Publishers Place: The Royalty Error

Just because the Copyright Royalty Board on Feb. 14 issued its final determination for the royalty rates that satellite radio and subscription services must pay to SoundExchange on behalf of artists and labels, that doesn't mean it's a done deal.

The CRB set the satellite radio rates at 9% of gross revenue for 2013, rising incrementally each year to 11% in 2017. Within 60 days that rate determination must be published and after that happens, either party has another 30 days to file for an appeal with the Circuit Court of Appeals in Washington, D.C.

But on the way to a date with the Federal Register, the determination got sidetracked by Register of Copyrights Maria A. Pallante, who filed a notice of review for legal error.

According to the notice, the Register of Copyrights questions whether the CRB judges' decision to ignore the SoundExchange argument that the upper boundary zone for the rates should be in the 22%-32% range of gross revenue, and instead focus on the 13% upper boundary from the CRB proceedings five years ago, is supported by the written records used during this latest proceeding.

The decision to use 13% as the upper boundary probably made SoundExchange CEO Mike Huppe and his team unhappy because it used the same exact process this time that it used to derive that percentage five years ago. Since they used the same analysis, this time it led to different results. So if the analysis they used five years ago was good enough for the CRB, why are the results that it produced this time not to its liking?

Pallante is also questioning whether the rates achieved the four statutory objectives set forth as part of the CRB mandate: maximize the availability of creative works to the public, give a fair return to the copyright owner and a fair income to the user, reflect the roles of the owner and user in the product made available to the public and minimize any disruptive impact on the structure of the industries involved.

If it's determined that the CRB made an error, does this rise to constituting a legal error? SoundExchange and satellite broadcaster SiriusXM had until March 22 to present their responses.

If the Register of Copyrights decides there was a legal error, it will not change the rates, but it would have an impact on future proceedings.

For one, it's still an open question on whether either side will appeal the rates. After the CRB issued its final determination, both sides filed motions for a rehearing, which the judges denied. Some are betting that one or both sides will file an appeal, and that SoundExchange probably submitted a brief to the Register of Copyrights arguing that the CRB actions do constitute a legal error. That way, it can wield such a decision by the Register of Copyrights in the D.C. Circuit Court of Appeals.

Sources suggest SiriusXM probably made the argument that the decision on how the upper boundary was determined should be a part of the appeal and not be ruled a legal error by the Register of Copyrights. This way, if there is an appeal on the rates, SoundExchange won't have a Register of Copyrights-determined legal error to help its case.


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