Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV), 76937-76942 [2022-27237]

Agencies

• Copyright Royalty Board, Library of Congress
• Library of Congress

[Federal Register Volume 87, Number 241 (Friday, December 16, 2022)]
[Rules and Regulations]
[Pages 76937-76942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27237]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 385

[Docket No. Docket No. 21-CRB-0001-PR (2023-2027)]


Determination of Royalty Rates and Terms for Making and 
Distributing Phonorecords (Phonorecords IV)

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final rule.

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SUMMARY: The Copyright Royalty Judges publish final regulations that 
set rates and terms for physical phonorecords, permanent downloads, 
ringtones, and music bundles applicable during the period from January 
1, 2023 through

[[Page 76938]]

December 31, 2027, for the statutory license for making and 
distributing phonorecords of nondramatic musical works.

DATES: Effective January 1, 2023.

FOR FURTHER INFORMATION CONTACT: Anita Brown, Program Specialist, (202) 
707-7658, [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    On May 5, 2022, the Copyright Royalty Judges (Judges) received a 
Motion to Adopt Settlement of Statutory Royalty Rates and Terms for 
Subpart B Configurations (Motion to Adopt Proposed Settlement 2) from 
National Music Publishers' Association, Inc. and Nashville Songwriters 
Association International (together, Licensors) and Sony Music 
Entertainment, UMG Recordings, Inc., and Warner Music Group Corp. 
(together, Labels). The Licensors and Labels (together, Moving Parties) 
sought approval of a partial settlement of the license rate proceeding 
before the Judges titled Determination of Royalty Rates and Terms for 
Making and Distributing Phonorecords (Phonorecords IV), Docket No. 21-
CRB-0001-PR (2023-2027). The Moving Parties asserted that they had 
agreed to a settlement (Proposed Settlement 2) as to royalty rates and 
applicable regulatory terms relating to physical phonorecords, 
permanent downloads, ringtones, and music bundles presently addressed 
in 37 CFR part 385, subpart B (Subpart B Configurations). Proposed 
Settlement 2 would increase rates to 12 cents per track or 2.31 cents 
per minute of playing time or fraction thereof, whichever amount is 
larger, for physical phonorecords and permanent downloads for 2023 and 
include inflation-based adjustments for subsequent years of the rate 
period. Rates for ringtones would remain the same and the royalty rate 
for each element of a Music Bundle would be the rate required for 
physical phonorecords and permanent downloads or ringtones, as 
appropriate. Proposed Settlement 2 also addresses payment of late fees 
relating to Subpart B Configurations.
    Previously, on May 25, 2021, the Judges received a Motion to Adopt 
Settlement of Statutory Royalty Rates and Terms for Subpart B 
Configurations from National Music Publishers' Association, Inc. and 
Nashville Songwriters Association International and Sony Music 
Entertainment, UMG Recordings, Inc., and Warner Music Group Corp. 
(Motion to Adopt Proposed Settlement 1). The Licensors and Labels 
sought approval of a partial settlement of the Phonorecords IV 
proceeding (Proposed Settlement 1). Proposed Settlement 1 would have 
maintained the current rates for Subpart B Configurations and also 
addressed payment of late fees relating to Subpart B Configurations.
    On June 25, 2021, the Judges published Proposed Settlement 1 in the 
Federal Register and requested comments from the public. 86 FR 40793 
(June 25, 2021). Following receipt of comments from both participants 
and non-participants to the Phonorecords IV proceeding, including non-
participant songwriter groups and representatives who submitted 
comments in opposition, on March 30, 2022, the Judges published a 
notice that they were withdrawing the proposed settlement from 
consideration pursuant to section 801(b)(7). 87 FR 18342 (Mar. 30, 
2022). The Judges' conclusion that Proposed Settlement 1 did not 
provide a reasonable basis for setting statutory rates and terms, and 
their withdrawal of Proposed Settlement 1 as a proposed rule, rested on 
a variety of interrelated factors regarding Proposed Settlement 1, 
chiefly that: (1) the subpart B mechanical rates that were first 
effective in 2006 would have remained unchanged; (2) potential 
conflicts of interest impacting the negotiations of Proposed Settlement 
1; and (3) lack of transparency regarding a memorandum of understanding 
