SOUNDEXCHANGE, INC., APPELLANT v. COPYRIGHT ROYALTY BOARD AND LIBRARIAN OF CONGRESS, APPELLEES GEORGE JOHNSON, ET AL., INTERVENORS
No. 16-1159
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 8, 2018 Decided September 18, 2018
Consolidated with 16-1162 On Appeal from a Final Determination of the Copyright Royalty Board
Benjamin J. Horwich argued the cause for appellant SoundExchange, Inc. With him on the briefs were Glenn D. Pomerantz, Kelly M. Klaus, and Rose Leda Ehler.
George D. Johnson, pro se, argued the cause and filed briefs for appellant.
Sonia M. Carson, Attorney, U.S. Department of Justice, argued the cause for appellees. On the brief were Mark R. Freeman and Jennifer L. Utrecht, Attorneys.
Scott H. Angstreich argued the cause for intervenors National Association of Broadcasters, et al. With him on the joint brief were Michael K. Kellogg, John Thorne, Leslie V. Pope, R. Bruce Rich, Todd D. Larson, and Gregory S. Silbert.
Catherine R. Gellis was on the brief for intervenor College Broadcasters, Inc. in support of appellees.
Before: ROGERS, GRIFFITH and SRINIVASAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge SRINIVASAN.
SRINIVASAN,
Congress established a statutory copyright license for noninteractive webcasters in the Copyright Act. The statutory license enables noninteractive webcasters to transmit recordings by paying a standard royalty rate rather than negotiating licensing agreements with copyright holders. Every five years, the Copyright Royalty Board sets the standard rates noninteractive webcasters must pay to play recordings over the Internet under the statutory license.
This appeal raises challenges to the Board‘s most recent rate determination on a number of grounds. We sustain the Board‘s determination in all respects.
I.
A.
Congress set out the statutory scheme for the protection and regulation of copyrights in the Copyright Act,
Congress, though, subjected that right to a system of statutory licenses. The statutory licenses enable digital audio services to perform copyrighted sound recordings by paying predetermined royalty fees, without separately securing a copyright holder‘s permission. See Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 796 F.3d 111, 114 (D.C. Cir. 2015) (citing Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998)).
The authority to set rates and terms for the statutory licenses resides with the Copyright Royalty Board, a group of three Copyright Royalty Judges appointed by the Librarian of Congress.
process of setting a statutory license, it first allows interested parties to negotiate private license rates and terms. See
At the conclusion of its proceedings, the Board issues a final determination establishing the rates and terms and explaining its decisionmaking.
B.
The Board conducts a separate ratesetting proceeding for each statutory license it administers, and each license pertains to a distinct category of transmission service. See
The statutory license for webcasters applies solely to noninteractive services, i.e., services that select the songs they play for listeners.
The Board must “establish rates and terms” for the webcaster statutory license “that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”
In carrying out those statutory directives, the Board has developed a benchmark-based process. See Determination of Royalty Rates for Digital Performance Right in Sound Recordings and Ephemeral Recordings (Web III Remand), 79 Fed. Reg. 23,102, 23,110 (Apr. 25, 2014). First, interested parties submit information they think should guide the Board‘s ratesetting. That information includes “voluntary license agreements” negotiated for comparable services,
The Board uses the accepted benchmarks to establish a “zone of reasonableness” and fixes the statutory license rate within that zone. See id. at 23,110. The Board then repeats
that process for each segment of webcaster services for which it sets distinct rates.
C.
The Board‘s previous ratesetting determinations for the webcaster statutory license have been reviewed (and largely upheld) by this court. See Intercollegiate Broad. Sys., Inc., 796 F.3d 111 (D.C. Cir. 2015); Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 574 F.3d 748 (D.C. Cir. 2009); Beethoven.com LLC v. Librarian of Cong., 394 F.3d 939 (D.C. Cir. 2005). This case concerns the Board‘s fourth ratesetting proceeding for webcasters, which set the rates and terms of the statutory license for 2016 to 2020.
