Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 12, 2015 Decided August 11, 2015
No. 14-1068
INTERCOLLEGIATE BROADCASTING SYSTEM, INC.,
APPELLANT
v.
COPYRIGHT ROYALTY BOARD AND LIBRARIAN OF CONGRESS,
APPELLEES
COLLEGE BROADCASTERS, INC. AND SOUNDEXCHANGE, INC.,
INTERVENORS
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
SoundExchange, Inc. With him on the brief were Michael B.
DeSanctis and Ishan K. Bhabha. David A. Handzo entered an
appearance.
2
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 for the Court filed by Chief Judge GARLAND.
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
3
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
(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 (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,
4
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
5
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 (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).
6
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
7
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.
8
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 (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.
9
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 (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
(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 defendant. This was
sufficient to cure the constitutional violation, we said,
notwithstanding the possibility that the Commission may have
in fact “rubberstamp[ed]” the enforcement action. Legi-Tech, 75
F.3d at 708-09.1
1
See Doolin Sec. Sav. Bank, F.S.B. v. Office of Thrift Supervision,
139 F.3d 203, 213 (D.C. Cir. 1998) (describing “misgivings” in Legi-
Tech about “whether the new FEC had engaged in a real fresh
deliberation” (internal quotation marks omitted)); see also Andrade v.
Regnery, 824 F.2d 1253, 1257 (D.C. Cir. 1987) (finding no
Appointments Clause violation where a properly appointed official
10
In Doolin Security Savings Bank, F.S.B. v. Office of Thrift
Supervision, we again affirmed the ability of a properly
appointed officer to uphold the decision of one who was not.
139 F.3d 203, 213-14 (D.C. Cir. 1998). There, the agency
persuaded us that a validly appointed agency director had “made
a detached and considered judgment” in ratifying the previous
director’s decision. Id. Because the new director “effectively
ratified the [previous director’s] Notice of Charges . . . at a time
when he could have initiated the charges himself,” it was not
even necessary to decide whether the previous director had
“lawfully occupied the position.” Id. at 214.
These precedents make clear that the new Board’s de novo
determination that a $500 annual fee was proper did not violate
the Appointments Clause. Intercollegiate seeks to avoid this
result by overstating the importance of particular facts in each
case.
Intercollegiate argues that Legi-Tech is distinguishable
because it was based in part on the practical futility of
remanding to the Commission for new proceedings because the
Commission’s voting membership had not changed. Under such
circumstances, we said, “forcing the Commission to start at the
beginning of the administrative process, given human nature,
promises no more detached and ‘pure’ consideration of the
merits.” Legi-Tech, 75 F.3d at 709. But Intercollegiate’s
argument proves too much. It implies that the Board’s
determination would be less vulnerable had the Librarian
retained the three original Judges -- who, we held, became
“validly appointed inferior officers” once “the limitations on the
Librarian’s removal authority [were] nullified,” Intercollegiate
with final authority, but who had been in office only three days,
ratified and implemented a program that had been extensively planned
by his improperly appointed predecessor).
11
II, 684 F.3d at 1341 -- rather than replaced them with new
individuals. We doubt that Intercollegiate would regard those
original Judges as more independent than their replacements.
Indeed, because Legi-Tech held that ratification by a
reconstituted Commission with the same voting members was
sufficient to satisfy the Appointments Clause, it follows a
fortiori that a de novo determination by a Copyright Royalty
Board with all new members was sufficient as well.
Intercollegiate also seeks to distinguish both Legi-Tech and
Doolin on the ground that they involved administrative
enforcement actions -- “an area of traditionally broad discretion”
-- rather than the exercise of judicial authority in an adversarial
proceeding. Intercollegiate Br. 25-26 & n.52. But neither Legi-
Tech nor Doolin rested its holding on that ground.2 Moreover,
this court subsequently suggested that the logic of Legi-Tech and
Doolin would apply in the adjudication context as well: in a
case vacating an order issued by a two-person National Labor
Relations Board (NLRB) that we found lacked a statutory
quorum, we suggested that ratification by a properly constituted
Board would be appropriate. See Laurel Baye Healthcare of
Lake Lanier, Inc. v. NLRB, 564 F.3d 469, 476 (D.C. Cir. 2009)
(citing Legi-Tech, 75 F.3d 704); cf. Fortuna Enters., LP v.
NLRB, 789 F.3d 154, 158 (D.C. Cir. 2015) (reviewing an NLRB
decision that “reinstat[ed] and incorporat[ed] by reference” a
prior decision issued by a two-person Board).3
2
Legi-Tech mentioned the point in a single sentence, after the
court had already rejected the appellee’s challenge and immediately
before introducing a further rejection with the clause, “In any event.”
75 F.3d at 709.
3
In a footnote, Intercollegiate suggests that Doolin is also
distinguishable because it included a question as to whether the
previous director in that case was validly appointed under the
12
2. Intercollegiate maintains that two Supreme Court cases
stand for the proposition that the only way to remedy the
exercise of judicial authority by invalidly appointed judges is for
the new judges to “conduct a new hearing, not merely a de novo
review of the record assembled by the constitutionally invalid
tribunal.” Intercollegiate Br. 20. Neither case stands for that
proposition.
In the first case Intercollegiate cites, Ryder v. United States,
the Supreme Court held only that an Appointments Clause
violation arising out of a decision rendered by an improperly
constituted tribunal was not remedied through appellate review
by a properly constituted body with a narrower scope of
authority. 515 U.S. 177, 187-88 (1995). Ryder involved a
member of the United States Coast Guard who was convicted by
a court-martial. Two appellate courts -- the Coast Guard Court
of Military Review, followed by the United States Court of
Military Appeals -- affirmed his conviction. Ryder argued to the
Court of Military Appeals that two members of the Coast Guard
Court had been appointed in violation of the Appointments
Clause. Id. at 179. Although the Court of Military Appeals
agreed that the appointments violated the Clause, it nonetheless
affirmed the intermediate court’s ruling. Id. at 179-80.