(MOU) that was contractually related to Proposed Settlement 1.
    On April 4, 2022, the Judges received an Emergency Motion from 
Labels (Emergency Motion) seeking clarification regarding both 
litigation procedures going forward and any impact of the withdrawal of 
Proposed Settlement 1 beyond ``participants that are not parties to the 
[settlement] agreement'' 17 U.S.C. 801(b)(7)(A)(ii). With regard to the 
impact of withdrawal on various interested parties, the Labels urged 
that to the extent that the Judges might decline to adopt Proposed 
Settlement 1 as the basis for statutory terms and rates for anyone 
other than a participant, any such interpretation would raise a novel 
question of law that would need to be referred to the Register of 
Copyrights pursuant to section 802(f)(1)(B). The Labels moved for such 
a referral.
    On April 28, 2022, the Judges referred a series of Novel Material 
Questions of Substantive Law to the Register of Copyrights pursuant to 
section 802(f)(1)(B) (Referred Novel Questions of Law).
    On May 5, 2022, the Judges received a Motion from Labels seeking to 
withdraw their April 4, 2022 Emergency Motion (Withdrawal Motion). The 
Labels urged that in view of the Motion to Adopt Proposed Settlement 2, 
it was no longer necessary for the Judges to address the matters raised 
in the Emergency Motion.\1\
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    \1\ On May 10, 2022, the Judges transmitted a memo to the 
Register of Copyrights apprising her of developments relevant to the 
novel questions referred to the Register on April 28, 2022. The 
Judges noted that they anticipated the next steps would likely 
include publishing Proposed Settlement 2 for public comment. The 
Judges observed that, in light of Proposed Settlement 2, the 
referred questions may be moot.
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    On June 1, 2022, the Judges published Proposed Settlement 2 in the 
Federal Register and requested comments from the public. 87 FR 33093 
(Jun. 1, 2022). Comments were due by July 1, 2022. The Judges received 
18 comments from interested parties.\2\ One participant, George Johnson 
(GEO) filed three comments opposing Proposed Settlement 2.\3\
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    \2\ Upward Bound Music Company, Inc.; Production Music 
Association (PMA); Eugene Lambchops Curry; Associated Production 
Music (dba APM Music); Church Music Publishers Association (CMPA); 
The Association of Independent Music Publishers (AIMP); The 100 
Percenters; Artist Rights Alliance; Songwriters of North America 
(SONA) and Black Music Action Coalition (BMAC); The Ivors Academy of 
Music Creators; Abby North, Erin McAnally, Chelsea Crowell, and 
Rosanne Cash; The American Association of Independent Music (A2IM); 
The Recording Academy; Christian L. Castle; Helienne Lindvall, David 
Lowery and Blake Morgan; Gwendolyn Seale; and Music Creators North 
America (MCNA) (submitted by MCNA, Songwriters Guild of America, 
Inc. (SGA), Society of Composers & Lyricists (SCL), and by the 
individuals Rick Carnes and Ashley Irwin (Independent Music 
Creators) and ``endorsed by the Music Creator Groups Noted on the 
Appended Listing'' (Alliance for Women Film Composers (AWFC), 
Alliance of Latin American Composers & Authors (AlcaMusica), Asia-
Pacific Music Creators Alliance (APMA), European Composers and 
Songwriters Alliance (ECSA), Music Answers (M.A.), Pan-African 
Composers and Songwriters Alliance (PACSA), Screen Composers Guild 
of Canada (SCGC), Songwriters Association of Canada (SAC); Music 
Publishers Association of the United States (MPA).
    \3\ GEO filed an Opposition and Motion to Deny Fraudulent 
Proposed Settlement 2 . . . on May 27, 2022. On June 12, 2022, GEO 
filed Comments in Opposition and to Deny the Fraudulent Proposed 
Settlement 2. . . .'' On June 20, 2022, GEO filed Additional 
Comments in Opposition and to Deny the Fraudulent Proposed 
Settlement 2 . . . .''
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Statutory Standard and Precedent

    Pursuant to section 801(b)(7)(A) of the Copyright Act, the Judges 
have the authority to adopt settlements between some or all of the 
participants to a proceeding at any time during a proceeding. This 
section states that the Judges shall: (1) provide an opportunity to 
comment on the agreement to non-participants who would be bound by the 
terms, rates, or other determination set by the agreement; and (2) 
provide an opportunity to comment and to object to participants in the 
proceeding who