The proceeding included a six-week hearing, in which the Board admitted some 660 exhibits consisting of more than 12,000 pages of documents and heard the oral testimony of 47 witnesses. Determination of Royalty Rates and Terms for Ephemeral Recording and Webcasting Digital Performance of Sound Recordings (Web IV), 81 Fed. Reg. 26,316, 26,317 (May 2, 2016). Fifteen parties participated, id. at 26,316–17, including the two parties who bring this appeal: (i) SoundExchange, Inc., a collective management organization representing
Several parties submitted voluntarily negotiated agreements for the Board to consult as benchmarks. The Board adopted several of those proposed benchmarks, using them to set distinct rates for (i) ad-based commercial noninteractive webcaster services and (ii) subscription-based commercial
noninteractive webcaster services. Id. at 26,404. Ad-based services do not charge listeners a fee and earn revenue by broadcasting advertisements between songs. Subscription-based services charge listeners a fee and play music streams uninterrupted by advertisements.
1. With respect to the rates for ad-based services, two webcaster companies that offer such services—Pandora Media and iHeartMedia—each proposed a benchmark agreement derived from the ad-based, noninteractive services market. Pandora based its proposal on a royalty agreement it had negotiated with Merlin, an agency representing thousands of independent record companies. 81 Fed. Reg. at 26,355–56. iHeart based its proposal on an agreement it had negotiated with Warner, a major record label. 81 Fed. Reg. at 26,375.
Both Pandora‘s and iHeart‘s proposed ad-based benchmark agreements contained a feature known as “steering.” “Steering” involves technology enabling a webcaster to alter the natural frequency of performances under its algorithm. If a webcaster chooses to “steer” in favor of a given record label, it will play songs from artists on the label more often than its algorithm would otherwise yield. Steering benefits a record label because broader exposure can help attract additional listeners to the label‘s artists and generate revenue for the label from traditional sources like music sales and merchandise.
Pandora and other webcasters began incorporating steering capability into their services fairly recently. In the Pandora-Merlin and iHeart-Warner agreements, the parties agreed that if the webcaster steered in favor of the record company—increasing the number of plays for the record company‘s artists by a certain percentage—the webcaster
could reduce the per-performance license rate it paid to the record company. See 81 Fed. Reg. at 26,356, 26,375.
SoundExchange opposed the use of the Pandora and iHeart agreements as benchmarks. The Board rejected SoundExchange‘s concerns and accepted rates from the Pandora and iHeart agreements as probative of the rates noninteractive services would pay in the ad-based webcaster market. The Board thus used those benchmarks to establish its zone of reasonableness. The Board then set the statutory royalty rate for ad-based commercial noninteractive webcasters within that range at $0.0017 per song performance for 2016, to be adjusted in later years to account for inflation. 81 Fed. Reg. at 26,405.
2. With respect to the rates for subscription-based services, the Board again considered benchmarks that would be probative of rates negotiated in that segment of the webcaster market. Pandora proposed as a benchmark the steered rates negotiated in its agreement with Merlin for its subscription-based service (which it offers in addition to its ad-based service). See 81 Fed. Reg. at 26,356. The Board, as noted, rejected SoundExchange‘s arguments against relying on the Pandora-Merlin agreement and accepted the agreement‘s steered rates as a benchmark for subscription-based services. 81 Fed. Reg. at 26,374–75.
royalty rate negotiated by interactive webcaster services to account for differences between the interactive and noninteractive markets.
The Board concluded that SoundExchange‘s proposed rate would serve as a useful benchmark for subscription webcaster services. 81 Fed. Reg. at 26,344. The Board, though, determined that SoundExchange‘s proposed rates needed to be further adjusted because the interactive services market is not “effectively competitive.” 81 Fed. Reg. at 26,344, 26,353. In the Board‘s view, the statute calls for setting rates based on a “sufficiently competitive market, i.e., an ‘effectively competitive’ market.” 81 Fed. Reg. at 26,332.
Because the Board believed that “the interactive services market is not effectively competitive,” the Board concluded that SoundExchange‘s proposed benchmark from that market needed to be adapted “to render it . . . usable as an ‘effectively competitive’ rate in . . . the noninteractive subscription market.” 81 Fed. Reg. at 26,344. The Board did so by discounting SoundExchange‘s proposed benchmark based on a “steering adjustment” grounded in the steered rates in the Pandora-Merlin agreement, which the Board believed was a useful proxy for the effects of price competition. 81 Fed. Reg. at 26,343–44, 26,404–05.
The Board used the SoundExchange benchmark (with the steering adjustment) and the Pandora benchmark (which already accounted for steering) to set the zone of reasonable rates for the subscription-based webcasters. 81 Fed. Reg. at 26,405. Selecting a rate within that range, the Board set the statutory royalty rate for subscription-based commercial noninteractive webcasters at $0.0022 per song performance for 2016, to be adjusted in ensuing years to account for inflation. Id.
