Compulsory License for Making and Distributing Phonorecords, Including Digital Phonorecord Deliveries, 66173-66182 [E8-26666]

Agencies

• Library of Congress
• Copyright Office
• Copyright Office, Library of Congress

[Federal Register Volume 73, Number 217 (Friday, November 7, 2008)]
[Rules and Regulations]
[Pages 66173-66182]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26666]



[[Page 66173]]

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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201 and 255

[Docket No. RM 2000-7]


Compulsory License for Making and Distributing Phonorecords, 
Including Digital Phonorecord Deliveries

AGENCY: Copyright Office, Library of Congress.

ACTION: Interim rule and request for comments.

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SUMMARY: The Copyright Office is announcing an interim regulation to 
clarify the scope and application of the Section 115 compulsory license 
to make and distribute phonorecords of a musical work by means of 
digital phonorecord deliveries. The Office seeks comments on the 
interim regulation.

EFFECTIVE DATE: December 8, 2008. Comments must be received in the 
Office of the General Counsel of the Copyright Office no later than 
January 6, 2009.

ADDRESSES: If hand delivered by a private party, an original and five 
copies of a comment or reply comment should be brought to the Library 
of Congress, U.S. Copyright Office, Room 401, 101 Independence Avenue, 
SE., Washington, DC 20559, between 8:30 a.m. and 5 p.m. The envelope 
should be addressed as follows: Office of the General Counsel, U.S. 
Copyright Office. If delivered by a commercial courier, an original and 
five copies of a comment or reply comment must be delivered to the 
Congressional Courier Acceptance Site (``CCAS'') located at 2nd and D 
Streets, NE., Washington, DC between 8:30 a.m. and 4 p.m. The envelope 
should be addressed as follows: Office of the General Counsel, U.S. 
Copyright Office, LM 403, James Madison Building, 101 Independence 
Avenue, SE., Washington, DC 20559. Please note that CCAS will not 
accept delivery by means of overnight delivery services such as Federal 
Express, United Parcel Service or DHL. If sent by mail (including 
overnight delivery using U.S. Postal Service Express Mail), an original 
and five copies of a comment or reply comment should be addressed to 
U.S. Copyright Office, Copyright GC/I&R, P.O. Box 70400, Washington, DC 
20024.

FOR FURTHER INFORMATION CONTACT: Tanya M. Sandros, General Counsel, or 
Stephen Ruwe, Attorney Advisor, Copyright GC/I&R, P.O. Box 70400, 
Washington, DC 20024. Telephone: (202) 707-8380. Telefax: (202) 707-
8366.

SUPPLEMENTARY INFORMATION:

Background

    On July 16, the Copyright Office published a notice of proposed 
rulemaking (the ``NPRM'') to amend its regulations to clarify the scope 
and application of the Section 115 compulsory license to make and 
distribute phonorecords of a musical work by means of digital 
phonorecord deliveries (``DPDs''). 73 FR 40802. Specifically, the 
notice proposed to amend the definition of ``digital phonorecord 
delivery'' to clarify that a digital phonorecord delivery under the 
compulsory license provided under 17 U.S.C. 115 includes the following: 
permanent digital downloads of phonorecords; limited downloads, which 
use technology that causes the downloaded file to be available for 
listening only either during a limited time (e.g., a time certain or a 
time tied to ongoing subscription payments) or for a limited number of 
performances; and all buffer copies delivered to a transmission 
recipient. The NPRM also put forward that the Section 115 license 
included coverage for all reproductions made to facilitate the making 
and distributing of DPDs.
    In the course of its analysis, the Office categorized a number of 
different types of reproductions that can be made for the purpose of 
making DPDs: Server-end Complete Copies, Recipient-end Complete Copies, 
Server-end Buffer Copies, and Recipient-end Buffer Copies.\1\ As 
described in the NPRM, a Server-end Complete Copy is a copy of a sound 
recording of an entire musical work which resides on the server of a 
digital music service and serves as the source of the transmission that 
results in a DPD. A Recipient-end Complete Copy is a copy of a sound 
recording of an entire musical work which is made on the recipient's 
computer or device during the course of the transmission. A Server-end 
Buffer Copy is a copy of a portion of a sound recording of a musical 
work (which, along with a number of other buffer copies, typically will 
cumulatively constitute a recording of the entire musical work) that is 
made on the transmitting entity's server and typically exists for a 
short period of time, sometimes a few seconds or less. A Recipient-end 
Buffer Copy is a copy of a portion of a sound recording of a musical 
work (which, along with a number of other buffer copies, typically will 
cumulatively constitute a recording of the entire musical work) that is 
made on the recipient's computer or device and typically exists for a 
short period of time, sometimes a few seconds or less.
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    \1\ We call these reproductions ``copies'' not in the technical 
sense as defined in 17 U.S.C. 101, but in the more general 
dictionary sense in which the term ``copies'' is understood. We 
recognize that these reproductions are of sounds other than those 
accompanying a motion picture or other audio visual work, which when 
fixed in material objects from which sounds may be perceived would 
properly be categorized as ``phonorecords.'' Additionally, we 
acknowledge that parties disagree on the copyright implications of 
the reproductions, an analysis of which is contained herein.
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    In the NPRM, the Office proposed that a DPD would exist whenever a 
transmission includes any of the following: a Recipient-end Complete 
Copy and/or a Recipient-end Buffer Copy. The Office tentatively 
proposed that both of these kinds of copies satisfied the statutory 
requirements of being ``phonorecords'' that are ``specifically 
identifiable.'' The Office indicated that Server-end Copies did not 
satisfy the requirements for a DPD because they are not ``delivered.''
    The Office proposed to interpret the compulsory license as 
including a license to make Server-end copies as well as all other 
intermediate copies used to facilitate a digital transmission that 
results in the making and distribution of a DPD, even though those 
copies may not themselves constitute DPDs. Thus, a Server-end copy that 
is the source of a transmission that results in a DPD, such as a 
download, will be included within the scope of the compulsory license, 
although it is not itself a DPD for which payment would be required. On 
the other hand, a Server-end copy that is the source of a transmission 
of a performance that does not result in the making and distribution of 
a DPD would not fall within the scope of the compulsory license.
    With respect to limited downloads, the Office proposed the 
following conclusion: ``While policy reasons might exist for 
distinguishing such a limited download from a permanent reproduction, 
we can find no basis in the statute for considering a limited download 
to be something other than a phonorecord. Moreover, the fact that a 
limited download is a phonorecord does not in any way prevent the 
Copyright Royalty Judges from valuing it differently and setting a 
lower rate.'' 73 FR at 40808. Accordingly, the Office tentatively 
concluded that limited downloads, like other Recipient-end Complete 
Copies, satisfy the requirements for DPDs.
    In response to requests by some interested parties and in light of 
the intervening decision of the United States Court of Appeals for the 
Second Circuit in The Cartoon Network LP v.

