But separate opinion questions CRJ’s constitutionality
The U.S. Court of Appeals for the D.C. Circuit has released its decision in SoundExchange v. Librarian of Congress, No. 08-1078, affirming the royalty rate set by the Copyright Royalty Judges (CRJ) for performance of sound recordings by satellite radio services, i.e., XM Sirius. The CRJ are the members of the Copyright Royalty Board. While there is little surprising in majority opinion, a separate concurring opinion from one member of the three-judge panel could spell trouble for any decision coming out of the CRJ for the foreseeable future.
SoundExchange had appealed a 2008 CRJ ruling requiring satellite radio services to pay royalties in the amount of six percent of their gross revenue in 2007, with the rate eventually increasing to eight percent of their gross revenue in 2012. The CRJ also had to attribute a portion of the royalty for the making of an “ephemeral copy” of each sound recording played. (The ephemeral copy is the digital copy stored by the satellite operator prior to playing the sound recording; because it is a “reproduction” of the sound recording, not a "performance" of the sound recording, a separate royalty rate is required.)
SoundExchange argued that the CRJ’s decision was arbitrary and capricious. According to SoundExchange, the CRJ, in setting the rates, improperly over-emphasized some considerations and under-emphasized others. The Court disagreed, holding that the CRJ acted well within the bounds of its discretion. No surprise there.
On the issue of royalties for the ephemeral recording which is a component of satellite delivery, though, the Court remanded the case back to the CRJ for further consideration. All parties – including, curiously enough, the Librarian of Congress – agreed that the CRJ had messed up on that point. In addressing the rate for ephemeral royalties, the CRJ had essentially punted, concluding that such ephemeral recordings are of little value and, therefore, do not warrant a separate rate. The CRJ announced that, rather than set a separate rate for ephemeral recordings, it would simply treat that rate as “embodied” in the performance rate. Since the ephemeral recording rate is specifically mandated by one section of the Copyright Act while performance rates are mandated by another, it was pretty clear that the CRJ’s short-cut would not withstand scrutiny – and it didn’t. (Even the Librarian of Congress agreed on this point.)
The parties did disagree on what the Court should do about ephemeral rates. The Librarian of Congress argued that that issue should be sent back down to the CRJ so that it could take another crack. On the other hand, the adverse private parties – i.e., SoundExchange and Sirius/XM – both asked the Court not to remand; they were all for having the Court set the ephemeral rate itself. The Court declined to take that particular bait, however – it remanded the ephemeral recording rate question back to the CRJ for further consideration.
The majority decision is not particularly groundbreaking, but the concurring opinion of Judge Kavanaugh is a real eye-opener. He raises the startling point that the CRB is unconstitutional because (among other factors) of the novel selection process for its members — the CRJ — which does not include either appointment by the Prez or Senate confirmation. And even more startling, despite his apparent conclusion that it’s unconstitutional, he concludes that, since no party raised that issue, the Court does not need to address it. While there is a conventional judicial doctrine of avoiding constitutional questions where possible, it’s a little surprising that Judge Kavanaugh was content to take that path here. After all, the Court ends up remanding the matter to the body that is, or may be, unconstitutional. You might think that, before it ships the issues and the parties back to a particular forum, the Court would want to satisfy itself that that forum is constitutionally valid. Apparently not.
If nothing else, Judge Kavanaugh’s opinion casts a dark cloud over any decision coming out of the CRJ unless and until the question of the constitutionality of the CRB/CRJ arrangement is resolved. So while this latest Court decision does not itself directly affect broadcasters, it may provide ammunition for broadcasters finding themselves on the wrong side of a CRJ ruling.