The Supreme Court reversed, rejecting the government’s
argument that any defect in the Coast Guard Court “was in
effect cured by the review available to petitioner in the Court of
Military Appeals.” Id. at 186. Because the Coast Guard Court
“had broader discretion to review claims of error, revise factual
Vacancies Act. Intercollegiate Br. 28 n.54. But the court held that,
notwithstanding whether the previous director was validly appointed
under either the Vacancies Act or the Appointments Clause, Doolin,
139 F.3d at 205, 207, the new director could ratify the previous
director’s decision. Id. at 212-14 (citing Legi-Tech, 75 F.3d 704).
13
determinations, and revise sentences than” the Court of Military
Appeals did, the Supreme Court concluded it “simply cannot be
said . . . that review by the properly constituted Court of Military
Appeals gave petitioner all the possibility for relief that review
by a properly constituted Coast Guard Court . . . would have
given him.” Id. at 187-88. The Supreme Court therefore held
that Ryder was “entitled to a hearing before a properly appointed
panel of that court.” Id. at 188.
We agree with Intercollegiate insofar as it argues Ryder
stands for the proposition that review by a properly appointed
body can be insufficient to cure an Appointments Clause
violation. But it does not stand for the proposition that de novo
review is insufficient. To the contrary, the problem Ryder
identified was that the reviewing court (the Court of Military
Appeals) did not have authority to conduct a de novo review (as
did the Coast Guard Court). Id. at 187. Nor does Ryder stand
for the proposition that the only remedy for an Appointments
Clause violation is a new evidentiary hearing regardless of the
scope of the reviewing court’s authority. Intercollegiate’s only
support for that claim is a single sentence at the end of the
Court’s opinion, which stated that Ryder was “entitled to a
hearing before a properly appointed panel.” Id. at 188. Nothing
in that sentence suggests that a new hearing would have been
required if the reviewing court had possessed de novo authority.
Nor does anything suggest that such a hearing would have to
involve live witnesses or additional evidence.4
4
Cf. United States v. Fla. E. Coast Ry. Co., 410 U.S. 224, 241
(1973) (holding that a statute’s use of the word “hearing” did not “by
its own force require [an agency] either to hear oral testimony, to
permit cross-examination . . . , or to hear oral argument”); Henry J.
Friendly, “Some Kind of Hearing,” 123 U. PA. L. REV. 1267, 1281
(1975) (noting that a “hearing” may include a proceeding based on
written, rather than oral, presentations).
14
In the case before us, the original Copyright Royalty Board
did not have “broader discretion,” Ryder, 515 U.S. at 187-88,
than did the new Board. To the contrary, the new Board had full
authority to make its own determination, including the discretion
to do so after a completely new proceeding or a de novo review
of the record. Although it chose the latter, it did so of its own
accord. Thus, unlike in Ryder, here it can be said that “review
by the properly constituted [Board] gave [Intercollegiate] all the
possibility for relief that review by a properly constituted
[original Board] would have given [it].” Id. at 187-88.
Accordingly, Intercollegiate did indeed have “a hearing before
a properly appointed panel,” id. at 188, of Copyright Royalty
Judges.
The second case Intercollegiate cites, Wingo v. Wedding,
did not involve the Appointments Clause at all and is even
further afield. 418 U.S. 461 (1974). In Wingo, the Court held
that a court’s local rule authorizing magistrate judges to conduct
evidentiary hearings in federal habeas corpus proceedings was
invalid because it was precluded by the Federal Magistrates Act.
Id. at 472. The Court further held that, because the Act required
a district court judge to “personally hold evidentiary hearings,”
the invalidity of the rule was not cured by a provision requiring
the district court to review a recording of the evidentiary hearing
de novo. Id. at 472-74.
Thus, Wingo does not, as Intercollegiate insists, stand for
the general proposition that “de novo review of an existing
record is an inadequate remedy where a validly appointed judge
exceeds the scope of his legal authority.” Intercollegiate Br. 23.
Rather, it stands for the proposition that such review is
inadequate when a statute expressly requires the reviewing judge
to personally hold an evidentiary hearing. The statute governing
Board proceedings lacks any equivalent requirement that the
Judges hold live hearings. To the contrary, it expressly permits
15
them to proceed on the paper record alone. See 17 U.S.C.
§ 803(b)(5); see also id. § 803(b)(6)(C)(iii) (“Hearsay may be
admitted in proceedings under this chapter to the extent deemed
appropriate by the Copyright Royalty Judges.”).
B
Intercollegiate further maintains that, even if independent
review of a prior record by a properly constituted Board may be
sufficient to cure an Appointments Clause violation, the Board’s
determination on remand was “not independent of the earlier
Board’s reasoning, but rather was incurably tainted by it.”
Intercollegiate Br. 24. The appellant’s arguments about the
Board’s lack of independence are unpersuasive.
1. First, Intercollegiate makes a number of general
arguments. It argues that the fact that the new Judges’
determination was “substantially identical” to that of the prior
Judges “undermine[s] the pretense that the Judges’ decision was
fully independent.” Reply Br. 10. Although Intercollegiate
acknowledges that the new determination differs from the
previous one on a number of points that it does not challenge on
this appeal, see id. at 10 & n.9; Board Br. 18 n.4, it emphasizes
that the Board “adopted a rate structure that is overwhelmingly
(if not entirely) identical to the one this court vacated,” Reply
Br. 11. As our precedents show, however, once a new Board
has been properly appointed (or reconstituted), the
Appointments Clause does not bar it from reaching the same
conclusion as its predecessor. See Legi-Tech, 75 F.3d at 708-09;
Doolin, 139 F.3d at 213-14; see also Andrade v. Regnery, 824
F.2d 1253, 1257 (D.C. Cir. 1987). Identifying an Appointments
Clause infirmity in a decision does not guarantee that a party
will get the merits decision it wants.