3. SoundExchange and George Johnson moved for rehearing of the Board‘s determination under
II.
SoundExchange challenges four aspects of the Copyright Royalty Board‘s webcaster license determination: (i) the adoption of the Pandora and iHeart benchmarks over SoundExchange‘s objections; (ii) the adjustment downward of SoundExchange‘s proposed benchmark rate for subscription-based services in an effort to capture “effective competition“; (iii) the decision to set separate license rates for ad-based and subscription-based commercial webcasters; and (iv) the revision of the requirements for auditors to qualify to perform verification of royalty payments.
We review the Board‘s rate determinations under § 706 of the Administrative Procedure Act.
A.
We first address SoundExchange‘s arguments that the Board‘s acceptance of the Pandora and iHeart benchmark agreements was arbitrary and capricious.
1.
SoundExchange contends that the Board arbitrarily failed to account for the impact of the statutory license on the rates negotiated in the Pandora and iHeart benchmark agreements. It is undisputed that, in setting rates for the statutory license, the Board must aim to approximate rates that would have been negotiated “if the webcasting statutory license did not exist.” Id. at 131. The hypothetical marketplace, that is, must be “free of the influence of compulsory, statutory licenses.” Web IV, 81 Fed. Reg. at 26,316.
In approximating the rates that would be negotiated in the hypothetical marketplace, though, the Board relies on actual, real-world agreements. And parties in the actual marketplace, SoundExchange emphasizes, generally negotiate with the knowledge that they can simply fall back on the statutory rate if they fail to strike a bargain. The parties refer to the effect of the statutory license on market negotiations as the “shadow” of the statutory license.
In the proceedings before the Board, SoundExchange argued against the proposed Pandora and iHeart benchmarks on the ground that they were affected by the shadow of the statutory license. The Board disagreed, concluding that any statutory shadow “did not meaningfully affect” the benchmark rates on which it opted to rely. 81 Fed. Reg. at 26,329. Rather, the Board reasoned, its accepted benchmarks were “sufficiently representative” of the “particular segments of the statutory
market” they were chosen to reflect. Id. at 26,330 (emphasis omitted).
The Board further explained that there was no “‘shadow’ problem” for the iHeart or Pandora benchmarks because the pertinent rates in those agreements were ”below the otherwise applicable statutory rates.” Id. at 26,331. And when licensors “voluntarily agreed to rates below the applicable statutory rates . . . rather than defaulting to the higher statutory rate,” the Board reasoned, the rates could not have been affected by the shadow of the statutory license. Id.; see id. at 26,383.
In its determination, the Board compared the per-performance royalty rate in the Pandora and iHeart agreements to the per-performance rate in the statutory license. See id. at 26,331. SoundExchange now contends that the Board‘s focus on per-performance rates was flawed in that the Board instead should have compared the total compensation the record companies expected to receive under the benchmark agreements to the total compensation anticipated under the statutory license.
SoundExchange faces an uphill battle in challenging the Board‘s selection of its benchmarks. We have repeatedly recognized that it is “within the discretion of the [Board] to assess evidence of an agreement‘s comparability and to decide whether to look to its rates and terms for
the Copyright Royalty Judges’ Continuing Jurisdiction, 80 Fed. Reg. 58,300, 58,307 (Sept. 28, 2015).
Here, the Board decided to use per-performance rates as the relevant point of comparison in determining whether a benchmark agreement had been affected by the statutory license. SoundExchange cites no Board precedent or other authority supporting its contention that the Board was instead obligated to use total compensation as the comparator. Nor did SoundExchange propose to the Board a feasible way to measure the “total compensation” supplied by a negotiated bundle of rates and terms. We thus conclude that the Board reasonably exercised its discretion to select per-performance rates as the relevant metric of comparison.
Relatedly, SoundExchange faults the Board for failing to assign value to nonmonetary terms in the Pandora and iHeart agreements, which precluded the Board from adjusting the benchmark rates accordingly. For instance, the copyright holders negotiated promises of free advertising slots and minimum shares of certain revenues. According to SoundExchange, the Board would have better approximated the benchmark rates under the agreements if it had accounted for those sorts of terms.
