For my Billboard "Legal Matters" column this week (Oct. 20 issue), Chief Copyright Royalty Judge James Sledge met with me in his office on Capitol Hill for an exclusive interview to explain how the new Copyright Royalty Board (CRB) works.

It was just last March when the Copyright Royalty Judges (CRJs) handed down their first decision, which set royalty rates for webcasters and simulcasters that perform (i.e., stream) recordings to the public. The decision set off a firestorm within the webcasting community, and even prompted some legislators to introduce bills to change the result.

That decision is on appeal. The second CRB trial is nearing a close (rates for cable and satellite use of recordings), and the third trial is expected to begin early next year (rates for reproduction and distribution of recorded compositions).

So I thought it would be helpful to the lawyers and the parties involved in royalty rate proceedings (who pretty much make up the entire music industry) to post the entire interview online.

But first, some background. Congress passed legislation creating the Copyright Royalty Board in 2004 under the auspices of the Library of Congress. It replaced the Copyright Arbitration Royalty Panel (CARP). The CRB is required to set reasonable royalty rates and terms for all licenses made compulsory under the Copyright Act and to oversee distribution of certain royalties.

In January 2006, the three CRJs were sworn in: Chief Judge James Sledge, Judge Stanley Wisniewski and Judge William Roberts.

Sledge is a retired bankruptcy judge from Alabama. He has chaired the judicial division of the American Bar Assn. and the National Conference of Federal Trial Judges. He also served for 12 years on the Alabama State Council of the Arts and was a director of the Alabama Symphony Orchestra.

Wisniewski holds a Ph.D. in economics and a law degree. He is a former litigator. Roberts began his legal career in the Copyright Office, served as an attorney advisor to the office's general counsel, and was later promoted to senior attorney for compulsory licenses. He also teaches copyright law.

SB: When the three of you first took your oath of office the beginning of 2006, what did Congress expect you to do?

JS: Our initial obligation was to set up the new agency -- to implement a new system that had not been tried before with copyright royalties. Then the pressing part was that there was a backlog [of cases] as a result of people waiting for this new system to come into place.

After Congress first agreed on the system with the various parties in interest, it took about one and a half years for the legislation to pass, for us to be appointed and [for us] to get here [to Washington, D.C.]. There was a pretty good backlog that we are still facing as a result of that. Getting the agency begun, getting moved into quarters, hiring staff, adopting regulations for procedure and working on the backlog are what we began with and what we're still doing.

SB: When you look back over the last one and a half years, what are you most proud of accomplishing?

JS: There's two things I'm most proud of. The first is something that none of us had any calls for this to have happened -- probably serendipity -- that the three judges appointed have developed a very close chemistry and very close relationship. It's the easiest working relationship I've ever had as a judge. Everything we've done to this point has been unanimous. That is rather extraordinary.

We all came from very different backgrounds. Because of our backgrounds, we all came from different understandings and philosophies of the judicial process. Notwithstanding that, we've been able to discuss everything that's come up, reach an agreement or a compromise on ways to proceed, and have all supported that. And that is an interesting surprise.

As part of that relationship, one of our primary goals -- and one of the things that I can see strong results in already -- is to turn the process from what the parties were used to into what we have now. That is, going from a system that the parties pretty well controlled, working among themselves and working with arbitrators that were very responsive to the parties' needs and desires, and moving into a judicial system where there are rules of procedure, where the parties are expected to comply with those rules, where there are rules of evidence, where the institution has needs as well as the parties. That was a surprise to the parties at first.

Some of the positions [the parties] take today still sometimes reflect [an attitude of], "We're in charge of this system, therefore you [the CRJs] should be doing what we want you to do," as opposed to our inclination [as CRJs] to follow the system that has been set up and to expect the parties to comply with that system, whether it be deadlines, manner of presentation, rules of evidence.

That has caused a little bit of adjustment for the parties. I can see very quickly that those adjustments are being made [in] the way that the trials are being conducted. The parties are much more attuned to presenting something efficiently and within the rules than they were when we began with webcasting.

SB: It seems that since the webcasting trial, word got out to other lawyers that you aren't like the former CARP arbitrators, who sometimes acted more like mediators in a settlement negotiation than as judges at a trial.

