`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`
`Decided June 22, 2010
`
`
`
`Argued March 12, 2010
`
`
`
`
`
`
`
`
`No. 09-1075
`
`RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC.,
`APPELLANT
`
`v.
`
`LIBRARIAN OF CONGRESS,
`APPELLEE
`
`NATIONAL MUSIC PUBLISHERS’ ASSOCIATION, INC.,
`SONGWRITERS GUILD OF AMERICA, AND NASHVILLE
`SONGWRITERS ASSOCIATION INTERNATIONAL,
`INTERVENORS
`
`
`
`Consolidated with 09-1205
`
`
`On Appeal of an Order of the Copyright Royalty Board
`
`
`
`Paul M. Smith argued the cause for appellant. With him
`on the briefs were Steven R. Englund, Jared O. Freedman,
`Lindsay C. Harrison, Steven M. Marks, Susan B. Chertkof,
`and Scott A. Zebrak. David A. Handzo entered an appearance.
`
`
`Kelsi Brown Corkran, U.S. Department of Justice, argued
`the cause for appellee. With her on the brief were Tony West,
`
`
`
`2
`
`Assistant Attorney General, and Scott R. McIntosh, Attorney.
`Sarang V. Damle, Attorney, entered an appearance.
`
`Jay Cohen argued the cause for intervenors National
`Music Publishers’ Association, Inc., et al. With him on the
`brief were Lynn B. Bayard, David W. Brown, Jay Rosenthal,
`Senior Vice-President & General Counsel, National Music
`Publishers’ Association, Inc., Kathryn E. Wagner, Vice
`President & Counsel, National Music Publishers’ Association,
`Inc., Charles J. Sanders, Special Counsel, Songwriters Guild
`of America, and Carl W. Hampe.
`
`
`Before: GARLAND and KAVANAUGH, Circuit Judges, and
`RANDOLPH, Senior Circuit Judge.
`
`
`for
`
`the Court
`
`filed by Circuit Judge
`
`Opinion
`KAVANAUGH.
`
`
`KAVANAUGH, Circuit Judge: By law, the Copyright
`Royalty Board sets the terms and rates for copyright royalties
`when copyright owners and licensees fail to negotiate terms
`and rates themselves. As part of its statutory mandate, the
`Board sets royalty terms and rates for what is known as the §
`115 statutory license. That license allows individuals to make
`their own recordings of copyrighted musical works for
`distribution to the public without the consent of the copyright
`owner.
`
`In carrying out its statutory responsibilities under 17
`U.S.C. § 115, the Board instituted a 1.5 percent per month late
`fee for late royalty payments. It also implemented a penny-
`rate royalty structure for cell phone ringtones, under which
`copyright owners receive 24 cents for every ringtone sold
`using their copyrighted work.
`
`
`
`
`
`3
`
`Industry Association of America
`The Recording
`challenges those two aspects of the Board’s decision, arguing
`that they were arbitrary and capricious for purposes of the
`Administrative Procedure Act. We conclude that the Board’s
`decision was reasonable and reasonably explained. We
`therefore affirm the Board’s determination.
`
`
`I
`
`
`
`A
`
` Most songs played on the radio, sold on CDs in music
`stores, or digitally available on the Internet through services
`like iTunes embody two distinct copyrights – a copyright in
`the “musical work” and a copyright in the “sound recording.”
`See 17 U.S.C. § 102. The musical work is the musical
`composition – the notes and lyrics of the song as they appear
`on sheet music. The sound recording is the recorded musical
`work performed by a specific artist.
`
`
`Although almost always intermingled in a single song,
`those two copyrights are legally distinct and may be owned
`and licensed separately. One party might own the copyright
`in the words and musical arrangement of a song, and another
`party might own the copyright in a particular artist’s
`recording of those words and musical notes.
`
`
`
`This case involves licenses in a limited category of
`copyrighted musical works – as opposed to sound recordings.
