D.C. Circuit Rejects RIAA's Challenge to Copyright Royalty Board's Rates for Compulsory Licenses
The Recording Industry Association of America (RIAA) brought suit challenging the decision of the Copyright Royalty Board, which sets the terms and rates for copyright royalties when copyright owners and licensees do not do so themselves.
More specifically, the RIAA challenged the Board's decision with regard to royalty terms and rates for so-called Section 115 compulsory licenses under the Copyright Act. Compulsory licenses allow "individuals to make their own recordings of copyrighted musical works for distribution to the public without the consent of the copyright owner."
As to those licenses, the Board institute a 1.5% per month late fee for late royalty payments and implemented a royalty rate structure for cell phone ringtones under which the copyright owners would receive 24 cents for every ringtone sold that used their copyrighted work. The RIAA challenged both aspects of the Board's decision, claiming the decision was arbitrary and capricious.
As background, in 1996, the parties with an interest in compulsory licenses agreed to terms and rates for those licenses but also agreed that those terms and rates would expire in 10 years. Therefore, in 2006, the Board instituted proceedings to set certain terms and rates to govern those licenses, the final determination of which were not published until 2009. The RIAA's challenge to the Board's decision then followed.
The D.C. Circuit first noted that the Copyright Act requires the Board to balance four policy objectives when establishing reasonable terms and rates for Section 115 licenses:
(1) maximizing the availability of creative works to the public; (2) providing copyright owners a fair return for their creative works and copyright users a fair income; (3) recognizing the relative roles of the copyright owners and users; and (4) minimizing any disruptive impact on the industries involved.
With respect to the RIAA's challenge to the Board's imposition of a late fee, the D.C. Circuit readily disposed of each of the RIAA's arguments.
First, the court concluded that the Board appropriately considered market conditions when setting the late fee but was not required to adopt a fee that exactly matched the market rate. Second, the court found that the existence of a right to terminate compulsory licenses for nonpayment did not negate the Board's authority to impose a late fee as the Copyright Act allowed for both. Third, the court rejected the RIAA's argument that it was unreasonable to impose a late fee because it purportedly is uncertainty about what amount is owed to individual copyright owners of a jointly held copyright that causes late payments. But, as the court noted, the regulations governing compulsory licenses provided a solution to that situation by allowing the licensee to satisfy its obligation by paying any one copyright owner.
The D.C. Circuit also rejected the RIAA's challenge to the structure of the cell phone ringtone royalty rate established by the Board on similar grounds. The court concluded that the Board appropriately considered--but was not bound by--existing market rates for voluntary licenses. And the court found that the Board considered the RIAA's claim that "plummeting" ringtone prices rendered the penny rate chosen by the Board inherently unreasonable and the RIAA had presented no basis to overturn the Board's decision on the issue.
The D.C. Circuit thus affirmed the Board's decision.
The case cite is Recording Indus. Ass'n of Am., Inc. v. Librarian of Congress, No. 09-1075 (D.C. Cir. June 22, 2010).