[[Page 76939]]

would be bound by the terms, rates, or other determination set by the 
agreement. See section 801(b)(7)(A). The Judges may decline to adopt 
the agreement as a basis for statutory terms and rates for participants 
not party to the agreement if any participant objects and the Judges 
conclude that the agreement does not provide a reasonable basis for 
setting statutory terms or rates. Id.
    Regardless of the comments of interested parties or participants, 
the Judges are not compelled to adopt a settlement to the extent it 
includes provisions that are inconsistent with the statutory license. 
See Review of Copyright Royalty Judges Determination, 74 FR 4537, 4540 
(Jan. 26, 2009) (error for Judges to adopt settlement without threshold 
determination of legality); see also Review of Copyright Royalty Judges 
Determination, 73 FR 9143, 9146 (Feb. 19, 2008) (error not to set 
separate rates as required under sections 112 and 114 when parties' 
unopposed settlement combined rates in contravention of those statutory 
sections).\4\
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    \4\ The Register found that a ``paucity of evidence'' in the 
record to support a determination of separate rates for the separate 
licenses ``does not dispatch the . . . Judges' statutory 
obligations.'' Review of Copyright Royalty Judges Determination, 73 
FR 9143, 9145 (Feb. 19, 2008). The Register noted that the Judges 
have subpoena power to compel witnesses to appear and give 
testimony. Id.
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    As the Register of Copyrights (Register) observed in the 2009 
review of the Judges' decision, nothing in the statute precludes 
rejection of any portions of a settlement that would be contrary to 
provisions of the applicable license or otherwise contrary to the 
statute. 74 FR 4540. In the instance under review by the Register, the 
settlement agreement purported to alter the date(s) for payment of 
royalties granting licensees a longer period than section 115 provided. 
Id. at 4542. The Register also noted that nothing in the statute 
relating to adoption of settlements precludes the Judges from 
considering comments of non-participants ``which argue that proposed 
[settlement] provisions are contrary to statutory law.'' Id. at 4540.

Summary of Non-Participant Comments

    The comments of interested parties in this proceeding overlapped in 
significant aspects and are summarized as follows.

Comments Generally in Support

    The following commenters all express support for adoption of 
Proposed Settlement 2. Production Music Association (PMA); Associated 
Production Music (APM Music); Church Music Publishers Association 
(CMPA); The Association of Independent Music Publishers (AIMP); Artist 
Rights Alliance; Songwriters of North America (SONA) and Black Music 
Action Coalition (BMAC); The Ivors Academy of Music Creators; Abby 
North, Erin McAnally, Chelsea Crowell and Rosanne Cash; The Recording 
Academy; Music Publishers Association of the United States (MPA). The 
commenters express positive assessment of a 32% increase in rates under 
Proposed Settlement 2.
    Upward Bound Music Company, Inc. is supportive of the proposed 
rates for 2023 but indicates a desire for specific adjustments for 
subsequent years of the rate period, as opposed to the inflation-based 
adjustments set forth in Proposed Settlement 2. Upward Bound Music 
Company, Inc. Comment at 1-2.\5\
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    \5\ Unlike other comments, which did not focus attention on 
ringtones, Upward Bound Music Company, Inc. also proposed a rate for 
ringtones of 35 cents per ringtone across the rate period. No 
explanation for the proposed ringtone rate was provided.
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Comments Generally in Opposition