The Board, though, examined those terms at length in its determination and rejected the notion that they supported raising the benchmark rates. See 81 Fed. Reg. at 26,359–63, 26,369–70, 26,384–88. In particular, because the parties neglected to put evidence in the record about how to value the other terms in the agreements, the Board had no basis on which to account for their value in adjusting the benchmarks. See, e.g., id. at 26,369, 26,387. The Board reasoned that it “cannot arbitrarily adjust or ignore [an] otherwise proper and reasonable benchmark.” Id. at 26,387. In its arguments before
us, SoundExchange again fails to point to any evidence in the record on which the Board could have relied in adjusting the benchmark per-performance rates. In that context, we conclude that the Board reasonably declined to substitute its own speculation for evidence that the parties could have made part of the “written record.”
More generally, the Board gave extensive attention to arguments about the statutory shadow in its determination, and it concluded that the Pandora and iHeart benchmarks were unaffected. 81 Fed. Reg. at 26,329–31, 26,383. That was a permissible and adequately explained exercise of the Board‘s discretion.
2.
SoundExchange next contends that the Board arbitrarily ignored how the statutory license generally prevents parties from negotiating rates above the statutory royalty. An expert witness for SoundExchange testified that the existence of the statutory license has the effect of crowding out agreements that would otherwise contain higher negotiated rates. See id. at 26,330. In SoundExchange‘s view, that dynamic skews the evidence before the Board, in that the field of potential benchmark agreements negotiated in the actual market will necessarily contain a per-performance royalty below the statutory rate.
agreements that might have rendered the expert‘s theory a more useful one in practice. Id.
As the Board noted elsewhere in its determination, the Board “cannot arbitrarily adjust or ignore [an] otherwise proper and reasonable benchmark.” Id. at 26,387. The Board was not obligated to adjust its benchmarks based on what it considered to be the expert‘s “factual[ly] indetermina[te]” theory, id. at 26,330, in the absence of additional “written record” evidence supporting the necessity for, and magnitude of, any associated adjustments.
3.
SoundExchange also challenges the Board‘s decision to use steered rates as benchmarks. SoundExchange observes that the discounted steered rates came with the promise of increased performance of the record company‘s recordings; and that promise, SoundExchange notes, by nature could not be extended to the entire marketplace (because it would be impossible to increase the share of performances for all copyright holders). As a result, SoundExchange asserts, it is arbitrary to incorporate steered rates into the across-the-board statutory license. See 81 Fed. Reg. at 26,363–65.
We disagree. The Board permissibly determined that, although SoundExchange‘s argument about steered rates is “mathematically correct” in a “static sense,” it is not ”economically correct” in a “dynamic sense.” Id. at 26,366. A webcaster of course cannot actually engage in steering for every copyright holder. But the Board determined that the
mere threat of steering would introduce price competition into the market. For instance, a webcaster‘s threat to steer in favor of a copyright holder‘s competitors can induce the copyright holder to agree to lower per-performance rates. That competitive effect occurs, the Board reasoned, even if the threat of steering is never realized. Id. at 26,366–67. We see no basis to set aside the Board‘s determination in that regard as arbitrary.
The Board further concluded that “[s]teering is synonymous with price competition in this market” and adopted the steered rates as benchmarks. Id. at 26,366. We afford the Board “broad discretion” when it “mak[es] predictive judgments” about the music marketplace. Music Choice, 774 F.3d at 1015. The Board acted within this discretion in concluding that the likely effect of steering in the music industry would be to promote price competition.
B.
We now turn to the Board‘s decision to adjust SoundExchange‘s proposed benchmark rates to offset a perceived lack of effective competitiveness in the interactive-services market. Whereas noninteractive webcasters can make use of the statutory license, interactive services must negotiate licensing agreements with copyright
As a threshold step before incorporating SoundExchange‘s proposed benchmark rates into the ratesetting for the noninteractive services market, the Board examined the
“[l]egal [i]ssue” of whether it was obligated “to set a rate that reflects an ‘effectively competitive’ market populated by willing buyers and willing sellers.” Id. at 26,331. The Board concluded that the statute required setting “a rate that reflects a market that is effectively competitive.” Id. at 26,332. But the Board went on to explain that, even if the statute were “ambiguous” in that regard, the Board “can and should determine whether the proffered rates reflect a sufficiently competitive market, i.e., an ‘effectively competitive’ market,” and that such an approach is “certainly a permissible, reasonable, and rational application of [17 U.S.C.] § 114 for a number of reasons.” Id. at 26,332.