[[Page 66174]]

CSC Holdings, Inc., 536 F.3d 121 (2d Cir. Aug. 4, 2008), the Office 
extended the comment period and, on September 19, 2008, conducted a 
hearing. Having considered the comments and the testimony at the 
hearing, the Register of Copyrights now issues this interim regulation 
and requests comments.

Summary of Interim Regulation

    In the NPRM, the Office proposed to define a ``digital phonorecord 
delivery'' as including all buffer copies made in the course of 
streaming, which would have meant that all music streaming activity 
would be included within the scope of the compulsory license.\2\ 
However, in light of the recent comments and testimony, and the 
uncertainty created by the Second Circuit's Cartoon Network opinion 
concerning the fixation of buffer copies, the interim regulation 
announced today is more modest in scope than the proposed regulation. 
The Office is not currently prepared to issue a regulation that 
definitively addresses whether such copies are within the scope of the 
compulsory license, except to the extent the transmission also results 
in the making of copies which more certainly qualify as DPDs. As such, 
the interim regulation takes no position on whether or when a buffer 
copy independently qualifies as a DPD, or whether and when it is 
necessary to obtain a license to cover the reproduction or distribution 
of a musical work in order to engage in activities such as streaming.
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    \2\ The Office noted that the fact that the compulsory license 
is available for such activity should not be construed as meaning 
that a license is necessary for all such activity. Rather, the 
license would simply be available for online music services who do 
not wish to expose themselves to potential liability in cases where 
a musical copyright owner asserts that the making of, e.g., buffer 
copies constitutes an infringement of the reproduction right.
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    The interim regulation clarifies that (1) whenever there is a 
transmission that results in a DPD, all reproductions made for the 
purpose of making the DPD are also included as part of the DPD, and (2) 
limited downloads qualify as DPDs. The interim regulation does not 
attempt to define the threshold at which a DPD occurs. That remains 
contested, as discussed below.

Authority To Issue Regulations

    The Office requested comments on whether the issues raised in the 
NPRM could be addressed in an administrative rulemaking. In response, 
the Digital Media Association (``DiMA'') as well as the Business Music 
Industry; Verizon Communications; CTIA--The Wireless Association 
(``CTIA''); the National Association of Broadcasters (``NAB''); Google/
YouTube; and Electronic Frontier Foundation, Public Knowledge, Center 
for Democracy and Technology, Consumers Union, Consumer Federation of 
America, U.S. PIRG, and the Computer & Communications Industry 
Association (collectively referred to as ``Public Interest 
Commenters'') raised questions and concerns regarding the Office's 
authority to issue a rule that would have a wide-reaching impact on 
activities outside the scope of Section 115.
    For example, Verizon, CTIA, and NAB argued that the proposed rule 
is a substantive rule of copyright law and therefore is not a matter 
relating to administration of the functions and duties of the Copyright 
Office. They asserted that the proposed rule would both reinterpret 
substantive principles of copyright law and fundamentally reset the 
balance between copyright owners and users. They maintained that the 
proposed rule is distinguishable from any judicially approved exercise 
of Office rulemaking authority under Sections 701 or 702. Further, they 
noted that authority under Sections 701 and 702 is distinguishable from 
the authority granted to the Register to make determinations on 
``material questions of substantive law'' under Chapter 8, which is 
accompanied by specific procedural limitations that indisputably are 
not present in association with the proposed rule. In addition, DiMA 
asserted that the Office's authority to issue a rule at this time, in 
the midst of the Copyright Royalty Board (the ``CRB'') ratemaking 
proceeding, is foreclosed and that to do so would impermissively 
interject the Office into the CRB proceeding. DiMA maintains that this 
result would contravene specific provisions of the Copyright Act that 
narrowly circumscribe the Office's authority to be involved in a CRB 
rate-setting proceeding.
    On the other hand, SESAC noted the Office's specific and limited 
scope of authority under Section 115, and asserted that the Office 
should not go beyond its statutory authority and opine on the relative 
values of separate and independent rights implicated in a given 
transmission. Similarly, the American Society of Composers, Authors and 
Publishers and Broadcast Music, Inc. (``ASCAP/BMI'') acknowledged the 
Office's statutory mandate to address administration of the Section 115 
license. However, they specifically noted that any statements by the 
Office affecting the definition or applicability of the performance 
right are beyond the limited authority granted to the Office to 
administer Section 115. Other comments, such as the one filed by the 
Recording Industry Association of America (``RIAA''), and a joint 
filing by National Music Publishers Association, including its wholly 
owned licensing subsidiary, The Harry Fox Agency, Inc.; the 
Songwriters' Guild of America; the Nashville Songwriters Association 
International; and the Association of Independent Music Publishers, 
(Collectively ``Copyright Owners'') expressed the view that the 
Register does possess the authority to issue such rules.\3\
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    \3\ Most of the commenters who objected to the Register's 
authority appear to have done so out of fear that the Register would 
address issues such as whether buffer copies constitute 
phonorecords--issues which, as set forth below, the Register has 
declined to resolve in this proceeding. Many of those commenters 
expressed concern that in order to address those issues, the 
rulemaking would have consequences for activities that have no 
relationship to the section 115 compulsory license. However, the 
more modest regulation announced today is more narrowly focused and 
would appear to have little if any applicability outside the scope 
of the compulsory license.
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    Section 702 authorizes the Register of Copyrights ``to establish 
regulations not inconsistent with law for the administration of the 
functions and duties made the responsibility of the Register under this 
title.'' Among the functions and duties of the Register is the 
responsibility to issue regulations prescribing how a licensee shall 
file a notice of intention to use the statutory license, 17 U.S.C. 
115(b)(1), and regulations governing the submission of monthly and 
annual statements of account. 17 U.S.C. 115(c)(4). Pursuant to this 
authority, the Register has issued regulations that, inter alia, govern 
the content of the notice and the statements of account associated with 
the use of the Section 115 license. See 37 CFR 201.18 and 201.19. These 
regulations include definitions of statutory terms, which clarify the 
application of the terms in the context of the statutory license thus 
enabling a licensee to understand how to accurately report the making 
and distribution of a phonorecord under Section 115.
    Courts have recognized the Register's authority to promulgate 
regulations interpreting the statute under the authority granted in 
Section 702 and specific provisions in the law, such as the statutory 
licenses. In Cablevision Systems Development Co. v. Motion Picture 
Association of America, Inc. (``Cablevision'') the court acknowledged 
Section 702 as the source of general authority for the Office to 
conduct rulemaking proceedings to carry out specific responsibilities. 
Cablevision 836 F.2d 599 (D.C. Cir. 1988), cert. denied, 487 U.S. 1235 
(1988). In Cablevision, the Register issued