    The American Association of Independent Music (A2IM) asserts that 
the Judges should reject the new settlement, and withdraw the new 
proposed rule, for the same reasons that they rejected the initial 
settlement. A2IM at 1, 4-6. A2IM alleges that ``the new settlement 
`freezes' the original `penny rate' structure.'' A2IM at 1. A2IM states 
that the Proposed Settlement 2 rates, which are subject to an annual 
consumer price index (``CPI'') adjustment to the penny rate in 
subsequent years, were set without considering whether the rate or CPI 
adjustments are appropriate in light of the current market realities. 
Id. at 1-4. A2IM suggests that the Judges should not only reject the 
settlement but also ``convene a process to solicit input from all 
interested stakeholders.'' Id. at 6-7. While A2IM acknowledges that it 
should have filed a petition to participate in the Phonorecords IV 
proceeding, it then goes on to urge a variety of procedural reforms, 
which appear to require statutory amendments. Id. at 7-8.
    Gwendolyn Seale asserts that the Proposed Settlement 2 rate of 12 
cents for 2023 is too low, based on the totality of the record and the 
Judges' analyses in their determination not to accept Proposed 
Settlement 1. Seale at 1. Ms. Seale concludes that Proposed Settlement 
2 only partially addresses the inflation issue by limiting the 
inflation calculation to 2021. She maintains that it would be illogical 
to base the inaugural rate for this cycle on 2021 inflation 
calculations. She adds that, if the Judges were only to take into 
account the inflation issue in determining a reasonable rate for the 
inaugural 2023 year, such rate should reflect the 9.1 cent rate indexed 
to as close as possible to 2023, which is currently 13.4 cents. Id. at 
2-3. Ms. Seale adds that compositions that are subject to controlled 
composition clauses in private contracts may continue be licensed at a 
rate of approximately 9 cents in 2023. Id. at 3-5.
    Songwriters Guild of America, Inc. (SGA), Society of Composers & 
Lyricists (SCL), and Music Creators North America (MCNA), and the 
individuals Rick Carnes and Ashley Irwin (Independent Music Creators) 
comment in opposition, asking the Judges to modify or decline to 
approve Proposed Settlement 2. Independent Music Creators at 1. 
Independent Music Creators posit that the 9.1 cent rate, the basis for 
the adjusted 12 cent rate in Proposed Settlement 2, had already lost 
much of its initial 2006 value by 2021. They maintain that the 2021 
value was already 12 cents by early 2021, and by the time of 
introduction of Proposed Settlement 2 had further risen almost another 
10% to 13.11 cents. They offer that their own calculations do not take 
into account further discounting of royalty rates by privately entered-
into controlled composition clauses. Id. at 3. They add that the 12 
cent proposal would inadequately account for inflationary increases as 
measured by the CPI that occurred in 2021 and 2022. Id. at 3-4.
    Independent Music Creators question whether Proposed Settlement 2 
represents the result of an arms-length negotiation amongst the Moving 
Parties. They then go on to point out what they perceive as inadequate 
opportunities for non-participants to take part in settlement 
negotiations. Id. at 4-5. Independent Music Creators go on to allege 
that the MOUs remain murky and that they may be utilized to circumvent 
the authority, rate determinations and rulings of the CRB. Id. at 6. 
Independent Music Creators include a proposal for an alternative set of 
adjusted subpart B rates, which they urge the Judges to adopt. Id. at 
5-6.

Comments That Are Not Clearly in Support or in Opposition to Proposed 
Settlement 2

    Eugene Lambchops Curry does not pointedly address Proposed 
Settlement 2 or Subpart B activity, but instead

[[Page 76940]]

appears to propose a rate of $1.00 to $3.00 per stream. Curry at 1-2.
    Christian L. Castle, an attorney commenting on his own behalf, 
addresses proposed changes to statutory processes for CRB proceedings, 
which he believes will require Congress to act. He opines on proposals 
for alternative rate structures for Subpart B configurations put 
forward by non-participants, and alternatives for administration of the 
section 115 license. Castle at 1-5. He states that the Subpart B 
resolution reflected in Proposed Settlement 2 should not be derailed 
because of these structural issues that lawmakers no doubt will need to 
resolve. Castle at 2.
    Songwriters Helienne Lindvall, David Lowery, and Blake Morgan 
(Writers) \6\ offer ``a few minor repairs'' to Proposed Settlement 2. 
They propose an alternative rate whereby calculation of the 2023 rate 
would be based on the 2006 CPI-U through the November 2022 CPI-U 
applied to the existing 9.1 cent rate, and corresponding adjustment 
methods for subsequent years of the rate period. Writers at 10-14. The 
Writers express criticism of the impact of controlled compositions 
clauses in the context of the section 115 licenses but take no position 
on the Judges' authority to reform controlled composition clauses or 
other provisions or practices in private contracts. Id. at 15-23.
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    \6\ Writers' comment was submitted by Christian L. Castle as 
Counsel.
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    The Writers express concern that there should be no undisclosed 
side deals as consideration for Proposed Settlement 2. They observe the 
Moving Parties' statement that the MOU at issue was executed a year 
ago, prior to the Moving Parties entering into renewed Proposed 
Settlement 2 negotiations and so was not consideration for any of the 
terms set forth in Proposed Settlement 2. They also note that the MOU 
apparently came into effect for the parties to it upon submission of 
Proposed Settlement 1 to the CRB, an event which occurred on May 25, 
2021. The Writers note that because the MOU and the associated ``late 
fee waiver'' program has been disclosed to a degree both in and outside 
of the record for this Proceeding, the most recent MOU might not fall 
into the ``undisclosed'' category Id. at 24-25. The Writers also 
express concern with current processes for rate proceedings, which in 
their view exclude many voices that should have been heard in the rate-
setting process and hopefully will be heard in future proceedings. Id. 
at 26-30.

