[00:00:01] Speaker 00:
Case number 14-1068, Intercollegiate Broadcasting System, Inc.

[00:00:05] Speaker 00:
Appellate versus Copyright Royalty Board at L. Mr. Grimm for the appellate, Ms.

[00:00:10] Speaker 00:
McNeil for the appellee, and Mr. Hellman for the intervener.

[00:00:41] Speaker 05:
May it please the Court, I'm John Grim on behalf of the Intercollegiate Broadcasting System.

[00:00:46] Speaker 05:
Under this Court's decisions in Landry and action on smoking, the copyright royalty judges were required to conduct a new proceeding on remand and not simply to rely exclusively on the record compiled by their unconstitutionally appointed predecessors.

[00:01:03] Speaker 05:
Although the judges ignore Landry completely in their briefs, that case stands for the proposition that when a decision violates the Appointments Clause, that constitutional violation will survive even a de novo review.

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As a result, when the judges issued their new determination, relying exclusively on the record which included the transcripts and necessarily included the evidentiary rulings,

[00:01:30] Speaker 05:
and credibility determinations of the earlier judges, they merely enshrined and imported the constitutional violations that this Court identified in 2012.

[00:01:39] Speaker 02:
In what way did it include the credibility determinations?

[00:01:43] Speaker 05:
Well, Your Honor, because they considered the entire record, which included witness testimony,

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Every affirmative piece of evidence that the original judges allowed into the record reflects a determination that that piece of evidence was admissible, that that particular witness was credible.

[00:02:01] Speaker 02:
Yes to the first, not to the second.

[00:02:04] Speaker 02:
Whether they allowed it into the record is unrelated to the credibility.

[00:02:10] Speaker 02:
So let's divide the two for just one moment.

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With respect to admissibility,

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Is there some argument that some of these statements would not have been admissible?

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The rules of the statute permit hearsay.

[00:02:26] Speaker 02:
So what's the admissibility claim?

[00:02:29] Speaker 05:
Well, Your Honor, there's actually a claim that evidence that the original judges excluded ought to have been admitted.

[00:02:35] Speaker 02:
That's the other way around.

[00:02:36] Speaker 02:
Yes, Your Honor.

[00:02:37] Speaker 02:
And I want to talk about that, too.

[00:02:38] Speaker 02:
But let's start with the first.

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Was there anything that was admitted that shouldn't have been?

[00:02:44] Speaker 05:
Your Honor, we don't identify anything that should have been admitted.

[00:02:46] Speaker 05:
But the point is, that's for the new judges to determine.

[00:02:52] Speaker 02:
Well, the new judges have determined.

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They said that they have the authority

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to review the record and make determinations on evidence.

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And they decided which evidence can stay in and which could stay out, and they ruled on the question that your specific question you're talking about, right?

[00:03:09] Speaker 02:
The very example you gave was an example of something that should have been ruled out.

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They actually addressed, didn't they?

[00:03:16] Speaker 05:
They did, Your Honor.

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And it is true that they reviewed those decisions.

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And so our objection is not necessarily with respect to any specific piece of evidence that they admitted.

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It's more broadly to the sense that that inherently relies on evidentiary rulings.

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But even if the court does not agree that the new judges, or rather even if the court finds that the new judges

[00:03:43] Speaker 05:
did properly determine whether the evidence was admissible.

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There is still the fact that the judges chose, the original judges chose to exclude specific pieces of evidence that IBS submitted on the basis that IBS

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IBS's witness attempted to testify to a report.

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The judges found it inadmissible for him to testify as to the content of the report.

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Therefore, they excluded that testimony.

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That testimony went to the propriety of the $500 annual fee, and after they excluded it, the current judges found that there was no evidence that IBS's members could not afford the $500.

[00:04:26] Speaker 06:
At JA-224, which is the order that the new judges issued about how they were going to proceed, they said that they had concluded that no party has provided any specific reason why it is necessary to reopen the record and take further evidence.

[00:04:46] Speaker 06:
So they made that conclusion.

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Isn't that conclusion do some deference by us in?

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Where in the record is it that you objected to that conclusion or or stated that they should reach a different conclusion with respect to introducing other evidence?

[00:05:05] Speaker 05:
Well, Your Honor, with respect to whether that decision is due deference, the reason why, because this pertains to a constitutional question, this Court does review that de novo, and so the judge's decision not to reopen the record would not be due deference in that respect.

[00:05:25] Speaker 02:
The decision also... Did you ask to reopen the record?

