The Copyright Royalty Board (CRB) formally made SoundExchange the sole "collective" to handle compulsory performance royalties for sound recording owners and performers. The CRB officially adopted a single-collective system to collect and distribute royalties paid by webcasters and Internet simulcasters.

Near the end of its 115-page decision setting webcasting royalty rates released earlier this week (March 6), the CRB addressed a request by Royalty Logic. The for-profit company, a subsidiary of Music Reports, wanted to become a "designated agent" to receive and distribute royalties under the compulsory license scheme. The Copyright Royalty Judges not only denied the request, but they made it clear why SoundExchange is - and should be - the one and only collective.

The Copyright Act, if read literally, requires services to pay royalties directly to each sound recording copyright owner and performer, the judges wrote. In the first rate proceeding, completed in 2002, webcasters and the RIAA negotiated a payment scheme for all services to pay royalties to a single receiving agent, i.e., SoundExchange. At that time, SoundExchange was a division of the RIAA. It has since become a separate non-profit organization.

SoundExchange was to distribute royalties to those identified in federal regulations as "designated agents." The parties then agreed that SoundExchange and Royalty Logic would be the designated agents. The Librarian of Congress "reluctantly" adopted this scheme, the judges wrote this week. The Librarian believed that a two-tier structure (i.e., receiving and designated agents) added expense and administrative burdens to a process meant for prompt, efficient and fair payments to copyright owners and performers with a minimum of expense.

That scheme expired at the end of 2002. When the parties negotiated rates
for the 2003-2004 term, they kept the receiving agent/designated agent
structure, but did not recognize Royalty Logic as a designated agent. So the
company requested that the then-Copyright Arbitration Royalty Panel convene
on the issue of royalty collection, but Royalty Logic withdrew from the proceeding.

Now, Royalty Logic asked the CRB to formally recognize it as a designated agent. The company argued that there is a need for a competitor to SoundExchange.

The judges wrote that there is a "fundamental misperception" by Royalty Logic and, to a lesser extent, by SoundExchange regarding receiving and designated agents. The entire structure is a "legal fiction," they wrote, and the judges are under no obligation to preserve it.

Declining to adopt the two-tiered agent system, the CRB adopted a system for
a single "collective," i.e., an organization that would both collect and distribute compulsory royalties under section 114 of the Copyright Act. Every service using the compulsory license must pay royalties to this collective for all copyright owners.

"It represents the most economically and administratively efficient system for collecting royalties under the blanket license framework created by the statutory licenses," the judges wrote.

In concluding a five-page comparison of SoundExchange to Royalty Logic, the
CRB expressed "serious reservations" about Royalty Logic. The judges concluded that SoundExchange "will best serve the interests of all copyright owners and performers" whose works are subject to the statutory licenses.

The CRB named SoundExchange the collective for the 2006-2010 royalty period.

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