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MEMORANDUM TO THE COPYRIGHT ROYALTY TRIBUNAL
CONCERNING PROCEDURE ; EVIDENCE AND RELATED SUBJECTS

We'

By letter of August 20, 1984, the Copyright Royalty Tribunal has asked this firm to prepare a memorandum of law which will review and analyze the Tribunal's hearing procedures and will comment on evidentiary matters and the Tribunal's lack of subpoena power. This memorandum responds to the Tribunal's letter.

We hope that the memorandum is clear and complete. welcome the Tribunal's critical comments. It seems logical to us to begin the memorandum with a review of the Tribunal's enabling legislation and then proceed to a section on procedures. We have included recommendations for procedures from the initial Federal Register notice through the writing of the Tribunal's decision. The third section of the memorandum covers evidence, and the fourth groups subjects that did not seem to belong in the first three groups, including cross- and redirect-examination and subpoena and discovery powers.

I

ENABLING LEGISLATION

The Copyright Royalty Tribunal (Tribunal) was created by the Copyright Act of 19761/ (the Act). Congress directed the Tribunal to set or revise the rates paid by users of copyrighted

17 U.S.C. SS 101-810.

materials and to distribute the payments among the copyright owners. The function of the Tribunal as a ratemaker and distributor was based on Congress's decision that it was impractical to allow each copyright owner to deal directly in the marketplace with each copyright user .2/ Instead, the users are charged with obtaining compulsory licenses and with payment of license fees (also referred to as "rates" or "royalties"). The licenses allow the users to record, replay, or retransmit copyrighted material for compensation without the holders' express permission. The license royalties compensate the owners.

Prior to the Act, there was only one compulsory license, for *mechanical royalties," which since the early 1900's allowed the mechanical license holder to record non-dramatic works on phonograph records upon payment of a statutorily-determined license fee, paid directly to the copyright owner. The Act modified the mechanical license but retained its character as a compulsory license. The Act added three compulsory licenses for: retransmission of distant broadcast signals of non-network programming by cable systems; the use of musical records in jukeboxes for profit by jukebox owners; and the use of music and other artistic creations by non-commercial broadcasters.

The Act set the initial rates of payment under three of the four compulsory licenses, provided, criteria and timetables for rate adjustments, and charged the Tribunal with the duty of adjusting the rates. Initial non-commercial broadcast royalties

2/

A.R. Rep. No. 1476, 94th Cong. 2nd Sess. 89, reprinted in
1976 U.S. Code, Cong. & Ad. News 5659, 5704.

were to be set by the Tribunal shortly after it began operations. The Act also charged the Tribunal with distribution of some of the royalties. Mechanical license fees continue to be paid directly to the copyright owners by the users, without Tribunal participation. Non-commercial broadcast license royalties are paid by the users to the owners pursuant to "terms and rates"}/ established by voluntary agreement or by the Tribunal, but without active Tribunal participation in the distribution process. The Tribunal distributes jukebox and cable royalties pursuant both to voluntary agreements by the owners and to allocations determined by the Tribunal after hearing.

The Act establishes a license fee of $8 per jukebox and directs the Tribunal to hold hearings in 1980 to determine whether the annual fee needed adjustment. The Tribunal held hearings and published its final decision on January 5, 1981, raising the annual fee to $50 per jukebox to be phased in over two years and allowing the rate to be adjusted for inflation in' 1987. The Act provides that, upon the petition of a person with a significant interest, the rate can be adjusted in 1990 and every ten years thereafter.4) Thus, although the Tribunal was specifically directed to hold hearings in 1980, subsequent proceedings are to be held only on petition of an interested party. The Tribunal is responsible for adjusting the rates under the other three compulsory licenses also, in proceedings similar

3/- 17 U.S.c. s 118; 37 C.F.R., Part. 304. 4/ 17 U.S.C. S 804(a) (2) (C).

to that for the jukebox rates. The Act sets forth the specific dates or events when these rates can or may be adjusted.

The jukebox and cable royalties are paid periodically to the Registrar of Copyrights. As of early December, 1984, jukebox royalties for 1983 exceeded $2.8 million, and cable royalties for 1983 exceeded $69 million.

As noted, the Tribunal is not directly involved in the distribution of mechanical and non-commercial broadcast royalties, but actively participates in the distribution of jukebox and cable royalties, which, by statute,5) are required to be distributed annually.

The Act provides antitrust immunity for private agreements.6) If the claimants cannot agree voluntarily on the distribution of the cable or jukebox royalty fees, the Tribunal resolves the dispute.

In the jukebox proceedings, the number of claimants has been small, and the Tribunal considers all claims in the same proceeding. However, due to the number of claimants in the cable royalty distribution proceeding, the Tribunal considers the claims in two phases. In Phase I, the Tribunal allocates the fund among the various groups of claimants. In Phase II, the Tribunal determines the awards within each group. Partial voluntary agreements are often achieved. For example, in the 1982 Phase I proceeding, the Motion Picture Association of

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6/

17 u.s.c. ss 111(d) (5) (A), 116(c) (2), 118 (b).

America represented approximately six dozen claimants. Distribution of the Phase I award among these claimants was settled voluntarily except for one claimant, Multimedia, which instituted proceedings in Phase II to prove its entitlement to a larger share of the Phase I award. ".

It may be useful to review the chronology of both a rate adjustment proceeding and a royalty distribution proceeding to illustrate the competing claims of the parties and the procedures and decisions of the Tribunal in resolving those claims.

An example of a full-blown rate adjustment proceeding was the Tribunal's adjustment of the cable royalty fees pursuant to the repeal by the FCC of its distant signal carriage and syndicated program exclusivity restrictions on cable transmissions. Congress specifically authorized the Tribunal, upon the request of interested parties, to adjust the cable royalty fees if and when those rules were repealed.] The proceeding developed as follows:

1.

On June 21, 1981, the United States Court of
Appeals for the District of Columbia Circuit
affirmed the FCC's repeal of the rules and on
June 25, 1981, lifted its stay on the imple-
mentation of the repeal.
On August 11, 1981, the National Cable
Television Association (NCTA) petitioned the

2.

7/

17 u.s.c. SS 801(b) (2) (B),(C).

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