CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

As a threshold matter, Judge Walton rejected efforts to have the complaint tossed on jurisdictional grounds. No problem there, said the Judge, the District Court does indeed have jurisdiction – that is, the necessary authority – to hear such constitutional challenges.

Having brushed that question to the side, the Judge charged on to the merits.

As we reported last September, Live365’s argument consisted of a two-prong attack based on Article II of the Constitution. That section refers to two separate types of “officers” of the U.S.:   “principal” officers and “inferior” officers. Under the Constitution, “principal” officers must be appointed by the President and confirmed by the Senate; “inferior” officers, on the other hand, are not subject to the President/Senate limitation, but they may be appointed only by either the President, the courts, or “heads of departments”. Live365 (and Judge Kavanaugh before it) doubted that CRB judges satisfied either set of criteria.

Live365 first argued that CRB judges are “principal” officers because:

• they function without any real supervision from the Librarian of Congress;
• they’re not subject to limitations to which “inferior” officers are (such as limited duties, limited jurisdiction, temporary tenure, ability to be removed from office);
• they’re not subject to performance appraisals from their superiors;
• they have the same powers and responsibilities as their predecessor body, the Copyright Royalty Tribunal, whose members were directly appointed by the President as “principal” officers.

The trouble is that, while all those factors might indeed support Live365’s wished-for conclusion, the Supreme Court has not yet adopted any “bright line” test in this area. Rather, the Supreme Court has thus far chosen a case-by-case approach, looking at the peculiar matrix of factors presented in each individual case. Taking his cue from the Supremes, Judge Walton did the same here.

And to Live365’s disappointment, he decided that the defendants had the better argument. In his view, CRB judges should be deemed “inferior” (but only in the best sense, of course), largely because:

• CRB judges receive direction and supervision from the Librarian of Congress and the Register of Copyrights, who can promulgate and enforce binding ethical rules;
• the Librarian of Congress and Register of Copyrights provide all the judges’ administrative resources  and assign other duties.
• the Register of Copyrights can review the CRB judges' decisions for “legal error”.

But even Judge Walton acknowledged that there is room for disagreement here. Noting Judge Kavanaugh’s “understandable” observations, Walton conceded that “[t]he current state of the law has essentially created a gray area”, thanks to “the limited guidance the Framers of the Constitution provide as to where ‘[t]he line between ‘inferior’ and ‘principal’ officers . . . should be drawn,’ and the Supreme Court’s refusal to ‘decide exactly where the line falls between the two types of officers.’”

Having satisfied himself that the CRB judges are “inferior officers”, the Judge next analyzed Live365’s claim that, as such, they miss the Constitutional boat because they aren’t appointed by either the President, a “Head of Department”, or a court, like the Constitution requires.   

CRB judges are appointed by the Librarian of Congress. In Live 365’s view, the Librarian of Congress isn’t a “Head of Department" because he’s really part of the Legislative, not Executive, Branch. Not a crazy argument, since the Librarian reports to Congress, portrays itself as part of Congress, and has, in other contexts, been deemed by the D.C. Circuit to be part of the Legislative Branch. Hey, he’s the Librarian of Congress, for crying out loud.

Judge Walton was not persuaded. Sure, the Library of Congress is treated as a component of the Legislative Branch in the U.S. Code, but the Librarian (according to Walton) functions as an Executive Branch head: the Librarian is appointed (and can be removed) by the President and is in no way limited by Congress or Members of Congress. Moreover, the Copyright Act, in creating the Librarian of Congress, vests the Librarian with the power to appoint several employees in the manner afforded to other Executive Branch heads.

In light of those factors, Judge Walton concluded that Live365 had “not met its burden of showing that there is a substantial likelihood that it will succeed on the merits of its alternative Appointments Clause challenge”. The emphasis on “substantial” was the Judge’s, not ours – from which a reader could reasonably conclude that the Judge might think that there was at least some possibility (although obviously not a “substantial likelihood”) that Live365’s argument might prevail. So perhaps hope should spring eternal. After all, the Judge was merely ruling on the “preliminary injunction” aspect of Live365’s request, i.e., the part in which Live365 asked the Judge to order the CRB to stop its proceedings pending resolution of Live365’s request for a permanent injunction.