[[Page 66175]]

regulations under Section 111(d)(1) that directed cable systems to 
deposit royalty fees with the Copyright Office. Those regulations 
included an interpretation of the statutory term, ``gross receipts,'' 
which was central to the calculation of royalty fees for the public 
performance of secondary transmissions of broadcast signals under the 
statutory license. Opponents of the regulation argued that the 
authority of the Register was limited to the ``ministerial task of 
designing forms.'' The court, however, rejected this narrow approach, 
noting that authority to design forms has a substantial policy 
component and that the Copyright Office ``certainly has greater 
expertise in such matters than the federal courts.'' Thus, under the 
court's reasoning, the issuance of a rule interpreting a statutory term 
for the purpose of administering the license was not a violation of the 
rulemaking authority granted to the Register, provided that the 
interpretation was reasonable.
    Other circuits have reached the same conclusion. In Satellite 
Broadcasting and Communications Association of America v. Oman 
(``SBCA''), the court found that ``the Copyright Office is a federal 
agency with authority to promulgate rules concerning the meaning and 
application of Sec.  111.'' SBCA 17 F.3d 344, 347 (11th Cir. 1994). In 
reconsidering its earlier determination that a satellite carrier could 
be considered a cable system making it eligible to utilize the Section 
111 statutory license, the court revised its determination in light of 
a final rule issued by the Copyright Office which concluded that a 
satellite carrier was not a cable system under Section 111. The court 
acknowledged that the interpretation of the agency was due deference 
unless arbitrary, capricious, or manifestly contrary to the provisions 
of the Copyright Act. Id.
    The current rulemaking is consistent with the Office's practice of 
promulgating regulations to construe statutory terms that are critical 
to the administration of a statutory license administered by the 
Office. The Office is relying on both its general rulemaking authority 
under Section 702 and the specific grant of authority found in Section 
115(b)(1) and (c)(4) to issue rules governing notices of intention and 
statements of account, in a manner parallel to what happened when it 
adopted a definition of ``gross receipts'' and construed the term 
``cable system,'' with the only difference being that the Office 
considered these terms under its power to promulgate rules under a 
different statutory license. See 17 U.S.C 115(b)(1); (c)(4) and Sec.  
111.
    Opponents of the proposed regulation argue that notwithstanding 
these earlier cases, the authority of the Register to issue the 
proposed rule is foreclosed under Gonzales v. Oregon, 546 U.S. 243 
(2006). They maintain that Title 17 provides the Register no general 
rulemaking authority, and consequently, the Office cannot issue the 
proposed rule. The parties, however, focus only on Section 702 and fail 
to recognize the express authority provided to the Register in Section 
115. Moreover, Gonzales does not undermine the earlier rulings in 
Cablevision or SBCA. Gonzales recognizes, as do Cablevision and SBCA, 
that an agency's interpretation of a statute is due deference when the 
statute is ambiguous and when Congress has delegated the authority to 
the agency to promulgate rules carrying the force of law. Gonzales, 564 
U.S. at 255 (citing Chevron U.S.S., Inc. v. Natural Res. Def. Council, 
Inc., 467 U.S. 837 (1984) and United States v. Mead Corp., 533 U.S. 
218, 226-227 (2001)). The facts in Gonzales, however, led to a finding 
that the Attorney General lacked the authority to issue a regulation 
about the scope of ``legitimate medical purpose'' under his authority 
to adopt rules governing the registration of physicians. Specifically, 
the court found that the Attorney General had no authority to issue a 
rule that extended beyond registration practices to ``an interpretation 
of the substantive federal law requirements (under 21 CAR Sec.  1306.04 
(2005)) for a valid prescription.'' Id. at 261. The court also rejected 
the position of the Attorney General that his authority to deregister 
physicians provided the necessary authority for the rule. The court 
rejected that approach because it would vest power in the Attorney 
General to criminalize actions of registered physicians-an activity not 
contemplated by the statute. Id. at 261, 262. Similarly, the court 
found that the regulatory authority claimed by the Attorney General was 
``inconsistent with the design of the statute'' because the statute 
does not delegate rulemaking authority solely to the Attorney General. 
In some instances, he must share that authority with or defer to the 
Secretary of Health and Human Services. Id. at 265.
    Unlike the disputed rule in Gonzales, the interim rule which is the 
subject of today's notice has meaning only for the Section 115 license. 
The interim rule is a clarification of the statutory definition of a 
DPD to incorporate the Office's determination that the Section 115 
license covers server copies and intermediate copies made to facilitate 
the making and distribution of a DPD and that a limited download is a 
DPD. The rule extends the traditional understanding of the scope of the 
Section 115 license, that phonorecords made for the purpose of making 
additional reproductions of the sound recording and the musical works 
embodied therein are covered under the license, to the digital realm. 
As the court in Cablevision noted, and as discussed previously, the 
authority to issue regulations for the filing of statements of account 
includes a ``substantial policy component.'' Thus, the Office issues 
this rule under its authority to interpret statutory terms that are 
central to its role in promulgating regulations to account for the 
royalties owed for the making and distribution of phonorecords under 
the statutory license. Without this clarification, no guidance would 
exist regarding whether liability attached to these reproductions 
relative to the statutory license. In addition, the rule makes clear 
that DPDs includes digital phonorecords that may be limited either by 
time or number of uses, an issue that was raised in the original 
petition for a rulemaking but a conclusion that does not now appear to 
be in dispute.
    The Office also finds no basis for DiMA's assertion that the Office 
is foreclosed from issuing a rule at this time, in the midst of the CRB 
ratemaking proceeding. The statute does not constrain the Office from 
issuing regulations for the purpose of administering a statutory 
license when the Copyright Royalty Judges are also conducting a 
concurrent rate setting proceeding for the same statutory license. Nor 
is there any reason for the Office to delay the issuance of its interim 
rule when, as here, the interim rule amends Copyright Office 
regulations to incorporate concepts that seemingly are not in dispute 
by the parties participating in this rulemaking proceeding. Moreover, 
to the extent that the interim rule adds clarity to an issue upon which 
the Register is competent to rule and may offer guidance to the 
Copyright Royalty Judges, there is nothing improper about the exercise 
of the Register's authority at this time. In any event, parties have an 
opportunity to comment specifically on the interim rule within the 
comment period, since this is an interim rule.
    In its NPRM, the Office proposed a much broader regulation. 
Consequently, the Office discusses herein the original proposal and the 
reasons for adopting a more limited regulation.

