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Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board & Librarian of Congress

United States Court of Appeals, District of Columbia Circuit

August 11, 2015

INTERCOLLEGIATE BROADCASTING SYSTEM, INC., APPELLANT
v.
COPYRIGHT ROYALTY BOARD AND LIBRARIAN OF CONGRESS, APPELLEES, COLLEGE BROADCASTERS, INC. AND SOUND EXCHANGE, INC., INTERVENORS

Argued January 12, 2015.

On Appeal From the Copyright Royalty Board.

John R. Grimm argued the cause for appellant. With him on the briefs were Timothy J. Simeone and Christopher J. Wright.

Sonia K. McNeil, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief was Mark R. Freeman, Attorney.

Matthew S. Hellman argued the cause for intervenor Sound Exchange, Inc. With him on the brief were Michael B. DeSanctis and Ishan K. Bhabha. David A. Handzo entered an appearance.

David D. Golden and Catherine R. Gellis were on the brief for intervenor College Broadcasters, Inc. in support of appellees.

Before: GARLAND, Chief Judge, and SRINIVASAN and WILKINS, Circuit Judges. OPINION filed by Chief Judge GARLAND.

OPINION

Garland, Chief Judge:

Intercollegiate Broadcasting System, Inc., appeals a determination by the Copyright Royalty Board setting royalty rates for webcasting. Three years ago, we vacated and remanded the Board's prior determination on this subject, concluding that its members had been appointed in violation of the Constitution's Appointments Clause. Thereafter, the Librarian of Congress appointed a new Board, which made the determination at issue here. Intercollegiate contends that the new Board's determination again violated the Appointments Clause because it was tainted by the previous Board's decision. The appellant also disputes the merits of the Board's determination. For the reasons set forth below, we reject both challenges.

I

Intercollegiate Broadcasting System (IBS) is a nonprofit association that represents college and high school radio stations, which historically broadcasted over the air. Many of its member stations are now involved in webcasting -- the digital transmission of sound recordings over the Internet by, for example, Internet radio music services.

In 1995, Congress amended the Copyright Act to grant the owner of a sound recording copyright the exclusive right to publicly perform the copyrighted work by means of a digital audio transmission. See Digital Performance Right in Sound Recordings Act of 1995, sec. 2, § 106(6), Pub. L. No. 104-39, 109 Stat. 336, 336 (codified at 17 U.S.C. § 106(6)). This right is now subject to certain limitations. Most relevant to this appeal, subsequent amendments in the Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998), " created a statutory license in performances by webcast, to serve Internet broadcasters and to provide a means of paying copyright owners." Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd. ( Intercollegiate I ), 574 F.3d 748, 753, 387 U.S.App.D.C. 387 (D.C. Cir. 2009) (internal quotation marks omitted); see 17 U.S.C. § 114(d)(2). These licenses permit entities other than the copyright owner to use and perform the copyrighted sound recordings without the copyright holder's permission. In exchange, the licensees -- here, webcasters -- must pay royalty fees to the copyright owner as required by the statute. See Indep. Producers Grp. v. Library of Congress, 759 F.3d 100, 101, 411 U.S.App.D.C. 291 (D.C. Cir. 2014). Such royalties are normally paid to copyright owners through third-party clearinghouses like the intervenor in this case, SoundExchange, Inc.

In the Copyright Royalty and Distribution Reform Act of 2004, Pub. L. No. 108-419, 118 Stat. 2341, Congress created the Copyright Royalty Board within the Library of Congress. The Board is composed of three Copyright Royalty Judges, appointed by the Librarian of Congress, and is authorized to determine rates and terms for the licensing and use of copyrighted works in (inter alia) webcasting. See 17 U.S.C. § § 114(f), 801(b)(1). If the parties voluntarily agree on rates and terms, the Act directs the Board to adopt their agreement. See id. § 114(f)(3). If the parties fail to agree, the Board must hold adversarial proceedings governed by the statute and its regulations to determine " reasonable" royalty rates and terms for the license period in question. Id. § 114(f)(2)(A); see id. § 803; 37 C.F.R. § § 351.1 et seq. The Board's final determination is governed by the standards set forth in the Act. As relevant here, the Board must " distinguish among the different types" of services and must determine " a minimum fee for each such type of service." 17 U.S.C. § 114(f)(2)(B). The final rates and terms must be those that " most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller." Id. Following a review for legal error by the Register of Copyrights, id. § 802(f)(1)(D), the Librarian of Congress publishes the determination in the Federal Register, id. § 803(c)(6).

