BY PAUL MALONEY
Texas Congressman Lamar Smith (pictured at right) has introduced a bill that would revamp the arbitration process that determines the rates and distribution of copyright royalties — including those for music and webcasting.

However, a hearing on the matter he was scheduled to chair this morning in Washington has apparently been postponed.

Rep. Smith (R-San Antonio) is Chairman of the Subcommittee on Courts, the Internet, and Intellectual Property, a subcommittee of the House Judiciary Committee.

The bill is called the "Copyright Royalty and Distribution Reform Act" (H.R. 1417). It would revise legislation passed in 1993 that gave the Librarian of Congress the power to assemble Copyright Arbitration Royalty Panels (CARPs) to determine rates for the commercial use of copyrighted works when those rates cannot be determined naturally in the marketplace. The bill is cosponsored by Reps. Howard Berman (D-CA), and John Conyers, Jr. (D-MI), the ranking Democrat of the House Judiciary Committee.

The hearing (originally scheduled for 10 AM (9 AM CT) today on Capitol Hill), according to a press statement, "will examine how the bill addresses the defects in the current CARP system." A link for live audio of the hearing (when it happens) is here.

As webcasting royalty rates for the 2003-2004 period have not yet been determined, another CARP may be convened if copyright holders and webcasters cannot themselves reach a negotiated settlement.


Streamlining the process
According to the press statement, the proposed H.R. 1417 would create a "Copyright Judge" with the power to decide both the law and rates. Affected parties could no longer appeal to the U.S. Copyright Office, "small claims" of $500 or less would not be allowed to bottleneck the process, and there would be a six-month limit on the hearing phase of a determination. The Copyright Judge's determination would automatically be appealed to the Circuit Court of Appeals for the District of Columbia.

"This legislation will streamline the process and help reduce its unpredictability and inconsistency," said Rep. Smith.

But some are already saying this reform is not enough. One Washington-based expert told RAIN the legislation is only concentrating on reforming the process, not addressing the "willing buyer / willing seller" standard that was the target of significant criticism after the CARP's webcasting royalty determination. (The CARP process mandates that arbitrators determine royalty rates which an equally powerful "willing buyer" and "willing seller" would reach in an idealized marketplace).

"Fixing the process is a noble and worthwhile effort," he said, "but without fixing the standard it becomes a moot point."


Webcasting and the CARP
The CARP process gained widespread attention in the Internet radio industry and beyond when in February 2002 a Librarian-appointed panel announced its recommended royalty rate for non-subscription streaming music services (see RAIN coverage beginning here) for the period of 1998 through 2002.

That royalty rate — 0.07¢ per song per listener for over-the-air broadcasts streamed on the web, double for "Internet-only" channels, plus an additional 9% ephemeral charge — was decried by the industry as onerous and certain to bankrupt the vast majority of fledgling webcasters. Indeed, the CARP-determined rate, for a station that plays 16 songs an hour with an average audience of just 1,000 listeners, would have resulted in royalty fees of almost $214,000 a year!

Though the CARP's recommendation was later modified by the Librarian of Congress (in RAIN here), the royalty arbitration process remained the subject of intense criticism.

Specifically at issue was the impossibility of realistically satisfying a "willing buyer/willing seller" mandate. Others subject to the determination complained that the financial barrier to being a party to the process was unfairly high.

It was later revealed that the CARP for Internet radio royalties based their decision almost entirely on an agreement reached by Yahoo! and the record industry as an example of a willing buyer and seller. That an agreement reached through the bargaining power and economic realities of a multi-million dollar corporation could have been used to create an industry-wide standard seemed to be an undeniable problem with the decision (and the CARP process).

The result, critics argued, was that the CARP ensured great harm to the nascent webcasting and digital music industries, exactly the opposite of Congress's intent in passing the 1998 Digital Millennium Copyright Act, and would net the musical performers who were to benefit from the royalties a pittance at most.

In June, conceding that the CARP process was flawed and in need of reform, the Courts, the Internet, and Intellectual Property subcommittee held a hearing (in RAIN here). In his opening comments at the hearing, subcommittee member Rep. Chris Cannon (R-UT, pictured left), alluding to the Carp's recommendation on webcasting royalties, said the process could result in determinations in which "Congress's intent (is) violated." Experts testified that the CARP process can be "prohibitively expensive" and "needlessly prolonged," and often results in determinations that are "unfair" and "highly inconsistent" from decision to decision.

If you're planning to attend NAB 2003 in Las Vegas (April 5-10; details here), we hope you'll join us for our RAIN reader get-togther. We've reserved the patio of the Gordon Biersch Brewery Restaurant (about a $4 cab ride from the Convention Center) on Tuesday, April 8th. This year, we've also reserved a private room for the U.S. debut of Kurt's "The Future of Radio" speech for those who'd like an advance look at it. (Presentation at 5:15pm, cocktails at 5:45pm.) See you there!