`Section 115 of the Copyright Act allows an individual to
`make and distribute phonorecords (that is, sound recordings)
`of a copyrighted musical work without reaching any kind of
`agreement with the copyright owner. That right does not
`include authorization to make exact copies of an existing
`
`
`
`
`
`4
`
`sound recording and distribute it; if a musical work has been
`recorded and copyrighted by another artist, a licensee “may
`exercise his rights under the [§ 115] license only by
`assembling his own musicians, singers, recording engineers
`and equipment, etc. for the purpose of recording anew the
`musical work that is the subject of the [§ 115] license.” 2
`MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON
`COPYRIGHT § 8.04[A], at 8-58.5 (2009). For example, a § 115
`licensee could pull together a group of musicians to record
`and sell a cover version of Bruce Springsteen’s 1975 hit Born
`to Run, but
`that
`licensee could not make copies of
`Springsteen’s recording of that song and sell them.
`
`
`
`in a fairly
`licensing regime operates
`The § 115
`straightforward manner. When a copyright owner distributes
`work “to the public,” § 115’s provisions are triggered. 17
`U.S.C. § 115(a)(1). Once that occurs, anyone may “obtain a
`compulsory license to make and distribute phonorecords of
`the work” under § 115 so long as the “primary purpose in
`making [the] phonorecords is to distribute them to the public
`for private use.” Id. Assuming the copyright has been
`registered with the Copyright Office, the licensee owes the
`copyright owner a royalty for every phonorecord “made and
`distributed in accordance with the [§ 115] license.” Id. §
`115(c)(2). For purposes of the Copyright Act, a phonorecord
`is “distributed” – and an obligation to pay the copyright
`owner a royalty created – when “the person exercising the [§
`115] license has voluntarily and permanently parted with” the
`phonorecord. Id. In other words, the licensee’s sale of its
`recording of the copyright owner’s work triggers the royalty
`payment obligation. See NIMMER § 8.04[H][1], at 8-77.
`
`
`Because the § 115 license issues without any agreement
`between the copyright owner and the licensee, the system
`
`
`
`
`
`5
`
`needs a mechanism to figure out how much the licensee owes
`the copyright owner and what the terms for paying that rate
`should be. Although that mechanism has changed over time,
`the Copyright Royalty Board currently serves as
`the
`rulemaking body for this system. See generally Procedural
`Regulations for the Copyright Royalty Board, 70 Fed. Reg.
`30,901 (May 31, 2005) (discussing the history of royalty
`ratemaking). The Board is a three-person panel appointed by
`the Librarian of Congress and removable only for cause by
`the Librarian.1 The Board sets the terms and rates for
`copyright royalties when copyright owners and licensees fail
`to negotiate terms and rates themselves. See NIMMER §
`7.27[C], at 7-243.
`
`
`As relevant here, the Copyright Act requires the Board to
`set “reasonable terms and rates” for royalty payments made
`under the § 115 license when the parties to the license fail to
`do so. 17 U.S.C. § 801(b)(1). When establishing terms and
`rates under that license, the Copyright Act requires the Board
`to balance four general and sometimes conflicting policy
`objectives: (1) maximizing the availability of creative works
`to the public; (2) providing copyright owners a fair return for
`their creative works and copyright users a fair income; (3)
`recognizing the relative roles of the copyright owners and
`users; and (4) minimizing any disruptive impact on the
`industries involved. Id. § 801(b)(1)(A)-(D).
`
`
`
`1 RIAA has not raised a constitutional challenge to the method
`of appointment of the members of the Copyright Royalty Board.
`Cf. Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 574
`F.3d 748, 755-56 (D.C. Cir. 2009); SoundExchange, Inc. v.
`Librarian of Congress, 571 F.3d 1220, 1226-27 (D.C. Cir. 2009)
`(Kavanaugh, J., concurring).
`
`
`
`
`
`6
`
`At specified intervals, the Board holds ratemaking
`proceedings for licenses issued under the Copyright Act.
`Section 115 ratemaking proceedings can occur every five
`years “or at such other times as the parties have agreed.” Id. §
`804(b)(4).