[[Page 66176]]

Discussion

A. Digital Phonorecord Deliveries in General

    As the Office stated in its NPRM, in considering whether the 
reproductions made by a transmission service are digital phonorecord 
deliveries and fit within the scope of the Section 115 license, the 
starting point is the statutory definition of a DPD. 17 U.S.C. 115(d). 
It defines a DPD, in relevant part, as:

     each individual delivery of a phonorecord by digital 
transmission of a sound recording which results in a specifically 
identifiable reproduction by or for any transmission recipient of a 
phonorecord of that sound recording, regardless of whether the 
digital transmission is also a public performance of the sound 
recording or any nondramatic musical work embodied therein. A 
digital phonorecord delivery does not result from a real-time, non-
interactive subscription transmission of a sound recording where no 
reproduction of the sound recording or the musical work embodied 
therein is made from the inception of the transmission through to 
its receipt by the transmission recipient in order to make the sound 
recording audible.
17 U.S.C. 115(d). In order for a reproduction of a sound recording 
to qualify as a DPD under the statutory criteria, the reproduction 
must meet all the criteria specified in the definition: (1) it must 
be delivered, (2) it must be a phonorecord, and (3) it must be 
specifically identifiable.

    (1) Delivery. While several parties disputed the second and third 
criteria specified in the definition of a DPD, no parties put forward 
arguments against the proposed finding that reproductions identified in 
the NPRM as Recipient-end copies are ``delivered'' and therefore 
satisfy the first requirement for being a DPD.\4\
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    \4\ Several parties disputed the proposed finding that every 
``delivery'' constitutes a ``distribution'' These arguments are 
addressed in a later section regarding the threshold requirements 
for use of the Section 115 license.
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    (2) Phonorecord (Fixation). In considering whether the 
reproductions made by a transmission service are phonorecords, the 
Office's NPRM turned to the definition found in 17 U.S.C. 101. The 
statute defines phonorecords as:

     material objects in which sounds, other than those accompanying 
a motion picture or other audiovisual work, are fixed by any method 
now known or later developed, and from which the sounds can be 
perceived, reproduced, or otherwise communicated, either directly or 
with the aid of a machine or device. The term ``phonorecords'' 
includes the material object in which the sounds are first fixed.
17 U.S.C. 101. The question is whether each reproduction made during 
the course of a digital transmission meets this definition and thus 
satisfies the second prong of the statutory definition for a DPD. 
The Office proposed that a buffer copy made in the course of a 
service's transmission on either the Server-end or the Recipient-end 
is sufficiently fixed to meet the definition of a phonorecord. This 
proposal was strongly opposed by parties representing users of the 
works.

    Parties such as DiMA, Verizon, CTIA, NAB, Google/YouTube, Public 
Interest Commenters, New Media Rights, and Cablevision disputed the 
Office's conclusion that all buffer copies qualified as ``fixed'' 
phonorecords or copies. They uniformly cited to the Second Circuit's 
decision in Cartoon Network, which reversed Twentieth Century Fox Film 
Corp. v. Cablevision Sys. Corp., 478 F. Supp. 2d 607 (S.D.N.Y. 2007), a 
decision cited in the NPRM. 73 FR at 40809. They argued that the 
Cartoon Network decision undermines the legal analysis contained in the 
NPRM.
    On the other hand, RIAA disagreed with the Cartoon Network 
decision, but found it unnecessary to debate the fixation issue. It 
argued that some copies created by transmission services are persistent 
enough that they would meet any definition of the term ``fixed,'' and 
services that wish to obtain a Section 115 license as a ``safe harbor'' 
should have that option. Copyright Owners also argued that the Cartoon 
Network decision is inapplicable to the transmission services in 
question because the buffer copies made by streaming music services are 
distinguishable from the ones considered in the Cartoon Network case. 
Under the view of the Copyright Owners, buffer copies made by streaming 
music services are more analogous to the RAM copies considered in cases 
cited in the Copyright Office's DMCA Section 104 Report.
    The Copyright Owners also concluded that the Cartoon Network 
decision's analysis of the ``duration'' requirement is unsupported by 
the Copyright Act or prior judicial interpretation. They argued that 
the Cartoon Network court took a ``stopwatch'' approach by measuring 
the duration of the subject buffer copies and then opined that they did 
not last for a sufficient number of seconds. In response, the Copyright 
Owners asserted that Section 101 does not require that a copy last for 
any specified period of time. 17 U.S.C. 101. They argued that the 
Cartoon Network approach suffers from a lack of standards-statutory or 
otherwise-to guide this judge-made ``duration'' requirement. The 
Copyright Owners instead endorsed the approach proposed in the NPRM, 
which examines whether the copies in question exist for a sufficient 
period of time to be capable of being ``perceived, reproduced or 
otherwise communicated.'' 73 FR at 40808. They stated that such an 
approach does not depend upon an arbitrary assessment. Moreover, it 
adheres to the overarching consensus of other courts that have 
considered this issue.
    In the NPRM, the Office's tentative conclusions relating to the 
status of buffer copies as phonorecords relied in part on the District 
Court's decision in Twentieth Century Fox, which had concluded that 
buffer copies made in a somewhat different context than the streaming 
of music were infringing ``copies'' under the copyright law. 478 F. 
Supp. 2d at 621-22. The court rejected arguments by the defendant that 
the buffer copies did not qualify as ``copies'' because they were ``not 
fixed'' and were ``otherwise de minimis.'' Id. at 621. In finding the 
buffer copies were ``fixed'' the court reasoned,

     The Copyright Act, however, provides that a work is ``fixed'' 
if it ``is sufficiently permanent or stable to permit it to be 
perceived, reproduced, or otherwise communicated for a period of 
more than transitory duration.'' Here, as discussed, the portions of 
programming residing in buffer memory are used to make permanent 
copies of entire programs on the Arroyo servers. Clearly, the buffer 
copies are capable of being reproduced. Furthermore, the buffer 
copies, in the aggregate, comprise the whole of plaintiffs' 
programming.

    Id. (citations omitted) (quoting 17 U.S.C. 101). The court relied 
in part on the Copyright Office's DMCA Section 104 Report, noting,

     Indeed, the United States Copyright Office, in its August 2001 
report on the Digital Millennium Copyright Act (``DMCA Report''), 
has indicated that buffer copies are ``copies'' within the meaning 
of the Copyright Act. Specifically, the Copyright Office concluded 
that temporary copies of a work in RAM are generally ``fixed'' and 
thus constitute ``copies'' within the scope of the copyright owner's 
right of reproduction, so long as they exist for a sufficient amount 
of time to be capable of being copied, perceived or communicated. 
(DMCA Report at xxii, 110-11).
Id. at 621-22.

    The issue addressed in Twentieth Century Fox and in the DMCA 
Section 104 Report was whether temporary buffer copies meet the 
``fixation'' requirement of the copyright law.