In seeking a preliminary injunction, a party is expected to demonstrate not only that it is likely to succeed on the merits of its ultimate claim, but also that it will sustain “irreparable harm” if a preliminary injunction is not granted. On this point, Live365 argued that, if it were forced to participate in a CRB rate-making proceeding while Judge Walton pondered Live365’s request for a permanent injunction, Live365 would incur more than $1 million in costs. Unfortunately for Live365, mere monetary harm generally doesn’t rise to the level of “irreparable” in the world of preliminary injunctions. And what’s worse, Judge Walton found that the other side would be harmed if the preliminary injunction were to be granted. The “already-tight schedule” of the CRB proceeding would have to be further “compressed”, and recording artists would not get paid during this period, which could adversely (and possibly profoundly) affect their finances. The Judge also decided that the public interest would not be harmed if the webcasting case goes forward.  Bottom line: request for preliminary injunction denied.

So the CRB lives on to set rates, at least for the time being. Live365 may continue to press for a permanent injunction, although the short-term outlook there isn’t great in view of Judge Walton’s detailed, and unfavorable, analysis of Live365’s constitutional arguments. Still, that analysis did include the acknowledgement that the question is far from settled, and Live365 has the added comfort of knowing that, once it moves past Judge Walton, it will find itself in the D.C. Circuit, i.e., Judge Kavanaugh’s house. Since Live365 has a pretty good idea that that judge, at least, is likely to be sympathetic to its arguments, don’t be surprised if Live365 picks itself up off the canvas and keeps slugging to get to the next round.

As we’ve discussed in the past, primarily in relation to webcasting, there exist two copyrights in any publicly-performed song.  One is the copyright in the underlying “musical work”, i.e., the song itself (consisting of the music and lyrics). That copyright is generally owned by the songwriter (although it may be transferred to, e.g., a publishing company).  The other – which is not at issue here – is the copyright in the “sound recording”, i.e., the particular version, or performance, being transmitted at any particular time. That copyright, which is sometimes referred to as the “performance right”, is generally owned by the recording artist performing that particular version (although, again, ownership of the copyright may be transferred to, e.g., the record company). 

Songwriters – the folks who own the rights in the underlying “musical work” – are for the most part represented by agencies which collect and distribute royalties for the broadcast (or webcast) of their works. These agencies include ASCAP, BMI and SESAC (the Society of European Stage Authors & Composers).

Because of prior antitrust actions taken against them, ASCAP and BMI are covered by a “consent decree” administered by a United States District Court. Every few years, RMLC – a voluntary organization of individuals representing a broad range of the radio industry – renegotiates a new rate structure for payment of royalties by radio broadcasters to ASCAP and BMI.  (SESAC was not a part of the earlier antitrust action and, therefore, has separate negotiations with RMLC). The current rate structure applicable to the ASCAP- and BMI-administered copyrights expires on December 31, 2009. It is not certain that a new rate agreement will be reached and approved by the federal court prior to that expiration date.

Stations that have already given authorization to RMLC to negotiate on their behalf are automatically covered by any rate agreement that is reached for January 1, 2010 and beyond, as well as the rate agreed upon to “bridge” the period between December 31, 2009 and the commencement of that new term. 

Any radio broadcaster that has not yet given such authorization to the RMLC can still do so, in which case any agreements will automatically apply to that broadcaster as well. Broadcasters who, for whatever reason, would prefer not to authorize RMLC to negotiate on their behalf may also sign a direct agreement with ASCAP and/or BMI in which the broadcasters agree to be bound by any new, post-January 1, 2010 terms and the terms of the “bridge period”. 

The letters which many broadcasters have been receiving in recent weeks are intended to make it easy for anyone still interested in signing up (whether with RMLC or ASCAP or BMI) to do so.  