The Board then applied its “effective competition” interpretation to SoundExchange‘s proposed benchmark rates. The Board found that the interactive services market giving rise to SoundExchange‘s benchmark was inadequately competitive due to the possession of oligopoly power by certain copyright holders, and that an adjustment was needed to “eliminate the complementary oligopoly effect.” Id. at 26,353; see id. at 26,343–44. The Board concluded that the discount for steered rates in the Pandora-Merlin agreement served as a suitable proxy for estimating the effects of price competition, id. at 26,344; and it thus applied a corresponding discount factor to SoundExchange‘s proposed rates, id. at 26,404–05.
SoundExchange challenges the Board‘s adoption of an effective-competition standard when determining the “rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”
the statute can accommodate the Board‘s interpretation, then the specific way in which the Board implemented that understanding—by discerning that the interactive-services market lacked effective competition and by applying a steered-rate adjustment as a fix—was nonetheless flawed.
We first consider whether the Board‘s interpretation of the statute is subject to review under the familiar Chevron framework. See Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). Answering the question yes, we then review—and sustain—the Board‘s interpretation under Chevron.
1.
We have previously applied the Chevron framework when reviewing the Board‘s interpretation of the same statutory provision at issue here: the requirement to determine royalty rates that “most clearly represent the rates . . . that would have been negotiated in the marketplace between a willing buyer and a willing seller.”
adapt the conditions in the interactive market to the actual conditions in the noninteractive market. That approach is difficult to square with the Board‘s treatment of the issue in its order under review. Indeed, the Board‘s determination contains a separate section at the outset entitled: “The Legal Issue of Whether Effective Competition is a Required Element of the Statutory Rate.” 81 Fed. Reg. 26,331–34.
Does the Board‘s failure to reference the Chevron framework in its briefing in our court mean that we should disregard Chevron when reviewing the Board‘s challenged interpretation? We recently held that an agency can forfeit its ability to obtain deferential review under Chevron by failing to invoke Chevron in its briefing. Neustar, Inc. v. FCC, 857 F.3d 886, 893–94 (D.C. Cir. 2017). Before Neustar, we had held that a party challenging an agency‘s interpretation of a statute could forfeit an objection to Chevron deference. See Lubow v. U.S. Dep‘t of State, 783 F.3d 877, 884 (D.C. Cir. 2015). But we had not addressed the converse question of whether an agency defending its decision could forfeit an entitlement to Chevron deference. In Neustar, the “FCC‘s brief nominally reference[d] Chevron‘s deferential standard in its standard of review but did not invoke this standard with respect to” the challenged statutory interpretation at issue. 857 F.3d at 893–94. We held that the agency had thereby “forfeited any claims to Chevron deference.” Id. at 894.
If that were all we said in Neustar, the Board seemingly would have forfeited its ability to benefit from Chevron deference here as well. But in Neustar, we grounded our finding of forfeiture on an additional observation beyond the agency‘s failure to invoke Chevron in its briefing to us: “Similarly,” we explained, “review of the relevant agency orders shows no invocation of Chevron deference for this matter.” Id.
By that observation, we did not indicate a “magic words” requirement. We do not anticipate agencies would reference the Chevron framework by name in the course of their own decisionmaking: Chevron is a standard of judicial review, not of agency action. See Braintree Elec. Light Dep‘t v. FERC, 667 F.3d 1284, 1288 (D.C. Cir. 2012) (“[T]he Chevron two-step is a dance for the court, not the Commission.“). We instead indicated that, if an agency manifests its engagement in the kind of interpretive exercise to which review under Chevron generally applies—i.e., interpreting a statute it is charged with administering in a manner (and through a process) evincing an exercise of its lawmaking authority—we can apply Chevron deference to the agency‘s interpretation even if there is no invocation of Chevron in the briefing in our court. After all, “it is the expertise of the agency, not its lawyers,” that ultimately matters. Peter Pan Bus Lines, Inc. v. Fed. Motor Carrier Safety Admin., 471 F.3d 1350, 1354 n.3 (D.C. Cir. 2006).
Here, the Board‘s determination amply manifests the requisite engagement in an exercise of interpretive authority. Indeed, the Board explicitly considered “the plain
involvement in an interpretive enterprise implicating Chevron, the Board even echoed the language of Chevron review in explaining that its interpretation “is certainly a permissible, reasonable, and rational application of
In sum, consistent with our previous application of Chevron to the Board‘s interpretation of the same statute, Intercollegiate Broad. Sys., Inc., 574 F.3d at 757, we will again apply the Chevron framework in reviewing the Board‘s interpretation of
2.