16
Intercollegiate next seeks to infer a lack of independence
from the way the Judges characterized their task. Noting that,
in denying Intercollegiate’s motion for rehearing, the Judges
described their role as “‘pick[ing] up the process where th[e]
earlier Judges left off,’” Intercollegiate insists that they thus
“implicitly validate[d] every decision that led to the point where
the ‘earlier Judges left off.’” Intercollegiate Br. 30 (emphasis
omitted) (quoting Order Denying Mot. for Reh’g 2 (J.A. 235)).
But this takes the Judges’ statement badly out of context. The
Judges made that remark in rejecting Intercollegiate’s assertion
that the new panel had “improperly delegated responsibility for
holding hearings” to the prior panel. Order Denying Mot. for
Reh’g 2 (J.A. 235). As the Judges explained:
This assertion confuses “delegation” with
“succession.” This is not a case where the Judges
delegated the job of holding hearings to a subordinate
administrative law judge. The current Judges
succeeded to the positions of the earlier Judges and
picked up the process where those earlier Judges left
off.
Id. (internal citation and quotation marks omitted). The Judges
then went on to emphasize that the “current panel weighed and
analyzed the record de novo.” Id. at 3 (J.A. 236).
The Judges had earlier declared, in their Notice of Intention
to Conduct a Paper Proceeding, that they were “free to reach
completely different conclusions in their new final
determination” than the prior Judges reached. Notice at 5 (J.A.
222). After completion of the comment period that followed
that notice, the Judges announced that they would “proceed with
their consideration de novo on the existing record.” Order
Following Notice of Intention (J.A. 233). Thereafter, the
Judges’ final determination confirmed that they had decided the
17
matter “based upon a de novo review of the substantial record
that the parties developed during the proceeding leading to the
first determination.” 2014 Final Determination, 79 Fed. Reg. at
23,103. We think it beyond peradventure that the Judges
understood their task to involve a de novo determination.
2. We find equally unpersuasive Intercollegiate’s
miscellaneous attempts to identify specific indications of the
previous Judges’ hidden influence on their successors.
Intercollegiate notes that, although the regulations permit
the Board to conduct a papers-only hearing, here the Board “did
not conduct a review of just the papers,” but instead also
reviewed the record and transcripts from the prior proceeding.
Intercollegiate Br. 31-32 (emphasis omitted). But if this is a
problem of any kind, it is not a constitutional problem; nothing
in the Appointments Clause instructs properly appointed
officials to conduct proceedings in any particular way. Whether
it constitutes a problem of administrative procedure is a question
we address below. See infra Part III.
Intercollegiate attempts to transmute this procedural issue
into a constitutional one by focusing on the relationship between
the new Judges and their predecessors. In particular,
Intercollegiate argues that “the new Judges refused to consider
any argument or evidence not assembled by their
unconstitutionally appointed predecessors.” Reply Br. 1
(emphasis added). But the phrase “assembled by” is misleading.
As the Board emphasized in denying rehearing, “the parties to
that hearing created the record,” based on the evidence that they
themselves, including Intercollegiate, submitted. Order Denying
Mot. for Reh’g 2 (J.A. 235). There is no Appointments Clause
problem in limiting Intercollegiate to the evidence that it
decided, on its own volition, to submit to the previous Board.
18
Relatedly, Intercollegiate maintains that it has “never had
an opportunity to oppose the fee before a panel of judges whose
appointment does not offend the Constitution.” Reply Br. 2.
But again, that is incorrect. All of its original arguments were
presented, in paper form, to the new Board. And the Board gave
Intercollegiate the further opportunity to argue that such a paper
proceeding was insufficient: the Board expressly invited the
parties to identify any reason why they should not proceed on
the prior record. See Notice at 2, 9 (J.A. 219, 226).
Intercollegiate did submit comments arguing for a new
evidentiary hearing, but the new Board rejected those
arguments, concluding that “[e]ach party has had ample
opportunity to present its case.” Id. at 7 (J.A. 224). Again,
whether this contravened rules of administrative procedure is an
issue we address below. See infra Part III. But it is not an
Appointments Clause problem.
Intercollegiate also insists that the “oral testimony the
Judges reviewed was taken by the original Board, subject to the
original Judges’ evidentiary rulings, and is therefore tainted by
the original Board’s constitutional infirmity.” Intercollegiate Br.
32. But that, too, is incorrect. Intercollegiate maintains that, “if
the new Judges disagree[d] with an evidentiary ruling excluding
testimony, they ha[d] no way of reversing it.” Id. at 32 n.66. In
fact, the reconstituted Board had full authority to review de novo
and reject any of the original Board’s evidentiary rulings.
Indeed, in each circumstance in which the prior Board had
excluded evidence, the new Board concluded, de novo, that the
exclusion was appropriate. See 2014 Final Determination, 79
Fed. Reg. at 23,122 n.60; id. at 23,123. Moreover, with respect
to the excluded evidence that Intercollegiate principally presses,
which related to the finances of smaller webcasters, the new
Board went on to explain why, even if the evidence were
admitted, it would not support Intercollegiate’s rate proposal.
19
See id. at 23,123; Order Denying Mot. for Reh’g 4 (J.A. 237);
see also infra Part IV.B.