[[Page 66177]]

Phonorecords (a necessary element of a DPD; see 17 U.S.C. 115(d)) are 
defined as ``material objects in which sounds, other than those 
accompanying a motion picture or other audiovisual work, are fixed by 
any method now known or later developed, and from which the sounds can 
be perceived, reproduced, or otherwise communicated, either directly or 
with the aid of a machine or device.'' 17 U.S.C. 101 (emphasis added). 
The statute defines ``fixed'' as follows:

     A work is `fixed' in a tangible medium of expression when its 
embodiment in a copy or phonorecord, by or under the authority of 
the author, is sufficiently permanent or stable to permit it to be 
perceived, reproduced, or otherwise communicated for a period of 
more than transitory duration. A work consisting of sounds, images, 
or both, that are being transmitted, is `fixed' for purposes of this 
title if a fixation of the work is being made simultaneously with 
its transmission.
17 U.S.C. 101.

    In the DMCA Section 104 Report, the Office interpreted the ``more 
than a transitory duration'' element of fixation as follows: ``The 
dividing line, then, can be drawn between reproductions that exist for 
a sufficient period of time to be capable of being `perceived, 
reproduced, or otherwise communicated' and those that do not.'' DMCA 
Section 104 Report at 111. As noted above, the Southern District of New 
York had agreed with this analysis in Twentieth Century Fox. 478 F. 
Supp. 2d at 621-22.
    In the NPRM, the Office reviewed that analysis and observed, ``The 
Office has no reason to believe that developments in either technology 
or the law require us to revisit the above-stated conclusions. As such, 
Server-end Buffer Copies and Recipient-end Buffer Copies appear to be 
phonorecords and therefore satisfy the second requirement for being a 
DPD.'' 73 FR at 40809. Nineteen days later, the United States Court of 
Appeals for the Second Circuit reversed the district court's Twentieth 
Century Fox decision. Cartoon Network, 536 F.3d at 130. Among other 
things, the court took issue with the DMCA Section 104 Report's 
analysis of buffer copies and fixation, stating, ``[a]ccording to the 
Copyright Office, if the work is capable of being copied from that 
medium for any amount of time, the answer to both questions is `yes.' 
The problem with this interpretation is that it reads the `transitory 
duration' language out of the statute.'' Id. at 129. The court 
concluded that the buffer copies made by a cable television service in 
the course of creating server copies ``are not `embodied' in the 
buffers for a period of more than transitory duration, and are 
therefore not `fixed' in the buffers.'' Id. at 130.
    The Office does not consider the Second Circuit's opinion to be 
definitive on the issue involved in this rulemaking. The court's 
reasoning leaves at least something to be desired and offers no 
guidance as to when a copy might be considered to be ``embodied'' for 
``a period of more than transitory duration.'' Based on the Cartoon 
Network opinion, it appears that the duration requirement necessitates 
an embodiment for more than 1.2 seconds (the duration of the buffer 
copies at issue in that case) but does not require a duration of more 
than ``several minutes.'' Id. at 128, 131 (discussing MAI Sys. Corp. v. 
Peak Computer Inc., 991 F.2d 511 (9th Cir. 1993)). Indeed, it leaves 
open the possibility that a buffer copy that exists for several seconds 
might have sufficient duration to satisfy the fixation requirement. We 
can glean no principle from the Second Circuit's opinion which offers 
any guidance as to where the line is to be drawn.\5\
---------------------------------------------------------------------------

    \5\ Although the factual record in this proceeding is 
insufficient, it is quite possible that the buffer copies typically 
made in streaming exist for a longer period of time--and perhaps a 
considerably longer period of time--than the 1.2-second buffer 
copies at issue in Cartoon Network. If so, that case might be 
distinguishable on its facts.
---------------------------------------------------------------------------

    While the Second Circuit's opinion criticizes the analysis in the 
Office's DMCA Section 104 Report, the latter did attempt to provide a 
guiding principle for determining when the duration requirement has 
been met:

     In establishing the dividing line between those reproductions 
that are subject to the reproduction right and those that are not, 
we believe that Congress intended the copyright owner's exclusive 
right to extend to all reproductions from which economic value can 
be derived. The economic value derived from a reproduction lies in 
the ability to copy, perceive or communicate it. Unless a 
reproduction manifests itself so fleetingly that it cannot be 
copied, perceived or communicated, the making of that copy should 
fall within the scope of the copyright owner's exclusive rights. The 
dividing line, then, can be drawn between reproductions that exist 
for a sufficient period of time to be capable of being `perceived, 
reproduced, or otherwise communicated'' and those that do not.
DMCA Section 104 Report at 111.

    For present purposes, we need not resolve whether the Second 
Circuit's critique of the Office's analysis is compelling. It is 
sufficient to note that the record in this rulemaking and the Cartoon 
Network opinion create sufficient uncertainty to make it inadvisable to 
engage in rulemaking activity based on the Office's analysis in the 
DMCA Section 104 Report. Consequently, the interim rule does not 
address whether streaming of music that involves the making of buffer 
copies, but which makes no further copies, falls within the Section 115 
compulsory license, or whether such buffer copies qualify as DPDs. It 
seems likely that in at least some, and perhaps many cases, buffer 
copies may constitute DPDs, but we do not reach any broad conclusions 
on that point in light of the current state of the law and the factual 
record before us.
    As a practical matter, the marketplace may decide that issue. Most 
licenses that purport to be made pursuant to Section 115 are not, in 
fact, compulsory licenses. They are voluntary licenses between music 
publishers and licensees who agree to payment of the royalties at the 
rates that have been established for the actual compulsory license. To 
the extent that music publishers and licensees are willing to use the 
Section 115 model to license reproductions, including buffer copies, 
that are made in the course of streaming, then as a practical matter 
the marketplace may decide to treat buffer copies as DPDs, although not 
necessarily as DPDs entitled to the same royalty as more permanent 
copies.
    While we leave open the question whether buffer copies may be DPDs 
that fall within the Section 115 compulsory license, we note that 
certain streaming services involve the making of cache copies. To the 
extent that cache copies are placed on the recipient's hard drive and 
may exist for some indefinite period of time beyond the entire 
performance of the phonorecord, the Office understands that such copies 
would appear to satisfy the fixation/reproduction requirement.
    (3) Specifically identifiable. Section 115 defines ``digital 
phonorecord delivery,'' in relevant part, as ``each individual delivery 
of a phonorecord by digital transmission of a sound recording which 
results in a specifically identifiable reproduction by or for any 
transmission recipient of a phonorecord of that sound recording.'' 17 
U.S.C. 115(d). With regard to interpretation of the phrase 
``specifically identifiable reproduction by or for any transmission 
recipient of a phonorecord of that sound recording,'' the Copyright 
Owners concurred with the tentative proposal in the Copyright Office's 
NPRM, which offered that the plain meaning of the statute indicates 
that a reproduction may be either ``specifically identifiable'' by any 
transmission recipient or

[[Page 66178]]

