904 F.3d 41
D.C. Cir.2018Background
- Copyright Act grants a digital public performance right for sound recordings and authorizes a statutory license for noninteractive webcasters, with rates set every five years by the Copyright Royalty Board (CRB).
- CRB’s Web IV proceeding (rates for 2016–2020) involved many parties, extensive evidence, and testimony; SoundExchange and pro se George Johnson appealed the final determination.
- CRB used voluntary market agreements as benchmarks, adopting Pandora–Merlin and iHeart–Warner agreements (which included "steering" provisions) for ad-based services and using steered rates and an adjusted interactive-market benchmark for subscription services.
- CRB set 2016 per-performance rates: $0.0017 for ad-based commercial noninteractive webcasters and $0.0022 for subscription-based commercial noninteractive webcasters (with inflation adjustments thereafter).
- CRB also revised the auditor qualification term to require an independent CPA licensed in the jurisdiction where the verification occurs.
- Appeals raised challenges to benchmark selection (including shadow of statutory license and steering), the adjustment of an interactive-market benchmark for "effective competition," rate differentiation between ad-based and subscription services, auditor-licensure requirement, and constitutional claims by Johnson.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Acceptance of Pandora and iHeart benchmarks | SoundExchange: benchmarks tainted by statutory-license "shadow" and unvalued nonmonetary terms; Board should compare total compensation, not per-performance rates | Board: per-performance rate is a reasonable comparator; record lacked evidence to value nonmonetary terms; benchmarks were "sufficiently representative" | Court: Affirms Board’s discretion to use per-performance rates and decline speculative adjustments; benchmark selection not arbitrary |
| Adjustment of SoundExchange’s interactive-market benchmark ("effective competition") | SoundExchange: statute requires using actual market rates; Board may not impose an "effective competition" modification | Board: §114(f)(2)(B) permits considering competitive information; interactive market lacked effective competition so adjustment was reasonable | Court: Applies Chevron, finds statute ambiguous on competitiveness, and upholds Board’s reasonable adoption and application of an effective-competition approach |
| Distinct rates for ad-based vs subscription services | SoundExchange: Board failed to follow precedent/adequately explain segmentation; differentiation arbitrary | Board: statute authorizes distinguishing service types; record shows distinct consumer segments (willingness to pay) and benchmark agreements support different rates | Court: Upholds differentiation as consistent with statute and Board precedent; explanation and evidence adequate |
| Auditor qualification (CPA licensed in jurisdiction) | SoundExchange: new in-state licensure requirement unsupported; mobility laws make it unnecessary | Board: relied on expert testimony about state oversight of CPAs and accountability; mobility-law argument was not properly presented below | Court: Affirms requirement as supported by record and rejects forfeited mobility-law challenge; permits future Board clarification if pursued |
Key Cases Cited
- Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 796 F.3d 111 (D.C. Cir.) (deferential review of CRB ratesetting)
- Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 574 F.3d 748 (D.C. Cir.) (statute does not require assuming perfect competition; ambiguity in market assumption)
- Music Choice v. Copyright Royalty Bd., 774 F.3d 1000 (D.C. Cir.) (agency discretion to adjust benchmarks)
- Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (U.S. 1984) (two-step review for agency statutory interpretation)
- Neustar, Inc. v. FCC, 857 F.3d 886 (D.C. Cir.) (forfeiture of Chevron deference when agency fails to invoke/manifest interpretive exercise)
- Settling Devotional Claimants v. Copyright Royalty Bd., 797 F.3d 1106 (D.C. Cir.) (procedural rules and forfeiture principles before the CRB)
- Nat’l Ass’n of Broads. v. Librarian of Cong., 146 F.3d 907 (D.C. Cir.) (due process of CRB/royalty-setting procedures upheld)