ].
⁴³ Press Release, SoundExchange, “Small Webcasters Embrace SoundExchange Offer on
Discounted Rate,” Sept. 18, 2007, available at
[ h t t p ://s e v . p r n e w s w i re . c o m / c om put er -e l ect r oni cs / 20070918/ DCT U04318092007-1.ht ml ] .

H.R. 2060, 110^th Cong., 1^st Sess. (2007), the Internet Radio Equality
Act. H.R. 2060 would expressly nullify the Board’s rate determination and repeal
the willing buyer/willing seller standard under § 114(f)(2)(B). It would replace the
standard with objectives set forth under 17 U.S.C. § 801(b)(1), namely, that rates be
calculated to realize the objectives:
(A) To maximize the availability of creative works to the public.
(B) To afford the copyright owner a fair return for his or her creative
work and the copyright user a fair income under existing economic
conditions.
(C) To reflect the relative roles of the copyright owner and the
copyright user in the product made available to the public with
respect to relative creative contribution, technological contribution,
capital investment, cost, risk, and contribution to the opening of new
markets for creative expression and media for their communication.
(D) To minimize any disruptive impact on the structure of the⁴⁴
industries involved and on generally prevailing industry practices.
These standards apply to terms and rates for other compulsory license royalty
payments, in general,⁴⁵ and to the preexisting subscription services eligible under §⁴⁶
114(d)(2). Hence, it is the goal of the legislation to create “royalty parity”among
the different delivery systems.⁴⁷ The bill would cap a minimum annual royalty at⁴⁸
$500 for each service provider.
For the period covered by the Board’s decision, that is, from January 1, 2006,
through December 31, 2010, rates established by the bill would be as follows:
^!0.33 cents per hour of sound recordings transmitted to a single
listener; or,
^!7.5 percent of the annual revenues received by the provider that are
directly related to the provider’s digital transmissions of sound
recordings.
Providers could select their payment method. Hence, all nonsubscription,
noninteractive Internet radio webcasters eligible for the statutory license under §
114(f) would have the option of paying pursuant to a per-hour, per-listener or
percentage-of-revenue basis. For the next round of royalty rates, the Board would

⁴⁴ 17 U.S.C. § 801(b)(1).
⁴⁵ Specifically, these objectives are designed to determine reasonable royalty payments
under §§ 112(e), 114, 115, 116, 118, 119 and 1004. Id.
⁴⁶ The preexisting subscription services include satellite digital audio radio services. For
more background, see Library of Congress, Copyright Office, Designation as a Preexisting
Subscription Service: Final Order, 71 F^ED.R^EG. 64639 (November 3, 2006), available
online at [http://www.copyright.gov/fedreg/2006/71fr64639.pdf].
⁴⁷ 153 C^ONG.R^EC. E874 (daily ed. April 26, 2007) (statement of Rep. Inslee).
⁴⁸ H.R. 2060, § 3.

employ the more flexible standards under § 801, which are used in connection with
preexisting subscription services under § 114(f)(1).
The bill would amend 17 U.S.C. § 118, entitled “Scope of exclusive rights: Use
of certain works in connection with noncommercial broadcasting,” which includes
a compulsory license for noncommercial broadcasters, such as National Public
Radio, to include digital performance of sound recordings, i.e., webcasting. It would
broaden the scope of “nonprofit institution” to encompass college radio.⁴⁹ It includes
a transitional rate of 1.5 times the total fees paid for applicable usage in the year

2004.