``specifically identifiable'' for any transmission recipient. In 
endorsing the view in the NPRM's tentative proposal, they noted that 
contrary to arguments based upon a comment appearing in legislative 
history, Congress could easily have included a requirement that the 
reproduction be specifically identifiable to the transmitting service, 
but it did not.
    However, several parties including, RIAA, Verizon, CTIA, and NAB 
raised questions regarding the Office's proposed interpretation of the 
phrase. These parties agreed with the Office's observation that the 
phrase ``specifically identifiable'' is ``unique in copyright law,'' 
but they went on to cast doubt on the grammatical construction used by 
the Office in arriving upon the tentatively proposed plain meaning. 
Verizon and NAB maintained that the phrasing could not mean that the 
phonorecord was ``specifically identifiable'' by the recipient, 
offering phrases with analogous grammatical structure to illustrate 
their point. For example, they pointed out that the phrase ``an 
instantly recognizable painting by Picasso'' does not indicate that the 
painting is ``instantly recognizable'' by Picasso. Similarly, they 
noted that in the statutory phrase ``specifically identifiable 
reproduction by or for any transmission recipient,'' the adjectival 
clause ``specifically identifiable'' is not linked to the transmission 
recipient. They therefore asserted that it is equally plausible to 
construe the ``specifically identifiable'' phrase as referring to the 
transmitting service.
    RIAA also argued that the proposed interpretation is contrary to 
the statute's legislative history. Verizon, CTIA, and NAB took a 
similar position arguing that the tentatively proposed rule would be 
inconsistent with the overall statute and that the phrase is ambiguous. 
They pointed to Muniz v. Hofman, 422 U.S. 454, 468 (1975) and Adams 
Fruit Co., Inc. v. Barrett, 494 U.S. 638, 642 (1990) for the principle 
that where statutory language is susceptible to multiple constructions, 
it should be construed by reference to the legislative intent and the 
overall structure of the statutory provision. They went on to urge that 
the Office should follow its own previous reasoning that, where two 
interpretations of statutory language are both plausible: ``Turning to 
the legislative history is appropriate where, as here, the precise 
meaning is not apparent and a clear understanding of what Congress 
meant is crucial to an accurate determination of how Congress intended 
the digital performance right and the statutory scheme to operate.'' 
Final Rule, Public Performance of Sound Recordings: Definition of a 
Service, 65 FR 77292, 77296.
    Commenters' attempts to indicate that there is ambiguity in the 
statute cited to the Senate and House Committee Reports on the Digital 
Performance Right in Sound Recordings Act (the ``1995 House and Senate 
Reports'') as evidence of the proposed ambiguity. Reliance on such 
evidence is misplaced. As the Supreme Court has directed, extraneous 
material such as legislative history ``are only admissible to solve 
doubt and not to create it.'' Railroad Com. of Wisconsin v. Chicago, B. 
& Q. R. Co., 257 U.S. 563, 589 (1922). As Verizon and NAB's comments 
reveal, the phrase has precisely the same generally applicable meaning 
as the phrase ``instantly recognizable'' as used in the phrase ``an 
instantly recognizable painting by Picasso.''
    Furthermore, even assuming we were persuaded by the arguments that 
the phrase ``specifically identifiable'' is ambiguous and should be 
read with reference to the legislative history, as is urged by Verizon, 
CTIA and NAB, the legislative history does not serve to clarify any 
supposed ambiguity in the meaning of the words ``specifically 
identifiable'' but rather suggests a limit on whom the adjectival 
clause ``specifically identifiable'' is to be applied. Construing the 
phrase in the manner suggested would require the insertion of 
additional language indicating that the adjectival clause 
``specifically identifiable'' may only be applied ``to the transmission 
service.'' The Office declines commenters' invitation to make such an 
insertion. Instead, the Office's interim rule follows the principle of 
statutory construction that one ``should not read words into a statute 
that are not there.'' U.S. v. Watkins, 278 F.3d 961, 965 (9th Cir. 
2002).
    After considering the arguments raised by the parties, the 
Copyright Office accepts the structure of the phrase ``specifically 
identifiable reproduction by or for any transmission recipient of a 
phonorecord of that sound recording'' as it is explained and advanced 
by Verizon, CTIA, and NAB. Throughout the course of this proceeding 
leading up to the Office's tentatively proposed rule, the parties and 
the Office focused on two competing, yet flawed, interpretations. Under 
the previously proposed interpretations, a reproduction could be on the 
one hand ``specifically identifiable'' to the transmission service or 
on the other hand ``specifically identifiable'' by any transmission 
recipient or ``specifically identifiable'' for any transmission 
recipient. However, in light of the comments submitted by Verizon, 
CTIA, and NAB, the Office agrees that the sentence does not link the 
adjectival clause ``specifically identifiable'' to the transmission 
recipient. It also recognizes that nothing in the sentence links the 
adjectival clause ``specifically identifiable'' to the transmission 
service. In keeping with the insightful examples of similarly 
constructed language provided by Verizon, CTIA, and NAB, the Office 
concludes that ``specifically identifiable'' plainly, unambiguously and 
without limitations means ``specifically identifiable'' to anyone or 
anything, including the transmission service, the transmission 
service's computer, the transmission recipient, or the transmission 
recipient's computer.
    While the Office takes no position as to whether each individual 
delivery of a phonorecord by digital transmission results in a 
specifically identifiable reproduction, there can be little question 
that certain streaming services involve the making of legally 
recognizable copies. To the extent that such copies may be identifiable 
by any person or computer, including any identification as an essential 
step in actually making the phonorecord perceptible to the recipient, 
the Office understands that such copies would satisfy the requirement 
of being ``specifically identifiable.''

B. Incidental DPDs

    The Office recognizes the parties' views that certain reproductions 
created by transmission services may be categorized as so-called 
incidental DPDs. Section 115 requires that rates and terms shall 
distinguish between general DPDs and incidental DPDs. However, the 
statute does not offer a definition of incidental DPDs. Indeed, the 
statute does not specifically refer to incidental DPDs; it simply 
directs the Copyright Royalty Judges to set rates that ``distinguish 
between (i) digital phonorecord deliveries where the reproduction or 
distribution of a phonorecord is incidental to the transmission which 
constitutes the digital phonorecord delivery, and (ii) digital 
phonorecord deliveries in general.'' The lack of a specific definition 
of incidental DPDs has created a great deal of confusion among those 
parties with an interest in the Section 115 license. The Office notes 
that the parties have seemed less interested in defining what 
constitutes an incidental DPD and more concerned about receiving 
clarification as to whether specific types of digital

