District of Columbia Circuit Upholds Determination of Web Broadcasting Copyright Royalty Rates by Librarian of Congress

The District of Columbia Circuit Court of Appeals upheld a final rule issued by the Librarian of Congress that set copyright license rates for non-subscription-based Internet broadcasters for a period from October 1998 through December 2002. At issue was the legitimacy of the first ever determination of royalty rates and terms for "webcasting," the practice of streaming music over the Internet, and "simulcasting," the concurrent broadcast of music over both radio waves and the Internet. Three broad groups of petitioners appealed the ruling: copyright owners ("Owners"), who were licensing their works for webcast; webcasters and simulcasters ("Broadcasters"), the statutory licensees; and parties who had not participated in the CARP proceedings below but who sought to join the appeal as "aggrieved parties" ("Non Participants"). Statutory license in webcast performances were first established in 1998 by the Digital Millennium Copyright Act ("DMCA"). The DMCA directs the Librarian of Congress to convene a Copyright Arbitration Royalty Panel ("CARP") if copyright holders and web broadcasters cannot reach agreement among themselves on royalty rates. 17 U.S.C.§114(f)(2)(B). Based on information presented by those parties, the CARP attempts to determine the license rates and terms that would be reached in a free market. The Librarian then renders a final rate-setting decision based on the CARP's report.
The CARP convened during February, 2002. In making its rate determination, it relied heavily on a single agreement between the Recording Industry Association of America ("RIAA") and Yahoo!, Inc., even though a total of 26 RIAA webcasting agreements were provided in evidence. The CARP reasoned that in order to create a favorable record for the CARP proceedings, the RIAA had strategically negotiated only those agreements that specified "supra-competitive" licensing fees. In contrast, the CARP reasoned, the Yahoo! agreement contained "considerably lower" royalty fees because Yahoo! was the only company with the necessary clout to negotiate with the RIAA on even terms. The CARP adopted Yahoo!'s bifurcated "sound recording performance rates" (assigning different rates for webcasters and simulcasters) and a rounded version of Yahoo!'s "ephemeral recording rate." The CARP also set the "minimum fee" for a license at $500, the lowest fee among the 26 submitted agreements, on the basis that the RIAA would not have agreed to a fee that did not cover its administrative costs.
The Librarian followed the CARP's determinations except that he adopted a unitary sound recording rate for both webcasters and simulcasters, chose a value for that rate within what he called a "zone of reasonableness," and rejected the CARP's decision to round up on the ephemeral recording rate from 8.8% to 9%.
On this appeal, the Owners argued that (i) CARP ignored the vast majority of negotiated webcast and record label agreements they submitted as evidence, that (ii) the low license rate and minimum fee were set too low, and (iii) the Librarian arbitrarily altered the effective date for payment of royalty rates. On the other side, the Broadcasters contended (i) the final royalty rates were too high and (ii) the Librarian should have accepted the CARP's recommendation to set different rates for webcasters and simulcasters. Lastly, the Non-Participants sought to intervene in order to raise Constitutional objections not contemplated by the other parties.
The Court held that it could not modify or alter the Librarian’s decision due to the "exceptionally deferential" standard of review specified in DMCA § 802(g), which requires a finding that the Librarian acted in an "arbitrary" manner. Following National Ass'n of Broadcasters v. Librarian of Congress, 146 F.3d 907 (D.C. Cir 1998), the Court interpreted this standard of review to mean that it would overturn a royalty determination only if the Librarian had not provided a "facially plausible" explanation, and if the evidence before him would "compel[] a substantially different award" to bring the royalty rate within the "zone of reasonableness". While in one sense the Court's hands were tied by this standard of review, the Court also used its own discretion at times to narrowly construe certain issues in order to uphold the Librarian's rule in its entirety.
The Court dismissed as "harmless error, if error at all," the Owners' assertion at oral argument that the Librarian arbitrarily disregarded evidence of 115 record label licensing agreements. Since the CARP, not the Librarian, had made the decision to classify these agreements as irrelevant, the Court held that those agreements were merely "corroborative evidence of evidence," thus making it impossible for the Librarian to act arbitrarily with respect to them. As for the Owners' assertion that the Librarian arbitrarily failed to consider 25 of the 26 RIAA benchmark agreements in his determination of the sound recording and ephemeral rates, the Court decided that the Librarian's explanations for relying solely on the RIAA-Yahoo! agreement were "facially plausible," and that evidence of the 25 agreements was not so compelling as to require a substantially different award. It noted that the Librarian had explained each of his decisions to follow or depart from aspects of the CARP report, such as setting an unitary rate, and adopting the CARP's minimum fee determination, and given the standard of review held that it could do "no more."
However, even though the Librarian did not justify his decision to delay the effective date of the final royalty rate by two months, the Court did not reach the issue of whether that decision was arbitrary. It held the issue was moot because the payment dates had already passed, despite the apparent applicability of an exception to the mootness doctrine for issues "capable of repetition yet evading review." While the issue "evaded review" under previous precedent, the Court held that it was not "capable of repetition," even though future CARP rate determination proceedings (for the then-upcoming 2003-4 period) were likely. The Court rationalized that the Librarian's choice of payment date was "apparently motivated" by factors unique to this proceeding, namely "the burden placed on licensees" and "the need for the Copyright Office to promulgate rules." It appears that the Court may have gone farther than required by the standard of review on this issue.
The Court dismissed the Broadcasters' arguments on similar grounds relating the standard of review. It held that it could not reach the merits of their arguments that the Librarian erred in relying on the RIAA-Yahoo! agreement because it did not accurately reflect the true market rate, and that the Librarian erred in his rate determination because failed to adjust for Yahoo!'s litigation cost savings, because the Librarian directly addressed both of those concerns in the record in a manner that was "facially plausible."
Finally, the Court found that the Non-Participants did not have standing to join the appeal. Analogizing § 802(g), which allowed "any aggrieved party" to join the appeal, to statutes in other fields with similar language (such as the Bank Holding Company Act, and the Federal Election Campaign Act), it narrowly construed the term "party" to allow only actual parties to the CARP proceeding below. It further held that the petitioners could not intervene, because they sought to raise First Amendment and due process claims not raised by the Owners or Broadcasters.