JS: That's true, [CARP was] a very informal proceeding. Now it is a trial, a formal judicial proceeding. The parties at first had to adjust to that. We've tried, within that setting [and] just like all courts, to strongly encourage the parties to be involved in discussions. There's never a doubt in my mind that the best result of any trial is one that the parties agree to as opposed to one that the judges impose. That's always a priority.

But we can't -- especially with the backlog we're facing -- say, halfway through the trial, "Maybe the parties are interested in talking to each other. Let's just suspend everything for a month and see how [those discussion] go." We don't have that luxury. We've got to get our trials on the schedules that we've done, we've got to complete them, we've got deadlines for making our decisions by statute. We just don't have the luxury to be as accommodating to the parties as some of them would want.

SB: There was a copyright tribunal decision in the United Kingdom that adopted terms of a settlement between the parties, as well as resolved unresolved issues, which were tried. When you're talking about the parties coming together, I assume it's also possible in a CRB proceeding for the parties to have a settlement and propose, during the trial, that its terms be adopted?

JS: More than that, the scheduling leading up to the trial encourages the parties to identify very precisely where their differences are. If there are areas where there are no differences, then those are stipulated, and there's no need to go to the expense of discovery, bringing in witnesses, and presenting all those [issues] when there's no dispute. We put them through extra steps to make sure they have taken the time to identify where their disputes are and not waste time on areas that they agree on.

SB: What are those steps?

JS: We're having them have discussions and file with us their agreed facts and their disputed facts. That's a pretty time-consuming effort on their part. I'm convinced that that type of case management leads to more efficient trials and a better result because if the parties are coming in and wasting their time on matters they don't dispute, then they may lose focus on what is actually disputed and not do as good a job on the disputed areas.

SB: I'm not sure whether during the CARP proceedings there were lawyers without litigation expertise who represented parties, but it certainly sounds like now litigation lawyers -- rather than transactional or corporate lawyers -- should be handling a CRB case.

JS: In all my judicial roles, it has seemed to me that the substantive law can change in every trial, but a good trial lawyer can handle any substantive matter. There are some exceptions in some states that if you're a good trial lawyer in a state that you would not be equipped to go anywhere in the country to try cases, but that's pretty rare.

[Other than that situation], anyone who's a good trial lawyer, if you're qualified and proficient in trying cases in any state or federal court, then you will feel comfortable here. There's really no difference in the way that matters are proceeded, and not only the in-court process. But a good trial lawyer knows how to identify what's important to the parties and what's not so important, whereas an office lawyer oftentimes may focus on what the statute is, and standards and all, and not be so focused on the parties themselves. I can see a big difference in [lawyers] before me who have those different backgrounds.

SB: If a party doesn't present evidence in the trial so that you can make a decision based on that evidence, it leaves the three of you empty-handed to come up with a result, doesn't it?

JS: That's something unique to this [CRB] court that I have not faced before in other courts, and pretty unique in the judicial system. We have to come up with a good result regardless of what the parties present. Judges are supposed to only deal with what's presented to them, and our standard also is that we can only base our decision on the record [i.e., the admissible evidence] presented.

We had an issue in webcasting where the parties ignored fairly large and important areas of the decision, and did that even after several warnings from the bench that these matters must be addressed. They weren't. So when we were writing our decision, the dilemma was, "Do [we] just not cover the areas that the parties ignored and therefore have a weakness in [our] final determination, or do [we] find a way to include that?"

We were able to [cover the areas], and you're probably familiar with the parts of the decision where this is. We were able to find, because there were things presented and not opposed, that that could be evidence upon which we could base a record notwithstanding the fact that the parties ignored it during the trial.

SB: It sounds like you might be referring to the lack of a definition of a channel or a station.

JS: That was an issue that's similar -- or the cap to be applied to a minimum fee, something [for which evidence] was just not presented.

SB: Why didn't they present that evidence on that issue?

JS: I don't know.

SB: In a civil litigation, the dispute is simply between the parties. You mentioned that you also have a responsibility to the institution. What do you mean?

JS: Our mandate is to issue reasonable rates and terms for all the compulsory licenses. In the judicial setting [e.g., a civil trial], if a party doesn't meet its burden of proof, then either it's not part of the judgment or the ruling is in favor of the other party.