Under Chevron review, we first assess whether the statute directly speaks “to the precise question at issue” so as to foreclose (or compel) the agency‘s interpretation. Chevron, 467 U.S. at 842. If so, we “must give effect to the unambiguously expressed intent of Congress.” Id. at 843. But if not, we defer to the agency‘s resolution of the statute‘s ambiguity as long as its interpretation is reasonable. See id.; Intercollegiate Broad. Sys., Inc., 574 F.3d at 757.
a. SoundExchange contends that the Board‘s application of an effective-competition standard is foreclosed by the statute. The Board reached the opposite conclusion in its determination, reasoning that its effective-competition interpretation is compelled by the statute. We disagree with both propositions.
The notion that
In Intercollegiate Broadcast System, we deemed
The Board, in nonetheless concluding that
SoundExchange, for its part, contends that
For instance, as the Board suggested in its determination,
SoundExchange also relies on a separate provision in the Copyright Act that authorizes the Board to consider certain policy objectives when setting rates for services other than webcasting. See
We thus reject SoundExchange‘s and the Board‘s competing efforts to see unambiguous clarity where we have previously seen meaningful ambiguity. In light of “the inherent ambiguity in the statute‘s mandate,” we proceed to “assess the reasonableness of the [Board‘s] interpretation” under the second step of the Chevron framework. Intercollegiate Broad. Sys., Inc., 574 F.3d at 757.
b. As we explained in Intercollegiate Broadcasting System, the Board, “not this court, bear[s] the initial responsibility for interpreting the statute.” Id. We perceived “nothing in the [Board‘s] interpretation
The Board, as set out above, interpreted the “willing buyer/willing seller” standard to authorize the setting of rates at levels that would prevail in a market characterized by effective competition. The Board‘s understanding to that effect is reasonable. The Board relied on one of its prior determinations in reasoning that, “[b]etween the extremes of a market with ‘metaphysically perfect competition’ and a monopoly (or collusive oligopoly) market devoid of competition there exists in the real world . . . a mind-boggling array of different markets, all of which possess varying characteristics of a ‘competitive marketplace.‘” 81 Fed. Reg. at 26,333 (internal quotation marks and citation omitted). The “willing buyer/willing seller” standard, the Board permissibly believes, gives it discretion to identify the relevant characteristics of competitiveness on which to base its determination of the statutory royalty rates.
The Board also found support for its interpretation in the statute‘s integrally associated requirement to consider “competitive information” submitted by the parties.
The Board, on that basis, found it necessary to adjust SoundExchange‘s proposed benchmark rates from the interactive-services market. We see no ground for rejecting the Board‘s interpretation of
C.
We now turn to the Board‘s decision to set different statutory rates for ad-based and subscription-based noninteractive webcasters. SoundExchange claims that the Board‘s establishment of different rates for those two services was arbitrary and capricious because the Board inadequately examined the propriety of distinct rates under the approach prescribed by its precedents. We reject that challenge and uphold the Board‘s decision.
The Copyright Act specifically contemplates the Board‘s ability to adopt different rates for distinct market segments in the provision of webcasting services. The Act directs the Board to “distinguish among the different types of eligible nonsubscription transmission services and new subscription services.”
In the Board‘s previous webcaster ratesetting proceedings, it considered rate differentiation between two services to be appropriate when the services occupied “distinct segment[s] of the noninteractive webcasting market.” Web II, 72 Fed. Reg. at 24,097. The Board examined whether the services compete with each other for listeners, id. at 24,098, or whether one service instead “operate[d] in a submarket separate from and noncompetitive with” the other, id. at 24,095. And in ascertaining whether market segmentation exists, the Board looks to a number of factors, including whether comparable agreements have been negotiated in which one service paid a lower rate than the other. Id. at 24,097; Web IV, 81 Fed. Reg. at 26,319–20.
In its proceedings in this case, the Board decided to distinguish between ad-based and subscription-based services. It recounted the existence of “overwhelming” “record evidence” of a “sharp dichotomy between listeners” willing to pay for subscription services and those instead willing to use only ad-based (and cost-free) services. 81 Fed. Reg. at 26,345. The “bimodal chasm” separating consumers based on their willingness to pay, the Board explained, established a “dichotomized market” as between ad-based and subscription-based services. Id. Based on that evidence, the Board determined that “ad-supported (free-to-the-listener) internet webcasting appeals to a different segment of the market, compared to subscription internet webcasting, and therefore the two products [are] differentiated by this attribute.” Id. at 26,346. The Board then set distinct statutory rates for each service. Id. at 26,404–05.
