Scope of Preexisting Subscription Services, 59652-59660 [2017-27088]
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section 15 of the Wagner-Peyser Act of
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Rosemary Lahasky,
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[FR Doc. 2017–27107 Filed 12–14–17; 8:45 am]
BILLING CODE 4510–FN–P
LIBRARY OF CONGRESS
U.S. Copyright Office
[Docket No. 2017–20]
Scope of Preexisting Subscription
Services
U.S. Copyright Office, Library
of Congress.
ACTION: Final order.
AGENCY:
The Copyright Royalty Judges
referred novel material questions of
SUMMARY:
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Federal Register / Vol. 82, No. 240 / Friday, December 15, 2017 / Notices
substantive law to the Register of
Copyrights for resolution in connection
with the SDARS III proceeding. The
Register responded with a written
opinion that is reproduced below.
DATES: Opinion dated November 20,
2017.
FOR FURTHER INFORMATION CONTACT:
sradovich on DSK3GMQ082PROD with NOTICES
Sarang V. Damle, General Counsel and
Associate Register of Copyrights, by
email at sdam@loc.gov, or Jason E.
Sloan, Attorney-Advisor, by email at
jslo@loc.gov. Each can be contacted by
telephone by calling (202) 707–8350.
SUPPLEMENTARY INFORMATION: The
Copyright Royalty Judges (‘‘CRJs’’) are
tasked with determining and adjusting
rates and terms of royalty payments for
statutory licenses under the Copyright
Act. See 17 U.S.C. 801. If, in the course
of proceedings before the CRJs, novel
material questions of substantive law
concerning the interpretation of
provisions of title 17 arise, the CRJs are
required by statute to refer those
questions to the Register of Copyrights
for resolution. 17 U.S.C. 802(f)(1)(B).
On October 23, 2017, the CRJs, acting
pursuant to 17 U.S.C. 802(f)(1)(B),
referred to the Register novel material
questions of substantive law in
connection with the SDARS III
proceeding, Docket No. 16–CRB–0001
SR/PSSR (2018–2022). The referred
questions asked whether a preexisting
subscription service’s transmissions of
multiple, unique channels of music that
are accessible through that entity’s
website and through a mobile
application are ‘‘subscription
transmissions by preexisting
subscription services’’ for which the
CRJs are required to determine rates and
terms of royalty payments under 17
U.S.C. 114(f)(1)(A), and, if so, whether
there are any conditions a service must
satisfy to qualify for a license under
section 114(f)(1)(A). On November 20,
2017, the Register resolved these
questions in a Memorandum Opinion
that she transmitted to the CRJs. To
provide the public with notice of the
decision rendered by the Register, the
Memorandum Opinion is reproduced in
its entirety below.
Dated: December 6, 2017.
Karyn Temple Claggett,
Acting Register of Copyrights and Director
of the U.S. Copyright Office.
Before the U.S. Copyright Office,
Library of Congress, Washington, DC
20559
In the Matter of: DETERMINATION OF
ROYALTY RATES AND TERMS FOR
TRANSMISSION OF SOUND RECORDINGS
BY SATELLITE RADIO AND
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‘‘PREEXISTING’’ SUBSCRIPTION SERVICES
(SDARS III)
Docket No. 16–CRB–0001 SR/PSSR (2018–
2022)
MEMORANDUM OPINION ON NOVEL
MATERIAL QUESTIONS OF LAW
The Copyright Royalty Judges (‘‘CRJs’’
or ‘‘Judges’’) concluded the hearing in
the above-captioned proceeding with
closing arguments of counsel on July 18,
2017. In the course of their
deliberations, the CRJs determined that
novel material questions of substantive
law arose regarding the interpretation of
provisions of the Copyright Act and, as
required under 17 U.S.C. 802(f)(1)(B),
referred them to the Register of
Copyrights for resolution. The questions
were referred to the Register by the CRJs
on October 23, 2017. The Register’s
determination follows.
I. Background
A. Statutory Background
In 1995, Congress enacted the Digital
Performance Right in Sound Recordings
Act of 1995 (‘‘DPRSRA’’),1 recognizing
the exclusive right of copyright owners
to perform sound recordings ‘‘publicly
by means of a digital audio
transmission.’’ 2 The DPRSRA also
established a statutory license to allow
certain noninteractive digital audio
services to make such performances of
sound recordings, provided the services
pay a royalty fee and comply with the
terms of the license. Under the
DPRSRA, nonexempt subscription
transmissions were subject to statutory
licensing if they satisfied certain
requirements, and the royalty rates and
terms for the statutory license were to be
set in accordance with the objectives set
forth in 17 U.S.C. 801(b)(1).3
In 1998, the statutory license was
amended by the Digital Millennium
Copyright Act (‘‘DMCA’’),4 a major goal
of which was to establish a marketbased standard for setting royalty rates
paid to copyright owners for use of their
1 Public
Law 104–39, 109 Stat. 336 (1995).
U.S.C. 106(6).
3 Section 801(b)(1) provides that the rates ‘‘shall
be calculated to achieve the following 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 the industries involved
and on generally prevailing industry practices.’’ 17
U.S.C. 801(b)(1).
4 Public Law 105–304, 112 Stat. 2860 (1998).
2 17
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works under the statutory license.5 In
doing so, Congress drew a distinction
between preexisting subscription
services (‘‘PSSs’’) on the one hand and
nonsubscription services and new
subscription services on the other. A
‘‘preexisting subscription service’’ is
defined in 17 U.S.C. 114(j)(11) as:
[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.6
Section 114 contains two
grandfathering provisions that apply to
PSSs and provide benefits to those
services not available to new
subscription services or nonsubscription
services. The first, section 114(d)(2)(B),
preserves the DPRSRA’s limited
qualifications for entitlement to the
statutory license, but only for
transmissions made in the same
transmission medium used by the PSS
on July 31, 1998. The second, to which
the referred questions most directly
pertain, is the grandfathered method of
setting royalty rates under section
114(f)(1), which applies to a PSS
regardless of the transmission medium.
Under this scheme, PSS transmissions
in the same transmission medium used
on July 31, 1998, are still subject to the
DPRSRA’s requirements under section
114(d)(2)(B) and are to still have royalty
rates and terms set in accordance with
the objectives of section 801(b)(1).7
Nonsubscription services and new
subscription services, however, are
subject to a more expansive set of
qualifications under section
114(d)(2)(C), and are to have their
royalty rates and terms set to reflect
those that ‘‘would have been negotiated
in the marketplace between a willing
buyer and a willing seller.’’ 8 PSS
transmissions made in a new
transmission medium are subject to the
more expansive set of qualifications
under section 114(d)(2)(C) imposed on
nonsubscription and new subscription
services.9
The Register has explained that ‘‘the
rationale for [section 114’s]
grandfathering provisions is to ‘prevent
disruption of the existing operations by
5 71
FR 64639, 64641 (Nov. 3, 2006).
U.S.C. 114(j)(11).
7 See id. at 114(d)(2)(B), (f)(1).
8 See id. at 114(d)(2)(C), (f)(2).
9 Id. at 114(d)(2)(C).
6 17
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Federal Register / Vol. 82, No. 240 / Friday, December 15, 2017 / Notices
[preexisting subscription] services.’ ’’ 10
In discussing the legislative history
explaining the objectives of the
grandfathering provisions, the Register
elaborated:
While it would appear . . . that Congress’s
purpose in grandfathering these services was
to preserve a particular program offering, it
was not its only purpose or even necessarily
its major goal. The Conference Report also
makes clear that Congress distinguished
between preexisting subscription services
and new subscription services as a way to
prevent disruption of the existing operations
of the services that were in existence and
operating before July 31, 1998. It understood
that the entities so designated as preexisting
had invested a great deal of resources into
developing their services under the terms
established in 1995 as part of the Digital
Performance Right in Sound Recording Act of
1995, and that those services deserved to
develop their businesses accordingly.11
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B. Procedural History
The instant proceeding will establish
royalty rates and terms for PSSs’ (as
well as preexisting satellite digital audio
radio services’) digital performance of
sound recordings and the making of
ephemeral recordings under the
statutory licenses set forth in sections
112(e) and 114(f)(1) of the Copyright
Act. Music Choice is the only PSS that
participated in the current rate-setting
proceedings. The CRJs explain that the
referred questions arose in this
proceeding because SoundExchange,
Inc.,12 for the first time, is seeking two
separate royalty payments from PSSs:
(1) For all licensed transmissions and
related ephemeral recordings through a
television-based service qualifying as a
PSS, SoundExchange requests a persubscriber, per-month royalty; and (2)
for all licensed transmissions and
related ephemeral recordings through an
internet streaming service qualifying as
a PSS (or any similar service capable of
tracking the individual sound
recordings received by any particular
consumer and qualifying as a PSS),
SoundExchange seeks a perperformance royalty fee that is the same
as commercial webcasters are currently
10 71 FR at 64641 (quoting H.R. Rep. No. 105–796,
at 81 (1998) (Conf. Rep.)); accord SoundExchange,
Inc. v. Muzak LLC, 854 F.3d 713, 719 (D.C. Cir.
2017) (‘‘The grandfather provisions were intended
to protect prior investments the three [PSS]
business entities had made during a more favorable
pre-1998 rate-setting regulatory climate.’’).
11 71 FR at 64645 (internal citation omitted).
12 SoundExchange appears in this proceeding on
behalf of the American Association of Independent
Music; the American Federation of Musicians of the
United States and Canada; the Recording Industry
Association of America; the Screen Actors Guild
and American Federation of Television and Radio
Artists; Sony Music Entertainment; Universal Music
Group; and Warner Music Group. Referral Order at
2 n.4.
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required to pay under 37 CFR 380.10
(or, in the alternative, a royalty based on
aggregate tuning hours for a PSS that
does not have the technological
capability to track individual
performances).13 The parties dispute
whether it is necessary for the CRJs to
decide whether Music Choice’s internet
and mobile transmissions qualify as part
of its PSS.14
In response to this dispute, the CRJs
found that ‘‘consideration of the
appropriate royalty rates and terms for
a PSS’s digital audio transmissions
through a website or mobile application
in which the PSS streams a variable
number of unique channels of music
presents a novel material question of
substantive law,’’ and referred the
following questions to the Register
pursuant to 17 U.S.C. 802(f)(1)(B):
1. Are a preexisting subscription service’s
transmissions of multiple, unique channels
of music that are accessible through that
entity’s website and through a mobile
application ‘‘subscription transmissions by
preexisting subscription services’’ for which
the Judges are required to determine rates
and terms of royalty payments under Section
114(f)(1)(A) of the Copyright Act?
2. If yes, what conditions, if any, must the
PSS meet with regard to streaming channels
to qualify for a license under Section
114(f)(1)(A)? For example, must the streamed
stations be identical to counterpart stations
made available through cable television? Is
there a limitation on the number of channels
that the PSS may stream? Is there a limitation
on the number or type of customers that may
access the website or the mobile
application? 15
II. Summary of the Parties’ Arguments
A. Music Choice’s Position
Music Choice argues that the statutory
language, legislative history, and factual
record all support its position that its
internet transmissions are part of its PSS
and subject to section 114(f)(1). Music
Choice begins by disputing, as a factual
matter, the claim that its internet
transmissions are an ‘‘expansion’’ of its
service into a new medium—which it
perceives as the premise for the CRJs’
referred questions—on the grounds that
its ‘‘internet transmissions are merely an
ancillary part of its residential audio
service,’’ the value of its internet
transmissions ‘‘has always been
included in the bundled per-subscriber
fee,’’ and ‘‘the undisputed evidence
13 Id.
at 2–3.
at 3.
15 Id. at 3–4. Section 802(f)(1)(B) provides that
‘‘[i]n any case in which a novel material question
of substantive law concerning an interpretation of
those provisions of [title 17] that are the subject of
the proceeding is presented, the Copyright Royalty
Judges shall request a decision of the Register of
Copyrights, in writing, to resolve such novel
question.’’ 17 U.S.C. 802(f)(1)(B).
establishes that Music Choice has been
providing its subscribers with internetbased access to its audio channels since
1996, long before the PSS license was
created in the DMCA, and has always
included these internet transmissions as
a part of its PSS since that time.’’ 16
Music Choice also disputes
SoundExchange’s claim that webcasting
was becoming an ‘‘increasingly
important part’’ of its business, claiming
that record evidence shows that ‘‘usage
of Music Choice’s internet transmissions
has consistently remained at de minimis
levels, and today comprises less than
one hundredth of one percent of Music
Choice’s overall audio channel
usage.’’ 17 Music Choice contends that,
in any event, because it was making
internet transmissions prior to the
codification of the PSS definition in
section 114(j)(11), ‘‘[u]nder any
reasonable interpretation of [the]
statutory language, Music Choice’s
internet transmissions fall squarely
within the definition of a PSS.’’ 18
Music Choice also argues that even if
its internet transmissions did constitute
an expansion of its services to a new
medium, such expansion is permitted
and ‘‘would not require any new,
additional license fee or rate.’’ 19 Music
Choice contends that in grandfathering
the existing three PSSs, Congress sought
to protect their ‘‘need for access to the
works at a price that would not hamper
their growth’’ and did not ‘‘intend[] to
limit PSS status to the PSS offerings as
they existed in 1998 or otherwise freeze
the PSS in time.’’ 20 Music Choice
claims that ‘‘Congress’s intent to
provide the PSS with long-term
protection is further evinced by the
absence of any sunset provision
anywhere in the statutory language or
discussion of such a provision in the
legislative history’’ 21 and argues that in
enacting the DMCA, ‘‘the overarching
intent of Congress was decidedly not to
move the entire market to marketplace
rates,’’ but rather ‘‘to protect the PSS’
unique business expectancies.’’ 22
Citing to Congress’s discussion in the
DMCA Conference Report, Music
Choice asserts that Congress created a
‘‘unique feature of the PSS license that
allows a PSS to expand into new
services in new transmission media
while retaining PSS status for those new
services, so long as the new service is
similar in character to the original PSS
14 Id.
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16 Music
Choice Brief at 1–2, 4–5.
at 6.