[[Page 66179]]

transmissions services fall within the scope of the statutory license.
    The parties urging the Office to interpret the meaning of 
incidental DPD have not offered specific suggestions as to how the 
Office should define the term. Rather they offered conclusions as to 
which specific types of digital transmission services should be deemed 
to create reproductions that fall inside or outside the definition of 
incidental DPD. Support for these conclusions was made largely on 
policy or economic grounds.
    As indicated previously, the Office understands that an incidental 
DPD is nothing more than a subset of DPDs. However, we can find little 
reason to delineate the contours of that subset. Whether a DPD is 
``incidental'' or ``general,'' it is included under the Section 115 
license. The Office questions whether the concept of incidental DPDs as 
set forth in the statute lends itself to further clarification in a 
regulation of general application. The Office observes that the 
legislative history of the Digital Performance in Sound Recordings Act 
of 1995 indicates that Congress recognized the likelihood of several 
different types of digital transmission systems. The Office also 
recognizes Congress' indication that certain DPDs may be incidental to 
the purpose of the transmission. S. Rep. No. 104-128 at 39.\6\ However, 
the Office notes that, except for one discrete example of a type of 
service that would result in an incidental DPD, neither the statute nor 
the legislative history attempts to offer criteria for determining the 
purpose of a transmission.
---------------------------------------------------------------------------

    \6\ ``For example, if a transmission system was designed to 
allow transmission recipients to hear sound recordings substantially 
at the time of transmission, but the sound recording was transmitted 
in a highspeed burst of data and stored in a computer memory for 
prompt playback (such storage being technically the making of a 
phonorecord), and the transmission recipient could not retain the 
phonorecord for playback on subsequent occasions (or for any other 
purpose), delivering the phonorecord to the transmission recipient 
would be incidental to the transmission.'' S. Rep. No. 104-128 at 
39.
---------------------------------------------------------------------------

    The Office understands that neither the statute, the legislative 
history, nor the proposals submitted by commenters clearly propose any 
conclusive methods or criteria for determining the purpose of a 
transmission. Moreover, the only consequence of a determination that a 
digital phonorecord delivery is ``incidental'' is that a separate rate 
must be set for an incidental phonorecord delivery (although, in any 
event, it is inherent in the ratemaking provisions of Section 115 that 
several different rates may be set for various kinds of digital 
phonorecord deliveries). In setting rates for the activities specified 
in Section 115, the Copyright Royalty Judges are to distinguish between 
general and incidental DPDs, and they have the authority to set 
different rates for different types of DPDs, depending on their 
analysis of the economics of the service and the other circumstances 
set forth in section 801(b)(1). The Office therefore proposes that any 
determination regarding the purpose of a transmission, upon which the 
determination of when a DPD is an incidental DPD appears to turn, 
should be made in the context of a factual inquiry before the CRJs, if 
such a determination proves to be relevant.\7\
---------------------------------------------------------------------------

    \7\ The Office observes that nothing in the law prevents the 
CRJs from setting different rates for various kinds of incidental 
DPDs.
---------------------------------------------------------------------------

C. Limited Downloads

    In the petition for a rulemaking that initiated this proceeding, 
RIAA characterized a limited download as an ``on-demand transmission of 
a time-limited or other use-limited (i.e. non-permanent) download to a 
local storage device (e.g. the hard drive of the user's computer), 
using technology that causes the downloaded file to be available for 
listening only either during a limited time (e.g. a time certain or a 
time tied to ongoing subscription payments) or for a limited number of 
times'' and asked the office to determine whether and to what extent 
limited downloads come within the scope of the Section 115 license. 
RIAA Petition at 1. As the Office has previously indicated, and 
explains again in this Notice below, whether a service is interactive 
or non-interactive does not appear to be relevant in the context of the 
Section 115 license. Therefore, the Office's regulatory text adopts a 
slightly altered characterization of limited downloads, as a subset of 
DPDs that ``may be made available to the transmission recipient for a 
limited period of time or for a specified number of performances.'' 
Applying the above-stated understandings regarding DPDs in general, the 
Office concludes that limited downloads fall within the definition for 
DPDs in that they are delivered; they satisfy the requirements for 
being a phonorecord; and they are specifically identifiable.\8\ This 
conclusion regarding limited downloads is reflected in the interim 
rule.
---------------------------------------------------------------------------

    \8\ The Office understands that there may be many types of 
limited downloads made available to transmission recipients for 
varying periods of time or number of performances. Nothing in the 
law prevents the CRJs from setting different rates for various kinds 
of limited downloads. The Office observes that the agreement 
submitted to the CRJs on September 22, 2008 assigns rates for 
specific types of limited downloads. See Mechanical and Digital 
Phonorecord Delivery Rate Determination Proceeding, 73 FR 57033, 
57034 (Oct. 1, 2008)(proposed 37 CFR Sec.  385.11 (definition of 
``Limited download'')). The Office notes that to the extent DPDs 
fall within the characterization of limited downloads as set forth 
in the Office's interim rule (which is broader than the category 
identified in the submitted agreement) they are licensable under 
Section 115 regardless of the rates assigned to them, or indeed 
regardless of whether any rate has been assigned to them.
---------------------------------------------------------------------------

D. Threshold Requirements for Use of the Section 115 License

    Several parties expressed concern with the NPRM's proposed 
interpretation of 17 U.S.C. 115(a)(l), which states that ``A person may 
obtain a compulsory license only if his or her primary purpose in 
making phonorecords is to distribute them to the public for private 
use, including by means of a digital phonorecord delivery.'' Public 
Interest Commenters questioned the Office's proposed understanding that 
DPDs are, by the fact of their having been delivered, distributed 
within the meaning of the copyright law. They urged the Office to avoid 
preempting any judicial resolution regarding whether Internet 
transmissions may result in distribution of ``material objects.'' 
Google/YouTube asserted that the Office's proposal overlooks a legal 
distinction between copying that facilitates the delivery or 
``distribution'' of a reproduction of a sound recording, on the one 
hand, and copying that merely enables the public performance of a sound 
recording, on the other. It also maintained that a ``performance'' to 
consumers, with or without the benefit of an intervening distribution 
entity, does not constitute the ``distribution'' of a copy of the 
content at issue. DiMA also argued that various types of streaming, 
other than interactive streaming, may or may not make reproductions at 
the recipient end of a transmission, and such reproductions may not 
always be for the ``primary purpose'' of making phonorecords.
    Verizon, CTIA, and NAB claimed that the NPRM contained a near 
tautology when it asserted that by virtue of having been delivered, 
phonorecords are distributed within the meaning of copyright law. They 
also argued that the approach advanced by the Office all but reads the 
``primary purpose'' requirement out of Section 115. They acknowledged 
that a primary purpose in making the DPD may be to distribute it. But 
they argued that the NPRM ignores the fact that, even if a buffer copy 
is a DPD, the primary purpose of making such a DPD is not to 
``distribute'' anything. It is rather an essential step in