SoundExchange contends that the Board failed to explain its decision to differentiate, instead skipping to the conclusion that distinct rates were appropriate. It is true that the Board did not include its analysis of the difference between ad-based and subscription-based services in the section of its determination entitled “Rate Differentiation.” Id. at 26,319–23. But the Board‘s analysis cannot be considered arbitrary based merely on the title of the section in which it is found, and the Board devoted ample attention to the issue elsewhere in the determination. See id. at 26,344–46.
SoundExchange argues that the Board‘s decision to adopt different rates was nonetheless arbitrary because the Board departed from the approach established by its precedents. We see no such inconsistency. In Web II, the Board established that the key question in ascertaining the propriety of differentiation is whether the services occupy “distinct segment[s]” of the market or instead compete for listeners. 72 Fed. Reg. at 24,097–98. That question forms the core of the Board‘s analysis in this case, including its extensive discussion of listeners’ divergent attitudes with regard to their willingness to pay for webcasting services. 81 Fed. Reg. at 26,345–46. And the determination concludes on that basis that ad-based services make up “a different segment of the market” than subscription-based services. Id. at 26,346. In addition, the Pandora and iHeart benchmark agreements afforded the Board concrete examples of buyers and sellers negotiating lower rates for ad-based services than subscription services, and the Board relied on those benchmarks to establish a lower statutory license rate for ad-based services. See id. at 26,356, 26,404–05.
D.
SoundExchange‘s final challenge concerns the Board‘s decision to amend a license term setting forth the requirements to qualify as an auditor that can verify royalty payments. Recall that, in addition to determining rates for the statutory license, the Board also establishes other “terms that would have been negotiated in the marketplace.”
A number of parties petitioned the Board to amend that term in the proceedings for this ratesetting cycle. SoundExchange proposed amending the definition of “qualified auditor” to embrace auditors with “specialized experience,” even if not a CPA. SX Proposed Findings of Fact 451, J.A. 1252. The National Association of Broadcasters (NAB) and the National Religious Broadcasters Noncommercial Music License Committee (NRBNMLC) made a proposal in the opposite direction: they opposed SoundExchange‘s proposal to relax the requirements to qualify as an auditor and instead proposed restricting them. Those parties suggested requiring that an auditor not only be a CPA but also be “licensed in the jurisdiction where it seeks to conduct a verification.” NAB Proposed Rates and Terms 3, J.A. 146; NRBNMLC Proposed Noncommerical Webcaster Rates and Terms 3 (Oct. 7, 2014), https://www.crb.gov/rate/14-CRB-0001-WR/statements/NRBNMLC.pdf.
The Board adopted that proposal, defining “qualified auditor” to mean “an independent Certified Public Accountant licensed in the jurisdiction where it seeks to conduct a verification.” 81 Fed. Reg. at 26,404, 26,409;
SoundExchange challenges the Board‘s revised definition of “qualified auditor” on the grounds that its adoption was unsupported by evidence in the record. The Board‘s determination relies on the expert testimony of Professor Roman Weil in support of the new licensure requirement. Id. at 26,404. SoundExchange objects that Professor Weil‘s testimony did not speak to in-state licensure in particular. His testimony, however, addressed the benefits of using CPAs due to the application of local standards of professional conduct and oversight. See Written Rebuttal Testimony of Roman L. Weil 11–13, J.A. 1098–100. In particular, he noted that CPAs are “governed by the principles, rules, and requirements promulgated by their applicable state accountancy boards,” id. at 11, J.A. 1098, and “face professional consequences” for misconduct, including the ability of state accountancy boards to “take action with respect to the CPA‘s license,” id. at 13 & n.16, J.A. 1100.
To the extent the importance of local boards in governing the conduct of CPAs
SoundExchange nonetheless argues that the revised definition lacks support because the Board ignored the existence of CPA “mobility laws.” Mobility laws permit CPAs certified in one state to practice in another state, so long as they submit to the disciplinary authority of the other state. Whatever the force of SoundExchange‘s objection, however, we cannot set aside the Board‘s determination on those grounds because SoundExchange failed to present the argument at a time the Board could give it consideration.
