SoundExchange, Other Web IV Litigants Tip Planned Arguments for DC Circuit Appeal

Two of the appellants -- the Intercollegiate Broadcasting System and National Religious Broadcasters Noncommercial Music License Committee -- mainly base their appeals on the noncommercial webcasters’ rate under Web IV. CRB set a $500 minimum annual royalty for each noncommercial station or channel for all transmissions totaling no more than 159,140 aggregate tuning hours (ATH) per month. Transmissions above 159,140 ATH per month will be assessed a 0.17 cent per-performance rate. Musician George Johnson is focusing his appeal on whether the CRB improperly considered his “non-frivolous constitutional arguments” during the Web IV proceeding.

The CRB’s use of the Merlin and Naxos licensing deals as benchmarks “failed to respect the ‘willing buyer and … willing seller’ standard by treating agreements that embodied pre-existing compulsory license rates as if they were voluntary marketplace agreements,” SoundExchange said in a filing (in Pacer). It said the D.C. Circuit also should consider whether the use of the Merlin and Naxos benchmarks shows the board was relying “on unrepresentative rate agreements reached by a fraction of the marketplace, and therefore fails to respect the Librarian of Congress’s standard of establishing ‘rates to which ... most willing buyers and willing sellers would agree.’” SoundExchange said the Web IV rate determination is unlawful because the CRB judges “rejected their own findings of the rates that willing buyers and willing sellers in fact negotiate in the marketplace, in favor of ratcheting those rates downward to reflect the lower rates” that the board believed possible “under hypothetical ‘effectively competitive’ conditions.” SoundExchange also criticized the CRB for creating a statutory license that doesn’t include revenue sharing with webcasters or annual per-performance rate increases, along with the use of what it calls “unlawful” standards for verifying the qualifications of royalty verification auditors.

IBS and NRBNMLC plan to argue it was unlawful for the CRB to establish the noncommercial rate based on a SoundExchange proposal. IBC said the SoundExchange-proposed 0.17 cent per-performance rate for noncommercial webcasters should have been extended to apply to state-owned webcasters. The SoundExchange proposal also results in an “aggregator payment” for stations affiliated with CPB and NPR that should have also extended to IBS-affiliated webcasters, “many of which are located on the same campuses as the NPR/CPB-affiliated broadcasters/webcasters and the vast majority of which have the same type of ownership,” IBS said in its filing (in Pacer). IBS called the $500 minimum annual statutory royalty capricious and unlawful because CRB imposed it on all webcasters despite rules requiring the board to “distinguish among different types of services, and despite record evidence that a $500 fee was disproportionately high for smaller noncommercial webcasters.”

The CRB “generally adopted SoundExchange’s rate proposal for noncommercial licensees with no evidence it represents what noncommercial willing buyers and willing sellers would negotiate, and noncommercial willing buyers would pay” in the marketplace, NRBNMLC said in its filing (in Pacer). CRB adopted the SoundExchange proposal “even though SoundExchange presented no evidence in its direct case to support it and there was thus no evidence that the NRBNMLC could meaningfully rebut,” the group said. CRB “rejected a flat-fee structure” for noncommercial webcasters above a specified level based on the number of performances despite “acknowledging the absence of any benchmark agreements in the record entered into by noncommercial licensees that included usage fees and despite multiple noncommercial agreements that included a flat-fee structure,” NRBNMLC said. The group said CRB’s application of the 159,140 ATH per month threshold is “not supported by substantial evidence.”

The CRB “declined to consider” Johnson’s arguments in the Web IV proceeding, “reasoning that they lacked authority to determine the constitutionality of an act of Congress,” Johnson said in his brief (in Pacer). “Rather, the Judges were called upon to determine the constitutionality of the application of the Copyright Act to the facts of this case, an issue that they had authority to decide.” The CRB rejected Johnson’s testimony because he was “a layman who is unfamiliar with the procedures for qualification of an expert” under federal rules, but “merely because he failed to conform to the standard for qualification as an expert is exalting form over substance,” Johnson said. “His testimony should nonetheless have been considered as that of an expert. … In fact, the evidence of those persons within the industry who must live with the confiscatory royalty rates set by the Judges have direct, personal, and immediate experience with trying to survive as creators of musical content should be assigned even more weight than that of putative experts, whose knowledge of the industry is acquired secondhand.”