18 Id. at 18–19, 30.
19 Id. at 2, 30.
20 Id. at 14, 19–23.
21 Id. at 15.
22 Id. at 16–17.
17 Id.
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offering, i.e., does not take advantage of
unique features of the new medium to
provide a different listening experience
or interactivity while listening to the
audio channel.’’ 23 Music Choice further
explains that ‘‘[a]lthough Congress did
not intend to allow the PSS to create
fundamentally different types of
services, with fundamentally different
types of content or interactive audio
functionality . . . , it did intend to
allow the PSS to continue their
development, evolution, and growth of
their non-interactive, subscription audio
services.’’ 24 Thus, Music Choice argues
that ‘‘there is no statutory requirement
that a PSS offer the exact same channels
to all of its subscribers or through each
of its different transmission media,’’ 25
and ‘‘there is no hint in the statute or
the legislative history of any intent to
impose restrictions on the number of
channels that may be provided . . . or
the number or type of subscribers that
Music Choice may serve.’’ 26 Music
Choice specifically argues that section
114 cannot be read to require the same
exact channels in a new transmission
medium as it offers in its original
medium because the statute ‘‘expressly
acknowledges that the programming of
a PSS’s transmissions in a new medium
may be different than those in the
original medium, and in some instances
requires that they be programmed
differently.’’ 27 More generally, Music
Choice asserts that its internet
transmissions are permissible because
they ‘‘do not take advantage of the
internet’s technological capabilities,’’
providing several fact-based arguments
for why its internet service is
comparable to its television service.28
Music Choice rests its argument in
part on the U.S. Court of Appeals for the
District of Columbia Circuit’s recent
opinion in SoundExchange, Inc. v.
Muzak LLC, which held that a music
service acquired by Muzak was not
entitled to the grandfathered rate that
applied to its preexisting subscription
service.29 Music Choice claims that this
decision ‘‘demonstrate[s] that the PSS
definition was not intended to freeze the
PSS in time, nor limit PSS status to
channels (or customers) that are exactly
the same as the channels that were
23 Id.
at 15, 17, 23–25.
at 24–25, 30.
25 Id. at 19, 27. Music Choice specifically notes
that, ‘‘of the 75 channels available through the
internet, 50 of those are identical to the channels
broadcast over the television’’ and the ‘‘additional
25 are identical to the television channels in every
way except the genre or sub-genre in which they
are programmed.’’ Id. at 19.
26 Id. at 2.
27 Id. at 27.
28 Id. at 25–26.
29 854 F.3d at 719.
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24 Id.
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transmitted in 1998 (or the customers
who received them at that time)’’ and
that ‘‘any rule limiting PSS status to
internet-based channels that are exactly
the same as those transmitted through
cable or satellite, or limiting the number
of channels that may be provided by a
PSS, would be inconsistent with [the
court’s] interpretation of the PSS
definition.’’ 30 Music Choice concludes
that it would be contrary to the court’s
interpretation of the PSS definition to
limit ‘‘the expansion of a PSS’s service
under the same brand’’ beyond the
limitation ‘‘that the service must remain
within the general category of
transmissions identified in the . . .
definition: noninteractive audio-only
subscription digital audio transmissions
made by an entity that was in existence
and making that category of
transmissions on or before July 31,
1998.’’ 31
B. SoundExchange’s Position
SoundExchange argues that the CRJs
should set ‘‘distinct statutory royalty
rates for delivery of a PSS to television
sets and for any webcasting that is
provided as part of a PSS,’’ with the rate
for webcasting that is part of a PSS set
‘‘at the same level as the statutory rate
for other subscription webcasters,
because Music Choice’s webcasting is
equivalent to that provided by other
webcasting services, and competes with
other webcasting services.’’ 32
SoundExchange argues that this
position responds to the ‘‘rapid growth
in Music Choice’s webcasting,’’ which it
asserts is demonstrated by record
evidence it describes regarding Music
Choice’s mobile application and website
and how Music Choice’s internet
transmissions differ from its televisionbased service.33
Pointing to the same discussion in the
DMCA Conference Report referenced by
Music Choice, SoundExchange argues
that ‘‘Congressional intent was to limit
the grandfathering of the PSS to
transmissions similar to the cable or
satellite service offerings their providers
offered on July 31, 1998,’’ meaning that
PSS status ‘‘extends to a qualifying
entity’s cable and satellite offerings as
they existed at July 31, 1998 . . . and
also may extend to a qualifying entity’s
transmissions in a new medium such as
the internet, if the transmissions are
sufficiently similar to the 1998
offerings.’’ 34 SoundExchange contends
that assessing similarity ‘‘is a fact-
intensive inquiry that requires
comparison of a PSS provider’s new
offering with the provider’s 1998
offerings,’’ and that ‘‘[i]t is not enough
to consider only whether a qualifying
entity’s new offerings makes
noninteractive audio-only subscription
digital audio transmissions,’’ but rather,
‘‘it is necessary to consider the medium
used, and the functionality and content
provided, in the new offerings.’’ 35
SoundExchange claims that ‘‘Congress
gave no indication that . . . a PSS
provider should enjoy PSS rates if it
provided an offering different from its
1998 offering in a new medium.’’ 36
SoundExchange interprets the
legislative history to suggest that
Congress ‘‘grandfathered the PSS to
protect investments that qualifying
entities had already made at the time
the DMCA was under consideration in
1998.’’ 37 SoundExchange understands
the D.C. Circuit’s decision in
SoundExchange to be consistent with its
interpretation of the legislative
history.38
SoundExchange argues that the PSS
definition must be construed narrowly,
particularly in the case of webcasting
given that ‘‘[i]nternet-based streaming
services are a rapidly-growing means of
music consumption,’’ and ‘‘webcasting
by a PSS provider competes with
webcasting by services that are currently
paying for their use of sound recordings
at much higher royalty rates.’’ 39 Such
an interpretation, SoundExchange
claims, would ‘‘ensure that webcasters
compete on level terms, eliminating
distortions in the market and
effectuating the Congressional intent to
shift rates towards those that reflect
arms-length market transactions.’’ 40
SoundExchange further argues that,
‘‘[a]s a matter of law,’’ ‘‘webcast
transmissions made through a mobile
app, or through a version of a provider’s
website that has been optimized for
display using the browser on a mobile
device, are not transmissions by a PSS
for which the Judges are to set rates and
terms under Section 114(f)(1).’’ 41
SoundExchange contends that the PSSs’
‘‘1998 offerings were residential
offerings delivered by means of cable or
satellite to fixed points in subscribers’
homes,’’ while ‘‘[t]he Internet and the
wireless networks that are used to
deliver service to mobile devices are a
different medium than the PSS used in
35 Id.
36 Id.
Choice Brief at 21.
29–30 (internal quotation marks omitted).
32 SoundExchange Brief at 5.
33 Id. at 2–5.
34 Id. at 9–10.
30 Music
at 10.
at 11.
37 Id.
31 Id.
38 Id.
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11–12.
at 12.
40 Id. at 12–13.
41 Id. at 13.
39 Id.
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1998.’’ 42 Furthermore, SoundExchange
contends that mobile services ‘‘take[ ]
advantage of the capability of wireless
networks to provide portability,
allowing listeners to access music
anytime and virtually anywhere’’ as
well as offering ‘‘different opportunities
for user interaction and navigation’’ that
‘‘provide a very different user
experience than the stereo receivers and
television sets that could receive the
PSS’ 1998 offerings.’’ 43
While SoundExchange claims that
internet streaming channels could
qualify as part of a PSS, so long as it is
‘‘sufficiently similar to the provider’s
1998 offerings,’’ SoundExchange asserts
that this standard requires that the ‘‘PSS
provider’s webcast channels [to] be
identical to counterpart stations made
available through cable television’’ in
order to qualify for a rate set under
section 114(f)(1), as a service offering
internet-only channels would lack
sufficient similarity to the PSS’ 1998
offerings which did not include any
internet-only offerings.44
SoundExchange argues that a PSS’s
internet transmissions are similarly
disqualified if the ‘‘number of
webcasting channels is [not] sufficiently
similar to the provider’s pre-1998
offerings.’’ 45 SoundExchange further
contends that the number and type of
subscribers to the transmission must
also be substantially similar, and that a
PSS cannot include video programming
‘‘other than video related to the service
or recording being performed’’ in order
for its webcasting service to qualify as
a PSS.46 SoundExchange also asserts
that ‘‘[a] trier of fact may also consider
other factors that bear on similarity of
the service offerings, including any
differences between Internet-based
platforms and cable- and satellite-based
platforms.’’ 47
III. Register’s Determination
Although the parties’ briefs discuss at
length the factual nature of Music
Choice’s particular internet
transmissions, questions of fact are
beyond the scope of the Register’s
inquiry under section 802(f)(1)(B). Thus,
without judging the facts as they may
pertain to Music Choice (or any other
PSS), and having considered the
relevant statutory language, legislative
history, and the input from the parties,
the Register determines that
transmissions by a PSS entity that are
42 Id.
43 Id.
at 13–14.
at 15–16.
45 Id. 16–17.
46 Id. 17–18.
47 Id. at 17.
44 Id.
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accessible to a cable or satellite
television subscriber through that
entity’s website and through a mobile
application can be ‘‘subscription
transmissions by preexisting
subscription services’’ for which the
CRJs must determine rates and terms of
royalty payments under section
114(f)(1)(A), but only if such
transmissions are sufficiently similar to
the transmissions made to those
subscribers via the entity’s preexisting
residential cable or satellite music
service.
A. Legal Standard
Before addressing the appropriate
legal standard for determining whether
a particular subscription transmission
by a preexisting subscription service is
subject to the grandfathered method of
setting royalty rates for such service
offerings under section 114(f)(1), the
Register makes a few threshold points
about the statute.
First, in analyzing the grandfathering
provisions, the Register interprets them
narrowly.48
Second, as the Register has previously
held, the definition of ‘‘preexisting
subscription service’’ in section
114(j)(11) can pertain to both the
business entity operating a service
offering and the service offering itself.49
The D.C. Circuit recently agreed with
the Register that ‘‘the word ‘service,’ as
used both in the statute as well as the
legislative history, sometimes referred to
the business entity and sometimes the
program offerings.’’ 50 For clarity’s sake,
the Register generally refers below to a
‘‘PSS entity’’ or a ‘‘PSS offering’’ to
distinguish between a preexisting
business itself and a specific preexisting
program offering by such business.
Third, as a corollary to the second
point, the Register concurs with the D.C.
Circuit’s holding that, under the
grandfathering provisions, ‘‘the term
‘service’ contemplates a double
limitation; both the business and the
program offering must qualify before the
transmissions are eligible for the
favorable rate.’’ 51 Indeed, Congress was
clear that not every subscription
transmission made by a PSS entity is
subject to section 114(f)(1).52 Thus, as
48 See 71 FR at 64646; accord SoundExchange,
854 F.3d at 719.
49 71 FR at 64646, 64647 (‘‘In construing the
statutory language together with the legislative
history, the logical conclusion is that Congress did
use the term ‘service’ to mean both the program
offerings made on a subscription basis to the public
and the business entity that secures the license to
make the subscription transmissions.’’).
50 SoundExchange, 854 F.3d at 718.
51 See id. at 719.
52 See H.R. Rep. No. 105–796, at 84–85
(explaining that section 114(f)(2) applies to
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used in section 114(f)(1)(A),
‘‘subscription transmissions by
preexisting subscription services’’ must
refer only to the PSS offerings made by
a PSS entity, rather than referring to all
subscription transmissions made by a
PSS entity.
Fourth, the Register has previously
determined ‘‘that the preexisting
services must be limited to the three
named entities in the [DMCA]
Conference Report, i.e., DMX (operated
by TCI Music), Music Choice (operated
by Digital Cable Radio Associates), and
[DiSHCD] 53 (operated by Muzak).’’ 54
Thus, it is long-settled that these three
entities are the only PSS entities. What
offerings by these entities may
constitute PSS offerings, however, has
continued to be unsettled, but is now
resolved by this memorandum
opinion.55
Fifth, the Register observes that PSS
offerings are not limited solely to the
offerings made by PSS entities prior to
July 31, 1998. Rather, the statute and
legislative history both confirm that
Congress intended for PSS entities to be
able to expand their service offerings to
some limited extent and still have those
service offerings be considered PSS
offerings. Two provisions of the statute
‘‘subscription transmissions made by a preexisting
subscription service other than those that qualify
under subsection (f)(1)’’ in addition to new
subscription services and eligible nonsubscription
transmissions). Similarly, previous statements made
by the Register that preexisting subscription
‘‘services deserved to develop their businesses
accordingly’’ pertained to the businesses of the preJuly 31, 1998 PSS offerings—not all businesses
engaged in by the PSS entities. See 71 FR at 64645.
For example, later in the same opinion, the Register
elaborated that while ‘‘Muzak was the pioneer
music service that incurred both the benefits and
risks that came with its investment, and one such
benefit was its status as a preexisting subscription
service,’’ that benefit only exists ‘‘so long as
[Muzak] provided its music offerings over
[DiSHCD],’’ as it did as of July 31, 1998. Id. at
64646.
