US Court of Appeals Upholds Copyright Royalty Board Webcasting Rates, Despite Sound Exchange's Objections

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The U.S. Court of Appeals for the D.C. Circuit on Tuesday (Sept. 18) upheld the Copyright Royalty Board webcasting rate determination for the period of 2016-2020 on all counts.

The CRB set rates of $0.0017 per song play from ad-supported services in December 2015 following a lengthy rate trial, which included a six-week hearing with 47 witnesses and 660 exhibits consisting of 12,000 pages. That amount was up from $0.0014 in the prior period. The CRB also set a rate of $0.0022 per song play for paid subscription based web casters, down from $0.0025 per play in the prior period.

Appealing the CRB rates, in June 2016, Sound Exchange argued the rates set for the Web IV rate proceedings "do not reflect a fair market price for music and will erode the value of music in our economy."

According to the appeals court decision responding to appellant Sound Exchange and intervenor George Johnson, Sound Exchange challenged four aspects of the CRB ruling.

One, it question the CRB's using Pandora Media's direct deal with Merlin and iHeartMedia's direct deal with the Warner Music Group as benchmark rates to establish its zone of reasonableness -- the upper end rate and lower end rate from which to determine fees. That's because both deals use "steering," where each digital radio can direct more plays for each master rights owner, which would result in more money for them but lower per-play rates. As a result of those benchmarks, the CRB set the $0.0017 per song performance rate for 2016, with that rate to be adjusted for inflation in later years.

Secondly, Sound Exchange decided to use the interactive services rates as benchmarks and it questioned the CRB's subsequent decision to adjust those benchmarks downward. That's because it had decided that the interactive marketplace -- i.e. Spotify, Apple Music, Amazon and Napster -- was "inadequately competitive due to the possession of oligopoly powers by certain copyright holders."

Thirdly, Sound Exchange questioned the CRB decision to set different rates for different types of services, such as ad-supported or paid subscriptions. It also challenged the revision the CRB made to the requirements that auditors have to meet in order to perform audits.

In making those arguments, SoundExchange contended that the board arbitrarily ignored how the statutory license generally prevents parties from negotiating rates above the statutory royalty. And while it had offered expert testimony that the statutory rate acts as a ceiling, the board chose to treat that as theoretical and, instead, decided to rely on the concrete evidence to set rates.

In each instance, the appeals court found that the CRB had adequately and reasonable explained its rate decision and it  affirmed the CRB's rate determinations.

As for the last point, the appeals court agreed with the new requirement auditors must now be certified public accountants, meeting licensing requirement within their local jurisdiction. With this, it upheld the CRB's ruling aside SoundExchange's proposal that the definition of a "qualified auditor" embrace auditors with a "specialized experience," even if not a CPA.

The National Association of Broadcasters issued a statement saying it was delighted that the appeals court rejected SoundExchange's argument in an attempt to upend the CRB established rates. "NAB is delighted by the D.C. Circuit's decision to uphold the streaming rates for broadcasters set by the Copyright Royalty Board," said NAB Executive Vice President of Communications Dennis Wharton in a statement.

Sound Exchange has not yet commented on the decision.