Intercollegiate further contends that the Board’s
determination lacked independence because it included
quotations from a “colloquy between the earlier Judges and
counsel” during oral argument in the prior proceeding.
Intercollegiate Br. 31 (citing 2014 Final Determination, 79 Fed.
Reg. at 23,121 n.56). But that colloquy was in the written
record, and nothing about the Appointments Clause barred the
Board from relying on it -- any more than it would bar it from
relying on a colloquy between two counsel, neither of whom
was appointed by anyone. In any event, the colloquy in question
was on a topic not challenged on this appeal. See 79 Fed. Reg.
at 23,121 n.56 (discussing the adoption of the voluntary
settlement for noncommercial educational webcasters).
Finally, Intercollegiate complains that the new Board was
not independent because its failure to conduct live hearings
deprived the Board of the ability to make its own assessments of
witness credibility based on demeanor. To the extent this
complaint implies that the Board relied on the prior Board’s
assessments of witness demeanor, that is unsupported. We do
not see any instances in which the new or the prior Board made
credibility determinations based on demeanor, and
Intercollegiate’s briefs do not describe any such instances. And
to the extent this is a claim that the Board was required to hear
oral testimony rather than rely on hearsay or a paper record, that
is at most a statutory claim, which we address below. See infra
Part III. As we said above, there is nothing in the Appointments
Clause that requires live hearings.
3. In sum, we find nothing in the proceedings leading up to
and including the new Board’s determination that suggests a
20
lack of independence from the previous, constitutionally
defective determination.5
C
Intercollegiate maintains that even asking for evidence of
ongoing taint from the previous proceeding amounts to
improperly applying a harmless-error test. Because an
Appointments Clause violation is a structural error that warrants
reversal regardless of whether prejudice can be shown, see
Landry v. FDIC, 204 F.3d 1125, 1131 (D.C. Cir. 2000) (“There
is certainly no rule that a party claiming constitutional error in
the vesting authority must show a direct causal link between the
error and the authority’s adverse decision.”), Intercollegiate
maintains that it is not required to show any taint. But
Intercollegiate’s invocation of this principle is misplaced. In our
prior decision in this matter, we concluded that the appointment
of the Judges constituted error under the Appointments Clause,
and (consistent with Landry) we vacated their decision without
any consideration of whether that error was harmless.
Intercollegiate II, 684 F.3d at 1342. The Librarian responded by
appointing new Judges. As all acknowledge, there was no
Appointments Clause error in those subsequent appointments.
Accordingly, we are not now considering taint in order to
determine whether an error was harmless. Rather, we are
5
Although we have focused on Intercollegiate’s many criticisms
of the scope of the review undertaken by the new Board, we do not
mean to suggest that a review of similar scope (which was, in fact,
quite expansive) was required to ensure the absence of an
Appointments Clause problem on remand. Indeed, in Legi-Tech we
rejected the appellee’s claim that the FEC “must redo the statutorily
required procedures in their entirety” to cure the constitutional defect
in the previously constituted Commission. 75 F.3d at 707; see id. at
708-09.
 21
considering taint to determine whether there was any error in the
second proceeding at all.
Landry, repeatedly cited by Intercollegiate, only reinforces
the point. The case involved an Appointments Clause challenge
to the Administrative Law Judge (ALJ) who presided over the
petitioner’s disciplinary hearing. 204 F.3d at 1130. That
challenge, we held, was not precluded simply because the
properly appointed members of the agency had affirmed the
ALJ’s decision upon direct, de novo review. Id. at 1130-31. An
important basis for our decision was the “catch-22” the case
posed: “If the process of final de novo review could cleanse the
[Appointments Clause] violation of its harmful impact, then all
such arrangements would escape judicial review.” Id. Here,
however, the unconstitutional arrangement did not escape
judicial review. In our previous decision, we found an
Appointments Clause violation, and then remedied it by both
invalidating the offending statutory provision and vacating the
prior determination -- all without requiring any showing of
prejudice.
Indeed, for all its protest, the overall gravamen of
Intercollegiate’s challenge is that “the Judges’ Determination is
still tainted by the Appointments Clause violation that originally
led this Court to remand” the previous determination.
Intercollegiate Br. 15 (emphasis added); see Reply Br. 4. It thus
implicitly acknowledges that, in the absence of taint, it would
have no claim. Intercollegiate also acknowledges that not every
possible kind of taint is fatal because, if it were, there would be
no way to remedy an Appointments Clause violation. It is
always possible, for example, that a subsequent judge will
affirm a former judge’s decision simply out of agency solidarity.
But even Intercollegiate acknowledges that this kind of
speculative taint would be insufficient to render the second
judge’s decision invalid. See Oral Arg. Recording at 40:04-
22
42:32.6 As we said above, a court’s holding that there has been
an Appointments Clause violation does not mean that the
violation cannot be remedied by a new, proper appointment.
And once there has been such an appointment, the subsequent
proceeding is constitutionally suspect only if there is sufficient
continuing taint arising from the first. See Legi-Tech, 75 F.3d
at 708 n.5 (“[T]he issue is not whether Legi-Tech was
prejudiced by the original [decision], which it undoubtedly was,
but whether, given the FEC’s remedial actions, there is
sufficient remaining prejudice to warrant dismissal.”).
In sum, because the Judges’ determination was an
independent, de novo decision by a properly appointed panel
seized with the full authority of the prior Board, we reject
Intercollegiate’s challenge to its constitutionality.