53 The Register believes that the DMCA
Conference Report’s reference to ‘‘DiSH Network’’
was a typo, and that Congress intended to refer to
Muzak’s ‘‘DiSHCD’’ service, which was transmitted
over Echostar’s DiSH Network. See Report of the
Copyright Arbitration Royalty Panel, In re:
Determination of Statutory License Terms and Rates
for Certain Digital Subscription Transmissions of
Sound Recordings, No. 96–5 CARP DSTRA ¶ 27
(Nov. 28, 1997) (‘‘CARP Report’’) (‘‘Muzak . . .
began providing . . . digital music under the name
DiSH CD, as part of Echostar’s satellite-based DiSH
Network.’’); 63 FR 25394, 25395 (May 8, 1998)
(same); see also Muzak Limited Partnership, Initial
Notice of Digital Transmission of Sound Recordings
under Statutory License (July 2, 1998) (listing the
service name as ‘‘dishCD’’).
54 71 FR at 64646; see H.R. Rep. No. 105–796, at
81, 85, 89.
55 The D.C. Circuit correctly recognized that the
Register’s previous ‘‘opinion did not address
whether those three business entities’ grandfather
status was further limited to the programs they were
offering at the time the statute was passed.’’ See
SoundExchange, 854 F.3d at 718.
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in particular reflect this congressional
intent. Section 114(d)(2)(C) sets out
more expansive qualifications for the
statutory license for transmissions made
by a PSS ‘‘other than in the same
transmission medium used by such
service on July 31, 1998.’’ In other
words, Congress suggested that a PSS
could deliver its offering in a new
transmission medium without affecting
its status as a PSS offering. Section
114(f)(1)(C), in turn, provides for an outof-cycle rate proceeding to be held
where ‘‘a new type of subscription
digital audio transmission service on
which sound recordings are performed
is or is about to become operational.’’
The statute further makes clear that this
rate proceeding is to be conducted with
reference to the grandfathered rate
standard. Such a provision would be
unnecessary if PSS offerings were
limited to the exact offerings made in
1998; there would never be a ‘‘new type
of . . . service.’’
Thus, the ultimate question is
whether a particular program offering by
a PSS entity qualifies as a PSS offering
within the meaning of section 114(j)(11),
and is therefore subject to the
grandfathered rate standard under
section 114(f)(1). The DMCA Conference
Report provides particularly helpful
guidance in answering this question
concerning section 114(f)(1):
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In grandfathering these services, the
conferee’s objective was to limit the
grandfather to their existing services in the
same transmission medium and to any new
services in a new transmission medium
where only transmissions similar to their
existing service are provided. Thus, if a cable
subscription music service making
transmissions on July 31, 1998, were to offer
the same music service through the Internet,
then such Internet service would be
considered part of a preexisting subscription
service. If, however, a subscription service
making transmissions on July 31, 1998, were
to offer a new service either in the same or
new transmission medium by taking
advantages of the capabilities of that
medium, such new service would not qualify
as a preexisting subscription service.56
This passage, consistent with the
statutory language in sections 114(d)(2)
and 114(f), demonstrates Congress’s
intent to distinguish among three
different possibilities:
1. A service offering identified by
Congress as being a PSS offering as of
July 31, 1998, that is still offered today
in the same transmission medium
identified by Congress in 1998 (referred
to here as an ‘‘existing service
offering’’).57 Such a service offering
56 H.R.
Rep. No. 105–796, at 89.
id. (grandfathered services can be ‘‘existing
services in the same transmission medium’’).
57 See
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would be entitled to both a rate
established under the grandfathered rate
standard under section 114(f)(1) and the
grandfathered license requirements in
section 114(d)(2)(B).
2. A service offering identified by
Congress as being a PSS offering as of
July 31, 1998, that is still offered today,
but in a different transmission medium
than the one identified by Congress in
1998, where only transmissions similar
to the existing service offering are
provided (referred to here as an
‘‘expanded service offering’’).58 Such a
service offering would be entitled to a
rate established under the grandfathered
rate standard under section 114(f)(1),
but would not be able to take advantage
of the grandfathered license
requirements in section 114(d)(2)(B).
Instead, it would be required to comply
with more detailed license requirements
in section 114(d)(2)(C).
3. A service offering that is not an
existing service offering or an expanded
service offering (referred to here as a
‘‘different service offering’’).59 This
would include any offering that is
insufficiently similar to an existing
service offering to be considered an
expanded service offering. A different
service offering would not be entitled to
either a rate established under the
grandfathered rate standard under
section 114(f)(1) or the grandfathered
license requirements in section
114(d)(2)(B). Instead, the rate would be
set under the willing buyer/willing
seller standard in section 114(f)(2), and
would be required to comply with the
license requirements in section
114(d)(2)(C).
These categorizations presume that a
service is eligible for the section 114
license. The purpose of separating them
into these groups is to determine
whether the rate for a service is
58 See id. (grandfathered services can be ‘‘new
services in a new transmission medium where only
transmissions similar to their existing service are
provided’’). While the Conference Report refers to
‘‘new services,’’ in the next sentence, it provides an
example of a ‘‘cable . . . service’’ expanding into
an ‘‘Internet service’’ by ‘‘offer[ing] the same music
service through the Internet.’’ See id. Thus, in
context, such services are what the Register has
here called ‘‘expanded services,’’ and are not meant
to encompass wholly new services that are
unrelated to an existing service offering. By the
same logic, other references in the statute and
legislative history to ‘‘new’’ service offerings should
be similarly interpreted as being what is referred to
here as expanded service offerings. See, e.g., 17
U.S.C. 114(f)(1)(C) (permitting out-of-cycle ratesetting proceedings for a ‘‘new type of . . .
service’’).
59 See H.R. Rep. No. 105–796, at 89
(grandfathering ‘‘limit[ed]’’ to ‘‘existing services in
the same transmission medium and to any new
services in a new transmission medium where only
transmissions similar to their existing service are
provided’’) (emphasis added).
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determined pursuant to section 114(f)(1)
or section 114(f)(2). Thus, if a PSS entity
began offering, for example, an
interactive service, it would not fall into
one of these categories, as it is ineligible
for the statutory license. The following
sections describe the types of service
offerings that fall within these three
categories.
1. Existing Service Offerings
Implicit in the Register’s previous
determination that the only PSS entities
are the three entities Congress named in
the DMCA Conference Report,60 is that,
as a matter of law, the service offerings
that Congress sought to identify as PSS
offerings as of July 31, 1998, were the
ones offered by those entities prior to
that date. The legislative history makes
clear that Congress further intended to
limit what it identified as a PSS offering
at that time to the PSS entities’ offerings
in the specific transmission media
affirmatively identified in the DMCA
Conference Report: ‘‘cable’’ or
‘‘satellite’’ for DMX and Music Choice,
and ‘‘satellite’’ for DiSHCD.61 Thus, to
qualify as an ‘‘existing service offering,’’
the service must not only have existed
as of July 31, 1998, but it must have also
been providing its offering in the
specific transmission media identified
by Congress.
Music Choice urges that it was
already making internet transmissions
of its subscription music service as of
July 31, 1998.62 In so doing, it is
effectively asking for its current internet
transmissions to be treated as an
‘‘existing service offering’’ under the
rubric set forth above. But even
assuming Music Choice, or another
service, were making such pre-1998
internet transmissions,63 it was clearly
to an inconsequential degree: Any such
transmissions were entirely
unacknowledged by the Copyright
Arbitration Royalty Panel (‘‘CARP’’), in
setting royalty rates for the statutory
license under the DPRSRA; the
Librarian of Congress and the Register of
Copyrights, in reviewing that CARP
decision; and Congress, in enacting the
DMCA in 1998. The CARP report
describes the three PSSs at length and,
notably, makes an explicit finding of
fact that the services are the ‘‘only three
digital audio music subscription
60 See
71 FR at 64646.
H.R. Rep. No. 105–796, at 89 (‘‘As of July
31, 1998, DMX and Music Choice made
transmissions via both cable and satellite media; the
[DiSHCD service] was available only via satellite.’’).
62 Music Choice Brief at 1–2, 4–6, 18–19, 30.
63 The Register notes that the only apparent
evidence offered by Music Choice of such pre-1998
internet transmissions is the testimony of Music
Choice CEO David Del Beccaro. See id. at 5.
61 See
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services available to residential
subscribers in the United States’’ and
that they ‘‘offer their digital music via
satellite, or cable, or both,’’ making no
mention of any internet
retransmissions.64 In comprehensively
reviewing the CARP report and adopting
rates and terms for PSSs, the Register of
Copyrights and the Librarian of
Congress made no mention of any
internet transmissions by those PSS
entities.65 To the contrary, that decision
concluded that the PSSs ‘‘face new
competition from the internet.’’ 66 These
factual findings are further reflected in
the DMCA Conference Report, where
Congress clearly identified the three
qualifying services and only described
them as making transmissions via cable
and/or satellite media.67 Given this
background, it is highly improbable that
Congress would have intended, sub
silentio, to treat internet transmissions
as subject to the grandfathering
provision under section 114(d)(2)(B).
This understanding is strongly
reinforced by the new requirements
Congress added in section 114(d)(2)(C)
that webcasting services and new
subscription services, as well as
preexisting subscription services other
than in the same transmission medium
used by such service on July 31, 1998,
had to comply with to qualify for the
statutory license. The rationale behind
the DMCA’s amendments to the
DPRSRA, including the new
requirements in section 114(d)(2)(C),
was to ‘‘address[] unique programming
and other issues raised by Internet
transmissions.’’ 68 If a PSS were
permitted to make internet
transmissions under the less stringent
requirements of section 114(d)(2)(B), it
would undermine the design of this
statutory scheme and blur the
distinction that Congress intended to
draw when dividing PSS transmissions
between paragraphs (B) and (C) based
on the transmission medium used on
July 31, 1998.69
Report ¶ 43.
63 FR 25394.
66 Id. at 25407 (emphasis added).
67 See H.R. Rep. No. 105–796, at 81, 89.
68 See Staff of H. Comm. on the Judiciary, 105th
Cong., Section-By-Section Analysis of H.R. 2281 as
Passed by the United States House of
Representatives on August 4th, 1998, at 50 (Comm.
Print 1998) (emphasis added); id. at 51 (‘‘At the
time the DPRSRA was crafted, Internet
transmissions were not the focus of Congress’
efforts.’’); see also H.R. Rep. No. 105–796, at 83
(explaining explicitly that the reason for one of the
new requirements was because of ‘‘a disturbing
trend on the Internet’’ pertaining to the
‘‘unauthorized performance of sound recordings not
yet released for broadcast or sale to the public’’).
69 See 17 U.S.C. 114(d)(2)(B)–(C); see also H.R.
Rep. No. 105–796, at 89 (indicating that a ‘‘cable
subscription music service’’ that offers ‘‘the same
Thus, in accordance with the
principles of narrow construction
afforded to grandfathering provisions,
the Register finds that, as a matter of
law, it is irrelevant whether or not
Music Choice or another PSS entity, to
some limited degree, was making
transmissions via a different medium
than those specified in the legislative
history on July 31, 1998, such as the
internet. If such a service was in fact
doing so, it would not be as part of an
existing service offering—any such
transmissions today would be
considered either an expanded service
offering or a different service offering,
depending on the analysis described
below.
At the same time, the Register
emphasizes that an existing service
offering can grow and expand
significantly within the same
transmission medium while remaining a
PSS offering. The Register has found no
indication that Congress meant to freeze
existing service offerings exactly as they
were on July 31, 1998, in order for them
to continue to qualify for the
grandfathering provisions. The user
interface can be updated, certain
functionality can be changed, the
number of subscribers can grow, and
channels can be added, subtracted, or
otherwise changed.70 The only
restriction is that the existing service
offering as it is today must be
fundamentally the same type of offering
that it was on July 31, 1998—i.e., it must
be a noninteractive, residential, cable or
satellite digital audio transmission
subscription service.71
2. Expanded Service Offerings
In addition to expanding within its
congressionally-recognized transmission
medium, an existing service offering can
also expand to a different transmission
medium, provided that the subscription
transmissions are similar.72
This expansion, however, is subject to
an important threshold limitation. For a
service offering to qualify as an
64 CARP
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music service through the Internet’’ is engaged in
the delivery of its service ‘‘in a new transmission
medium’’).
70 See, e.g., 78 FR 23054, 23085 (Apr. 17, 2013)
(increasing the royalty rate due to Music Choice’s
announced intention to increase its number of
channels from 46 to 300).
71 See 17 U.S.C. 114(j)(11); H.R. Rep. No. 105–
796, at 81, 89; 63 FR at 25414; CARP Report ¶¶ 43–
44, 51–78, 109.
72 See H.R. Rep. No. 105–796, at 89 (the
grandfathering covers ‘‘a new transmission medium
[but] where only transmissions similar to their
existing service are provided’’); 71 FR at 64641
(‘‘[A] preexisting service does not lose its
designation as such in the event the service decides
to utilize a new transmission medium, provided
that the subscription transmissions are similar.’’)
(emphasis added).
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expanded service offering, the PSS
entity must continue to operate its
existing service offering. The basis for
the grandfathering provisions is to
protect existing service offerings and
limited direct outgrowths of them. If
such a limited outgrowth—i.e., an
expanded service offering—were to exist
alone, divorced from the existing service
offering, the rationale for including
them within the existing service
offering’s grandfather protection
becomes less tenable. Furthermore, the
legislative history is explicit that a
service offering that is not an existing
service offering can only be subject to
the grandfathering provision if it
provides ‘‘transmissions similar to their
existing service.’’ 73 Ascertaining
similarity requires comparison, and if a
PSS entity discontinues its existing
service offering, there would be nothing
to compare against.74
As Music Choice and SoundExchange
agree, in assessing whether a service
offering is an expanded service offering,
and thus qualifies as a PSS offering, a
comparison must be made between the
service offering in question and the
existing service offering to see if it is
sufficiently similar. Because, as
discussed above, an existing service
offering can expand over time while
remaining a PSS offering, the
comparison should be made to the
existing service offering as it exists at
the time of the comparison, not, as
SoundExchange argues, as it existed on
July 31, 1998.