[[Page 66180]]

the effectuation of a performance. They then cited to statements made 
by the Register that a ``stream'' does not constitute a distribution 
and that buffer and other intermediate copies are for all practical 
purposes useless. Finally, they offered the argument that 
characterizing all buffers as distributed would undermine many 
established principles, provisions and practices of copyright law 
including fair use, the concept of publication, and registration 
practices.
    As indicated above, the Office's interim rule, unlike the NPRM, 
takes no position as to whether a buffer copy constitutes a 
phonorecord. However, it is apparent that when a transmission to an 
individual consumer does result in a DPD, the phonorecord is made for 
the purpose of allowing the recipient to make a private use of that 
phonorecord, even if that use is simply to hear the performance of the 
phonorecord contemporaneously with the transmission. Similarly, it 
appears that enabling a recipient to make such a private use is a 
service's primary purpose in making phonorecords on a recipient's 
device. The Office notes that Congress intended the Section 115 license 
to cover DPDs ``regardless of whether the digital transmission is also 
a public performance of the sound recording or any nondramatic musical 
work embodied therein.'' 17 U.S.C. 115(d).
    The Office's interim rule also does not determine whether all 
phonorecords which satisfy the previously addressed requirements for 
being DPDs are necessarily ``distributed.'' This position is consistent 
with the Office's prior legal conclusions as well as the Register's 
statements and policy arguments to Congress that a stream in and of 
itself does not constitute a distribution. However, under the Office's 
above-stated analysis, there is no dispute that limited download 
services as well as certain streaming services involve the making of 
legally recognizable copies that fit within the definition of a DPD. To 
the extent that such phonorecords exist on the recipient's computer for 
some period of time beyond their performance, it is reasonable to 
consider the phonorecord as having been ``distributed.'' At the very 
least, where services involve the making of DPDs that exist on the 
recipient's computer for some period of time beyond their performance 
and which can be used to replay the phonorecord, it would appear that 
such phonorecords have been ``distributed.''\9\ Whether the delivery of 
a phonorecord that lasts no longer than the streamed performance 
constitutes a distribution is an issue that need not be resolved for 
purposes of this rulemaking.
---------------------------------------------------------------------------

    \9\ NMPA referred the Office to evidence indicating that three 
leading streaming music services create such copies. See Statement 
of Jacqueline Charlesworth https://www.copyright.gov/docs/section115/
2008/rm_2000-7_NMPA_hearing_statement.pdf.
---------------------------------------------------------------------------

E. Non-DPD Copies Under the Section 115 License

    Among the commenters, Verizon, CTIA, and NAB were alone in 
disputing the tentative proposal in the NPRM stating that server 
copies, and all other intermediate copies, used to make DPDs under the 
Section 115 license fall within the scope of the license. They argued 
that the primary purpose in making server ``phonorecords'' is not ``to 
distribute them to the public for private use'' and that therefore they 
are not eligible for the 115 license. However, this argument 
misunderstands the Office's interpretation in the NPRM of the coverage 
provided by the Section 115 license.
    The Office understands that the Section 115 license has 
traditionally provided coverage beyond those phonorecords made and 
distributed to the public for private use, so long as such phonorecords 
were used to achieve the primary purpose of making and distributing 
phonorecords under the Section 115 license. Indeed, when it enacted 
Section 115 in 1976, Congress stated that it intended the license to 
cover ``every possible manufacturing or other process capable of 
reproducing a sound recording in phonorecords.''\10\ As stated in the 
NPRM, the right to make master recordings, which are used to make the 
phonorecords that are actually distributed has long been understood to 
be included in the Section 115 license. Similarly, server copies, as 
well as all other intermediate copies used to make and distribute DPDs 
under the Section 115 license, perform a function in the world of DPDs 
that is parallel to master recordings and manufacturing equipment in 
the physical world. Consequently, the interim rule confirms that server 
copies and intermediate reproductions may come within the scope of the 
license. The Office notes that a person seeking to operate under the 
Section 115 license must still satisfy the threshold requirements of 
the license. But, having done so, that licensee's coverage may extend 
to phonorecords other than those that are actually distributed provided 
that they are made for the purpose of making and distributing a DPD. On 
the other hand, server and intermediate copies that are the source of a 
transmission that does not result in the making and distribution of a 
DPD would not fall within the scope of the compulsory license. Finally, 
the Office notes that server and intermediate copies covered under the 
Section 115 license that are not distributed do not entitle the owner 
to separate royalty payments. 17 U.S.C. 115(c)(1).
---------------------------------------------------------------------------

    \10\ H. Rep. No. 94-1476, at 110.  See also, The Copyright Act 
of 1976, Transitional and Supplementary Provisions, Sec. 106 
(``...parts of instruments serving to reproduce phonorecords 
mechanically ... such parts made on or after January 1, 1978, 
constitute phonorecords.''
---------------------------------------------------------------------------

F. Issues Outside the Scope of This Proceeding

1. Interactive vs. Non-interactive

    The Office recognizes that nearly all of the commenters have 
expressed some preference to distinguish between phonorecords that are, 
or may be, made by Interactive Streaming Services versus those made by 
Non-interactive Streaming Services. As the Office stated in its NPRM, 
distinctions relating to interactivity are appropriate in the context 
of the Section 114 license, which is available only for nonintereactive 
transmissions, and such distinctions may be appropriate to raise as a 
matter of economic value or policy before the CRJs-for example, in 
setting rates-or Congress. However, whether a service is interactive or 
non-interactive does not appear to be relevant in determining whether 
particular reproductions of phonorecords may be covered under the 
current Section 115 license, except perhaps under the last sentence of 
Section 115(d), which does address the potential for non-interactivity 
to be relevant. However, this sentence must be read in its entirety, 
which provides:

     A digital phonorecord delivery does not result from a real-
time, non-interactive subscription transmission of a sound recording 
where no reproduction of the sound recording or the musical work 
embodied therein is made from the inception of the transmission 
through to its receipt by the transmission recipient in order to 
make the sound recording audible.
15 U.S.C. 115(d) (emphasis added).

    The Office acknowledges that it may be more common for interactive 
streams to result in DPDs and that it may be relatively uncommon for 
non-interactive streams to do so. However, if phonorecords are 
delivered by a transmission service, then under the last sentence of 
115(d) it is irrelevant whether the transmission that created the 
phonorecords is interactive or non-interactive. To the extent that each 
stream creates a DPD, it appears that the only proffered justification 
for

[[Page 66181]]

distinguishing between the interactive and non-interactive 
transmissions is the business justification that interactive DPDs have 
a greater economic impact. The Office would not dispute a finding that 
non-interactive and interactive streams have different economic value, 
or even that a rate of zero might be appropriate for DPDs made in the 
course of non-interactive streams. Nor does it question the motivation 
for the industry's adoption of an agreement that distinguishes between 
the two. However, the Office maintains that any such distinctions can 
and should be addressed by different rates rather than being based on 
an unfounded assertion that non-interactive streaming cannot involve 
the making and distribution of phonorecords which are licensable under 
Section 115.

2. Policy Arguments

    As has happened throughout this proceeding, a number of commenters 
proposed revisions that they would like Congress to adopt, including 
provi