Similar to what we just talked about, if the parties fail to meet their burden of proof, then what judges want to do and are trained to do is not to include that in the decision. If that [evidence] is important [in order] to have a reasonable rate and term, then we're not meeting our mandate if we follow that historic judicial model.

SB: So you have to come up with something.

JS: We have to, but we're limited to what we can do based on what's in the record. So it is very conceivable to me that in a [CRB] trial, if the parties ignore an issue, then what is determined to be a reasonable rate and term based on the evidence may not be in the broad understanding of what a reasonable rate and term would include, but there'll just be that hole.

That points out a difference between our system, and the judicial model on which it's based, versus the FCC or the SEC where [they] have staff that are developing facts and records and information in addition to what's presented at the hearing, and then the commissioners take all of that and come up with a decision -- but it's not in a judicial framework [like the CRB].

SB: What is the review procedure after a decision has been made?

JS: We have, in the way the statute was written, as much independence as any court in the nation. The review of our decisions is restricted to the D.C. Circuit Court of Appeals, and in the statute, the review is fairly limited.

SB: Is it the abuse of judicial discretion standard?

JS: It's that plus. The Circuit is pretty well limited from being involved in any review of the facts unless they determine that there simply are no facts in the record on which the determination could be based. Then they can reverse that [part of the determination].

But as long as the decision is based on an evaluation of facts that are presented, then the Circuit is very limited on what they can do on making that determination. And our proceedings are very factually oriented. There is law involved, but it is not nearly as prominent as the factual evaluations.

SB: In the webcaster decision, which was about 115 pages long, you noted that neither party had evidence that would support a revenue-based model for royalty rates since there were obstacles that needed to be overcome to set that up fairly. You explained why you did not adopt that model. How does that work on review?

JS: The Circuit would only be able to review the record to see if there were no facts on which we based our determination.

SB: If there were facts, the Circuit can't go back into the facts, right?

JS: We're the only ones that can weigh the facts.

SB: Can the Circuit court send the decision back to the CRJs to modify a decision?

JS: If the Circuit determines that the decision is erroneous to the level to be reversible, then they can remand it back to the trial court [i.e., the CRB] with instructions or they can simply reverse it and remand it to the trial court without instructions. It's new territory, and one of the parts of that new territory is that the statute is so precise on everything -- procedure, discovery.

SB: Of course. Interested parties negotiated those provisions of the statute before the legislation was passed.

JS: Right. It's so precise. If there is a remand, then what happens upon remand is not covered in the statute. So what authority does the trial court have to respond to a remand when it's not in the statute? That just has to be a new area plowed.

SB: Is everything now in place at the CRB as far as your staff, facility and procedures?

JS: We've finally, as of about a month ago, got a full staff. That's been a slow process. We were full for a very short time, and then our specialist who is the only non-lawyer on our staff, was approaching her law degree and had an opportunity to transfer to use her law degree. We've now hired someone from the Justice Department who is a support.

Our facility is unresolved. We don't know where we'll be within the Library of Congress organization. We have accomplished something that's taken a little while to get done. We've gotten a recognition within the Library of Congress that we exist in the sense that their organization now reflects us. That was something that was always a question mark in terms of getting any day-to-day activity done.

Now, as of about three weeks ago, the Web site of the Library of Congress reflects the Librarian, the Deputy Librarian which has been vacant for a little over a year now, and the Inspector General of the Library of Congress, then us...

SB: What is the relationship between the CRB and the Copyright Office or the Register of Copyrights?

JS: None. There should be a caveat to that. In the statute, there is a provision for the Register to receive issues that arise within a proceeding that are classified as novel questions of law, like the ringtones issue [raised in the pending Section 115 proceeding].

When those arise, and the parties request it, or the judges request it, the Register can opine on a question of law and then, if that opinion comes out within the time frames of the statute, then that opinion will be binding on the judges in that proceeding.

SB: So anyone who wants a decision better make sure that they want the Register to be the one making that decision before requesting it?

JS: Yes, [the parties] first have to decide if [the question of law] fits in that [novelty] category. If it does fit, whether they want the Register to opine as opposed to having it resolved by the judges.

And then there's another category. After we make our decision, the Register can file an opinion that she disagrees with the decision, and that will be considered by the Court of Appeals on any appeal from us. It would not have any effect on the judges except in a proceeding in the future. Her opinion would not have any effect on the decision that we make. But in the future, if an issue comes up, then we could consider the decision she made as we apply our past decision and consider her opinion on it in our next proceeding.