We cannot provide general advice via this blog, but radio broadcasters who receive such a letter from RMLC, ASCAP or BMI should feel free to contact us if you have any questions.

Live365’s argument, which draws from the reasoning advanced in both of the earlier cases, goes something like this.

The Constitution (Article II, to be precise) permits the President to appoint “officers of the United States”, as long as such appointments are subject to the advice and consent of the Senate. The same provision also permits Congress to designate certain “inferior officers” who can be appointed without the one-two punch of presidential appointment and Senate confirmation – BUT the Constitutional power to appoint those “inferior officers” is limited to the President, the courts, and “heads of departments”.

So there appear to be two types of U.S. “officers” identified in the Constitution: those which we can call “principal officers”, requiring Presidential appointment and Senate confirmation; and those which the Constitution refers to as “inferior officers”. But the appointment process to which CRJs are subject does not satisfy the Constitutional criteria for either type. CRJs are appointed by the Librarian of Congress. They thus cannot be “principal officers”. And since the Librarian of Congress is not a “head of department”, so the argument goes, CRJs cannot be “inferior officers”, either.   Accordingly, CRJs cannot be deemed to be validly-appointed U.S. “officers”, and their actions – including, for example, orders establishing royalty schedules – must be deemed to have no lawful effect.

Based on this line of argument, the Live365 case will hinge on:

• Whether the Court agrees that the CRJs rise to the level of “officers” of either type; and
• The proper characterization of the Library of Congress is a “department” whose “head” (i.e., the Librarian of Congress) may be given the power to appoint “inferior officers” under Article II of the Constitution.

Live365's complaint also argues that, because there is a high likelihood that the Court will find the CRJs to be unconstitutional and without authority, the Court should immediately order the CRB to terminate the upcoming proceeding to set the rates for 2011-2015. According to Live365, that proceeding is “a costly, intensive, year-long proceeding that may later be deemed null and void by a judicial determination that the CRB was constituted and sat in contravention of the Appointments Clause [of Article II].” 

We think that Live365 makes a very good initial argument. But that’s easy to do in a complaint. So we’re really interested in seeing what the government argues in response – and whether the Court does, in fact, rule on the preliminary injunction before the parties in the webcasting proceeding must make their next filings (direct statements) on September 29, which kicks off the trial-related frenzy that is the next phase of the CRB proceeding.

We’ve also heard that the way the Request came by its official docket number was a bit, um, unorthodox, but what the heck – the FCC controls its docket number assignment processes, and as long as it can keep those numbers straight, it can assign them however it wants.

While documents can be misfiled or mislaid by even the best of us, the Commission’s delay in making a copy of the Request available for public review is troubling. In our experience the Secretary’s office is one of the tightest-run ships around, so it’s striking that they reportedly haven’t been able to come up with a stamped copy. Unfortunately, thanks to the delay, we’ve already burned through five of the 30 days provided for comments. Since the deadline for comments was thoughtfully set for the Tuesday after Labor Day weekend, every day counts here.  (Yes, we know that this doesn’t affect us, because we’ve already got our copy. But what about everybody else?)

Perhaps most distressing is the question of why there has been any problem here at all.  After all, the Commission issues public notices and opens up dockets all the time. Presumably it has a standard operating procedure to assure that everything is in order before a proceeding is initiated, a docket number assigned, public comments invited, etc. And (also presumably), if that SOP had been followed, somebody would have realized that the stamped copy of the Request – i.e., evidence that the Request had in fact been filed at all – had apparently gone missing. We like to think that the process would then have stopped until the supposedly errant copy had been wrangled back into the files.

So the fact that the public notice was hustled out as a “late release” (supposedly on Friday evening, but did anybody actually see it released before Monday morning?) is odd. After all, what’s the hurry here? Why was it so darned important to get the notice out the door on August 7 when August 10, 11, 12, etc., all would presumably have done just as well?

It is, of course, entirely possible that there are perfectly reasonable answers to these questions. But we’re having trouble coming up with any. The seemingly slapdash haste with which the invitation for comments was issued is particularly problematic in view of the fundamental questions of First Amendment protections and scope of FCC authority posed by the Request.