To determine whether or not such a
service offering is sufficiently similar to
the existing service offering, the factfinder should compare the offerings by
analyzing certain factors, including but
not limited to:
(1) Whether the service offering has a
similar effect on displacing or
promoting sales of phonorecords.75
(2) Whether the quantity and nature of
the use of sound recordings by the
service offering is similar.76
73 See
H.R. Rep. No. 105–796, at 89.
the event that technology evolves such that
a PSS decides to completely discontinue its cable
or satellite service and limit its offerings solely to
another transmission medium, such as the internet,
this limitation would act as a type of ‘‘sunset
provision,’’ which, contrary to Music Choice’s
argument with respect to such provisions,
demonstrates that Congress did not in fact intend
for the grandfather status to apply to a service
indefinitely regardless of the offerings it provides
and the way it is transmitted.
75 See 17 U.S.C. 114(f)(2)(B) (providing this as one
of the examples of criteria to be used in
distinguishing among different types of non-PSSs).
76 See id. (providing this as one of the examples
of criteria to be used in distinguishing among
different types of non-PSSs).
74 In
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(3) Whether the service offering
provides similar content to similar
groups of users.
(4) Whether the service offering is
consumed in a similar manner, provides
a similar user experience, and has
similar form, feel, and functionality.
(5) Whether and to what degree the
service offering relates to the same preJuly 31, 1998 investments Congress
sought to protect.77
(6) Whether and to what degree the
service offering takes advantage of the
capabilities of the medium through
which it is transmitted (i.e., whether
and the extent to which differences
between the service offerings are due to
limitations in the existing service
offering’s transmission medium that are
not present in the other service
offering’s transmission medium).78
Note that even if a service offering is
found to be an expanded service
offering qualifying for the section
114(f)(1) grandfathering provision, it
would still not be eligible for the section
114(d)(2)(B) grandfathering provision by
virtue of its being transmitted via a
different transmission medium. Such an
offering would be subject to the
requirements in section 114(d)(2)(C).
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3. Different Service Offerings
As a matter of law, a wholly different
service offering can never qualify as a
PSS offering because it would not be
one of the specifically identified preJuly 31, 1998, business operations (i.e.,
the three PSS offerings) Congress sought
to protect when it enacted the DMCA.79
This is true regardless of whether the
service offering is developed internally
or acquired. As the D.C. Circuit recently
held, the DMCA’s amendments to
section 114 were ‘‘designed to move the
industry to market rates,’’ and if a PSS
entity ‘‘were permitted to pay the
grandfather rate for transmissions made
to customers who subscribed to a
‘service’ that was previously provided
by [a different, non-PSS entity], what
would prevent * * * the complete
elimination of the market-rate regime by
77 See 71 FR at 64641 (‘‘[T]he rationale for [the]
grandfathering provisions is to ‘prevent disruption
of the existing operations by such services.’’’)
(quoting H.R. Rep. No. 105–796, at 81);
SoundExchange, 854 F.3d at 719 (‘‘The grandfather
provisions were intended to protect prior
investments the three [PSS] business entities had
made during a more favorable pre-1998 rate-setting
regulatory climate.’’).
78 See H.R. Rep. No. 105–796, at 89 (‘‘If . . . a
subscription service making transmissions on July
31, 1998, were to offer a new service either in the
same or new transmission medium by taking
advantages of the capabilities of that medium, such
new service would not qualify as a preexisting
subscription service.’’).
79 See id. at 81, 89; 71 FR at 64641, 64645–46;
SoundExchange, 854 F.3d at 719.
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[such PSS entity’s] acquisitions
strategy.’’ 80 The Register agrees that
‘‘when [such entity] expands its
operations and provides additional
transmissions to subscribers to a
different ‘service,’ * * * this is an
entirely new investment’’ and is not a
PSS offering.81
B. Transmission Medium
As noted above, the statute and
legislative history focus extensively on
whether a PSS offering is being
provided through the same or a different
‘‘transmission medium’’ than the one
identified by Congress in 1998, and the
analysis above follows Congress’s lead
in that regard. At first blush, one might
conclude that Congress intended to
draw a distinction among the kinds of
physical wires or radiofrequency
channels used to deliver signals from a
service to a listener—e.g., coaxial cable,
optical fiber, radio spectrum. But this
would not be a proper understanding of
the statutory scheme. The legislative
history makes repeated references to
‘‘cable,’’ ‘‘satellite,’’ and the ‘‘internet’’
as different ‘‘transmission[] * * *
media.’’ 82 Congress surely understood
that the internet is a layer of services
that can be reached through a variety of
delivery mechanisms, for example,
through phone lines, satellite signals,
and optical fiber. Similarly, a ‘‘cable’’
service can be transmitted over different
media, such as coaxial cable, optical
fiber, or microwaves—a fact Congress
explicitly understands.83
Thus, for section 114 purposes, the
better understanding is that, in referring
to the ‘‘transmission medium’’ in the
context of a PSS offering, Congress was
referring to the basic
telecommunications service through
which that offering is being delivered to
the user. For example, an existing
service offering that on July 31, 1998,
was delivered to residential cable
television subscribers through coaxial
cable, may today be delivered to such
cable television subscribers through
optical fiber without constituting an
expansion to a new ‘‘transmission
medium’’ within the meaning of section
114. In other words, this service offering
80 SoundExchange,
854 F.3d at 719.
id. (emphasis added). The Register thus
agrees with the D.C. Circuit’s holding that a service
offering that is acquired by a PSS entity does not
qualify as a PSS offering.
82 See H.R. Rep. No. 105–796, at 81, 89 (referring
to ‘‘transmissions via both cable and satellite
media’’ and explaining that under appropriate
circumstances, a ‘‘cable . . . service’’ may be
transmitted ‘‘through the Internet’’).
83 Cf. 17 U.S.C. 111(f)(3) (defining a ‘‘cable
system’’ as, among other things, making
transmission by ‘‘wires, cables, microwave, or other
communications channels’’).
81 See
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Fmt 4703
Sfmt 4703
59659
would still be an existing service
offering, rather than an expanded
service offering or different service
offering, because it would still be part
of what is traditionally considered to be
a residential cable television service;
this is true even though optical fiber
may provide certain advantages over
coaxial cable. By the same token,
however, when an existing cable music
service is made available to cable
television subscribers over the internet,
it is being transmitted through a
different transmission medium
regardless of how the internet is being
reached; for section 114 purposes,
internet service is a different
telecommunications service from a
residential cable service, even if
delivered by the same operator through
the same infrastructure.84
C. Application to the Referred Questions
The CRJs’ referral to the Register of
Copyrights specifically asked how the
legal analysis would apply specifically
to ‘‘transmissions of multiple, unique
channels of music that are accessible
through that entity’s website and
through a mobile application,’’ and the
degree to which differences between a
PSS entity’s internet service and its
existing service in terms of the numbers
or types of channels or subscribers
would result in the exclusion of the
internet service from a grandfathered
rate.85 Although ultimately it is not for
the Register to apply the abovedescribed inquiry to Music Choice’s
current program offerings, the Register
offers the following observations about
transmissions made via the internet and
made available on portable devices, and
general guidance about application of
the analysis to the scenarios identified
in the referral order.
Under the standard articulated above,
the mere fact that a service offering is
transmitted to cable or satellite
television subscribers over the internet
does not automatically disqualify the
service offering from being an expanded
service offering subject to the
grandfathered rate standard, so long as
the service offering, as a factual matter,
after considering the factors described
above, is sufficiently similar to the PSS
entity’s existing cable or satellite service
offering.
In evaluating whether a service
offering is ‘‘sufficiently similar’’ to the
PSS entity’s existing cable or satellite
service offering so as to qualify as an
84 To be clear, this discussion relates to the
meaning of section 114and should not be construed
as having broader application to other areas of
copyright law, such as the section 111 cable
retransmission license.
85 Referral Order at 3–4.
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sradovich on DSK3GMQ082PROD with NOTICES
‘‘expanded service offering,’’ the CRJs
should consider the degree to which
making the existing service offering
accessible outside the home of the
subscriber constitutes a fundamental
change to the offering. One notable fact
about PSS offerings in 1998 is that they
were all limited to listening to music
within the subscriber’s home. Indeed, in
the first ratesetting proceeding under
the DPRSRA, portable listening does not
appear to have been considered and the
final rate was based on a percentage of
gross revenues ‘‘resulting from
residential services in the United
States’’ 86—which is how the rate is
currently calculated.87 To be sure,
technological developments since that
time have made it easier to deliver
digital audio transmissions outside the
home (including over mobile networks).
But, at least in the cable television
market, there appears to be a distinction
drawn between accessing content
within the home and accessing that
same content outside of it.88 To be clear,
this distinction is one based on the
location where the PSS offering is
consumed, not the type of device on
which the service is accessed. If the
service offering is available through an
internet-connected smartphone or
tablet, but is designed so that the service
offering will only work when accessed
within the confines of the subscriber’s
residence, then it would be within the
home and more similar to the PSS
entity’s existing cable or satellite service
offering.
As the second referred question
specifically asks about differences in
channel offerings and customers, the
Register offers the following guidance.
In comparing the number and type of
channels offered by a service offering to
an existing service offering, examples of
86 See 63 FR at 25414 (to be codified at 37 CFR
260.2(a)) (emphasis added); see also CARP Report
¶ 109 (‘‘The Panel finds that the Services are
primarily responsible for creating a new media and
market for digital music subscription services for
residential consumers.’’) (emphasis added). It also
bears noting that in the last rate proceeding, the
CRJs deleted the word ‘‘Residential’’ and its
definition from the rate provision for preexisting
satellite digital audio radio services because it was
argued that ‘‘the concept is a confusing artifact of
a comparable term used in the PSS regulations’’
because ‘‘the SDARS service is not primarily
residential in terms of being delivered to homes and
the term residential subscriber simply means a
subscriber,’’ yet the term remained for purposes of
the PSS rate. 78 FR at 23074–75, 23096, 23098
(internal quotation marks omitted).
87 37 CFR 382.3(a).
88 See, e.g., Out of Home—XFINITY Stream App
Error Message, XFINITY, https://www.xfinity.com/
support/xfinity-apps/xfinity-tv-app-unable-toconnect/ (last visited Nov. 17, 2017) (‘‘In order to
watch live TV or XFINITY On Demand content
using the XFINITY Stream app, you’ll need to be
connected to your in-home XFINITY WiFi
network.’’).
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23:42 Dec 14, 2017
Jkt 244001
factors to consider could include how
many additional or fewer channels there
are, how many channels offer different
programming, and how different that
programming is. One should also
consider the reasons why any such
differences exist. For example, if the
service offering in question has more
channels because of some benefit the
internet affords, such as greater
bandwidth or different contractual
arrangements with cable operators, then
it would be taking advantage of the
capabilities of the internet as a
transmission medium. Depending on
the evaluation of the other factors
discussed above and how much weight
is ultimately given to the difference in
channels in an overall comparison
between the service offerings, it may or
may not be enough to disqualify the
offering from the grandfathered royalty
calculation method. The number and
type of customers should be similarly
compared.
At the same time, the Register agrees
with Music Choice that differences in a
service offering that directly and solely
result from the imposition of the section
114(d)(2)(C) requirements that do not
apply to the existing service offering
(which is subject to section
114(d)(2)(B)), should not alone
disqualify it from the grandfathered rate.
Similarly, minor differences in the user
interface necessitated by the change in
medium also should not alone
disqualify the service offering, even if
they are perceived as an advantage
offered by the medium. For example, a
service offering should not be
disqualified from being an expanded
service offering merely because instead
of needing to press a button on a remote
control, the user can click a mouse or
navigate using a touch screen.
Additionally, minor differences in
visual presentation, such as having a
different aspect ratio or displaying less
content due to differences in screen
size, would not be so significant as to
disqualify a service offering from being
an expanded service offering.
D. CRJs’ Ability to Set Different Rates
In closing, the Register briefly notes
that, even if a service offering qualifies
for the grandfathered method of setting
rates, the CRJs still have the authority
under section 114(f)(1)(A) to
‘‘distinguish among the different types
of digital audio transmission services
. . . in operation.’’ Thus, if there are
material differences between an existing
service offering and an expanded
service offering, the CRJs can set
separate rates and terms based on those
differences, albeit using the section
801(b)(1) standard, and not under the
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
willing buyer/willing seller standard
under section 114(f)(2).
November 20, 2017.
Karyn Temple Claggett,
Acting Register of Copyrights and Director
of the U.S. Copyright Office.
[FR Doc. 2017–27088 Filed 12–14–17; 8:45 am]
BILLING CODE 1410–30–P
NUCLEAR REGULATORY
COMMISSION
[Docket No. 70–7028; NRC–2017–0233]
Johns Hopkins Applied Physics
Laboratory
U.S. Nuclear Regulatory
Commission.
ACTION: License application;
opportunity to request a hearing and to
petition for leave to intervene; order
imposing procedures.
AGENCY:
The U.S. Nuclear Regulatory
Commission (NRC) has received an
application from the Johns Hopkins
Applied Physics Laboratory for a license
which authorizes possession and use of
Special Nuclear Materials (SNM) for
analytical or scientific research and
development. The license application
request contains sensitive unclassified
non-safeguards information (SUNSI).
