By: David Oxenford, Wilkinson Barker Knauer LLP
On September 18, The US Court of Appeals released a decision upholding the Copyright Royalty Board’s 2015 decision setting the SoundExchange royalty rates for 2016-2020. We wrote about that decision here, and provided more details here. In any appeal of an agency decision, the Court routinely affords the agency deference in reaching its decision. The Court will not overturn that decision unless it has no basis in the record developed on the matter before the agency, or unless the agency decision was arbitrary and capricious – in plain English, the agency did not reach a logical conclusion based on the facts before it. That means that the Courts will not overturn a decision just because the agency might have logically reached another decision – but instead it will only intervene where the agency came to a conclusion that could not be logically supported. In this case, no reason to overturn the CRB decision was found.
SoundExchange on appeal had attacked the CRB decision on several grounds – arguing that several defects led to an inappropriate decision as to the rates that would have been determined by a “willing buyer and willing seller” in a marketplace, the standard to be used by the CRB in setting rates. SoundExchange attacked the benchmarks that were relied on by the CRB to set the rates (the direct licensing deals on royalties arrived at between webcasters Pandora and iHeart Media and various record companies) arguing that these rates were too low as they were negotiated in the “shadow of the statutory license.” They argued that the only direct deals that could have been done were ones that were lower than the rates established by the CRB during the prior rate term, as no music service would agree to higher rates. Arguments were also raised that these rates relied on “steering” – the prospect that labels who agreed to the rates had songs played more frequently than those that did not agree to lower rates. SoundExchange argued that not all labels could take advantage of steering (as a label can only get the benefit of steering when a service is playing less of the music of labels that did not pay for steering). The appeals also challenged the determination that a qualified auditor to check royalty compliance had to be a CPA licensed in the state where the audit was conducted.
The Court looked at all of these arguments and a few related claims, and found that the CRB had adequately justified its decision. The direct deals were the only negotiated benchmarks that existed for noninteractive webcasting services, so they were appropriate to use in setting the royalties. The Court found that there was nothing wrong with relying on agreements that did exist, rather than trying to determine what agreements might exist in some hypothetical situation where a statutory royalty did not exist. The rejection of the steering argument was also appropriate, as the CRB had found that the royalties approximated what would happen in a competitive market were there no statutory royalties where labels were competing to get their product played on music services. The Court also found that the decision as the auditors had a basis in the record.
With this decision, any lingering doubts (see our article here about the appeal being filed) about the current royalties have been resolved, and the rates will (absent an unlikely further appeal) stay in place though the end of 2020. Of course, that is not far away, and next year, the process will begin again, as the CRB starts its proceeding to determine the rates for 2021-2025. The process that seemingly never ends…..
David Oxenford is MAB’s Washington Legal Counsel and provides members with answers to their legal questions with the MAB Legal Hotline. Access information here. (Members only access).
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