III
In its reply brief, Intercollegiate argues that the Board’s
determination was also improper because it failed to give effect
to this court’s vacatur of the previous determination. Nothing in
our prior decision addressed what the Board had to do on
remand. Nonetheless, Intercollegiate argues that, under our
precedent, “when an agency determination is vacated and
remanded, the remedy includes compiling a new record.” Reply
Br. 2. As we discuss below, that is not the law unless a statute
so requires. In this case, no statute does.
6
See Legi-Tech, 75 F.3d at 708 (affirming decision of a
reconstituted FEC, notwithstanding that the court was “willing to
assume that no matter what course was followed -- other than a
dismissal with prejudice (which not even Legi-Tech dares request) --
some effects of the unconstitutional structure of the FEC are to be
presumed to have impacted on the action”).
23
The precedent upon which Intercollegiate relies is Action on
Smoking & Health v. Civil Aeronautics Board, 713 F.2d 795
(D.C. Cir. 1983). There, an agency had re-promulgated a
previously vacated rule without reopening the rulemaking for
additional notice and comment. We admonished the agency that
the word “vacate” means, among other things, “to cancel or
rescind” and “to make of no authority or validity.” Id. at 797.
And we required the agency to initiate new rulemaking
proceedings before re-promulgating the vacated rule. Id. at 798.
Intercollegiate reads too much into Action on Smoking. In
that case, we required the agency to begin new notice-and-
comment proceedings because the relevant statute, the
Administrative Procedure Act (APA), required them for a new
rulemaking. See id. at 798, 800 (citing 5 U.S.C. § 553(b), (c)).
But we also noted that for some agency decisions, neither the
agency’s organic act nor the APA requires hearings -- either
initially or on a remand.7 Moreover, we made clear that, even
where the APA ordinarily does require notice-and-comment
proceedings, we were “not hold[ing] that an agency must start
from scratch in every situation in which rules are vacated or
remanded.” Id. at 800. Rather, “[a]n exception is provided by
the Administrative Procedure Act itself ‘when the agency for
good cause finds (and incorporates the finding and a brief
statement of the reasons therefor in the rules issued) that notice
and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest.’” Id. (quoting 5 U.S.C.
7
See Action on Smoking, 713 F.2d at 799 n.2 (noting that, because
“‘neither the National Bank Act nor the APA requires the Comptroller
to hold a hearing . . . when passing on applications for new banking
authorities,’ . . . the court of appeals . . . would not have been
authorized to require the Comptroller to conduct new hearings” on
remand (quoting Camp v. Pitts, 411 U.S. 138, 140-41 (1973))).
24
§ 553(b)(B)).8 That exception did not apply in Action on
Smoking, partly because the new rule “contain[ed] not a single
word” explaining why the new proceedings would have been
“impracticable, unnecessary, or contrary to the public interest.”
Id.
In this case, as Intercollegiate acknowledges, the Board is
not governed by the notice-and-comment rulemaking
requirements of the APA, but rather by the procedures set forth
in the Copyright Act. See Reply Br. 8 n.7. Consequently, at
most our vacatur required the Board to conduct a remand
proceeding that complied with those procedures, which it did.
First, neither the Copyright Act nor the Board’s regulations
prescribe any particular procedures on remand. See 17 U.S.C.
§ 803(a), (d)(3). The relevant regulation provides only that,
“[i]n the event of a remand . . . , the parties to the proceeding
shall . . . file with the Judges written proposals for the conduct
and schedule of the resolution of the remand.” 37 C.F.R.
§ 351.15. At the time of its adoption, the Board described that
regulation as “purposely flexible to permit the Judges, and the
parties, to address the particulars of each remand before the
Judges in an effort to promote administrative efficiency and
reduce costs.” See Proceedings of the Copyright Royalty Board;
Remand, 74 Fed. Reg. 38,532, 38,532 (Aug. 4, 2009). A de
novo review of the record falls well within that description.
Second, even assuming that the entirety of the procedural
requirements for initial determinations applied, a record review
would still pass muster. The statute gives the Board two ways
8
As we subsequently explained, “[i]f the original record is still
fresh, a new round of notice and comment might be unnecessary”
within the meaning of that exception. Mobil Oil Corp. v. EPA, 35
F.3d 579, 584-85 (D.C. Cir. 1994).
25
to evaluate the parties’ evidence and establish appropriate rates.
The Board may conduct a live, trial-like adversarial hearing,
thereby permitting the cross-examination of witnesses and the
introduction of trial exhibits. See 17 U.S.C. § 803(b) (describing
such hearings); 37 C.F.R. §§ 351.3, 351.5-.10. Or, the Board
may “decide, sua sponte or upon motion of a participant, to
determine issues on the basis of” the parties’ submissions
through “[p]aper proceedings.” 17 U.S.C. § 803(b)(5). The
Board must take the latter approach when the material facts are
undisputed and all parties consent, but it may also conduct a
paper proceeding “under such other circumstances as the
Copyright Royalty Judges consider appropriate.” Id. (emphasis
added). Here, after receiving proposals from the parties, the
Judges determined 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 permitted by 17 U.S.C. § 803(b)(5),
they stated their intention to “conduct[] only a paper proceeding,
consisting of a review of the existing record in this proceeding.”
Notice at 9 (J.A. 226).
That determination was reasonable. As the Board
explained, “[e]ach party . . . had ample opportunity to present its
case” in the initial proceedings, and “no party has provided any
specific reason why it is necessary to reopen the record and take
further evidence.” Id. at 7 (J.A. 224). Moreover, 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. Nor did Intercollegiate fill those gaps
during the subsequent comment period. See IBS’s Comments
Regarding Judges’ Notice of Intention to Conduct Paper
Hearings 1-4 (J.A. 227-30).
