Statement of Marybeth Peters
Register of Copyrights
before the
Subcommittee on Courts, the Internet, and Intellectual Property
Committee on the Judiciary

United States House of Representatives
108th Congress, 1st Session

April 1, 2003

Copyright Royalty and Distribution Reform Act (H.R. 1417)

Mr. Chairman, Mr. Berman and distinguished members of the Subcommittee, I appreciate the opportunity to appear before you to testify once again on the important issue of reform of the Copyright Arbitration Royalty Panel (“CARP”) process. As you know, the CARPs have been operating under the auspices of the Copyright Office and the Library of Congress since the Congress eliminated the Copyright Royalty Tribunal late in 1993. Your bill, Mr. Chairman, H.R. 1417, the “Copyright Royalty and Distribution Act of 2003,” would make significant changes to the CARP process to reduce costs, promote stability and the administrative efficiency of the copyright royalty distribution and rate adjustment system.

In my testimony before this Subcommittee on June 13 of last year I provided a history of the statutory license royalty distribution and rate adjustment process under the Copyright Royalty Tribunal and the CARPs and identified three serious shortcomings of the existing system. First, there is no question that the CARPs are very costly both to the participants in a proceeding and on an institutional scale. Arbitrators are typically compensated at between $200 and $400 an hour for their work which, in hotly contested proceedings that involve many parties and large amounts of testimony (such as the recent rate setting proceeding for webcasting music over the Internet), can add up to considerable sums. In the case of a royalty rate adjustment proceeding, the arbitrators must be paid by the parties out of their own pockets. There is no question that in some rate adjustment proceedings, some interested parties conclude that they cannot afford the cost of participating. In the recent webcasting proceeding that I just mentioned, the cost of the arbitrators alone exceeded the entire annual budget of the Copyright Royalty Tribunal in its last year of existence.

Likewise, on an institutional scale, CARP proceedings are costly. They require considerable amounts of time of Copyright Office and Library personnel who must conduct various phases of the proceeding, such as discovery of the parties’ cases and review of the CARP’s decision.

Second, because of the ad hoc nature of the CARPs, there is a lack of stability and predictability in the process. Although the Librarian attempts to select arbitrators who have served well on previous panels, the individuals almost always vary from one panel to the next. Parties who are dissatisfied with one panel are tempted to return and try another panel. As a result, there is a lack of reliable precedent upon which the parties can base the settlement of their differences.

Third, there is a considerable lack of institutional expertise on the CARP panels. We have found it very difficult to find arbitrators who have sufficient familiarity with copyright law, let alone the complex statutory licenses in the law and the unique procedures for royalty distributions and rate adjustments. This lack of expertise among the arbitrators places a considerable burden on the Register and the Librarian to correct oversights and errors made by the CARPs during the course of a proceeding — a burden which is exacerbated by the short review period granted the Register and the Librarian by the statute.

The “Copyright Royalty and Distribution Act of 2003” addresses these concerns of cost, stability and institutional expertise. To reduce costs, the salaries of the Copyright Royalty Judge, along with two full-time professional staff members, would be paid for from appropriated funds. Their fixed salaries would eliminate the large per-hour arbitrator fees of the current system, and the Copyright Royalty Judge and professional staff would handle all distribution and rate adjustments, as opposed to the one-CARP-per-proceeding approach of the existing law. The Copyright Office and the Library are also permitted to recoup their administrative costs under the bill as well. I do have some concerns regarding the mechanics of the cost recoupment process provided in the bill, particularly the provisions regarding direct fee collection from the participants. Let me reemphasize what I said when I appeared before this Subcommittee last June: I believe that the costs of the process for determining rates and terms should be paid for out of appropriated funds, and not out of the pockets of the parties who participate in the rate-setting process. Someone who has a stake in the determination of rates and terms for a statutory license should not be deterred from participating simply because he or she cannot afford his or her share of the decision-maker’s costs.