As we have explained, a “reviewing court generally will not consider an argument that was not raised before the agency at the time appropriate under its practice.” BNSF Ry. Co. v. Surface Transp. Bd., 453 F.3d 473, 479 (D.C. Cir. 2006) (internal quotation marks omitted). Here, SoundExchange made an argument against the licensure requirement in its request for rehearing. But SoundExchange failed to give the Board the opportunity to address the argument it now presses before us: that an additional licensure requirement is irrational because state CPA “mobility” laws already subject CPAs to the disciplinary authority of the various local jurisdictions in which they practice.
The rehearing request instead merely referenced the existence of CPA mobility laws (in a footnote) to demonstrate that the new requirement differed from requirements generally imposed on CPAs. See SX Pet. for Rehearing 9 n.14, J.A. 1269. To be sure, at the time of SoundExchange‘s rehearing petition, the Board had not yet explicitly referenced Weil‘s testimony in support of the new licensure requirement. It did so in responding to the rehearing petition. But the Board had adopted the new licensure requirement, which gave SoundExchange the opportunity to object to it on the ground that state mobility laws rendered it unnecessary. Yet while SoundExchange noted the existence of state mobility laws in a footnote in its rehearing petition, it made no suggestion that the laws rendered the new licensure requirement unnecessary. Cf. BNSF Ry. Co., 453 F.3d at 478 (treating claim as forfeited in part because the claimant “first made the argument in a footnote to its petition for reconsideration” to the agency).
Notably, it remains possible that the Board could interpret its new definition of “qualified auditor” such that CPA mobility laws would serve to “satisfy the local-licensing requirement.” Board Br. 60; see also NAB Br. 41. The Board has confirmed that SoundExchange can ask the Board to address the issue “on a prospective basis.” Board Br. 61. If SoundExchange pursues that course, the Board could clarify its regulation in a manner favorable to SoundExchange in that respect, or could amend the regulation to align with its definition of “qualified auditor” in other ratesetting proceedings.
As a result, SoundExchange might be able to secure its preferred understanding of the “qualified auditor” licensure requirement through other means. Its effort to obtain relief here, however, is unsuccessful.
III.
The final challenge before us, brought by pro se appellant George Johnson,
The Board rejected Johnson‘s rehearing petition. The Board found it “difficult to discern [his] argument,” stating that, while the petition “seems to suggest that the [Board] gave insufficient weight to copyright owners’ exclusive rights,” it “does not develop that assertion into a coherent legal argument.” Order Denying GEO Motion for Reh‘g 5, J.A. 374. The Board further explained that, insofar as Johnson sought “to challenge the constitutionality of the [Copyright] Act,” the Board “decline[d] to rule on that challenge.” Id. The Board explained that the issue had been raised for the first time only on rehearing, that the Board‘s authority to rule on the Act‘s constitutionality was unclear, and that the Board would decline to do so in any event “on the basis of such inadequate argumentation.” Id.
On appeal, Johnson contends that the Board improperly failed to address his constitutional arguments. As the Board correctly argues, however, Johnson did not properly preserve his constitutional challenge. Under the Copyright Act, the Board has “considerable freedom to determine its own procedures.” Settling Devotional Claimants, 797 F.3d at 1118 (internal quotation marks omitted). The Board has established that “[a] party waives any objection to a provision in the determination unless the provision conflicts with a proposed finding of fact or conclusion of law filed by the party.”
Although Johnson requested referral of his constitutional concerns to the Register and quoted general “copyright law principles” in his proposed findings of fact, he did not direct a constitutional argument to the Board until his petition for rehearing. Order Denying GEO Mot. for Reh‘g 5, J.A. 374. Under the Board‘s regulations and precedent, that was too late, and the Board reasonably denied Johnson‘s petition for rehearing in part on that basis. See Settling Devotional Claimants, 797 F.3d at 1122.
Notwithstanding the Board‘s denial of Johnson‘s petition in part on the ground that his arguments were untimely, the Board also gave some consideration to Johnson‘s arguments on the merits. We thus will do the same.
Johnson contends that the Board set royalty rates so low as to deprive copyright holders of their property rights in violation of the Constitution‘s Copyright Clause and Due Process Clause. With regard to due process, the Board held an extensive adversarial proceeding in determining the webcasting rates. Johnson had the opportunity to testify, submit exhibits, file motions and statements, and propose his preferred royalty rate. No more process was due. Addressing a similar procedure for setting royalties that was applied by the Board‘s predecessor, we characterized “the suggestion that the Panel‘s process fell below the minimum constitutional requirements of the Due Process Clause”
The Copyright Clause,
* * * * *
For the foregoing reasons, we affirm the determination of the Copyright Royalty Board.
So ordered.