26
Intercollegiate further maintains that the Board violated the
statute by conducting a papers-only proceeding that in fact went
beyond the usual papers by including transcripts of oral
testimony taken by the earlier Board. The papers-only
proceeding described in the statute consists of “written direct
statement[s] . . . , the response by any opposing participant, and
one additional response by each such participant.” 17 U.S.C.
§ 803(b)(5). To the extent Intercollegiate argues that the statute
does not contemplate consideration of a transcript of previous
oral testimony in a paper proceeding, its position is contrary to
the text of both the statute and the relevant regulation. See id.
§ 803(b)(6)(C)(ii)(II) (broadly defining “written direct
statement” as “witness statements, testimony, and exhibits to be
presented in the proceedings, and such other information that is
necessary to establish terms and rates, or the distribution of
royalty payments, as the case may be, as set forth in regulations
issued by the Copyright Royalty Judges”); 37 C.F.R.
§ 351.4(b)(2) (providing that a party relying on “the testimony
of a witness in a prior proceeding . . . shall include a copy with
the written direct statement”).9 But even if Intercollegiate were
correct that the statute does not specifically provide for the
consideration of such a transcript in a paper proceeding, there is
no basis for concluding that a proceeding that exceeds the
statutory requirements is improper -- or at least not sufficiently
improper to require another vacatur, particularly in light of the
9
The Board’s regulations also provide that procedural
requirements “may be suspended or waived, in whole or in part, upon
a showing of good cause, to the extent allowable by law.” 37 C.F.R.
§ 350.6. The Board’s Notice of Intention to Conduct a Paper
Proceeding provided a persuasive showing of good cause for relying
on an enhanced papers-only record.
27
APA’s admonition to take “due account . . . of the rule of
prejudicial error,” 5 U.S.C. § 706.10
In sum, because neither this court’s vacatur order nor any
statute bars the procedural approach the Board took on remand,
we reject Intercollegiate’s claim that the Board’s approach
contravened our order.
IV
Intercollegiate also challenges the merits of the Board’s
imposition of a $500 annual minimum fee for all noncommercial
webcasters, including “small” and “very small” webcasters. We
consider such a challenge under the judicial review standards of
the APA. See 17 U.S.C. § 803(d)(3) (providing that “Section
706 of title 5 shall apply with respect to review by the court of
appeals under this subsection”). Under those standards, we will
uphold a ratemaking determination unless it is “arbitrary,
capricious, contrary to law, or not supported by substantial
evidence.” Intercollegiate I, 574 F.3d at 755 (citing 5 U.S.C.
§ 706(2)). “Review of administratively determined rates is
particularly deferential because of their highly technical nature.”
Id. (internal quotation marks omitted).
10
Intercollegiate also argues that relying on a paper proceeding
gives “short shrift” to the Supreme Court’s teaching “in Wingo . . .
[about] just how important the judge’s role of factfinder is.”
Intercollegiate Br. 29-30. But as we have explained above, see supra
Part II.A.2, Wingo’s holding was based on a statute that required the
judge to personally hold evidentiary hearings. See 418 U.S. at 472-74.
By contrast, not only does the statute at issue here permit the Judges
to hold paper proceedings, 17 U.S.C. § 803(b)(5), it also permits them
to consider hearsay in any kind of proceeding, id. § 803(b)(6)(C)(iii).
28
Intercollegiate argues that the $500 minimum fee was
arbitrary, capricious, and contrary to law because the Judges:
(A) failed to consider the statutorily prescribed factors; and (B)
ignored the record evidence.
A
Intercollegiate contends that the Board failed to honor the
statutory requirement that, in setting reasonable royalty rates, it
“distinguish among the different types of eligible
nonsubscription transmission services then in operation” and
determine “a minimum fee for each such type of service.” 17
U.S.C. § 114(f)(2)(B) (emphasis added). The appellant argues
that, by setting the same annual minimum fee for all commercial
and noncommercial webcasters regardless of their size, the
Board did not distinguish between “types” of entities but instead
treated them the same.
In fact, the Board did acknowledge the statutory
requirement that it distinguish among different types of
webcasters. See 2014 Final Determination, 79 Fed. Reg. at
23,122. And it did distinguish between two types -- that is,
between commercial and noncommercial webcasting services --
“because there is a good economic foundation for maintaining
this dichotomy.” Id. Although it imposed the same annual
minimum fee on both, see 37 C.F.R. § 380.3(b)(1)-(2), it set per-
performance royalty rates and payment terms for commercial
services that are different from those for noncommercial
services, see id.; 79 Fed. Reg. at 23,121-23.11 Moreover, the
reason the Board set the minimum fee for commercial services
at $500 was that it was statutorily required to do so: $500 was
11
This is not to suggest, however, that the requirement to
distinguish among different types of services obligates the Board to
impose different fees when the same fee would be reasonable.
29
the fee upon which commercial webcasters had agreed in a
voluntary settlement, see 79 Fed. Reg. at 23,104, and the statute
requires the Board to give effect to such voluntary agreements
“in lieu of” any determination, see 17 U.S.C. § 114(f)(3). That
did not disable the Board from fixing $500 as the fee for
noncommercial webcasters if such a fee was in accord with the
statutory criteria.
What the Board declined to do was adopt Intercollegiate’s
“proposal to make further distinctions among noncommercial
webcasters based on the quantity of sound recordings they
transmit under the statutory license (as measured by ATH
[Aggregate Tuning Hours]).” 2014 Final Determination, 79 Fed.
Reg. at 23,122. Intercollegiate’s proposal was to create two new
categories of noncommercial webcasters: “small”
noncommercial webcasters (defined as noncommercial
webcasters with usage up to 15,914 ATH per month) and “very
small” noncommercial webcasters (defined as noncommercial
webcasters with usage up to 6,365 ATH per month). Id. at
23,121. Under Intercollegiate’s proposal, small noncommercial
webcasters would pay a flat annual fee of $50. Id. Very small
noncommercial webcasters would pay a flat annual fee of $20.