`
`
`B
`
`In 1996, the parties with an interest in the § 115 license
`(such as the Recording Industry Association of America, the
`Songwriter’s Guild of America, and the National Music
`Publishers’ Association) agreed on various terms and rates for
`the compulsory license. They also agreed that the settlement
`with respect to those terms and rates would expire 10 years
`later. In 2006, after the parties found they could not reach a
`new compromise, the Board instituted proceedings to set
`certain terms and rates governing the operation of the § 115
`license. The process was long and complicated, involving 28
`days of live testimony, more than 140 exhibits, and more than
`340 pleadings, motions, and orders. See Mechanical and
`Digital Phonorecord Delivery Rate Determination Proceeding,
`74 Fed. Reg. 4510, 4511 (Jan. 26, 2009).
`
`When the Board published its final determination from
`those proceedings in 2009, it announced one new § 115
`licensing term and two new § 115 royalty rates. First, the
`Board instituted a late payment of 1.5 percent per month for
`overdue royalties, measured from the date payment is due.
`Second, it established a royalty rate for cellular phone
`ringtones – a sound cell phones can make when they ring that
`often samples a popular song. It set the rate at 24 cents per
`
`
`
`
`
`7
`
`ringtone sold.2 Third, with respect to physical phonorecords
`(like CDs) and permanent digital downloads (like those
`purchased from iTunes), the Board set the § 115 royalty rate
`at the greater of 9.1 cents per song or 1.75 cents per minute of
`playing time.
`
`The Recording Industry Association of America, known
`as RIAA, is a trade association representing companies that
`create, manufacture, and distribute sound recordings. It
`participated as a party in the § 115 licensing proceedings.
`After the Board issued its determination, RIAA filed a motion
`for rehearing. The Board denied the motion.
`
`RIAA now appeals two aspects of the Board’s ruling: (1)
`the imposition of a 1.5 percent per month late fee and (2) the
`imposition of a penny-rate royalty structure for ringtones at
`24 cents per ringtone sold.
`
`
`RIAA does not contend that the Board contravened any
`specific statutory limit. In other words, this is a State Farm
`case, not a Chevron case. The Board’s rulings are subject to
`review in this Court under the arbitrary and capricious
`standard of the Administrative Procedure Act. 17 U.S.C. §
`803(d)(3); see 5 U.S.C. § 706(2)(A). As a general matter, our
`review under that standard is deferential. See FCC v. Fox
`Television Stations, 129 S. Ct. 1800, 1810 (2009); Motor
`Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463
`U.S. 29, 43 (1983). And we give “substantial deference” to
`the ratemaking decisions of the Board because Congress
`
`
`2 In 2006, the Register of Copyrights ruled that ringtones are
`phonorecords that fall within the scope of the § 115 license.
`Mechanical and Digital Phonorecord Delivery Rate Adjustment
`Proceedings, 71 Fed. Reg. 64,303 (Nov. 1, 2006).
`
`
`
`
`
`8
`
`expressly tasked it with balancing the conflicting statutory
`objectives enumerated in the Copyright Act. SoundExchange,
`Inc. v. Librarian of Congress, 571 F.3d 1220, 1225 (D.C. Cir.
`2009). “To the extent that the statutory objectives determine
`a range of reasonable royalty rates that would serve all [the]
`objectives adequately but to differing degrees, the [Board] is
`free to choose among those rates, and courts are without
`authority to set aside the particular rate chosen by the [Board]
`if it lies within a zone of reasonableness.” Recording Indus.
`Ass’n of America v. Copyright Royalty Tribunal, 662 F.2d 1, 9
`(D.C. Cir. 1981) (internal quotation marks omitted).
`
`
`II
`
`
` We first consider RIAA’s challenge to the 1.5 percent
`late fee.
`
`
`The Copyright Act authorizes the Board to impose a late
`fee for § 115 royalty payments: “A determination of the
`Copyright Royalty [Board] may include terms with respect to
`late payment, but in no way shall such terms prevent the
`copyright holder from asserting other rights or remedies
`provided under this title.” 17 U.S.C. § 803(c)(7).
