Judge denies Live365 preliminary injunction request based on constitutional challenge to CRB

Inferiority never felt so superior. By successfully painting themselves as “Inferior Officers”, the judges of the Copyright Royalty Board (CRB) have dodged a preliminary bullet. And while the odds seem pretty good that they’ll make it through to the end of this particular round, there’s plenty of reason to believe that the fight won’t be over for some time to come.

The main issue: is the CRB unconstitutional? As we reported last summer, in a CRB-related appeal decided by the U.S. Court of Appeals for the D.C. Circuit, Judge Brett Kavanaugh issued a concurring opinion in which he questioned the CRB’s constitutionality. When a U.S. appeals judge goes out of his way to opine that an agency may be unconstitutional, people take notice.

Live365 did just that. Live365 is an aggregator of digital radio stations which is subject to the compulsory copyright license scheme overseen by the CRB. In particular, Live 365 must suffer through the prolonged trial-type rate-setting proceedings CRB uses to set rates and establish terms, and Live365 must live with the (expensive) results of those proceedings.  

Sensing an opportunity, Live365 took the initiative to file a complaint in the U.S. District Court for the District of Columbia (not coincidentally, the court whose rulings are reviewed by Judge Kavanaugh and his D.C. Circuit colleagues) seeking a determination that the CRB is unconstitutional. Needless to say, if Live365’s suit were successful, it would throw the entire rate-making process into massive disarray, possibly scuttling for an extended period the collection and distribution of copyright royalties for webcasting. 

We outlined Live365’s September, 2009 presentation, deeming it “a very good initial argument”, but cautioning that you really can’t put too much stock on a complaint without first checking out what the other side has to say. 

Truer word was never spoken.

Judge Reggie Walton has recently denied Live365’s request for a preliminary injunction. But Judge Walton also rejected motions to dismiss Live365’s case, so it lives on as Live365 presses for a permanent injunction and a final declaration that the CRB is unconstitutional. And while Judge Walton’s denial of the preliminary injunction must be disappointing to Live365, the Judge acknowledged that the law in this area is not at all clear. What is clear is that we probably haven’t heard the last of this matter.

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.