DATES: A request for a hearing or
petition for leave to intervene must be
filed by February 13, 2018. Any
potential party, as defined in § 2.4 of
title 10 of the Code of Federal
Regulations (10 CFR), who believes
access to SUNSI is necessary to respond
to this notice must request document
access by December 26, 2017.
ADDRESSES: Please refer to Docket ID
NRC–2017–0233 when contacting the
NRC about the availability of
information for this action. You may
obtain publicly-available information
related to this action by any of the
following methods:
• Federal Rulemaking website: Go to
https://www.regulations.gov and search
for Docket ID: NRC–2017–0233. Address
questions about NRC dockets to Carol
Gallagher; telephone: 301–415–3463;
email: Carol.Gallagher@nrc.gov. For
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• NRC’s Agencywide Documents
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SUMMARY:
E:\FR\FM\15DEN1.SGM
15DEN1
]]>Agencies
- Library of Congress
- U.S. Copyright Office
[Federal Register Volume 82, Number 240 (Friday, December 15, 2017)]
[Notices]
[Pages 59652-59660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27088]
=======================================================================
-----------------------------------------------------------------------
LIBRARY OF CONGRESS
U.S. Copyright Office
[Docket No. 2017-20]
Scope of Preexisting Subscription Services
AGENCY: U.S. Copyright Office, Library of Congress.
ACTION: Final order.
-----------------------------------------------------------------------
SUMMARY: The Copyright Royalty Judges referred novel material questions
of
[[Page 59653]]
substantive law to the Register of Copyrights for resolution in
connection with the SDARS III proceeding. The Register responded with a
written opinion that is reproduced below.
DATES: Opinion dated November 20, 2017.
FOR FURTHER INFORMATION CONTACT: Sarang V. Damle, General Counsel and
Associate Register of Copyrights, by email at [email protected], or Jason E.
Sloan, Attorney-Advisor, by email at [email protected]. Each can be
contacted by telephone by calling (202) 707-8350.
SUPPLEMENTARY INFORMATION: The Copyright Royalty Judges (``CRJs'') are
tasked with determining and adjusting rates and terms of royalty
payments for statutory licenses under the Copyright Act. See 17 U.S.C.
801. If, in the course of proceedings before the CRJs, novel material
questions of substantive law concerning the interpretation of
provisions of title 17 arise, the CRJs are required by statute to refer
those questions to the Register of Copyrights for resolution. 17 U.S.C.
802(f)(1)(B).
On October 23, 2017, the CRJs, acting pursuant to 17 U.S.C.
802(f)(1)(B), referred to the Register novel material questions of
substantive law in connection with the SDARS III proceeding, Docket No.
16-CRB-0001 SR/PSSR (2018-2022). The referred questions asked whether a
preexisting subscription service's transmissions of multiple, unique
channels of music that are accessible through that entity's website and
through a mobile application are ``subscription transmissions by
preexisting subscription services'' for which the CRJs are required to
determine rates and terms of royalty payments under 17 U.S.C.
114(f)(1)(A), and, if so, whether there are any conditions a service
must satisfy to qualify for a license under section 114(f)(1)(A). On
November 20, 2017, the Register resolved these questions in a
Memorandum Opinion that she transmitted to the CRJs. To provide the
public with notice of the decision rendered by the Register, the
Memorandum Opinion is reproduced in its entirety below.
Dated: December 6, 2017.
Karyn Temple Claggett,
Acting Register of Copyrights and Director of the U.S. Copyright
Office.
Before the U.S. Copyright Office, Library of Congress, Washington, DC
20559
In the Matter of: DETERMINATION OF ROYALTY RATES AND TERMS FOR
TRANSMISSION OF SOUND RECORDINGS BY SATELLITE RADIO AND
``PREEXISTING'' SUBSCRIPTION SERVICES (SDARS III)
Docket No. 16-CRB-0001 SR/PSSR (2018-2022)
MEMORANDUM OPINION ON NOVEL MATERIAL QUESTIONS OF LAW
The Copyright Royalty Judges (``CRJs'' or ``Judges'') concluded the
hearing in the above-captioned proceeding with closing arguments of
counsel on July 18, 2017. In the course of their deliberations, the
CRJs determined that novel material questions of substantive law arose
regarding the interpretation of provisions of the Copyright Act and, as
required under 17 U.S.C. 802(f)(1)(B), referred them to the Register of
Copyrights for resolution. The questions were referred to the Register
by the CRJs on October 23, 2017. The Register's determination follows.
I. Background
A. Statutory Background
In 1995, Congress enacted the Digital Performance Right in Sound
Recordings Act of 1995 (``DPRSRA''),\1\ recognizing the exclusive right
of copyright owners to perform sound recordings ``publicly by means of
a digital audio transmission.'' \2\ The DPRSRA also established a
statutory license to allow certain noninteractive digital audio
services to make such performances of sound recordings, provided the
services pay a royalty fee and comply with the terms of the license.
Under the DPRSRA, nonexempt subscription transmissions were subject to
statutory licensing if they satisfied certain requirements, and the
royalty rates and terms for the statutory license were to be set in
accordance with the objectives set forth in 17 U.S.C. 801(b)(1).\3\
---------------------------------------------------------------------------
\1\ Public Law 104-39, 109 Stat. 336 (1995).
\2\ 17 U.S.C. 106(6).
\3\ Section 801(b)(1) provides that the rates ``shall be
calculated to achieve the following 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 the industries involved and on generally prevailing
industry practices.'' 17 U.S.C. 801(b)(1).
---------------------------------------------------------------------------
In 1998, the statutory license was amended by the Digital
Millennium Copyright Act (``DMCA''),\4\ a major goal of which was to
establish a market-based standard for setting royalty rates paid to
copyright owners for use of their works under the statutory license.\5\
In doing so, Congress drew a distinction between preexisting
subscription services (``PSSs'') on the one hand and nonsubscription
services and new subscription services on the other. A ``preexisting
subscription service'' is defined in 17 U.S.C. 114(j)(11) as:
---------------------------------------------------------------------------
\4\ Public Law 105-304, 112 Stat. 2860 (1998).
\5\ 71 FR 64639, 64641 (Nov. 3, 2006).
[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.\6\
---------------------------------------------------------------------------
\6\ 17 U.S.C. 114(j)(11).
Section 114 contains two grandfathering provisions that apply to
PSSs and provide benefits to those services not available to new
subscription services or nonsubscription services. The first, section
114(d)(2)(B), preserves the DPRSRA's limited qualifications for
entitlement to the statutory license, but only for transmissions made
in the same transmission medium used by the PSS on July 31, 1998. The
second, to which the referred questions most directly pertain, is the
grandfathered method of setting royalty rates under section 114(f)(1),
which applies to a PSS regardless of the transmission medium.
Under this scheme, PSS transmissions in the same transmission
medium used on July 31, 1998, are still subject to the DPRSRA's
requirements under section 114(d)(2)(B) and are to still have royalty
rates and terms set in accordance with the objectives of section
801(b)(1).\7\ Nonsubscription services and new subscription services,
however, are subject to a more expansive set of qualifications under
section 114(d)(2)(C), and are to have their royalty rates and terms set
to reflect those that ``would have been negotiated in the marketplace
between a willing buyer and a willing seller.'' \8\ PSS transmissions
made in a new transmission medium are subject to the more expansive set
of qualifications under section 114(d)(2)(C) imposed on nonsubscription
and new subscription services.\9\
---------------------------------------------------------------------------
\7\ See id. at 114(d)(2)(B), (f)(1).
\8\ See id. at 114(d)(2)(C), (f)(2).
\9\ Id. at 114(d)(2)(C).
---------------------------------------------------------------------------
The Register has explained that ``the rationale for [section 114's]
grandfathering provisions is to `prevent disruption of the existing
operations by
[[Page 59654]]
[preexisting subscription] services.' '' \10\ In discussing the
legislative history explaining the objectives of the grandfathering
provisions, the Register elaborated:
---------------------------------------------------------------------------
\10\ 71 FR at 64641 (quoting H.R. Rep. No. 105-796, at 81 (1998)
(Conf. Rep.)); accord SoundExchange, Inc. v. Muzak LLC, 854 F.3d
713, 719 (D.C. Cir. 2017) (``The grandfather provisions were
intended to protect prior investments the three [PSS] business
entities had made during a more favorable pre-1998 rate-setting
regulatory climate.'').
While it would appear . . . that Congress's purpose in
grandfathering these services was to preserve a particular program
offering, it was not its only purpose or even necessarily its major
goal. The Conference Report also makes clear that Congress
distinguished between preexisting subscription services and new
subscription services as a way to prevent disruption of the existing
operations of the services that were in existence and operating
before July 31, 1998. It understood that the entities so designated
as preexisting had invested a great deal of resources into
developing their services under the terms established in 1995 as
part of the Digital Performance Right in Sound Recording Act of
1995, and that those services deserved to develop their businesses
accordingly.\11\
---------------------------------------------------------------------------
\11\ 71 FR at 64645 (internal citation omitted).
B. Procedural History
The instant proceeding will establish royalty rates and terms for
PSSs' (as well as preexisting satellite digital audio radio services')
digital performance of sound recordings and the making of ephemeral
recordings under the statutory licenses set forth in sections 112(e)
and 114(f)(1) of the Copyright Act. Music Choice is the only PSS that
participated in the current rate-setting proceedings. The CRJs explain
that the referred questions arose in this proceeding because
SoundExchange, Inc.,\12\ for the first time, is seeking two separate
royalty payments from PSSs: (1) For all licensed transmissions and
related ephemeral recordings through a television-based service
qualifying as a PSS, SoundExchange requests a per-subscriber, per-month
royalty; and (2) for all licensed transmissions and related ephemeral
recordings through an internet streaming service qualifying as a PSS
(or any similar service capable of tracking the individual sound
recordings received by any particular consumer and qualifying as a
PSS), SoundExchange seeks a per-performance royalty fee that is the
same as commercial webcasters are currently required to pay under 37
CFR 380.10 (or, in the alternative, a royalty based on aggregate tuning
hours for a PSS that does not have the technological capability to
track individual performances).\13\ The parties dispute whether it is
necessary for the CRJs to decide whether Music Choice's internet and
mobile transmissions qualify as part of its PSS.\14\
---------------------------------------------------------------------------
\12\ SoundExchange appears in this proceeding on behalf of the
American Association of Independent Music; the American Federation
of Musicians of the United States and Canada; the Recording Industry
Association of America; the Screen Actors Guild and American
Federation of Television and Radio Artists; Sony Music
Entertainment; Universal Music Group; and Warner Music Group.
Referral Order at 2 n.4.
\13\ Id. at 2-3.
\14\ Id. at 3.
---------------------------------------------------------------------------
In response to this dispute, the CRJs found that ``consideration of
the appropriate royalty rates and terms for a PSS's digital audio
transmissions through a website or mobile application in which the PSS
streams a variable number of unique channels of music presents a novel
material question of substantive law,'' and referred the following
questions to the Register pursuant to 17 U.S.C. 802(f)(1)(B):
1. Are a preexisting subscription service's transmissions of
multiple, unique channels of music that are accessible through that
entity's website and through a mobile application ``subscription
transmissions by preexisting subscription services'' for which the
Judges are required to determine rates and terms of royalty payments
under Section 114(f)(1)(A) of the Copyright Act?
2. If yes, what conditions, if any, must the PSS meet with
regard to streaming channels to qualify for a license under Section
114(f)(1)(A)? For example, must the streamed stations be identical
to counterpart stations made available through cable television? Is
there a limitation on the number of channels that the PSS may
stream? Is there a limitation on the number or type of customers
that may access the website or the mobile application? \15\
---------------------------------------------------------------------------
\15\ Id. at 3-4. Section 802(f)(1)(B) provides that ``[i]n any
case in which a novel material question of substantive law
concerning an interpretation of those provisions of [title 17] that
are the subject of the proceeding is presented, the Copyright
Royalty Judges shall request a decision of the Register of
Copyrights, in writing, to resolve such novel question.'' 17 U.S.C.
802(f)(1)(B).
---------------------------------------------------------------------------
II. Summary of the Parties' Arguments
A. Music Choice's Position
Music Choice argues that the statutory language, legislative
history, and factual record all support its position that its internet
transmissions are part of its PSS and subject to section 114(f)(1).
Music Choice begins by disputing, as a factual matter, the claim that
its internet transmissions are an ``expansion'' of its service into a
new medium--which it perceives as the premise for the CRJs' referred
questions--on the grounds that its ``internet transmissions are merely
an ancillary part of its residential audio service,'' the value of its
internet transmissions ``has always been included in the bundled per-
subscriber fee,'' and ``the undisputed evidence establishes that Music
Choice has been providing its subscribers with internet-based access to
its audio channels since 1996, long before the PSS license was created
in the DMCA, and has always included these internet transmissions as a
part of its PSS since that time.'' \16\ Music Choice also disputes
SoundExchange's claim that webcasting was becoming an ``increasingly
important part'' of its business, claiming that record evidence shows
that ``usage of Music Choice's internet transmissions has consistently
remained at de minimis levels, and today comprises less than one
hundredth of one percent of Music Choice's overall audio channel
usage.'' \17\ Music Choice contends that, in any event, because it was
making internet transmissions prior to the codification of the PSS
definition in section 114(j)(11), ``[u]nder any reasonable
interpretation of [the] statutory language, Music Choice's internet
transmissions fall squarely within the definition of a PSS.'' \18\
---------------------------------------------------------------------------
\16\ Music Choice Brief at 1-2, 4-5.