SB: So, hypothetically speaking, had the parties in the Section 115 proceeding not asked the Register of Copyrights to make a decision on whether compositions used for ringtones are subject to a compulsory license, then the CRJs could have decided the issue one way or another in the proceeding?

JS: Yes.

SB: On the other hand, if no one requested the Register's opinion and it was decided by you and the other two judges during the proceeding and your decision was appealed, then the Register filed an objection to that part of your decision, the Register's opinion could be considered by the Court of Appeals in rendering it's final decision?

JS: That's correct.

SB: In the second scenario -- an opinion made as an objection by the Register after the CRJs' decision on that question of law -- the Register's opinion would be considered by the CRJs in future rate-setting proceedings when it's next time to set rates?

JS: It would be something we would consider along with our former decision. We would have the opportunity to consider the Register's opinion about that as well to help us make the right decision the next time.

SB: Are decisions made by the CRJs binding in the next proceeding -- in the future --- when rates are set for the next period of time?

JS: They are certainly something that we would want to pay close attention to in the next proceeding in order to maintain consistency to the greatest extent possible.

Where we have differences in the next proceeding, [we would] explain those differences -- why the decision in the past on this same issue was one way and, the next time we consider it, why it's another way. The most reasonable expectation of why there would be differences [from rates set for one period of time versus rates set for the next period] is because there would be different evidence. But we would want to explain that so it was clear why one was different than another.

SB: Speaking of evidence, the webcasting decision indicated that there was a lot of confidential evidence that was not disclosed to the public. Will this often be the case?

JS: That's been another adjustment for the parties. The parties have tended in the past to be able to put matters in the record freely and restrict it from the public. The first time that we had a motion to adopt a protective order under which matters would be introduced into evidence under restrictions that the public would not have access to it, we imposed a very strict standard under general jurisprudence as to what parties may restrict from the public.

There's a pretty high burden now to have something restricted from the public. Our default, and our expectation, is that everything is available to the public and should be under public scrutiny. There has to be a pretty good, strong reason that we believe before access is restricted.

SB: I recall after the webcaster decision, with all the media coverage and blog hype, that it was clear many of those writers and bloggers never read the decision. And those who seemingly did read it, and argued with the conclusions, didn't make reference to the fact that there was a lot of confidential evidence that no one but the judges had access to, especially related to financial information or profits.

JS: I'm very skeptical when the parties talk about, "This is such confidential information that no one knows but our senior management, and therefore, before we can put it into evidence, it has to be restricted from all other sources and the public."

We've frequently found during a trial that parties have testified [about things] that fit into that category, [and then] another document would come along that [had been] presented to investors in a conference call -- with the same information [which would mean that more than senior management knew it; it would not be confidential].

So the lawyers who have some experience before us realize how tightly we scrutinize that [claim of confidentiality], and how unhappy we are when we determine that they have represented something to us, and presented testimony to us, that is in fact not true. So they're being a lot more cautious on that than they used to be.

SB: Do all three judges hear all the evidence during the trial?

JS: Correct.

SB: And the decision is made after the three of you discuss it together?

JS: That's correct. As soon as the record is closed, we begin conversations. And then those conversations are not refined into a decision until we get the findings of fact and conclusions of law that the parties present before their closing arguments.

We have told them, and it came up as you'll recall in webcasting, that if you don't present something as a finding of fact that is documented to the record, or a conclusion [of law] that is documented with [legal] authority, then you waive any right to have that in the decision.

While it's a little bit uncharted [territory], that regulation of waiver should prevent you from being able to raise that on appeal as well. That pleading, that is done after the record is closed, is a very critical pleading.

Judge Roberts has taken the lead on emphasizing that to the parties, in each of the two proceedings we've had, on what an important function that is and [that it's] not to be overlooked. We'll get findings that are eight volumes thick. There's plenty to work with [in making our decision].

SB: Are you enjoying your role?

JS: I am because the relationship here among the judges is so nice, the issues are quite challenging and, frankly, because it's so important. It's sometimes awesome to think of how far the impact of our decisions goes and how a decision has a big influence on how technology is developed. That's exciting.