Order Code RS21512
Updated March 8, 2004
CRS Report for Congress
Received through the CRS Web
H.R. 1417: The Copyright Royalty
and Distribution Reform Act of 2004
Robin Jeweler
Legislative Attorney
American Law Division
Summary
H.R. 1417, 108th Congress, first session (2003), was introduced on March 25, 2003
and passed by the House on March 3, 2004. If enacted, the bill would make extensive
changes to the procedural framework for adjudicating royalty rates for compulsory
licenses under the Copyright Act. Compulsory licenses facilitate many copyright-related
activities, including digital transmissions of sound recordings in webcasting. The bill
would repeal current chapter 8 of Title 17, U.S. Code, §§ 801-803, and replace it with
new §§ 801-804. The current ad hoc three-member Copyright Arbitration Royalty Panel
would be replaced by standing Copyright Royalty Judges appointed for six-year terms.
Background. The owner of a copyright generally has the exclusive right to control
use and distribution of the protected work. One who wishes to use the protected work
ordinarily gets permission directly from the owner (or his or her agent). The permission
may take any number of forms, a common one being a license agreement.
There are several provisions in the Copyright Act that create “statutory” or
compulsory licenses. In these situations, a user need not obtain permission for use from
the copyright owner; permission is “compulsory.” The user or licensee must abide by
statutorily imposed conditions and pay prescribed royalties. Among the statutory licenses
created in the Copyright Act are licenses to make and distribute phonorecords
(mechanical licenses);1 licenses for use of certain works by noncommercial broadcasting;2
and, licenses for specified secondary transmissions by cable television and satellite
1 17 U.S.C. § 115.
2 17 U.S.C. § 118.
Congressional Research Service ˜ The Library of Congress

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carriers.3 A more recent class of compulsory licenses covers digital transmissions of
sound recordings, which includes webcasting.4
The process of establishing royalty rates for statutory licenses is complex. The initial
royalty rate-setting procedure for webcasting licenses for eligible nonsubscription
transmissions proved difficult and controversial.5 Congress intervened with passage of
the Small Webcaster Settlement Act of 2002.6 This proceeding appears to be at least
partially responsible for a renewed examination of the rate-making process.7
Although it has been revised in the past, the Copyright Act currently vests initial
decision-making for statutory royalty rates in a Copyright Arbitration Royalty Panel
(CARP).8 At the behest of the Librarian of Congress, upon the recommendation of the
Copyright Office, a CARP may be convened to take testimony from interested parties and
recommend a statutory royalty rate. A CARP is made up of three professional arbitrators.
At the conclusion of its proceedings, it issues a report to the Librarian. The Librarian,
upon the recommendation of the Copyright Office, will adopt the fees proposed by the
CARP unless, based on the record, its determinations are found to be arbitrary or contrary
to copyright law. If the Librarian rejects the proposed fees, he may, after an examination
of the record and an additional 30 days, issue an order setting them. An aggrieved party
who is bound by the Librarian’s decision may appeal to the U.S. Court of Appeals for the
D.C. Circuit.
When the 1976 Copyright Act was originally enacted, administrative responsibility
for statutory royalty rates was reposed in a Copyright Royalty Tribunal composed of three
full-time Commissioners.9 Finding that the Tribunal’s workload did not justify the cost
of three Commissioners, Congress enacted the Copyright Royalty Tribunal Reform Act
of 1993, which established the current CARP system.10 Among the perceived advantages
of the CARP system was the fact that the panels are established on an ad hoc basis, saving
the expense of full-time employees, and paid for by parties to the proceeding. More
recently, however, the CARP process has been the subject of congressional hearings
during which substantial criticism of the process was aired.11
3 17 U.S.C. §§ 111, 119, 122.
4 17 U.S.C. § 112, 114.
5 For background, see CRS Report RL31626, Copyright Law: Statutory Royalty Rates for
Webcasters.
6 P.L. 107-321.
7 “The CARP (Copyright Arbitration Royalty Panel) Structure and Process”: Hearing before
the Subcomm. on Courts, the Internet, and Intellectual Property of the House Comm. on the
Judiciary, 107th Cong., 2d Sess. 11 (2002)(Statement of Rep. Berman.).
8 17 U.S.C. §§ 801-803.
9 P.L. 94-553, § 101. 17 U.S.C. § 801 et seq. (Supp. III 1979).
10 P.L. 103-198. See H.Rept. 103-286, 103d Cong., 1st Sess. 9 (1993).
11 See note 7 supra and H.R. 1417, the Copyright Royalty and Distribution Reform Act: Hearing
before the Subcomm. on Courts, the Internet, and Intellectual Property of the House Comm. on
(continued...)