In January 2009, the Board initiated a proceeding to establish the rates and terms for the public performance of digital sound recordings for the 2011-2015 period. Most participants reached settlements during the voluntary negotiation period prescribed by the statute. See Determination of Royalty Rates for Digital Performance Right in Sound Recordings and Ephemeral Recordings, 79 Fed.Reg. 23,102, 23,102 (Apr. 25, 2014) [hereinafter 2014 Final Determination]; see also 17 U.S.C. § 803(b)(3). The Board held an evidentiary hearing for the remaining participants, including Intercollegiate. The Board received written and live testimony from fifteen witnesses and admitted sixty exhibits into evidence. See 79 Fed.Reg. at 23,104. The record also included written and oral argument of counsel. See id. The Board issued a final determination on March 9, 2011. See Digital Performance Right in Sound Recordings and Ephemeral Recordings, 76 Fed.Reg. 13,026 (Mar. 9, 2011) [hereinafter 2011 Final Determination]. Among other things, the determination included a $500 per station or per channel annual minimum fee for all commercial and noncommercial webcasters.

Intercollegiate appealed the 2011 final determination, contending both that the Judges were appointed in violation of the Appointments Clause, and that the minimum fee was unlawful as applied to " small" and " very small" noncommercial webcasters. This court agreed with the former challenge and did not reach the latter. See Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd. ( Intercollegiate II ), 684 F.3d 1332, 401 U.S.App.D.C. 407 (D.C. Cir. 2012). We determined that Congress had vested the Judges, who could not be removed except for cause, with sufficient authority and independence to qualify as " principal" officers of the United States. Id. at 1336-41. Under the Appointments Clause, however, principal officers must be appointed by the President and confirmed by the Senate. See U.S. Const. art. II, § 2, cl. 2. To " cure[] the constitutional defect with as little disruption as possible," we declared invalid and severed the statutory provision that barred the Librarian of Congress from removing the Judges without cause. Intercollegiate II, 684 F.3d at 1336-37, 1340. " Once the limitations on the Librarian's removal authority are nullified," we said, the Judges " become validly appointed inferior officers." Id. at 1341. Because the Judges were not validly appointed at the time they issued the challenged determination, however, we vacated and remanded that determination without reaching the merits of Intercollegiate's challenge. Id. at 1342.

Thereafter, the Librarian appointed three new Copyright Royalty Judges to replace the previous Judges. The new Judges directed the parties to submit proposals regarding how to proceed on the remand. Unsurprisingly, the parties proposed nearly opposite ways forward. SoundExchange initially proposed that the Judges " reinstate the Final Determination in its entirety without undertaking further proceedings." SoundExchange's Mot. Concerning Conduct of Proceedings on Remand 1 (J.A. 173). Intercollegiate said the Judges should reopen proceedings and permit additional written and oral testimony and briefing. See IBS's Proposal for Conduct of Remand 1 (J.A. 194).

After reviewing the parties' proposals, the Board issued a preliminary Notice of Intention to Conduct a Paper Proceeding on Remand. The Notice contained several key points. First, the Board interpreted this court's remand as directing it to review the entire record and to issue a new determination on all issues, not just the $500 minimum fee that Intercollegiate had challenged on appeal. Notice of Intention to Conduct Paper Proceeding on Remand 4 (J.A. 221) [hereinafter Notice]. Second, because the court did not reach the merits of the dispute, the Board understood that it " could, after an appropriate process, issue a new final determination that . . . reaches the same conclusions . . . as the prior Final Determination." Id. at 5 (J.A. 222). The Board recognized, however, that it was " also free to reach completely different conclusions in [its] new final determination." Id. Third, the Board decided neither to " rubber stamp" the prior Board's decision, nor to conduct a " complete 'do over' of the entire original process." Id. at 6 (J.A. 223). Instead, it would conduct an independent, de novo review of the entire written record of the proceeding. Id. at 7 (J.A. 224). The Board decided not to hold new evidentiary hearings because Intercollegiate had " fail[ed] . . . to point to any instance of an exclusion of relevant evidence that affected the outcome of the proceeding, or to any portion of the Final Determination that turned on witness credibility." Id. Likewise, the Board decided not to accept additional submissions because " no party ha[d] provided any specific reason . . . to reopen the record," and because each party " had ample opportunity to present its case." Id.