Id.
The statute does direct that, in distinguishing among
different types of services, “such differences [are] to be based on
criteria including, but not limited to, the quantity and nature of
the use of sound recordings.” 17 U.S.C. § 114(f)(2)(B). But it
also directs that, “[i]n establishing rates and terms for
transmissions” by such services, the Board “shall establish rates
and terms 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. And the Board
concluded that the evidence did not support the proposition that
“a willing buyer and a willing seller would negotiate a different
30
rate for noncommercial webcasters at a given ATH level than
they would for all other noncommercial webcasters.” 2014
Final Determination, 79 Fed. Reg. at 23,122.
Intercollegiate maintains that, far from relying on the
willing-buyer/willing-seller factor, the Board effectively
disregarded it. According to Intercollegiate, Congress “required
the [Judges] to set a rate that webcasters would willingly agree
to in the marketplace, and there is no substantial evidence that
any webcaster, regardless of its financial means, would agree to
a $500 annual fee.” Intercollegiate Br. 38-39 (emphasis
omitted). Indeed, Intercollegiate insists that “the very fact that
it objected to the universal $500 fee is evidence that some
webcasters would not” agree to that fee. Id. at 39.
This misstates the statutory directive in two ways. First, the
Act requires the Board to impose a “minimum fee for each such
type of service,” 17 U.S.C. § 114(f)(2)(B) (emphasis added), not
for each individual webcaster. And second, the Board must set
a fee that both a willing buyer and a willing seller would
negotiate, not just one that is acceptable to the buyer (the
webcaster). See 2014 Final Determination, 79 Fed. Reg. at
23,123. The Act does not permit Intercollegiate to veto a fee
simply by objecting.
As we discuss below, the Board did in fact base its decision
on the willing-buyer/willing-seller factor. And it had substantial
evidence to support its conclusion that the $500 minimum fee
was appropriate.
B
In the proceedings below, Intercollegiate’s primary
argument in support of its proposal was that small and very
small noncommercial webcasters are unable to pay the $500
31
minimum fee and hence would not willingly agree to it. As the
Board noted, however, there was no record evidence to support
that argument. See 2014 Final Determination, 79 Fed. Reg. at
23,123. Intercollegiate did not offer testimony from any
member claiming to be adversely affected by the $500 fee, “in
spite of the Judges’ invitation to do so.” Id. at 23,121. Nor did
it “offer testimony from any entity that demonstrably qualified
as a ‘small’ or ‘very small’ noncommercial webcaster.” Id. at
23,123. Indeed, the Board noted that Intercollegiate’s assertion
was “undercut by testimony that some of these same entities pay
IBS close to $500 annually for membership dues and fees for
attending conferences.” Id.
The only evidence that Intercollegiate points to now, or that
it relied on before the Board, is “a reference by Captain Kass [its
chief operating officer] to a survey that showed that IBS
members had an average annual operating budget of $9,000.”
79 Fed. Reg. at 23,123; see Intercollegiate Br. 37.
Intercollegiate complains that “[t]he Judges improperly chose
not to credit this testimony -- not because it was not probative or
persuasive, but because they [improperly] considered it
inadmissible.” Intercollegiate Br. 37. But that is wrong on two
counts. First, the Board properly excluded Kass’ reference to
the survey because Intercollegiate did not offer the survey itself
into evidence, and without that evidence, the Board could not
assess its validity. See 79 Fed. Reg. at 23,123 (citing 37 C.F.R.
§ 351.10(e)). Second, the Board reasonably concluded that,
even if it “could accept such a reference as evidence, it would
not advance IBS’ case [because] an assertion that the average
operating budget for IBS members is $9,000 does not establish
that its members lack the wherewithal to pay a $500 minimum
royalty.” Id. Moreover, the Board reasonably noted that there
was no necessary “correlation between the quantity of sound
recordings being transmitted by a noncommercial webcaster,”
which was the criterion for Intercollegiate’s designation of small
32
and very small services, “and the size of that webcaster’s
operating budget (and, thus, its ability to pay a $500 minimum
annual fee).” Id.12
By contrast, the Board found affirmative evidence that
noncommercial webcasters were indeed both “able and willing
to pay the proposed fees.” 79 Fed. Reg. at 23,123. The most
persuasive such evidence -- as well as support for a $500
minimum fee as the amount that willing buyers and sellers
would negotiate -- was that College Broadcasters, an
organization representing noncommercial educational
broadcasters, had already reached a voluntary agreement with
SoundExchange (the nonprofit entity that collects statutory
royalties and distributes them to the copyright holders) that
included the same fee. Id. The statute expressly authorizes the
12
In a footnote, Intercollegiate also refers to Kass’ testimony that
some Intercollegiate members have annual operating budgets as low
as $250 or less. Intercollegiate 39 n.70. The Board concluded that
this evidence was of little import because:
Captain Kass did not testify that any of those IBS
members would fall into either of IBS’s proposed
categories of “small” and “very small” noncommercial
webcasters (which are defined based on their ATH
usage, not on the size of their operating budgets). Nor
did IBS present any evidence as to how many IBS
members had similarly small operating budgets. Nor
did IBS disclose the basis for this statement.
Order Denying Mot. for Reh’g 4 (J.A. 237). The Board was not
unreasonable in concluding that this “single anecdotal reference to
‘some’ webcasters with miniscule operating budgets [was] insufficient
to demonstrate the existence of a distinct segment of the
noninteractive webcasting market.” Id. (internal quotation marks
omitted).