\17\ Id. at 6.
\18\ Id. at 18-19, 30.
---------------------------------------------------------------------------
Music Choice also argues that even if its internet transmissions
did constitute an expansion of its services to a new medium, such
expansion is permitted and ``would not require any new, additional
license fee or rate.'' \19\ Music Choice contends that in
grandfathering the existing three PSSs, Congress sought to protect
their ``need for access to the works at a price that would not hamper
their growth'' and did not ``intend[] to limit PSS status to the PSS
offerings as they existed in 1998 or otherwise freeze the PSS in
time.'' \20\ Music Choice claims that ``Congress's intent to provide
the PSS with long-term protection is further evinced by the absence of
any sunset provision anywhere in the statutory language or discussion
of such a provision in the legislative history'' \21\ and argues that
in enacting the DMCA, ``the overarching intent of Congress was
decidedly not to move the entire market to marketplace rates,'' but
rather ``to protect the PSS' unique business expectancies.'' \22\
---------------------------------------------------------------------------
\19\ Id. at 2, 30.
\20\ Id. at 14, 19-23.
\21\ Id. at 15.
\22\ Id. at 16-17.
---------------------------------------------------------------------------
Citing to Congress's discussion in the DMCA Conference Report,
Music Choice asserts that Congress created a ``unique feature of the
PSS license that allows a PSS to expand into new services in new
transmission media while retaining PSS status for those new services,
so long as the new service is similar in character to the original PSS
[[Page 59655]]
offering, i.e., does not take advantage of unique features of the new
medium to provide a different listening experience or interactivity
while listening to the audio channel.'' \23\ Music Choice further
explains that ``[a]lthough Congress did not intend to allow the PSS to
create fundamentally different types of services, with fundamentally
different types of content or interactive audio functionality . . . ,
it did intend to allow the PSS to continue their development,
evolution, and growth of their non-interactive, subscription audio
services.'' \24\ Thus, Music Choice argues that ``there is no statutory
requirement that a PSS offer the exact same channels to all of its
subscribers or through each of its different transmission media,'' \25\
and ``there is no hint in the statute or the legislative history of any
intent to impose restrictions on the number of channels that may be
provided . . . or the number or type of subscribers that Music Choice
may serve.'' \26\ Music Choice specifically argues that section 114
cannot be read to require the same exact channels in a new transmission
medium as it offers in its original medium because the statute
``expressly acknowledges that the programming of a PSS's transmissions
in a new medium may be different than those in the original medium, and
in some instances requires that they be programmed differently.'' \27\
More generally, Music Choice asserts that its internet transmissions
are permissible because they ``do not take advantage of the internet's
technological capabilities,'' providing several fact-based arguments
for why its internet service is comparable to its television
service.\28\
---------------------------------------------------------------------------
\23\ Id. at 15, 17, 23-25.
\24\ Id. at 24-25, 30.
\25\ Id. at 19, 27. Music Choice specifically notes that, ``of
the 75 channels available through the internet, 50 of those are
identical to the channels broadcast over the television'' and the
``additional 25 are identical to the television channels in every
way except the genre or sub-genre in which they are programmed.''
Id. at 19.
\26\ Id. at 2.
\27\ Id. at 27.
\28\ Id. at 25-26.
---------------------------------------------------------------------------
Music Choice rests its argument in part on the U.S. Court of
Appeals for the District of Columbia Circuit's recent opinion in
SoundExchange, Inc. v. Muzak LLC, which held that a music service
acquired by Muzak was not entitled to the grandfathered rate that
applied to its preexisting subscription service.\29\ Music Choice
claims that this decision ``demonstrate[s] that the PSS definition was
not intended to freeze the PSS in time, nor limit PSS status to
channels (or customers) that are exactly the same as the channels that
were transmitted in 1998 (or the customers who received them at that
time)'' and that ``any rule limiting PSS status to internet-based
channels that are exactly the same as those transmitted through cable
or satellite, or limiting the number of channels that may be provided
by a PSS, would be inconsistent with [the court's] interpretation of
the PSS definition.'' \30\ Music Choice concludes that it would be
contrary to the court's interpretation of the PSS definition to limit
``the expansion of a PSS's service under the same brand'' beyond the
limitation ``that the service must remain within the general category
of transmissions identified in the . . . definition: noninteractive
audio-only subscription digital audio transmissions made by an entity
that was in existence and making that category of transmissions on or
before July 31, 1998.'' \31\
---------------------------------------------------------------------------
\29\ 854 F.3d at 719.
\30\ Music Choice Brief at 21.
\31\ Id. 29-30 (internal quotation marks omitted).
---------------------------------------------------------------------------
B. SoundExchange's Position
SoundExchange argues that the CRJs should set ``distinct statutory
royalty rates for delivery of a PSS to television sets and for any
webcasting that is provided as part of a PSS,'' with the rate for
webcasting that is part of a PSS set ``at the same level as the
statutory rate for other subscription webcasters, because Music
Choice's webcasting is equivalent to that provided by other webcasting
services, and competes with other webcasting services.'' \32\
SoundExchange argues that this position responds to the ``rapid growth
in Music Choice's webcasting,'' which it asserts is demonstrated by
record evidence it describes regarding Music Choice's mobile
application and website and how Music Choice's internet transmissions
differ from its television-based service.\33\
---------------------------------------------------------------------------
\32\ SoundExchange Brief at 5.
\33\ Id. at 2-5.
---------------------------------------------------------------------------
Pointing to the same discussion in the DMCA Conference Report
referenced by Music Choice, SoundExchange argues that ``Congressional
intent was to limit the grandfathering of the PSS to transmissions
similar to the cable or satellite service offerings their providers
offered on July 31, 1998,'' meaning that PSS status ``extends to a
qualifying entity's cable and satellite offerings as they existed at
July 31, 1998 . . . and also may extend to a qualifying entity's
transmissions in a new medium such as the internet, if the
transmissions are sufficiently similar to the 1998 offerings.'' \34\
SoundExchange contends that assessing similarity ``is a fact-intensive
inquiry that requires comparison of a PSS provider's new offering with
the provider's 1998 offerings,'' and that ``[i]t is not enough to
consider only whether a qualifying entity's new offerings makes
noninteractive audio-only subscription digital audio transmissions,''
but rather, ``it is necessary to consider the medium used, and the
functionality and content provided, in the new offerings.'' \35\
SoundExchange claims that ``Congress gave no indication that . . . a
PSS provider should enjoy PSS rates if it provided an offering
different from its 1998 offering in a new medium.'' \36\ SoundExchange
interprets the legislative history to suggest that Congress
``grandfathered the PSS to protect investments that qualifying entities
had already made at the time the DMCA was under consideration in
1998.'' \37\ SoundExchange understands the D.C. Circuit's decision in
SoundExchange to be consistent with its interpretation of the
legislative history.\38\
---------------------------------------------------------------------------
\34\ Id. at 9-10.
\35\ Id. at 10.
\36\ Id. at 11.
\37\ Id.
\38\ Id. 11-12.
---------------------------------------------------------------------------
SoundExchange argues that the PSS definition must be construed
narrowly, particularly in the case of webcasting given that
``[i]nternet-based streaming services are a rapidly-growing means of
music consumption,'' and ``webcasting by a PSS provider competes with
webcasting by services that are currently paying for their use of sound
recordings at much higher royalty rates.'' \39\ Such an interpretation,
SoundExchange claims, would ``ensure that webcasters compete on level
terms, eliminating distortions in the market and effectuating the
Congressional intent to shift rates towards those that reflect arms-
length market transactions.'' \40\
---------------------------------------------------------------------------
\39\ Id. at 12.
\40\ Id. at 12-13.
---------------------------------------------------------------------------
SoundExchange further argues that, ``[a]s a matter of law,''
``webcast transmissions made through a mobile app, or through a version
of a provider's website that has been optimized for display using the
browser on a mobile device, are not transmissions by a PSS for which
the Judges are to set rates and terms under Section 114(f)(1).'' \41\
SoundExchange contends that the PSSs' ``1998 offerings were residential
offerings delivered by means of cable or satellite to fixed points in
subscribers' homes,'' while ``[t]he Internet and the wireless networks
that are used to deliver service to mobile devices are a different
medium than the PSS used in
[[Page 59656]]
1998.'' \42\ Furthermore, SoundExchange contends that mobile services
``take[ ] advantage of the capability of wireless networks to provide
portability, allowing listeners to access music anytime and virtually
anywhere'' as well as offering ``different opportunities for user
interaction and navigation'' that ``provide a very different user
experience than the stereo receivers and television sets that could
receive the PSS' 1998 offerings.'' \43\
---------------------------------------------------------------------------
\41\ Id. at 13.
\42\ Id.
\43\ Id. at 13-14.
---------------------------------------------------------------------------
While SoundExchange claims that internet streaming channels could
qualify as part of a PSS, so long as it is ``sufficiently similar to
the provider's 1998 offerings,'' SoundExchange asserts that this
standard requires that the ``PSS provider's webcast channels [to] be
identical to counterpart stations made available through cable
television'' in order to qualify for a rate set under section
114(f)(1), as a service offering internet-only channels would lack
sufficient similarity to the PSS' 1998 offerings which did not include
any internet-only offerings.\44\ SoundExchange argues that a PSS's
internet transmissions are similarly disqualified if the ``number of
webcasting channels is [not] sufficiently similar to the provider's
pre-1998 offerings.'' \45\ SoundExchange further contends that the
number and type of subscribers to the transmission must also be
substantially similar, and that a PSS cannot include video programming
``other than video related to the service or recording being
performed'' in order for its webcasting service to qualify as a
PSS.\46\ SoundExchange also asserts that ``[a] trier of fact may also
consider other factors that bear on similarity of the service
offerings, including any differences between Internet-based platforms
and cable- and satellite-based platforms.'' \47\
---------------------------------------------------------------------------
\44\ Id. at 15-16.
\45\ Id. 16-17.
\46\ Id. 17-18.
\47\ Id. at 17.
---------------------------------------------------------------------------
III. Register's Determination
Although the parties' briefs discuss at length the factual nature
of Music Choice's particular internet transmissions, questions of fact
are beyond the scope of the Register's inquiry under section
802(f)(1)(B). Thus, without judging the facts as they may pertain to
Music Choice (or any other PSS), and having considered the relevant
statutory language, legislative history, and the input from the
parties, the Register determines that transmissions by a PSS entity
that are accessible to a cable or satellite television subscriber
through that entity's website and through a mobile application can be
``subscription transmissions by preexisting subscription services'' for
which the CRJs must determine rates and terms of royalty payments under
section 114(f)(1)(A), but only if such transmissions are sufficiently
similar to the transmissions made to those subscribers via the entity's
preexisting residential cable or satellite music service.
A. Legal Standard
Before addressing the appropriate legal standard for determining
whether a particular subscription transmission by a preexisting
subscription service is subject to the grandfathered method of setting
royalty rates for such service offerings under section 114(f)(1), the
Register makes a few threshold points about the statute.
First, in analyzing the grandfathering provisions, the Register
interprets them narrowly.\48\
---------------------------------------------------------------------------
\48\ See 71 FR at 64646; accord SoundExchange, 854 F.3d at 719.
---------------------------------------------------------------------------
Second, as the Register has previously held, the definition of
``preexisting subscription service'' in section 114(j)(11) can pertain
to both the business entity operating a service offering and the
service offering itself.\49\ The D.C. Circuit recently agreed with the
Register that ``the word `service,' as used both in the statute as well
as the legislative history, sometimes referred to the business entity
and sometimes the program offerings.'' \50\ For clarity's sake, the
Register generally refers below to a ``PSS entity'' or a ``PSS
offering'' to distinguish between a preexisting business itself and a
specific preexisting program offering by such business.
---------------------------------------------------------------------------
\49\ 71 FR at 64646, 64647 (``In construing the statutory
language together with the legislative history, the logical
conclusion is that Congress did use the term `service' to mean both
the program offerings made on a subscription basis to the public and
the business entity that secures the license to make the
subscription transmissions.'').
\50\ SoundExchange, 854 F.3d at 718.
---------------------------------------------------------------------------
Third, as a corollary to the second point, the Register concurs
with the D.C. Circuit's holding that, under the grandfathering
provisions, ``the term `service' contemplates a double limitation; both
the business and the program offering must qualify before the
transmissions are eligible for the favorable rate.'' \51\ Indeed,
Congress was clear that not every subscription transmission made by a
PSS entity is subject to section 114(f)(1).\52\ Thus, as used in
section 114(f)(1)(A), ``subscription transmissions by preexisting
subscription services'' must refer only to the PSS offerings made by a
PSS entity, rather than referring to all subscription transmissions
made by a PSS entity.
---------------------------------------------------------------------------
\51\ See id. at 719.
\52\ See H.R. Rep. No. 105-796, at 84-85 (explaining that
section 114(f)(2) applies to ``subscription transmissions made by a
preexisting subscription service other than those that qualify under
subsection (f)(1)'' in addition to new subscription services and
eligible nonsubscription transmissions). Similarly, previous
statements made by the Register that preexisting subscription
``services deserved to develop their businesses accordingly''
pertained to the businesses of the pre-July 31, 1998 PSS offerings--
not all businesses engaged in by the PSS entities. See 71 FR at
64645. For example, later in the same opinion, the Register
elaborated that while ``Muzak was the pioneer music service that
incurred both the benefits and risks that came with its investment,
and one such benefit was its status as a preexisting subscription
service,'' that benefit only exists ``so long as [Muzak] provided
its music offerings over [DiSHCD],'' as it did as of July 31, 1998.