Mr. Johnson's Opposition to the Settlement

    Proceeding participant George Johnson (GEO) filed three documents 
opposing Proposed Settlement 2.\7\ GEO asserts that the totality of the 
record, self-dealing conflicts of interest, vertical integration, and 
other MOU problems have not changed in Proposed Settlement 2, and 
therefore, GEO submits that the Judges should also deny Proposed 
Settlement 2 for the exact same reasons the Judges declined to adopt 
Proposed Settlement 1, except for the ``static'' rate issue. Id. at 8.
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    \7\ On May 27, 2022, before the Judges published the proposed 
rule for comment, GEO filed an Objection and Motion to Deny 
Fraudulent Proposed Settlement 2 . . . On June 12, 2022, after the 
Judges published the proposed rule for comment, GEO filed Comments 
in Opposition and to Deny the Fraudulent Proposed Settlement 2 . . . 
(GEO Opposition), which GEO characterized as a re-submission of his 
prior filing so that his opposition will be considered as a formal 
response to the proposed rule. GEO represented that the June 12, 
2022 GEO Opposition is exactly the same as the May 27, 2022 filing. 
On June 20, 2022, GEO then filed Additional Comments in Opposition 
and to Deny the Fraudulent Proposed Settlement . . . (Additional GEO 
Opposition).
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    GEO states that he did not think that it was appropriate to accept 
Proposed Settlement 2 since it would not only be premature, citing open 
motions regarding Proposed Settlement 1, namely the Emergency Motion 
and the Withdrawal Motion, and the Referred Novel Questions of Law. Id. 
at 4-5. GEO takes issue with the Moving Parties' unwillingness to 
address desired terms in Proposed Settlement 2 and characterizes the 
initial 12 cent rate as a bare-minimum offer, which was made only 
because Moving Parties were forced to. Id. at 6.
    GEO maintains that of the three primary reasons for the Judges' 
refusal to adopt Proposed Settlement 1, the Moving Parties have only 
addressed the static rate, and that the Moving Parties have not 
addressed issues with potential conflicts of interest impacting the 
negotiations for Proposed Settlement 2 or a lack of transparency 
regarding a memorandum of understanding (MOU) that was contractually 
related to Proposed Settlement 1. Id. at 16-21.
    GEO goes on to allege various perceived conflicts of interests by 
NMPA counsel and executives. Id. at 26-31. GEO then asserts that the 
MOU is unreasonable. Id. at 32, 34-35. GEO maintains that the MOU is a 
quid pro quo, representing consideration that was paid to the major 
publishers by the major labels in return for a static 9.1 cent rate in 
Proposed Settlement 1. GEO offers that side deals, like the MOU, are 
not appropriate when everybody does not participate, and especially 
when these side deal MOU's are not disclosed. GEO also alleges that the 
MOU was formerly secret. Id. at 32. GEO adds his view that NMPA and 
NSAI do not represent American songwriters, as well as his view that 
they do not have a significant interest in this proceeding. Id. at 36. 
Finally, GEO takes issue with the role that controlled composition 
clauses, in private contracts, play in mechanical rates paid to 
songwriters. Id. at 38-39.
    GEO's Additional GEO Opposition asserts that the initial 12 cent 
rate in Proposed Settlement 2 seems to be incorrectly calculated for 
retroactive inflation from 2006. He offers a calculation method that 
indicates a proper initial adjusted rate of approximately 14 cents. 
Additional GEO Opposition at 3-5. GEO then refers to a Clarification 
Motion that he submitted to the Judges on June 3, 2022, in which he 
appears to suggest that the proper rate for Subpart B may be arrived 
upon by retroactively indexing for inflation the rate of 2 cents per 
phonorecord that was set forth in the statute from 1909 to 1978. Id. at 
6-8. GEO offers that the salary of the NMPA CEO should be instructive 
to the Judges' consideration of Proposed Settlement 2. Id. at 8-9. 
Finally, GEO addresses several matters that he advocates for in the 
proceeding, beyond consideration of Proposed Settlement 2. Id at 10-11.