The five-year term served by the Copyright Royalty Judge would promote institutional stability and permit participants to gain familiarity with the decisionmaker, thereby creating reliable results and promoting settlements. The bill does not make clear the status of the two professional staff members assisting the Judge. We believe that their status should be clarified, and we recommend that these staff members not have limited term appointments.

The five-year term served by the Copyright Royalty Judge would also permit him or her to develop further his or her expertise with the copyright law in general and the statutory licenses in particular. Many proceedings before the CARPs, particularly rate adjustment proceedings, involve complex issues that require institutional expertise and interpretation of the copyright law, something that the CARPs are ill prepared to handle. The bill vests the Copyright Royalty Judge with the authority to resolve these complex matters and permits him or her to consult with the Register to assist in the decisionmaking process. I fully endorse the consultation process between the Register and the Copyright Royalty Judge when it comes to matters of statutory interpretation and copyright law policy. In fact, I believe that it is essential that in making any decisions involving interpretation of the copyright law, the Copyright Royalty Judge should consult with the Register. The Copyright Office has a long history of administering the copyright law. I believe we have performed that task responsibly and well. It would be unfortunate if a Copyright Royalty Judge based in the Library of Congress did not take advantage of the expertise of the Copyright Office on matters of interpretation of copyright law, and it could also create uncertainty and confusion if the Register and the Copyright Royalty Judge, in performing their respective responsibilities, reached different conclusions on the same questions.

Other matters that should be addressed include:

• Under the current CARP system, there is no opportunity for parties dissatisfied with the CARP’s determination to ask the CARP to reconsider its decision. Instead, dissatisfied parties must raise their concerns with the Register and the Librarian. It would make sense to let the CARP, in the first instance, consider those objections–especially in cases where a party asserts the CARP has overlooked or misapprehended particular facts or points of law. The same should be true with respect to the Copyright Royalty Judge. Parties should have an opportunity to ask the Copyright Royalty Judge to reconsider some or all of his or her determination before going to the Court of Appeals. The current draft does not appear to allow for this.

• Under current law, it is unclear whether the Librarian of Congress has the power to correct errors in his rate determinations or to address unanticipated issues and problems that became apparent only after he has rendered his decision on rates and terms. Similarly, it is unclear whether the Copyright Royalty and Distribution Act of 2003 would give the Copyright Royalty Judge the power to address such issues once he or she has made a determination on rates and terms or distribution. The Copyright Royalty Judge should expressly be given continuing jurisdiction over such matters after his or her decision has been rendered, in order to clarify that there is authority to deal with unanticipated matters that ought to be addressed immediately; otherwise, the problem cannot be addressed until the next regularly scheduled proceeding five years later.

• Currently, section 802(g) of the Copyright Act provides that when a rate adjustment proceeding is not concluded until some time after a previous royalty rate has expired, the new adjusted rate is effective retroactively to the date on which the old rate expired. But there is another gap in the law that needs to be addressed: Although the new rate is effective as of the date the old rate expired, there nevertheless may be a period of several months or more pending the new rate determination during which copyright owners and licensees do not know what the new rate is. For example, last year’s determination of rates and terms for webcasters covered the period from October 28, 1998 through December 31, 2002. Since January 1, we have had no statutory rate for webcasters. As a result, I understand that webcasters have taken the position that until the new rate is set, they are not required to make any payments for uses made since January 1. Serious consideration should be given to providing that in such cases, licensees should pay copyright owners at the recently expired rate. Once the new rate is set, and assuming that it is different from the old rate, adjustments can be made in the form of additional payments or refunds, as the case may be.

We have a number of additional comments relating to the bill, generally of a more technical nature. We will provide those comments to your staff.

As we have learned to our regret following enactment of the Copyright Royalty Tribunal Reform Act of 1993, reform of the system for determining rates and terms of the statutory licenses and for distributing statutory royalties is a process which requires careful thought and attention to complicated procedural issues. I look forward to working with you, your staff, and with the interested parties to ensure that the current legislation is more successful.

Thank you, Mr. Chairman.