`
`The factors listed in § 801(b)(1) of the Copyright Act
`govern the Board’s decision to impose a late fee, as well as its
`determination of the amount of that fee. Recall that those
`factors include: (1) maximizing the availability of creative
`works to the public; (2) providing copyright owners a fair
`return for their creative works and copyright users a fair
`income; (3) recognizing the relative roles of the copyright
`owners and users; and (4) minimizing any disruptive impact
`on the industries involved. Applying those broad and rather
`amorphous factors, the Board concluded that the 1.5 percent
`
`
`
`
`
`9
`
`late fee comports with the statutory objectives because it
`strikes a balance “between providing an effective incentive to
`the licensee to make payments timely on the one hand and not
`making the fee so high that it is punitive on the other hand.”
`Mechanical and Digital Phonorecord Delivery Rate
`Determination Proceeding, 74 Fed. Reg. 4510, 4528 (Jan. 26,
`2009) (internal quotation marks omitted).
`
`
`RIAA levies several challenges to the late fee. First,
`RIAA argues that the Board must set royalty terms and rates
`that track those found in the marketplace and that the Board
`failed to do so here. Second, RIAA asserts that the late fee is
`unnecessary in the § 115 licensing context because copyright
`owners possess a termination right that can be invoked when
`payments are late. Third, RIAA contends that a late fee is
`inappropriate because the lateness of payments results in large
`part from uncertainty about the appropriate division of
`royalties among joint copyright owners. RIAA suggests that
`this problem is the fault of the copyright owners themselves.
`Fourth, RIAA relatedly submits that the Board failed to
`adequately address its argument about the problems presented
`by co-copyright owners. We will consider each of those
`objections in turn.
`
`
`A
`
`RIAA argues that the late fee must be tethered to late fees
`that can be found in the existing market for voluntary
`licenses. By RIAA’s account, there are no late fees in the
`voluntary market for the copyrights that § 115 covers. As a
`result, RIAA contends the Board should not be able to impose
`a late fee in this compulsory license setting.
`
`
`
`
`
`
`
`
`10
`
`The Copyright Act provides that the Board “may
`
`consider rates and terms under voluntary license agreements”
`in addition to the mandatory “objectives set forth in section
`801(b)(1)” when setting the terms of the § 115 license. 17
`U.S.C. § 115(c)(3)(D). As this Court explained in Recording
`Industry Association of America v. Librarian of Congress, the
`Librarian has interpreted a Seventh Circuit “precedent to
`mean that marketplace analogies, along with other evidence,
`must be considered,” which we held to be “a reasonable
`interpretation of the precedent.” 176 F.3d 528, 534 (D.C. Cir.
`1999). At most, then, the Board must “consider[]” the
`existing market for voluntary licenses.
`
`
`The Board did so here, explaining that a late fee would
`correspond with the practices in other similar markets – in
`particular, the closely related webcasting and satellite digital
`radio industries. 74 Fed. Reg. at 4527; see Determination of
`Rates and Terms for Preexisting Subscription Services and
`Satellite Digital Audio Radio Services, 73 Fed. Reg. 4080,
`4099 (Jan. 24, 2008); Digital Performance Right in Sound
`Recordings and Ephemeral Recordings, 72 Fed. Reg. 24,084,
`24,107 (May 1, 2007). The copyright owners presented
`evidence during the proceedings – considered by the Board –
`that the major record labels have late fee clauses in their
`royalty contracts with digital music services like iTunes. J.A.
`523-24. And RIAA acknowledged that at least a handful of
`royalty agreements provide copyright owners with late-fee
`protection. J.A. 618-19.
`
`
`The Board also considered other relevant market metrics.
`Copyright owners presented evidence
`indicating
`that
`payments were frequently made to copyright owners after
`they were due. Some of the evidence in the record suggested
`that from January 2000 to September 2007, over 41,000
`
`
`
`
`
`11
`
`payments totaling more than $2.1 billion arrived after their
`due dates. J.A. 433. Though RIAA disputed the magnitude
`of the problem, none of the parties to the proceeding claimed
`the problem was non-existent. 74 Fed. Reg. at 4527 n.50.
`
`
`And although the Board considers market conditions
`when setting terms and rates, they are not required to choose a
`late fee that exactly matches a market rate. Such a rule
`would, in effect, nullify the congressional authorization for
`late fees.
`
`
`In short, the Board appropriately took market evidence
`into account when imposing the late fee.