Judges' Analysis and Conclusions

    Chapter 8 of the Copyright Act encourages parties to enter into 
settlement negotiations, ultimately the decision as to whether a 
contested settlement should be approved on motion is subject to the 
Judges' discretion, informed by the submissions of the Moving Parties 
and the commenters, and by the Judges' application of the law to the 
facts. Section 801(b)(7)(A) is clear that the Judges have the authority 
to adopt settlements between some or all of the participants to a 
proceeding at any time during a proceeding, so long the relevant 
parties are given an opportunity to comment and object. 17 U.S.C. 
801(b)(7)(A). The Judges may decline to adopt the agreement as a basis 
for statutory terms and rates for participants not party to the 
agreement if any participant objects and the Judges conclude that the 
agreement does not provide a reasonable basis for setting statutory 
terms or rates. Id. at 801(b)(7)(A).
    The Judges provided the requisite opportunity for comment and 
received GEO's opposition as well as the above-noted comments for and 
against

[[Page 76941]]

Proposed Settlement 2. Having considered these submissions in their 
entirety, the Judges find no persuasive legal or economic arguments 
that convince the Judges to reject the proposed settlement reached 
voluntarily between the Moving Parties.
    Only one participant in this proceeding, GEO, objected to the 
proposed settlement. As shown by the foregoing synopsis, however, GEO's 
objections did not come to the Judges in a vacuum. The statute requires 
publication of a settlement proposal and solicitation of comments from 
interested parties--parties who would be bound by the proposed rates 
and terms. Interested parties' comments are filed in the record of the 
proceeding and the Judges analyze those comments even though the Judges 
do not base rejection of a settlement solely on negative comments from 
non-participants. Non-participants who commented on Proposed Settlement 
2 were not uniform in their views.
    The Judges find no reason in the record to depart from their 
previous finding that Royalties from Subpart B Configurations are not 
inconsequential to the rightsholders. Subpart B Configurations are 
qualitatively different from the digital streaming configurations; 
consequently, the Judges can and do set separate rates for the Subpart 
B Configurations. Even though the physical and ``permanent'' download 
products are different in character from streaming uses, the Judges 
cannot and do not treat them with any less care and attention.\8\ 
Subpart B Configurations, in particular vinyl recordings, are a 
significant source of income for section 115 rightsholders. The 
royalties they generate should not be treated as de minimis, or as a 
``throw away'' negotiating chip to encourage better terms for streaming 
configurations.
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    \8\ The Judges note that subpart B also addresses ``ringtones'' 
and that no participant offered a substantive objection to the rate 
for ringtones that is set forth in Proposed Settlement 2. As 
referenced above, one non-participant, Upward Bound Music Company, 
Inc. proposed a rate for ringtones of 35 cents per ringtone across 
the rate period. However, no explanation for the proposed ringtone 
rate was provided, nor was any substantive critique offered 
regarding the ringtone rate in Proposed Settlement 2.
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    From the perspective of some independent songwriters and copyright 
owners, the proposed rates might seem inadequate, although even the 
participant that opposed Proposed Settlement 2, GEO, characterizes the 
rates as within the bare minimum. The Judges recognize that several 
comments proposed alternative rates that they prefer, as well as 
alternative methods for addressing inflation adjustments. The Judges 
also recognize that some comments take issue with existing procedures 
for participation in rate proceedings before the Judges. However, 
Proposed Settlement 2 is what is before the Judges for consideration, 
not alternative rates or proposals for alternative procedures.\9\ The 
fact is that the proposed rates and terms were negotiated on behalf of 
the vast majority of parties that historically have participated in 
Section 115 proceedings before the Judges. Those parties clearly 
concluded that the rates and terms were acceptable to both sides and, 
as addressed below, the negotiations occurred absent several of the 
aspects surrounding the Judges consideration of Proposed Settlement 1.
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    \9\ The Judges observe that a policy debate regarding procedures 
for participation in rate proceedings before the Judges remains an 
ongoing matter, but that any resolutions lie outside of the Judges' 
consideration of Proposed Settlement 2.
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    The Judges' analysis that led them to conclude that Proposed 
Settlement 1 did not provide a reasonable basis for setting statutory 
rates and terms--requiring them to withdraw Proposed Settlement 1 as a 
proposed rule--is distinguishable from their analysis of Proposed 
Settlement 2. The conclusion on Proposed Settlement 1 rested on a 
variety of interrelated factors, chiefly that: (1) the subpart B 
mechanical rates that were first effective in 2006 would have remained 
unchanged; (2) potential conflicts of interest impacting the 
negotiations of Proposed Settlement 1; and (3) lack of transparency 
regarding a memorandum of understanding (MOU) that was contractually 
related to Proposed Settlement 1.
    In the current consideration of Proposed Settlement 2, the subpart 
B mechanical rates have been raised significantly from those that were 
first effective in 2006. In other words, the rates do not remain 
unchanged. They are not frozen, despite the fact that they retain a 
penny rate structure.
    In the current consideration of Proposed Settlement 2, the MOU has 
been more prominently disclosed to the Judges and to the public. This 
is an important distinction from the Judges' consideration of Proposed 
Settlement 1, when the Judges found that they lacked complete knowledge 
of the implications of the MOU.\10\
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    \10\ When considering Proposed Settlement 1, the Judges found 
that they and the public lacked sufficient knowledge of MOU 4, in 
part because the MOU 4 related to the prior MOUs, by reference. 
Moving Parties assert that the prior MOUs were available and 
provided to the Judges through the Moving Parties' Comments in 
Further Support of the Settlement . . . for Subpart B Configurations 
at 7 (``Comprehensive information about prior versions of the 
program, including copies of predecessor MOUs, is available online 
at https://nmpalatefeesettlement.com/.''). In the case of Proposed 
Settlement 2, the Federal Register notice requesting comments from 
the public, the MOU and its predecessors were more prominently noted 
to the public. 87 FR 33904 FN 7 (``predecessor agreements to the 
MOU, some or all of which may be incorporated by reference in the 
current MOU, are publicly available online at https://
nmpalatefeesettlement.com/''). Additionally, the Judges have 
inserted the relevant MOUs into the eCRB files for this proceeding 
(accessed from https://nmpalatefeesettlement.com). MOU4 is already 
incorporated into the record of this proceeding as Exhibit C to the 
Moving Parties' Comments in Further Support of the Settlement . . . 
for Subpart B Configurations (Aug. 10, 2021).
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    Furthermore, as accurately noted by Writers' comment, the MOU is 
not consideration for Proposed Settlement 2. The relationship of the 
MOU to Proposed Settlement 1 was fundamentally different. In the case 
of Proposed Settlement 1, the MOU was conditional and was not effective 
until the parties to the MOU (the Moving Parties, except NSAI) 
submitted a motion to adopt Proposed Settlement 1. In the case of 
Proposed Settlement 2, the MOU was independently effective, as of May 
25, 2021.
    In the current consideration of Proposed Settlement 2, the issue of 
conflicts of interest remains. As stated in the Withdrawal of Proposed 
Settlement 1, conflicts are inherent if not inevitable in the existing 
composition of the negotiating parties. No party opposing the present 
settlement has presented persuasive evidence of misconduct, including 
any arising from the issue of conflicts of interest. The corporate 
relationships involving the record labels on the one hand and the 
publishers on the other alone do not suffice as probative evidence of 
wrongdoing. As addressed above, the details and effects of the MOU are 
not undisclosed. The Judges therefore do not find that conflicts 
present sufficient reason to doubt the reasonableness of the settlement 
at issue as a basis for setting statutory rates and terms.
    The Judges do not conclude that the Proposed Settlement 2 
agreement, reached voluntarily between the Moving Parties, fails to 
provide a reasonable basis for setting statutory terms and rates for 
licensing nondramatic musical works to manufacture and distribute 
phonorecords, including permanent digital downloads and ringtones 
(Subpart B Configurations). The entirety of the record before the 
Judges, including the arguments GEO and other commenters presented, is 
insufficient for the Judges to determine that the agreed rates and 
terms are unreasonable.