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In testimony at hearings before the House Subcomm. on Courts, the Internet, and
Intellectual Property, the following issues were among those raised :
! although the CARP system was intended to save money, requiring the
parties before it to foot the costs of the proceeding results in some
interested parties being unable to participate because of the expense;12
! appointing the panels on an as-needed basis results in a lack of stability
and precedent in the rate-making process, and, in light of the fact that the
royalty laws and economics of rate-making are extremely complex, an
absence of institutional expertise from panel to panel;13
! procedural rules for practice before the CARP, such as those governing
discovery and the admission of evidence, are presently either too
restrictive, or too vague; deadlines for the CARP’s issuance of a ruling
are inadequate;14 and
! under the current system, proceeds from royalties derived from cable and
satellite licenses are used to subsidize the costs of unrelated compulsory
license proceedings. There is no mechanism for partial distribution of
uncontested royalties.15
H.R. 1417, 108th Cong. 1st Sess. (2003), the Copyright Royalty and
Distribution Reform Act (CRDRA). Introduced on March 25, 2003 by Rep. Lamar
Smith, a substitute version was approved by the House Judiciary Subcommittee on
Courts, the Internet and Intellectual Property on May 20, 2003. An amendment in the
nature of a substitute was reported favorably by the House Judiciary Committee on
January 30, 2004.16 On March 3, 2004, the bill went to the floor of the House on
suspension of the rules and was passed by 406 votes, with none in opposition. If enacted,
the CRDRA would once again make extensive changes to procedures for adjudicating
compulsory license royalties. It would repeal current chapter 8 of Title 17, U.S. Code, §§
801-803, and replace it with new §§ 801-804.
The ad hoc three-person CARP would be replaced by a 3 full-time Copyright
Royalty Judges (CRJs), each appointed for a six-year term by the Librarian of Congress
in consultation with the Register of Copyrights. The CRJS would make determinations
concerning reasonable terms and royalty rates for specified statutory licenses.
11 (...continued)
the Judiciary, 108th Cong., 1st Sess. (2003)(H.R. 1417 Hearing).
12 H.R. 1417 Hearing, supra. (Statement of Marybeth Peters, Register of Copyrights) at
[http://www.house.gov/judiciary/peters040103.htm].
13 Id.
14 Id. (Statement of Bruce Rich).
15 Id .(Statement of Robert Alan Garrett).
16 H.Rept. 108-408, 108th Cong., 2d Sess. (2004).

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The standard applied to establish a royalty rate for digital transmissions by
webcasters under 17 U.S.C. § 114 was a controversial issue in the 2002 CARP
proceeding. With respect to webcasting of nonsubscription services eligible for a
statutory license (and other compulsory licenses), the bill would change the standard for
determining a royalty rate from one based on a fair market “willing buyer and willing
seller” price to one intended to achieve many objectives, including:
! maximizing the availability of creative works to the public;
! affording the copyright holder a fair return and the copyright user a fair
income under existing economic conditions;
! reflecting the relative roles of owner and user in the product made
available to the public with respect to creative contribution, technological
contribution, capital investment, cost, risk, and contribution to the
opening of new markets for creative expression; and
! minimizing disruptive impact on prevailing industry structure and
practice.17
Standards for royalties for secondary transmissions by cable systems under 17 U.S.C. §
111 are addressed as well.
The CRJs would be empowered to authorize the distribution of specified royalty
payments and to accept or reject certain royalty claims and to arbitrate disputes over
whether manufacturers, importers, and distributors are required to pay royalties under the
Audio Home Recording Act, 17 U.S.C. § § 1001- 1010.18
Proposed § 802 would govern the term, qualifications, and conditions of the CRJs’
tenure. Each judge must be an attorney with at least 7 years of legal experience. The
Chief Copyright Royalty Judge must have at least 5 years experience in administrative
hearings or court trials. The Chief Copyright Royalty Judge may hire 3 full-time staff
members.
The Copyright Royalty Judges are independent, but may consult in writing and on
the record with the Register of Copyrights on any matter other than a question of fact. In
resolving “novel” questions of law under the Copyright Act, the Register may be required
to submit a written opinion interpreting the law.
The Librarian of Congress may remove a Copyright Royalty Judge for cause.
Proposed § 803 prescribes rules of practice for proceedings before the CRJs. The
Copyright Royalty Judges will ordinarily preside over proceeding en banc and make
determinations by majority vote. The bill includes and expedited and streamlined small
claims procedure for distribution of royalties. A “small claim” is defined as amounts in
controversy of $10,000 or less. Decisions of the CRJs are to be rendered no later than 11
17 H.R. 1417, § 3 adding new 17 U.S.C. § 801.
18 Id., § 5 amending 17 U.S.C. § 1010.

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months after a 21-day settlement conference period, but no later than 15 days before the
expiration of then current statutory rates and terms. Appeals would be taken directly to
the U.S. Court of Appeals for the D.C. Circuit. The current practice of intermediate
review by the Librarian of Congress is omitted. The costs of a proceeding, exclusive of
administrative costs such as the judges and staff salaries, will be supported primarily by
filing fees, thus minimizing the financial burden on participants. It provide terms for the
continuation of royalty rate payments during gaps when a royalty period expires but
official adjustments or voluntarily negotiated agreements are not yet in effect.
Proposed § 804 addresses the time frames for instituting and concluding royalty
adjudications under the Copyright Act’s various statutory licenses.
Sections 4 and 5, respectively, of H.R. 1417 deal with definitions and extensive
technical amendments primarily to license and royalty provisions in the Copyright Act.
Section 6 provides that amendments under the bill will generally take effect within 6
months of enactment. Rate proceedings in progress when the law takes effect will not be
affected.

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