Unless and until the Commission provides some explanation for both (a) the delay in getting a copy (and particularly a stamped copy) of the Request posted for all to see and (b) the decision to release the public notice on a rush-rush basis late on a Friday with the stamped copy still AWOL, folks at the FCC should not be surprised if many of us take their paeans to “transparency” (like here, or here, or here) with more than a grain of salt.

In June MusicFIRST filed its Request, alleging that, “[b]y using their licenses over public airwaves to promote their own pecuniary interests and to distort an important matter of public debate”, broadcasters are violating their public interest obligations. The Coalition suggested that the Commission should consider “strengthening the license renewal process and shortening license terms”.

Acting with unusual speed – in our experience, this kind of declaratory ruling request can gather dust for months, if not years, before the FCC even acknowledges that it’s been filed – the Commission has invited comments. In particular, the agency is looking for input on the following points:

• whether and to what extent certain broadcasters are “targeting and threatening artists who have spoken out in favor of the PRA,” including a refusal to air the music of such artists;
• the effects of radio broadcasters’ alleged refusal to air advertisements from MusicFIRST in support of the PRA;
• whether and to what extent broadcasters are engaging in a media campaign, coordinated by NAB, which disseminates falsities about the PRA; and
• whether certain broadcasters have evaded the public file requirements by characterizing their on-air spots in opposition to the PRA as public service announcements.

MusicFIRST is clearly trying to get broadcasters’ attention by attacking them where they are arguably most vulnerable – in the soft white underbelly of the regulatory/licensing process.

Of course, the Request does not ask the FCC to address the merits (or lack thereof) of the PRA . . . and properly so, since the FCC has neither the expertise nor the statutory authority to weigh in on such issues. Rather, the Request gets the FCC’s attention by claiming that at least some broadcasters may not be playing by the rules and may be acting unfairly in some way. Using that as a hook, MusicFIRST suggests regulatory responses (e.g., shortened renewal terms, possible disciplinary action) that might, um, incentivize broadcasters to be more, er, open to the PRA and its advocates.

The Request is particularly interesting for what it does not provide: any significant, detailed, factual information to support its extravagant claims of some industry-wide cabal resulting in rampant disregard for any particular rule(s). While the Request purports to “reveal a pattern of threats and intimidation by which broadcasters are using their licenses” improperly, the Request describes in the tersest possible manner a total of five instances of such supposed misconduct. And those instances are not identified with respect to the station(s) in question or the artists who were supposedly threatened or intimidated. While such vague, unverified and unverifiable charges may have worked for Joe McCarthy back in the day, we thought that government had gotten past that particular gambit by now. Apparently not.

Moreover, even if the five examples sketched anonymously in the Request could be shown to be every bit as bad as MusicFIRST would have us believe, that would still reflect the conduct of but a very, very small handful of stations in a radio industry numbering more than 14,000 stations. (By the way, one of the five anonymous instances referred to in the Request has been tracked down by a newspaper: it turns out to be a 100-watt noncommercial high school station in Delaware at which the students opted for a one-month boycott of MusicFIRST-related artists two years ago. It would be difficult to claim with a straight face that that incident reflects some industry-wide “pattern of threats and intimidation”.)

The Request also alleges that “broadcasters are refusing to accept ads” from MusicFIRST and its allies relative to the PRA. Again, however, the “evidence” of such refusals is slim at best. The Request mentions six – count 'em, six – stations (by call sign) which purportedly declined the MusicFIRST spots. It also says that a request to run the spots “in 38 different markets on a variety of different types of stations” was sent to Clear Channel – and as of the date of the Request, Clear Channel had not responded, even though “[i]t has now been over a week since we sent the script.” No real smoking gun there.