[[Page 76942]]

    In making this finding, the Judges are not indicating that the 
particular method of adjusting for inflation in the settlement is 
superior to methods offered by parties that voiced their opposition to 
Proposed Settlement 2, or that Proposed Settlement 2 represents an 
approach to inflation that the Judges would have chosen after a fully 
contested proceeding. In making this finding, the Judges observe that 
the Moving Parties clarified that Proposed Settlement 2 was arrived 
upon in part to avoid costly and uncertain litigation, which would 
involve a number of disputed issues. Their inflation adjustment is but 
one of several provisions, and thus is bound-up with the entirety of 
the parties' negotiated compromises. In this context, the Judges have 
no reason to find that the inflation adjustment is unreasonable or 
should otherwise justify a rejection of the settlement.
    The Judges also reviewed the proposed settlement with regard to 
whether any portions of the settlement would be contrary to provisions 
of the applicable license or otherwise contrary to the statute, 
pursuant to the Register's prior rulings. See e.g., Review of Copyright 
Royalty Judges Determination, 74 FR 4537, 4540 (Jan 26, 2009). Upon 
such review, the Judges see no basis to conclude the settlement is 
contrary to law. Therefore, the Judges adopt the proposed regulations 
that codify the partial settlement.\11\
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    \11\ While the Judges recognize several commenters took issue 
with controlled composition clauses and other contractual terms that 
parties have voluntarily entered into, which affect how mechanical 
royalties are paid and may exacerbate the effect of an unreasonably 
low statutory rate, no commenter has established that the Judges 
have authority to affect such privately entered contracts. 
Furthermore, the Judges find that no pending motion or referred 
questions (which the Judges consider moot) provide a basis to 
refrain from adopting the settlement.
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    The Judges adopt the proposed rates and terms industry-wide for 
Subpart B Configurations.