33
Board to consider the rates and terms of such voluntary license
agreements in setting webcasting rates and terms. 17 U.S.C.
§ 114(f)(2)(B).
The Board also found corroboration in the fact that “24
noncommercial webcasters filed comments with the Judges
stating that they support[ed] the rates and terms of [that]
Agreement, which they found reasonable and affordable.” 79
Fed. Reg. at 23,121; see id. at 23,123. And there was also the
fact that, in the ratemaking for the 2006-2010 period, “it was
established . . . that 363 noncommercial webcasters paid
royalties in 2009 similar to SoundExchange’s current rate
proposal, with 305 of those webcasters paying only the $500
minimum fee.” Id. at 23,123. “Taken together with IBS’s
failure to present even a morsel of contrary evidence, the Judges
[found] this fact to be strong evidence that noncommercial
webcasters are able and willing to pay the proposed fees.” Id.
Finally, the Board also relied on testimony from
SoundExchange’s chief operating officer, who testified that its
average annual administrative cost per station or channel was
approximately $825. 79 Fed. Reg. at 23,124. Intercollegiate
“offered no persuasive evidence to dispute this estimate.” Id.
Noting Board precedents concluding that it was reasonable and
appropriate for the minimum fee to cover SoundExchange’s
administrative cost, the Judges found that, “[w]ith the average
administrative cost exceeding $800, . . . a $500 minimum fee
[was] eminently reasonable and appropriate.” Id.; see
Beethoven.com LLC v. Librarian of Congress, 394 F.3d 939,
949 (D.C. Cir. 2005) (concluding that the Librarian was not
arbitrary in approving a $500 minimum fee “to cover the license
administrator’s administrative costs” because the administrator
“would not have negotiated a minimum fee that failed to cover
at least its administrative costs”). In the Board’s view,
SoundExchange’s costs further supported its finding that
34
Intercollegiate’s proposal of a $20 or $50 fee did not satisfy the
willing-buyer/willing-seller standard. “The record does not
support a conclusion,” the Board reasonably concluded, that “a
willing seller would agree to a price that is substantially below
its administrative costs.” 79 Fed. Reg. at 23,123.
Intercollegiate claims that, in relying on the absence of
evidence to dispute SoundExchange’s evidence of average cost,
the Board made the same mistake it made in the rate proceeding
for 2006-2010, when it also set a $500 minimum fee on “the
theory that [it] covered the costs of administering the statutory
license.” Intercollegiate Br. 38 (citing Intercollegiate I, 574
F.3d at 767). In Intercollegiate I, this court vacated that fee
because the Board’s conclusion about SoundExchange’s
administrative costs was based largely on the fact that
SoundExchange had proposed the fee, coupled with a “lack of
evidence” that the fee did not reflect the organization’s costs.
574 F.3d at 767. “[R]ational decisionmaking,” we said,
“requires more than an absence of contrary evidence; it requires
substantial evidence to support a decision.” Id. Accordingly,
we found it arbitrary for the Board to impose the $500 fee on the
theory that webcasters should pay the administrative cost of
administering the license when there was no record evidence of
what that cost was. Id.
This time, however, the Board did not set the fee based
solely on SoundExchange’s administrative costs. It also relied
on the above-described evidence of what a willing buyer and
seller would negotiate. And this time, the Board did not reach
a conclusion about SoundExchange’s administrative costs in the
absence of record evidence. Instead, it relied on the evidence of
industry-wide average administrative cost.
Evidence of average cost may not be perfect, but nothing in
Intercollegiate I bars its use. It is true, as Intercollegiate notes,
35
that there was evidence that “[t]he exact cost imposed by any
particular licensee varies widely.” Reply Br. 18 (quoting
Kessler Test. at 25 (J.A. 26)). But that is often the case with
average cost. And as we discussed above, and made clear in
Intercollegiate I itself, the statute does not require the Board to
set royalty fees licensee by licensee.13 To the contrary, the
statute instructs the Board to impose a “minimum fee for each
such type of service.” 17 U.S.C. § 114(f)(2)(B) (emphasis
added); see Beethoven.com, 394 F.3d at 949.
As we have noted, the Copyright Act directs the Board to
“establish rates and terms that most clearly represent the rates
and terms that would have been negotiated in the marketplace
between a willing buyer and a willing seller” if the webcasting
statutory license did not exist. 17 U.S.C. § 114(f)(2)(B). But
“[t]he statute does not require that the [hypothetical] market
assumed by the Judges achieve metaphysical perfection.”
Intercollegiate I, 574 F.3d at 757. This court’s task is “only [to]
assess the reasonableness of the Judges’ interpretation of the
inherent ambiguity” in Congress’ directive. Id. In light of the
evidence of SoundExchange’s average administrative cost, the
voluntary agreement between College Broadcasters and
SoundExchange setting a $500 minimum fee, the comments of
other noncommercial webcasters supporting that fee, and the
experience of the 2006-2010 ratemaking, the Board had
substantial evidence to support its conclusion that an annual
13
See Intercollegiate I, 574 F.3d at 761 (“The Judges are not
required to preserve the business of every participant in a market.
They are required to set rates and terms that ‘most clearly represent the
rates and terms that would have been negotiated in the marketplace
between a willing buyer and a willing seller.’ If small commercial
webcasters cannot pay the same rate as other willing buyers and still
earn a profit, then the Judges are not required to accommodate them.”
(quoting 17 U.S.C. § 114(f)(2)(B))).
36
minimum fee of $500 reasonably approximated that to which a
willing buyer and seller would agree. Accordingly, it did not act
unreasonably in setting that fee.
V
For the foregoing reasons, we affirm the determination of
the Copyright Royalty Board.
So ordered.