Finally, the bill requires analysis and reports on the competitiveness of the
Internet radio market place and other matters by the National Telecommunications
and Information Administration in the Department of Commerce, the Federal
Communications Commission, and the Corporation for Public Broadcasting.
S. 1353, 110^th Cong., 1^st Sess. (2007), the Internet Radio Equality
Act. Introduced in the Senate as a companion to H.R. 2060, S. 1353 takes the same
general approach as the House bill. It has slightly different transition rates for
noncommercial broadcasters under § 118, and omits the reporting requirements in the
House bill.
The sponsors in both the House and the Senate emphasize that the goal of the
legislation is to promote greater equality, that is rate parity, among webcasters who⁵⁰
utilize compulsory licensing. Unlike the SWSA, it is not directed solely at small
commercial webcasters. It does not, however, reach the historically based exemption
that terrestrial broadcasters receive from paying any copyright royalty for the
performance of sound recordings.
P.L. 110-435, the Webcaster Settlement Act of 2008. The Webcaster
Settlement Act of 2008, H.R. 7084, was introduced on September 25, 2008, by
Representative Inslee and then subsequently approved by voice vote in the House on
September 27 and by unanimous consent in the Senate on September 30. It was
signed by the President on October 16 (P.L. 110-435). The purpose of the act is to
provide limited statutory authority for SoundExchange to negotiate and enter into
alternative royalty fee agreements with webcasters that would replace the rates
established under the CRB’s decision, while Congress is in recess. Under current
law, such privately negotiated agreements are not effective without congressional
approval after the CRB has issued a decision on royalties, and thus the parties would
continue to be bound by the CRB decision.⁵¹ However, the act provides a limited

⁴⁹ 153 C^ONG.R^EC. S5931 (daily ed. May 10, 2007) (statement of Sen. Wyden).
⁵⁰ A broader approach to technology-neutral music licensing is set forth in S. 256, 110^th
Cong., 1^st Sess. (2007). For background, see CRS Report RL33922, Platform Equality and
Remedies for Rights Holders in Music Act of 2007 (S. 256): Section-by-Section Analysis, by
Kate M. Manuel and Brian T. Yeh.
⁵¹ See 154 C^ONG.R^EC. H10279 (daily ed. Sept. 27, 2008) (statement of Rep. Howard
Berman) (“Because the parties will not be able to finish their negotiations before Congress
(continued...)

period of time for reaching voluntary accords, as it terminates SoundExchange’s
authority to make settlements with webcasters on February 15, 2009.⁵² These
agreements “shall be binding on all copyright owners of sound recordings and other
persons entitled to payment ... in lieu of any determination [of royalty rates] by the
Copyright Royalty Judges.”⁵³ However, the act does not mandate that
SoundExchange negotiate agreements with webcasters.⁵⁴
The act amends 17 U.S.C. § 114(f)(5), which had been added to the Copyright
Act by the “Small Webcaster Settlement Act of 2002.”⁵⁵ The act deletes references
to “small” webcasters, thereby allowing the section to pertain to all webcasters
regardless of size.⁵⁶ The act also amends the section to state that agreements “may”
include provisions for payment of royalties on the basis of a percentage of revenue
or expenses, or both, and a minimum fee; the section originally provided that
agreements “shall” contain these terms.⁵⁷ It also provides that the terms of a
negotiated agreement may be effective for up to a period of 11 years beginning on
January 1, 2005.⁵⁸ The act also permits any agreement to be precedential in future
CRB rate-making proceedings, if the parties to the agreement so expressly
authorized.⁵⁹ Finally, the act declares that nothing in the act (or any agreement
entered into under this act) shall be taken into account by the U.S. Court of Appeals
for the District of Columbia Circuit in its review of the May 1, 2007, determination
of royalty rates by the Copyright Royalty Judges.⁶⁰

⁵¹ (...continued)
recesses, however, and because authority by Congress is required for a settlement to take
effect under the government compulsory license, we are pushing this legislation that will
grant such authority and hope the negotiations will continue in a positive direction for both
sides.”).
⁵² H.R. 7084, § 2(5).
⁵³ H.R. 7084, § 2(1)(C), modifying 17 U.S.C. § 114(f)(5)(A).
⁵⁴ H.R. 7084 leaves unchanged language in 17 U.S.C. § 114(f)(5)(A) that notes: “The
receiving agent [SoundExchange] shall be under no obligation to negotiate any such
agreement. The receiving agent shall have no obligation to any copyright owner of sound
recordings or any other person entitled to payment under this section in negotiating any such
agreement, and no liability to any copyright owner of sound recordings or any other person
entitled to payment under this section for having entered into such agreement.”
⁵⁵ P.L. 107-321.
⁵⁶ H.R. 7084, §§ 2(1)(A), 2(2), 3(B), 4(A).
⁵⁷ H.R. 7084, § 2(1)(D).
⁵⁸ H.R. 7084, § 2(1)(B).
⁵⁹ H.R. 7084, § 2(3)(C).
⁶⁰ H.R. 7084, § 2(4)(B).