The Request claims that broadcasters are “spread[ing] malicious and untruthful information about the PRA.” MusicFIRST’s knickers are all in a twist because, for example, some anti-PRA materials distributed by some broadcasters refer to the PRA as a “tax”.   MusicFIRST’s position is that the term “tax” can refer only to situations involving making payments to a government, and since the PRA provides for no such payments, well, then, obviously, use of the word “tax” has got to be a Big Lie. But the word “tax” also means “a heavy burden”, without reference to the precise nature of the burden. If the promo items in question had been hypertechnical legal documents in which the use of the word “tax” called for ultra-precision, MusicFIRST’s criticism might have some basis. But the materials don’t appear to have called for such nice distinctions. And since pretty much everybody agrees that the PRA would, in fact, impose a heavy burden on broadcasters, it’s hardly malicious or untruthful to refer to it as a “tax”.

Finally, MusicFIRST frets that all of this supposed nefarious skullduggery is being orchestrated by the NAB and is “blatantly anti-competitive”.

So, gesticulating wildly at all that blue smoke and all those mirrors, MusicFIRST urges the Commission to come to the rescue. Interestingly, while the gist of the Request sounds an awful lot like a complaint under the long-gone Fairness Doctrine, MusicFIRST defensively claims that that’s not the case. But it asserts that broadcasters “have a statutory duty to use their monopoly . . . responsibly and not simply to further their own economic interests.”

The Commission, for its part, acknowledges that “substantial First Amendment interests are involved in the examination of speech of any kind.” It also recognizes that no remedies may be necessary, or available, to address the activities which MusicFIRST alleges.

But none of that is stopping the Commission from jumping right into this fracas with both feet, notwithstanding the anonymous, non-specified, unverified and unverifiable nature of MusicFIRST’s claims. By doing so, the FCC seems to be signaling its sympathy for the artists’ position – for sure, by inviting any comments at all the Commission appears to be giving the benefit of every conceivable doubt to MusicFIRST.

If you want to chip in your two cents’ worth, you have until September 8, 2009 to file comments. Reply comments are due by September 23.

In order to be covered by the settlement, a webcaster must: 

• Be Licensed by the Federal Communications Commission;
• Originate programming (not be solely a repeater station);
• Be a member or affiliate of:
  
  • NPR
  • American Public Media
  • Public Radio International,
  • Public Radio Exchange, 
  • the  National Federation of Community Broadcasters, or
  • or be a public radio station that is qualified to receive funding from CPB.
    
• Qualify as a "noncommercial broadcaster" under the statutory licensing rules; and
• Webcast as part of the mission that entitles the owner to be exempt from taxation under Section 501 of the Internal Revenue Code, or, if it is owned by a government entity, operate for a public purpose. 

The 450 or so qualifying stations agreed to make a $1.85 million lump sum payment to SoundExchange covering the years 2006-2010.  We now understand that individual stations covered by this settlement will be making their payments to NPR Public Interactive.

So, public radio licensees, keep an eye out for correspondence from NPR Public Interactive.  If you believe yourself to be covered by this settlement and don't hear something from NPR Public Interactive in the very near future, please let us know, as first reports to SoundExchange will be made in mid-July.

At issue is a patent (No. 6,577,716, if you’re into that kind of thing) which covers methods for (a) “replacing a portion of the content of a radio broadcast that is to be distributed over the Internet” and (b) distributing a portion of the content of a radio station broadcast over the Internet.” To folks not steeped in the technical intricacies of patent descriptions (i.e., us), the overall description of the “methods” is not a model of specificity and detail. It refers, without much elaboration, to the use of content-related “markers” to trigger the identification of “local” programming (e.g., ads, news, weather, sports, traffic) and the replacement of such programming with programming “applicable to individuals located outside the geographical range of the radio broadcast”. 

Exactly what (if any) specific hardware and/or software might be necessary to implement these “methods” does not appear to be identified in the patent itself.

If successful, Aldav could potentially receive millions in both “actual” and “enhanced” damages, and could obtain a permanent injunction preventing these stations from using the patented process without Aldav's permission.