Id. at 64646.
---------------------------------------------------------------------------
Fourth, the Register has previously determined ``that the
preexisting services must be limited to the three named entities in the
[DMCA] Conference Report, i.e., DMX (operated by TCI Music), Music
Choice (operated by Digital Cable Radio Associates), and [DiSHCD] \53\
(operated by Muzak).'' \54\ Thus, it is long-settled that these three
entities are the only PSS entities. What offerings by these entities
may constitute PSS offerings, however, has continued to be unsettled,
but is now resolved by this memorandum opinion.\55\
---------------------------------------------------------------------------
\53\ The Register believes that the DMCA Conference Report's
reference to ``DiSH Network'' was a typo, and that Congress intended
to refer to Muzak's ``DiSHCD'' service, which was transmitted over
Echostar's DiSH Network. See Report of the Copyright Arbitration
Royalty Panel, In re: Determination of Statutory License Terms and
Rates for Certain Digital Subscription Transmissions of Sound
Recordings, No. 96-5 CARP DSTRA ] 27 (Nov. 28, 1997) (``CARP
Report'') (``Muzak . . . began providing . . . digital music under
the name DiSH CD, as part of Echostar's satellite-based DiSH
Network.''); 63 FR 25394, 25395 (May 8, 1998) (same); see also Muzak
Limited Partnership, Initial Notice of Digital Transmission of Sound
Recordings under Statutory License (July 2, 1998) (listing the
service name as ``dishCD'').
\54\ 71 FR at 64646; see H.R. Rep. No. 105-796, at 81, 85, 89.
\55\ The D.C. Circuit correctly recognized that the Register's
previous ``opinion did not address whether those three business
entities' grandfather status was further limited to the programs
they were offering at the time the statute was passed.'' See
SoundExchange, 854 F.3d at 718.
---------------------------------------------------------------------------
Fifth, the Register observes that PSS offerings are not limited
solely to the offerings made by PSS entities prior to July 31, 1998.
Rather, the statute and legislative history both confirm that Congress
intended for PSS entities to be able to expand their service offerings
to some limited extent and still have those service offerings be
considered PSS offerings. Two provisions of the statute
[[Page 59657]]
in particular reflect this congressional intent. Section 114(d)(2)(C)
sets out more expansive qualifications for the statutory license for
transmissions made by a PSS ``other than in the same transmission
medium used by such service on July 31, 1998.'' In other words,
Congress suggested that a PSS could deliver its offering in a new
transmission medium without affecting its status as a PSS offering.
Section 114(f)(1)(C), in turn, provides for an out-of-cycle rate
proceeding to be held where ``a new type of subscription digital audio
transmission service on which sound recordings are performed is or is
about to become operational.'' The statute further makes clear that
this rate proceeding is to be conducted with reference to the
grandfathered rate standard. Such a provision would be unnecessary if
PSS offerings were limited to the exact offerings made in 1998; there
would never be a ``new type of . . . service.''
Thus, the ultimate question is whether a particular program
offering by a PSS entity qualifies as a PSS offering within the meaning
of section 114(j)(11), and is therefore subject to the grandfathered
rate standard under section 114(f)(1). The DMCA Conference Report
provides particularly helpful guidance in answering this question
concerning section 114(f)(1):
In grandfathering these services, the conferee's objective was
to limit the grandfather to their existing services in the same
transmission medium and to any new services in a new transmission
medium where only transmissions similar to their existing service
are provided. Thus, if a cable subscription music service making
transmissions on July 31, 1998, were to offer the same music service
through the Internet, then such Internet service would be considered
part of a preexisting subscription service. If, however, a
subscription service making transmissions on July 31, 1998, were to
offer a new service either in the same or new transmission medium by
taking advantages of the capabilities of that medium, such new
service would not qualify as a preexisting subscription service.\56\
---------------------------------------------------------------------------
\56\ H.R. Rep. No. 105-796, at 89.
This passage, consistent with the statutory language in sections
114(d)(2) and 114(f), demonstrates Congress's intent to distinguish
among three different possibilities:
1. A service offering identified by Congress as being a PSS
offering as of July 31, 1998, that is still offered today in the same
transmission medium identified by Congress in 1998 (referred to here as
an ``existing service offering'').\57\ Such a service offering would be
entitled to both a rate established under the grandfathered rate
standard under section 114(f)(1) and the grandfathered license
requirements in section 114(d)(2)(B).
---------------------------------------------------------------------------
\57\ See id. (grandfathered services can be ``existing services
in the same transmission medium'').
---------------------------------------------------------------------------
2. A service offering identified by Congress as being a PSS
offering as of July 31, 1998, that is still offered today, but in a
different transmission medium than the one identified by Congress in
1998, where only transmissions similar to the existing service offering
are provided (referred to here as an ``expanded service
offering'').\58\ Such a service offering would be entitled to a rate
established under the grandfathered rate standard under section
114(f)(1), but would not be able to take advantage of the grandfathered
license requirements in section 114(d)(2)(B). Instead, it would be
required to comply with more detailed license requirements in section
114(d)(2)(C).
---------------------------------------------------------------------------
\58\ See id. (grandfathered services can be ``new services in a
new transmission medium where only transmissions similar to their
existing service are provided''). While the Conference Report refers
to ``new services,'' in the next sentence, it provides an example of
a ``cable . . . service'' expanding into an ``Internet service'' by
``offer[ing] the same music service through the Internet.'' See id.
Thus, in context, such services are what the Register has here
called ``expanded services,'' and are not meant to encompass wholly
new services that are unrelated to an existing service offering. By
the same logic, other references in the statute and legislative
history to ``new'' service offerings should be similarly interpreted
as being what is referred to here as expanded service offerings.
See, e.g., 17 U.S.C. 114(f)(1)(C) (permitting out-of-cycle rate-
setting proceedings for a ``new type of . . . service'').
---------------------------------------------------------------------------
3. A service offering that is not an existing service offering or
an expanded service offering (referred to here as a ``different service
offering'').\59\ This would include any offering that is insufficiently
similar to an existing service offering to be considered an expanded
service offering. A different service offering would not be entitled to
either a rate established under the grandfathered rate standard under
section 114(f)(1) or the grandfathered license requirements in section
114(d)(2)(B). Instead, the rate would be set under the willing buyer/
willing seller standard in section 114(f)(2), and would be required to
comply with the license requirements in section 114(d)(2)(C).
---------------------------------------------------------------------------
\59\ See H.R. Rep. No. 105-796, at 89 (grandfathering
``limit[ed]'' to ``existing services in the same transmission medium
and to any new services in a new transmission medium where only
transmissions similar to their existing service are provided'')
(emphasis added).
---------------------------------------------------------------------------
These categorizations presume that a service is eligible for the
section 114 license. The purpose of separating them into these groups
is to determine whether the rate for a service is determined pursuant
to section 114(f)(1) or section 114(f)(2). Thus, if a PSS entity began
offering, for example, an interactive service, it would not fall into
one of these categories, as it is ineligible for the statutory license.
The following sections describe the types of service offerings that
fall within these three categories.
1. Existing Service Offerings
Implicit in the Register's previous determination that the only PSS
entities are the three entities Congress named in the DMCA Conference
Report,\60\ is that, as a matter of law, the service offerings that
Congress sought to identify as PSS offerings as of July 31, 1998, were
the ones offered by those entities prior to that date. The legislative
history makes clear that Congress further intended to limit what it
identified as a PSS offering at that time to the PSS entities'
offerings in the specific transmission media affirmatively identified
in the DMCA Conference Report: ``cable'' or ``satellite'' for DMX and
Music Choice, and ``satellite'' for DiSHCD.\61\ Thus, to qualify as an
``existing service offering,'' the service must not only have existed
as of July 31, 1998, but it must have also been providing its offering
in the specific transmission media identified by Congress.
---------------------------------------------------------------------------
\60\ See 71 FR at 64646.
\61\ See H.R. Rep. No. 105-796, at 89 (``As of July 31, 1998,
DMX and Music Choice made transmissions via both cable and satellite
media; the [DiSHCD service] was available only via satellite.'').
---------------------------------------------------------------------------
Music Choice urges that it was already making internet
transmissions of its subscription music service as of July 31,
1998.\62\ In so doing, it is effectively asking for its current
internet transmissions to be treated as an ``existing service
offering'' under the rubric set forth above. But even assuming Music
Choice, or another service, were making such pre-1998 internet
transmissions,\63\ it was clearly to an inconsequential degree: Any
such transmissions were entirely unacknowledged by the Copyright
Arbitration Royalty Panel (``CARP''), in setting royalty rates for the
statutory license under the DPRSRA; the Librarian of Congress and the
Register of Copyrights, in reviewing that CARP decision; and Congress,
in enacting the DMCA in 1998. The CARP report describes the three PSSs
at length and, notably, makes an explicit finding of fact that the
services are the ``only three digital audio music subscription
[[Page 59658]]
services available to residential subscribers in the United States''
and that they ``offer their digital music via satellite, or cable, or
both,'' making no mention of any internet retransmissions.\64\ In
comprehensively reviewing the CARP report and adopting rates and terms
for PSSs, the Register of Copyrights and the Librarian of Congress made
no mention of any internet transmissions by those PSS entities.\65\ To
the contrary, that decision concluded that the PSSs ``face new
competition from the internet.'' \66\ These factual findings are
further reflected in the DMCA Conference Report, where Congress clearly
identified the three qualifying services and only described them as
making transmissions via cable and/or satellite media.\67\ Given this
background, it is highly improbable that Congress would have intended,
sub silentio, to treat internet transmissions as subject to the
grandfathering provision under section 114(d)(2)(B).
---------------------------------------------------------------------------
\62\ Music Choice Brief at 1-2, 4-6, 18-19, 30.
\63\ The Register notes that the only apparent evidence offered
by Music Choice of such pre-1998 internet transmissions is the
testimony of Music Choice CEO David Del Beccaro. See id. at 5.
\64\ CARP Report ] 43.
\65\ See 63 FR 25394.
\66\ Id. at 25407 (emphasis added).
\67\ See H.R. Rep. No. 105-796, at 81, 89.
---------------------------------------------------------------------------
This understanding is strongly reinforced by the new requirements
Congress added in section 114(d)(2)(C) that webcasting services and new
subscription services, as well as preexisting subscription services
other than in the same transmission medium used by such service on July
31, 1998, had to comply with to qualify for the statutory license. The
rationale behind the DMCA's amendments to the DPRSRA, including the new
requirements in section 114(d)(2)(C), was to ``address[] unique
programming and other issues raised by Internet transmissions.'' \68\
If a PSS were permitted to make internet transmissions under the less
stringent requirements of section 114(d)(2)(B), it would undermine the
design of this statutory scheme and blur the distinction that Congress
intended to draw when dividing PSS transmissions between paragraphs (B)
and (C) based on the transmission medium used on July 31, 1998.\69\
---------------------------------------------------------------------------
\68\ See Staff of H. Comm. on the Judiciary, 105th Cong.,
Section-By-Section Analysis of H.R. 2281 as Passed by the United
States House of Representatives on August 4th, 1998, at 50 (Comm.
Print 1998) (emphasis added); id. at 51 (``At the time the DPRSRA
was crafted, Internet transmissions were not the focus of Congress'
efforts.''); see also H.R. Rep. No. 105-796, at 83 (explaining
explicitly that the reason for one of the new requirements was
because of ``a disturbing trend on the Internet'' pertaining to the
``unauthorized performance of sound recordings not yet released for
broadcast or sale to the public'').
\69\ See 17 U.S.C. 114(d)(2)(B)-(C); see also H.R. Rep. No. 105-
796, at 89 (indicating that a ``cable subscription music service''
that offers ``the same music service through the Internet'' is
engaged in the delivery of its service ``in a new transmission
medium'').
---------------------------------------------------------------------------
Thus, in accordance with the principles of narrow construction
afforded to grandfathering provisions, the Register finds that, as a
matter of law, it is irrelevant whether or not Music Choice or another
PSS entity, to some limited degree, was making transmissions via a
different medium than those specified in the legislative history on
July 31, 1998, such as the internet. If such a service was in fact
doing so, it would not be as part of an existing service offering--any
such transmissions today would be considered either an expanded service
offering or a different service offering, depending on the analysis
described below.
At the same time, the Register emphasizes that an existing service
offering can grow and expand significantly within the same transmission
medium while remaining a PSS offering. The Register has found no
indication that Congress meant to freeze existing service offerings
exactly as they were on July 31, 1998, in order for them to continue to
qualify for the grandfathering provisions. The user interface can be
updated, certain functionality can be changed, the number of
subscribers can grow, and channels can be added, subtracted, or
otherwise changed.\70\ The only restriction is that the existing
service offering as it is today must be fundamentally the same type of
offering that it was on July 31, 1998--i.e., it must be a
noninteractive, residential, cable or satellite digital audio
transmission subscription service.\71\
---------------------------------------------------------------------------
\70\ See, e.g., 78 FR 23054, 23085 (Apr. 17, 2013) (increasing
the royalty rate due to Music Choice's announced intention to
increase its number of channels from 46 to 300).
\71\ See 17 U.S.C. 114(j)(11); H.R. Rep. No. 105-796, at 81, 89;
63 FR at 25414; CARP Report ]] 43-44, 51-78, 109.
---------------------------------------------------------------------------
2. Expanded Service Offerings
In addition to expanding within its congressionally-recognized
transmission medium, an existing service offering can also expand to a
different transmission medium, provided that the subscription
transmissions are similar.\72\
---------------------------------------------------------------------------
\72\ See H.R. Rep. No. 105-796, at 89 (the grandfathering covers
``a new transmission medium [but] where only transmissions similar
to their existing service are provided''); 71 FR at 64641 (``[A]
preexisting service does not lose its designation as such in the
event the service decides to utilize a new transmission medium,
provided that the subscription transmissions are similar.'')