`
`
`B
`
`The Copyright Act authorizes copyright owners to
`terminate § 115 licenses for nonpayment. 17 U.S.C. §
`115(c)(6). RIAA argues that the presence of that provision
`renders a late fee unnecessary.
`
`But the Copyright Act itself refutes this either-or
`argument. The statute both grants the copyright owners a
`termination right and authorizes the Board to impose a late
`fee. Moreover, by the terms of the statute, that late fee “in no
`way shall . . . prevent the copyright holder from asserting
`other rights or remedies provided” by the Copyright Act. Id.
`§ 803(c)(7). The congressional scheme clearly contemplates
`both a termination right and a late fee.
`
`The congressional framework makes good sense because
`the incentive to make timely payments in order to avoid § 115
`license termination is rather weak, if any such incentive exists
`at all. Under the terms of the statute, a copyright owner must
`
`
`
`
`
`
`
`12
`
`give a licensee 30 days to cure any nonpayment before
`terminating the license. Id. § 115(c)(6). As the Government
`persuasively points out, the termination provision “cannot
`possibly serve as an incentive to make timely royalty
`payments, because the licensee can avoid any consequences
`of withholding payment by simply waiting until the copyright
`owner initiates termination and then making the payment
`before the 30-day notice period has expired.” Government’s
`Br. at 40.
`
`
`
`In short, a copyright owner’s ability to terminate a § 115
`license in no ways bars the imposition of a late fee.
`
`
`C
`
`
`
`RIAA also asserts that it was unreasonable for the Board
`to impose a late fee benefiting copyright owners because, it
`says, copyright owners are often the source of the problems
`that cause late payment. By RIAA’s account, when more than
`one party owns a copyright in a work, those joint copyright
`owners often fail to decide who is entitled to what share of the
`royalties. RIAA contends that uncertainty about what amount
`is owed to individual copyright owners when a copyright is
`jointly held is often the underlying reason that payments are
`late.
`
`
`That argument is unpersuasive. Even if it were true that
`divided interests in a copyright made it difficult to make
`timely payments to each copyright owner, that fact would in
`no way counsel against the imposition of a late fee. The
`regulations governing the operation of the § 115 license
`contemplate that scenario and set forth a solution. A licensee
`can satisfy its obligation to pay a royalty by paying any one
`copyright owner – even when many individuals have a stake
`
`
`
`
`
`13
`
`in a copyright. See 37 C.F.R. § 201.18(a)(5) (“For the
`purposes of this section, the term copyright owner, in the case
`of any work having more than one copyright owner, means
`any one of the co-owners.”) (emphasis omitted); id. §
`201.18(a)(6) (“In the case where the work has more than one
`copyright owner, the service of the Notice on any one of the
`co-owners . . . shall be sufficient with respect to all co-
`owners.”); id. § 201.19(a)(5) (“In the case where the work has
`more than one copyright owner, the service of the Statement
`of Account on one co-owner . . . shall be sufficient with
`respect to all co-owners.”).
`
`
`We therefore reject this argument as a basis for upsetting
`the Board’s imposition of a late fee.
`
`
`D
`
`RIAA relatedly argues that the Board failed to adequately
`consider RIAA’s assertion that a late fee was unreasonable
`because of the uncertainties caused by split payments. But
`both the Board’s final determination and the order denying
`RIAA’s motion for a rehearing specifically addressed that
`argument. And as we have already discussed, the problem
`presented by jointly held copyrights is really no problem at
`all; a licensee can meet its § 115 licensing obligation by
`paying any one owner of a jointly owned copyright.
`
`
`In sum, RIAA has failed to raise any argument that would
`justify our overturning the Board’s 1.5 percent per month late
`fee.
`
`
`
`
`
`
`
`
`
`14
`
`III
`
`We next consider RIAA’s challenge to the royalty rates
`for cell phone ringtones.3
`
`As part of the § 115 licensing proceedings, the Board
`established what is known as a penny-rate royalty structure
`for ringtones. Under that rate, copyright owners receive 24
`cents for every ringtone sold using their copyrighted work.