Of course, broadcasters might want to yank local programming from their Internet stream and replace it with wider- interest material for a number of reasons. Replacement of local spots often makes sense, since the advertiser presumably is not expecting business from a global audience, and, conversely, a global audience presumably isn’t interested in hearing about some local business. Also, a station’s right to transmit some content, including locally-produced spots and even some music, may not include Internet transmission – in which case the station could subject itself to claims by the content’s producer, talent and/or copyright holder for additional compensation if that content were to be included in the stream. (While the station may be indemnified by the commercial producer or broker in the event that the talent sues to recoup the extra compensation he or she believes is owed for this extra performance of the commercial, the station and the station alone will be on the hook for the sound recordings performed but not reported to SoundExchange.)

So it's no surprise that content substitution may be standard operating procedure among many, if not most, streamers.

The big question raised by the Aldav suit is whether Aldav’s patent really does give it a monopolistic (or near-monopolistic) lock on any such program-replacement activity. Presumably Aldav thinks so, and is looking to establish that principle by dipping into some of the deepest pockets in the business. In view of the potentially astronomical stakes on the table, though, it is not likely that anybody’s going to be conceding liability in the early rounds.

Meanwhile, streaming stations not targeted by Aldav’s suit should take a close look at their own program-substitution practices, with an eye to trying to dodge any litigation bullets that might get shot in their direction as this situation develops.

We have prepared a series of interlinked informational slides to guide you along the path. By clicking on the links that apply to your own situation, you can wend your way through the Webcast Royalty Maze. (Don’t worry about making a mistake: you can go back at any time if you think you've answered a question wrong or if you think that you'd like to take advantage of some other available option.)

NOTE: This was created prior to the execution of settlement agreements in August 2009 that cover noncommercial webcasters and noncommercial educational webcasters.  If you are a noncommercial webcaster who might be eligible for one of these agreements, please look for an updated version of this step-by-step guide or contact us for more information.

So, let's begin with an easy one: If you are engaged in the non-interactive public performance of sound recordings by means of a digital audio transmission, click here. 

If you are not engaged in the non-interactive public performance of sound recordings by means of a digital audio transmission, then the statutory license for webcasting does not even apply to you.

SoundExchange and the Corporation for Public Broadcasting have announced that a settlement has been reached that will alter the way in which these stations pay royalties and report webcasting performances through 2010. 

The current royalty rates have been the subject of significant discussion in the broadcasting community, including  several  informative  articles  in  this  very blog.  The sharp increase in rates for the period 2006-2010 was especially feared by noncommercial stations with a large web audience, as those noncommercial stations would pay at commercial rates anytime their internet listenership exceeded 159,140 "aggregate tuning hours" in a given month, as opposed to the flat fee these stations (and small webcasters) had paid prior to the institution of new rates.

Pursuant to the Webcaster Settlement Act of 2008, this settlement agreement can go into effect immediately, with the following applicable terms: 

• Any eligible radio station which chooses to participate will not have to make any further royalty payments until December 31, 2010, as CPB will make a single, up front payment of $ 1.85 million to SoundExchange on behalf of public radio staitons. 
   
• SoundExchange will also create a consolidated playlist reporting system for use by all stations which choose to become a part of this program; those stations will be responsible for providing playlist information to CPB.
   
• Stations wishing to participate must register their intent with CPB on a designted website; CPB will provide details regarding that registration website in the near future.
   
• This agreement does not affect the "sound performance complement" portion of the statutory license (the restrictions on the number of songs that can be played from a certain CD or by a certain artist within a given time frame, the length of time for which a program can be archived, etc), meaning even participating stations must follow those rules.
   
• As a condition of the settlement, NPR will withdraw its appeal of the Copyright Royalty Board decision (we see this as an indication that more settlement discussions continue between SoundExchange and those segments of the webcasting community that are part of the pending court appeal).

No station is required to participate in this settlement. Thus, a station that is certain it will never exceed the aggregate tuning hour limitation in any given month may simply decide to ride out the next two years until the new rates are determined for 2011 and beyond in a proceeding that will commence in the near future (more on that soon).  Still, if you believe you may be eligible and wish to participate, keep an eye out for further communications from CPB or contact a Fletcher, Heald & Hildreth attorney.