(emphasis added).
---------------------------------------------------------------------------
This expansion, however, is subject to an important threshold
limitation. For a service offering to qualify as an expanded service
offering, the PSS entity must continue to operate its existing service
offering. The basis for the grandfathering provisions is to protect
existing service offerings and limited direct outgrowths of them. If
such a limited outgrowth--i.e., an expanded service offering--were to
exist alone, divorced from the existing service offering, the rationale
for including them within the existing service offering's grandfather
protection becomes less tenable. Furthermore, the legislative history
is explicit that a service offering that is not an existing service
offering can only be subject to the grandfathering provision if it
provides ``transmissions similar to their existing service.'' \73\
Ascertaining similarity requires comparison, and if a PSS entity
discontinues its existing service offering, there would be nothing to
compare against.\74\
---------------------------------------------------------------------------
\73\ See H.R. Rep. No. 105-796, at 89.
\74\ In the event that technology evolves such that a PSS
decides to completely discontinue its cable or satellite service and
limit its offerings solely to another transmission medium, such as
the internet, this limitation would act as a type of ``sunset
provision,'' which, contrary to Music Choice's argument with respect
to such provisions, demonstrates that Congress did not in fact
intend for the grandfather status to apply to a service indefinitely
regardless of the offerings it provides and the way it is
transmitted.
---------------------------------------------------------------------------
As Music Choice and SoundExchange agree, in assessing whether a
service offering is an expanded service offering, and thus qualifies as
a PSS offering, a comparison must be made between the service offering
in question and the existing service offering to see if it is
sufficiently similar. Because, as discussed above, an existing service
offering can expand over time while remaining a PSS offering, the
comparison should be made to the existing service offering as it exists
at the time of the comparison, not, as SoundExchange argues, as it
existed on July 31, 1998.
To determine whether or not such a service offering is sufficiently
similar to the existing service offering, the fact-finder should
compare the offerings by analyzing certain factors, including but not
limited to:
(1) Whether the service offering has a similar effect on displacing
or promoting sales of phonorecords.\75\
---------------------------------------------------------------------------
\75\ See 17 U.S.C. 114(f)(2)(B) (providing this as one of the
examples of criteria to be used in distinguishing among different
types of non-PSSs).
---------------------------------------------------------------------------
(2) Whether the quantity and nature of the use of sound recordings
by the service offering is similar.\76\
---------------------------------------------------------------------------
\76\ See id. (providing this as one of the examples of criteria
to be used in distinguishing among different types of non-PSSs).
---------------------------------------------------------------------------
[[Page 59659]]
(3) Whether the service offering provides similar content to
similar groups of users.
(4) Whether the service offering is consumed in a similar manner,
provides a similar user experience, and has similar form, feel, and
functionality.
(5) Whether and to what degree the service offering relates to the
same pre-July 31, 1998 investments Congress sought to protect.\77\
---------------------------------------------------------------------------
\77\ See 71 FR at 64641 (``[T]he rationale for [the]
grandfathering provisions is to `prevent disruption of the existing
operations by such services.''') (quoting H.R. Rep. No. 105-796, at
81); SoundExchange, 854 F.3d at 719 (``The grandfather provisions
were intended to protect prior investments the three [PSS] business
entities had made during a more favorable pre-1998 rate-setting
regulatory climate.'').
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(6) Whether and to what degree the service offering takes advantage
of the capabilities of the medium through which it is transmitted
(i.e., whether and the extent to which differences between the service
offerings are due to limitations in the existing service offering's
transmission medium that are not present in the other service
offering's transmission medium).\78\
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\78\ See H.R. Rep. No. 105-796, at 89 (``If . . . a subscription
service making transmissions on July 31, 1998, were to offer a new
service either in the same or new transmission medium by taking
advantages of the capabilities of that medium, such new service
would not qualify as a preexisting subscription service.'').
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Note that even if a service offering is found to be an expanded
service offering qualifying for the section 114(f)(1) grandfathering
provision, it would still not be eligible for the section 114(d)(2)(B)
grandfathering provision by virtue of its being transmitted via a
different transmission medium. Such an offering would be subject to the
requirements in section 114(d)(2)(C).
3. Different Service Offerings
As a matter of law, a wholly different service offering can never
qualify as a PSS offering because it would not be one of the
specifically identified pre-July 31, 1998, business operations (i.e.,
the three PSS offerings) Congress sought to protect when it enacted the
DMCA.\79\ This is true regardless of whether the service offering is
developed internally or acquired. As the D.C. Circuit recently held,
the DMCA's amendments to section 114 were ``designed to move the
industry to market rates,'' and if a PSS entity ``were permitted to pay
the grandfather rate for transmissions made to customers who subscribed
to a `service' that was previously provided by [a different, non-PSS
entity], what would prevent * * * the complete elimination of the
market-rate regime by [such PSS entity's] acquisitions strategy.'' \80\
The Register agrees that ``when [such entity] expands its operations
and provides additional transmissions to subscribers to a different
`service,' * * * this is an entirely new investment'' and is not a PSS
offering.\81\
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\79\ See id. at 81, 89; 71 FR at 64641, 64645-46; SoundExchange,
854 F.3d at 719.
\80\ SoundExchange, 854 F.3d at 719.
\81\ See id. (emphasis added). The Register thus agrees with the
D.C. Circuit's holding that a service offering that is acquired by a
PSS entity does not qualify as a PSS offering.
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B. Transmission Medium
As noted above, the statute and legislative history focus
extensively on whether a PSS offering is being provided through the
same or a different ``transmission medium'' than the one identified by
Congress in 1998, and the analysis above follows Congress's lead in
that regard. At first blush, one might conclude that Congress intended
to draw a distinction among the kinds of physical wires or
radiofrequency channels used to deliver signals from a service to a
listener--e.g., coaxial cable, optical fiber, radio spectrum. But this
would not be a proper understanding of the statutory scheme. The
legislative history makes repeated references to ``cable,''
``satellite,'' and the ``internet'' as different ``transmission[] * * *
media.'' \82\ Congress surely understood that the internet is a layer
of services that can be reached through a variety of delivery
mechanisms, for example, through phone lines, satellite signals, and
optical fiber. Similarly, a ``cable'' service can be transmitted over
different media, such as coaxial cable, optical fiber, or microwaves--a
fact Congress explicitly understands.\83\
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\82\ See H.R. Rep. No. 105-796, at 81, 89 (referring to
``transmissions via both cable and satellite media'' and explaining
that under appropriate circumstances, a ``cable . . . service'' may
be transmitted ``through the Internet'').
\83\ Cf. 17 U.S.C. 111(f)(3) (defining a ``cable system'' as,
among other things, making transmission by ``wires, cables,
microwave, or other communications channels'').
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Thus, for section 114 purposes, the better understanding is that,
in referring to the ``transmission medium'' in the context of a PSS
offering, Congress was referring to the basic telecommunications
service through which that offering is being delivered to the user. For
example, an existing service offering that on July 31, 1998, was
delivered to residential cable television subscribers through coaxial
cable, may today be delivered to such cable television subscribers
through optical fiber without constituting an expansion to a new
``transmission medium'' within the meaning of section 114. In other
words, this service offering would still be an existing service
offering, rather than an expanded service offering or different service
offering, because it would still be part of what is traditionally
considered to be a residential cable television service; this is true
even though optical fiber may provide certain advantages over coaxial
cable. By the same token, however, when an existing cable music service
is made available to cable television subscribers over the internet, it
is being transmitted through a different transmission medium regardless
of how the internet is being reached; for section 114 purposes,
internet service is a different telecommunications service from a
residential cable service, even if delivered by the same operator
through the same infrastructure.\84\
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\84\ To be clear, this discussion relates to the meaning of
section 114and should not be construed as having broader application
to other areas of copyright law, such as the section 111 cable
retransmission license.
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C. Application to the Referred Questions
The CRJs' referral to the Register of Copyrights specifically asked
how the legal analysis would apply specifically to ``transmissions of
multiple, unique channels of music that are accessible through that
entity's website and through a mobile application,'' and the degree to
which differences between a PSS entity's internet service and its
existing service in terms of the numbers or types of channels or
subscribers would result in the exclusion of the internet service from
a grandfathered rate.\85\ Although ultimately it is not for the
Register to apply the above-described inquiry to Music Choice's current
program offerings, the Register offers the following observations about
transmissions made via the internet and made available on portable
devices, and general guidance about application of the analysis to the
scenarios identified in the referral order.
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\85\ Referral Order at 3-4.
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Under the standard articulated above, the mere fact that a service
offering is transmitted to cable or satellite television subscribers
over the internet does not automatically disqualify the service
offering from being an expanded service offering subject to the
grandfathered rate standard, so long as the service offering, as a
factual matter, after considering the factors described above, is
sufficiently similar to the PSS entity's existing cable or satellite
service offering.
In evaluating whether a service offering is ``sufficiently
similar'' to the PSS entity's existing cable or satellite service
offering so as to qualify as an
[[Page 59660]]
``expanded service offering,'' the CRJs should consider the degree to
which making the existing service offering accessible outside the home
of the subscriber constitutes a fundamental change to the offering. One
notable fact about PSS offerings in 1998 is that they were all limited
to listening to music within the subscriber's home. Indeed, in the
first ratesetting proceeding under the DPRSRA, portable listening does
not appear to have been considered and the final rate was based on a
percentage of gross revenues ``resulting from residential services in
the United States'' \86\--which is how the rate is currently
calculated.\87\ To be sure, technological developments since that time
have made it easier to deliver digital audio transmissions outside the
home (including over mobile networks). But, at least in the cable
television market, there appears to be a distinction drawn between
accessing content within the home and accessing that same content
outside of it.\88\ To be clear, this distinction is one based on the
location where the PSS offering is consumed, not the type of device on
which the service is accessed. If the service offering is available
through an internet-connected smartphone or tablet, but is designed so
that the service offering will only work when accessed within the
confines of the subscriber's residence, then it would be within the
home and more similar to the PSS entity's existing cable or satellite
service offering.
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\86\ See 63 FR at 25414 (to be codified at 37 CFR 260.2(a))
(emphasis added); see also CARP Report ] 109 (``The Panel finds that
the Services are primarily responsible for creating a new media and
market for digital music subscription services for residential
consumers.'') (emphasis added). It also bears noting that in the
last rate proceeding, the CRJs deleted the word ``Residential'' and
its definition from the rate provision for preexisting satellite
digital audio radio services because it was argued that ``the
concept is a confusing artifact of a comparable term used in the PSS
regulations'' because ``the SDARS service is not primarily
residential in terms of being delivered to homes and the term
residential subscriber simply means a subscriber,'' yet the term
remained for purposes of the PSS rate. 78 FR at 23074-75, 23096,
23098 (internal quotation marks omitted).
\87\ 37 CFR 382.3(a).
\88\ See, e.g., Out of Home--XFINITY Stream App Error Message,
XFINITY, https://www.xfinity.com/support/xfinity-apps/xfinity-tv-app-unable-to-connect/ (last visited Nov. 17, 2017) (``In order to
watch live TV or XFINITY On Demand content using the XFINITY Stream
app, you'll need to be connected to your in-home XFINITY WiFi
network.'').
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As the second referred question specifically asks about differences
in channel offerings and customers, the Register offers the following
guidance. In comparing the number and type of channels offered by a
service offering to an existing service offering, examples of factors
to consider could include how many additional or fewer channels there
are, how many channels offer different programming, and how different
that programming is. One should also consider the reasons why any such
differences exist. For example, if the service offering in question has
more channels because of some benefit the internet affords, such as
greater bandwidth or different contractual arrangements with cable
operators, then it would be taking advantage of the capabilities of the
internet as a transmission medium. Depending on the evaluation of the
other factors discussed above and how much weight is ultimately given
to the difference in channels in an overall comparison between the
service offerings, it may or may not be enough to disqualify the
offering from the grandfathered royalty calculation method. The number
and type of customers should be similarly compared.
At the same time, the Register agrees with Music Choice that
differences in a service offering that directly and solely result from
the imposition of the section 114(d)(2)(C) requirements that do not
apply to the existing service offering (which is subject to section
114(d)(2)(B)), should not alone disqualify it from the grandfathered
rate. Similarly, minor differences in the user interface necessitated
by the change in medium also should not alone disqualify the service
offering, even if they are perceived as an advantage offered by the
medium. For example, a service offering should not be disqualified from
being an expanded service offering merely because instead of needing to
press a button on a remote control, the user can click a mouse or
navigate using a touch screen. Additionally, minor differences in
visual presentation, such as having a different aspect ratio or
displaying less content due to differences in screen size, would not be
so significant as to disqualify a service offering from being an
expanded service offering.
D. CRJs' Ability to Set Different Rates
In closing, the Register briefly notes that, even if a service
offering qualifies for the grandfathered method of setting rates, the
CRJs still have the authority under section 114(f)(1)(A) to
``distinguish among the different types of digital audio transmission
services . . . in operation.'' Thus, if there are material differences
between an existing service offering and an expanded service offering,
the CRJs can set separate rates and terms based on those differences,
albeit using the section 801(b)(1) standard, and not under the willing
buyer/willing seller standard under section 114(f)(2).
November 20, 2017.
Karyn Temple Claggett,
Acting Register of Copyrights and Director of the U.S. Copyright
Office.
[FR Doc. 2017-27088 Filed 12-14-17; 8:45 am]
BILLING CODE 1410-30-P