`
`
`In the proceeding before the Board, RIAA argued for a
`percentage-of-revenue
`royalty
`structure under which
`copyright owners would receive 15 percent of the wholesale
`revenue derived from the sale of a ringtone. As a less
`preferred alternative, RIAA sought a penny-rate royalty
`structure in which copyright owners would receive 18 cents
`per ringtone sold.4
`
`3 The Government and intervenors argue that waiver, estoppel,
`or a lack of standing bars RIAA from challenging the Board’s
`imposition of a penny-rate royalty structure for ringtones. Though
`varying in flavor, these arguments all follow the same essential
`form: Because RIAA endorsed a penny-rate structure as a less
`preferred alternative to a percentage-of-revenue structure before the
`Board, it waived its right to challenge (or is estopped from
`challenging, or lacks standing to challenge) the imposition of the
`penny-rate royalty in this Court. Not so. This Court’s case law
`indicates that a party can appeal an agency’s adoption of a rate
`proposed by that party when it was proffered as a second-best
`option. Cf. Southern Natural Gas Co. v. FERC, 877 F.2d 1066,
`1070-71 (D.C. Cir. 1989).
`4 Other parties to the proceeding offered competing rates. For
`example, the copyright owners endorsed a rate structure in which
`they would receive the greater of (1) 15 percent of all revenue
`associated with the ringtone, (2) 33.3 percent of the cost that would
`have been paid for the mechanical rights to the equivalent musical
`
`
`
`
`
`
`
`15
`
`
`
`Applying the § 801(b)(1) criteria, the Board settled on a
`penny-rate royalty structure of 24 cents per ringtone sold.
`With respect to the first statutory criterion it had to consider –
`maximizing the availability of creative work – the Board
`concluded that a “nominal rate[] for ringtones” supports that
`objective. Mechanical and Digital Phonorecord Delivery Rate
`Determination Proceeding, 74 Fed. Reg. 4510, 4524 (Jan. 26,
`2009). As to the second criterion – affording the copyright
`owner a fair return – the Board found that the new rates did
`not deprive copyright owners of a fair return on their creative
`works. Id. The Board also found that the penny rate met the
`third statutory criterion – respecting the relative roles of the
`copyright owner and user. Id. at 4525. And under the fourth
`criterion – minimizing disruptive impact on the industry – the
`Board found that the rate structure it chose was reasonable
`and already in place in many parts of the market, minimizing
`any disruptive impact. Id.
`
`
`On two separate grounds, RIAA now challenges the
`structure of the ringtone royalty rate imposed by the Board –
`specifically, the fact that it is a penny rate rather than a
`percentage-of-revenue rate. First, using an argument similar
`to the one it lodged against the 1.5 percent late fee, RIAA
`alleges that the penny-rate royalty structure inappropriately
`departs from market analogies for voluntary licenses. Second,
`RIAA contends that a penny rate is unreasonable in light of
`falling ringtone prices.
`
`
`
`
`composition and sound recordings, and (3) 15 cents per ringtone,
`subject to periodic inflation adjustments. Mechanical and Digital
`Phonorecord Delivery Rate Determination Proceeding, 74 Fed.
`Reg. 4510, 4515 (Jan. 26, 2009).
`
`
`
`
`
`16
`
`A
`
`
`
`As previously discussed, although existing market rates
`for voluntary licenses do not bind the Board when making its
`determinations, the Board considered those rates when
`selecting the penny-rate royalty structure.
`
`
`that marketplace
`recognized
`The Board expressly
`ringtone contracts typically provide for royalty payments at
`the greater of (1) a penny rate ranging from 10 to 25 cents; (2)
`a percentage of retail revenue ranging from 10 to 15 percent;
`and (3) a percentage of gross revenue ranging from 9 to 20
`percent. 74 Fed. Reg. at 4518.
`
`
`After weighing the costs and benefits of the parties’
`proposals and taking into account relevant market practices,
`the Board concluded that a penny rate was superior to a
`percentage-of-revenue rate for several reasons.