List of Subjects in 37 CFR Part 385

    Copyright, Phonorecords, Recordings.

    For the reasons set forth in the preamble, the Copyright Royalty 
Judges amend 37 CFR part 385 as set forth below.

PART 385--RATES AND TERMS FOR USE OF NONDRAMATIC MUSICAL WORKS IN 
THE MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL PHONORECORDS

0
1. The authority citation for part 385 continues to read as follows:

    Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4).

0
2. In Sec.  385.2 revise the introductory text of the definition of 
``Eligible Limited Download'', the definition of ``Licensed Activity'', 
and paragraph (4) in the definition of ``Sound Recording Company'' to 
read as follows:


Sec.  385.2  Definitions.

* * * * *
    Eligible Limited Download means a transmission of a sound recording 
embodying a musical work to an End User of a digital phonorecord under 
17 U.S.C. 115 that results in a Digital Phonorecord Delivery of that 
sound recording that is only accessible for listening for--
* * * * *
    Licensed Activity, as the term is used in subparts C and D of this 
part, means delivery of musical works, under voluntary or statutory 
license, via Digital Phonorecord Deliveries in connection with 
Interactive Eligible Streams, Eligible Limited Downloads, Limited 
Offerings, mixed Bundles, and Locker Services.
* * * * *
    Sound Recording Company * * *
    (4) Performs the functions of marketing and authorizing the 
distribution of a sound recording of a musical work under its own 
label, under the authority of a person identified in paragraphs (1) 
through (3) of this definition.
* * * * *

0
3. Revise Sec.  385.10 to read as follows:


Sec.  385.10  Scope.

    This subpart establishes rates and terms of royalty payments for 
making and distributing physical phonorecords, Permanent Downloads, 
Ringtones, and Music Bundles, in accordance with the provisions of 17 
U.S.C. 115.

0
4. In Sec.  385.11, revise paragraph (a) to read as follows:


Sec.  385.11  Royalty rates.

    (a) Physical phonorecords and Permanent Downloads--(1) 2023 rate. 
For the year 2023, for every physical phonorecord and Permanent 
Download the Licensee makes and distributes or authorizes to be made 
and distributed, the royalty rate payable for each work embodied in the 
phonorecord or Permanent Download shall be either 12.0 cents or 2.31 
cents per minute of playing time or fraction thereof, whichever amount 
is larger.
    (2) Annual rate adjustment. The Copyright Royalty Judges shall 
adjust the royalty rates in paragraph (a)(1) of this section each year 
to reflect any changes occurring in the cost of living as determined by 
the most recent Consumer Price Index for All Urban Consumers (U.S. City 
Average, all items) (CPI-U) published by the Secretary of Labor before 
December 1 of the preceding year. The calculation of the rate for each 
year shall be cumulative based on a calculation of the percentage 
increase in the CPI-U from the CPI-U published in November, 2022 (the 
Base Rate) and shall be made according to the following formulas: for 
the per-work rate, (1 + (Cy-Base Rate)/Base Rate) x 12[cent], rounded 
to the nearest tenth of a cent; for the per-minute rate, (1 + (Cy-Base 
Rate)/Base Rate) x 2.31[cent], rounded to the nearest hundredth of a 
cent; where Cy is the CPI-U published by the Secretary of Labor before 
December 1 of the preceding year. The Judges shall publish notice of 
the adjusted fees in the Federal Register at least 25 days before 
January 1. The adjusted fees shall be effective on January 1.
* * * * *

    Dated: November 30, 2022.
David P. Shaw,
Chief Copyright Royalty Judge.
David R. Strickler,
Copyright Royalty Judge.
Steve Ruwe,
Copyright Royalty Judge.
    Approved by:
Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2022-27237 Filed 12-15-22; 8:45 am]
BILLING CODE 1410-72-P