In sum, the Board concluded that " it would be neither fair, nor efficient, nor economical to proceed . . . with additional submissions, discovery, and evidentiary hearings." Notice at 7-8 (J.A. 224-25). Accordingly, as authorized by 17 U.S.C. § 803(b)(5), the Board stated its intention to " conduct[] only a paper proceeding, consisting of a review of the existing record in this proceeding, and then issu[e] a determination at the conclusion of that review." Id. at 9 (J.A. 226). The Board established a ten-day period for comments on the Notice. " [T]o the extent that any party disagree[d]" with the plan to go forward with a paper proceeding, the Board directed such party to " identify in its comments to this notice specific examples where it believes the outcome of the original proceeding turned on elements, such as witness demeanor, that are not readily determined from a review of the written record." Id.

After the end of the comment period, the Board announced that it would " proceed with [its] consideration de novo on the existing record" and would " accept no further submissions." Order Following Notice of Intention to Conduct Paper Proceeding (J.A. 233). The Board issued its preliminary written determination on January 9, 2014. See 2014 Final Determination, 79 Fed.Reg. at 23,103 . On April 25, 2014, the Board issued the final determination at issue on this appeal. See id. at 23,102. Once again, the final determination imposed a $500 per station or per channel annual minimum fee for both commercial and noncommercial webcasters. See id. at 23,122-24. As in the 2011 final determination, the Board rejected Intercollegiate's proposal to impose lower annual fees on " small" and " very small" noncommercial webcasters. Id. at 23,123.

Intercollegiate filed a timely appeal of the Board's final determination to this court, which has jurisdiction pursuant to 17 U.S.C. § 803(d)(1). Intercollegiate contends that the Board's determination violated the Appointments Clause again. It also challenges the merits of the determination insofar as it requires Intercollegiate's members to pay $500 per year. Reply Br. 4 & n.1. SoundExchange, the nonprofit entity responsible for distributing statutory royalties for the 2011-2015 period, see 37 C.F.R. § 380.2, intervened to defend the determination.

II

Intercollegiate's principal contention is that the new Board's determination violated the Appointments Clause because it was " still tainted by the Appointments Clause violation that originally led this Court to remand" the previous Board's determination. Intercollegiate Br. 15. We consider that constitutional challenge de novo. See Am. Bus. Ass'n v. Rogoff, 649 F.3d 734, 737, 396 U.S.App.D.C. 353 (D.C. Cir. 2011).

The Appointments Clause provides that the President " shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers of the United States, . . . but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments." U.S. Const. art. II, § 2, cl. 2. As we have noted, this court vacated and remanded the previous Board's 2011 determination of webcasting rates because the Copyright Royalty Judges who made that determination had been appointed in violation of the Clause. Intercollegiate II, 684 F.3d at 1342. The Librarian of Congress responded by replacing the three original Judges with three new ones, appointed under the statute with the offending provision severed and with the power to reconsider the matter de novo.

Intercollegiate does not dispute that the three new Judges were properly appointed by the Librarian under the Appointments Clause. Rather, it contends that, " [b]y merely reviewing de novo their predecessors' proceedings instead of conducting their own proceeding permitting firsthand credibility determinations and evidentiary rulings, the Judges did nothing more than enshrine the constitutional violations that this Court sought to cure." Intercollegiate Br. 15. We disagree.

A

This court has twice before considered the validity of decisions made after the replacement of an improperly appointed official. Both cases support the validity of a subsequent determination when -- as here -- a properly appointed official has the power to conduct an independent evaluation of the merits and does so.

1. In FEC v. Legi-Tech, we held that a properly reconstituted Federal Election Commission (FEC) could reauthorize pending enforcement actions that had been initiated by an unconstitutionally constituted Commission. 75 F.3d 704, 706, 316 U.S.App.D.C. 122 (D.C. Cir. 1996). In an earlier case, another panel of this court had held that a provision of the Federal Election Campaign Act, placing two congressional officers on the Commission as ex officio members, violated constitutional separation-of-powers principles. See FEC v. NRA Political Victory Fund, 6 F.3d 821, 303 U.S.App.D.C. 362 (D.C. Cir. 1993). That case also held that the ex officio provision was severable. Id. at 827-28. Thereafter, the Commission voted to reconstitute itself and exclude the ex officio members. The reconstituted Commission then considered the pending actions, deliberated for three days, and voted to continue the actions against the ...


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