`
`First, the Board determined that a penny rate was more in
`line with reimbursing copyright owners for the use of their
`works. Under the Board’s determination, every copyright
`owner will receive 24 cents every time a ringtone using their
`work is sold. By contrast, under a percentage-of-revenue
`system, the royalty paid to copyright owners would vary
`based on factors in addition to the number of ringtones sold,
`such as the price charged to the end consumer. This Court
`has validated the Board’s preference for a royalty system
`based on the number of copyrighted works sold – like the
`penny rate – as being more directly tied to the nature of the
`right being licensed than a percentage-of-revenue rate. See
`Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 574
`F.3d 748, 760-61 (D.C. Cir. 2009).
`
`
`
`
`
`
`17
`
`Second, when looking to market analogies, the Board
`determined that many of the concerns driving the adoption of
`a percentage-of-revenue royalty structure in other instances
`were absent here. For example, the Board had previously
`concluded that a percentage-of-revenue royalty structure
`made sense in the satellite digital radio context because it
`would be difficult to measure how much a given work was
`actually used. See Determination of Rates and Terms for
`Preexisting Subscription Services and Satellite Digital Audio
`Radio Services, 73 Fed. Reg. 4080, 4086 (Jan. 24, 2008). In
`the case of
`ringtones, “measuring
`the quantity of
`reproductions presents no such problems.” 74 Fed. Reg. at
`4516. In a market based on the sale of individual copyrighted
`works (like the ringtone market) as opposed to a market
`where copyrighted works are bundled and sold as a service to
`consumers (like satellite radio) figuring out how many times a
`copyrighted work is used (i.e., sold) is much easier.
`
`
`Third, the Board found that the simplicity of using a
`penny-rate royalty structure supported its adoption: “No
`proxies need be formulated to establish the number of such
`reproductions,” which are “readily calculable as the number
`of units in transactions between the parties.” 74 Fed. Reg. at
`4516. That simplicity contrasts sharply with the “salient
`difficulties” presented by RIAA’s proposed percentage-of-
`revenue royalty structure. Id. As the Board recognized, not
`least among these difficulties were definitional problems such
`as disagreements about what constituted “revenues.” Id.
`
`
`Tying all of those strands together, the Board ultimately
`concluded “that a single penny-rate structure is best applied to
`ringtones as well as physical phonorecords and digital
`permanent downloads” because of “the efficiency of
`administration gained from a single structure when spread
`
`
`
`
`
`18
`
`over the much larger number of musical works reproduced”
`under the § 115 licensing regime. 74 Fed. Reg. at 4517 n.21.
`In the Board’s view, the penny rate provided “the most
`efficient mechanism
`for capturing
`the value of
`the
`reproduction and distribution rights at issue.” 74 Fed. Reg. at
`4515.
`
`We find nothing unreasonable about
`preference for a penny-rate royalty structure.
`
`
`the Board’s
`
`B
`
`RIAA also argues that plummeting ringtone prices render
`the penny rate
`inherently unreasonable.
` The Board
`considered and rejected this argument, stating: “RIAA’s shrill
`contention that a penny-rate structure ‘would be disruptive as
`consumer prices continue to decline’ and should, therefore, be
`replaced by a percentage rate system in order to satisfy 801(b)
`policy considerations . . . is not supported by the record of
`evidence in this proceeding. . . . RIAA [does not] offer any
`persuasive evidence that would in any way quantify any
`claimed adverse
`impact on projected future revenues
`stemming from the continued application of a penny-rate
`structure . . . .” 74 Fed. Reg. at 4516.
`
`Although the Board concluded that falling ringtone prices
`were not relevant to the choice of a penny-rate royalty as
`opposed to a percentage-of-revenue royalty, it did find
`information about declining prices useful in structuring the
`terms of the penny rate it chose. See 74 Fed. Reg. at 4523.
`For example, the Board referenced concerns about reduced
`revenues when rejecting the copyright owners’ request that
`selected rates be adjusted annually for inflation. Id.
`
`
`
`
`
`
`19
`
`The Board examined the relevant data and determined
`that there was no meaningful link between the selection of a
`penny-rate royalty structure for ringtones and future ringtone
`revenues. RIAA has failed to present any basis for us to
`overturn that conclusion.
`
`
`* * *
`
` We affirm the Copyright Royalty Board’s determination.
`
`
`So ordered.