[00:05:28] Speaker 05:
We did, Your Honor.

[00:05:28] Speaker 02:
I, yes.

[00:05:29] Speaker 02:
With respect to specific things?

[00:05:31] Speaker 05:
With respect to the $500 minimum fee that was the subject of the original appeal in 2012, following the court's remand, the judges solicited arguments on the proper course following remand, and IBS urged the judges to open the proceeding up at the very least for new papers.

[00:05:49] Speaker 02:
And they refused to do that.

[00:05:51] Speaker 05:
They did, Your Honor.

[00:05:51] Speaker 02:
The properly constituted new judges refused to do that.

[00:05:54] Speaker 05:
Your Honor, they were properly constituted, and it is perhaps within their purview to make that decision, but it then exceeds their authority to then rely on the record compiled by the unconstitutionally appointed.

[00:06:07] Speaker 02:
The one you're talking about is the statement by Cass, Captain Cass, is that right?

[00:06:11] Speaker 02:
Yes, Your Honor.

[00:06:12] Speaker 02:
They specifically address that too, both in a footnote to their opinion and on reconsideration.

[00:06:17] Speaker 02:
saying that it would not have made a difference, even if testimony had been admitted, it could not have made up for the deficiencies.

[00:06:23] Speaker 02:
That's the determination of the properly constituted new judges.

[00:06:27] Speaker 05:
It is, Your Honor, but...

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The effect of the court's vacator and remand was that that record that they made that determination based on should have had no effect.

[00:06:37] Speaker 02:
Are we on a constitutional question now, or are we on what you think we meant when we vacated?

[00:06:42] Speaker 05:
Well, Your Honor, this particular question is as to the effect of the court's vacator.

[00:06:47] Speaker 02:
So let's hold that for a second.

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As a member of that panel, I'm interested in what you think we meant, but I'd like to hold that just for the moment.

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On the constitutional question,

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So here I'm having a little difficult to understand exactly what the constitutional problem is.

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So imagine that they decided that

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Are you saying that it would be impossible to have them consider the exact same evidence that the previous panel considered if it were presented anew?

[00:07:28] Speaker 02:
No, Your Honor.

[00:07:30] Speaker 02:
So they could limit the scope of the remand to exactly the same evidence, but it would have to be submitted again, right?

[00:07:37] Speaker 05:
Yes, Your Honor, but part of that evidence was live witness testimony.

[00:07:41] Speaker 05:
And where the constitutional error lies is in the fact that they reviewed the witness transcripts of hearings conducted by the prior judges and did not take new testimony themselves.

[00:07:54] Speaker 02:
Why do they need to do that?

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Whatever was in the minds of the first judges about credibility, that was in their minds.

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Their minds are gone.

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The only minds left are the new judges.

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they can make a determination about credibility by reading the transcript that's not infected by the first set of minds.

[00:08:17] Speaker 02:
You may have a separate statutory slash APA kind of argument, but I just want to focus on the constitutional argument.

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In what way, not only is it

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possible but is even conceivable that they could be affected by the first set of judges' views about the credibility of witnesses when there are no credibility determinations here.

[00:08:38] Speaker 05:
Well, Your Honor, two points to that.

[00:08:41] Speaker 05:
The first is that there is an important aspect to a credibility determination that comes from being able to see the witness in person face to face.

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So not having the opportunity to see how the

[00:08:54] Speaker 02:
I understand.

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I'm well aware of how that's possible.

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The question is, how does it make a difference for these judges?

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These judges are simply reading transcripts and making their own judgments about credibility.

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It's not a case where the previous panel has said, this is not credible.

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And the second panel says, we're going to defer to that credibility judgment.

[00:09:17] Speaker 02:
It's just a question of them reading a transcript and deciding whether or not it's credible themselves.

[00:09:22] Speaker 05:
Your Honor, they do not explicitly at any point say that they're deferring as to credibility determinations, although there are portions of the determination where they do explicitly rely on colloquies that took place between the previous attorneys and the previous judges.

[00:09:40] Speaker 05:
And furthermore, under Landry, the Court held that when there is an Appointments Clause violation, this is the type of violation for which prejudice does not need to be shown.

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And so in the first instance, when IBS was challenging the constitutionality of the judges, it would not have been required to show how specific determinations prejudiced it.

[00:10:04] Speaker 02:
But it seems to take Landry a little bit too far.

[00:10:08] Speaker 02:
I'd say for two reasons.

[00:10:08] Speaker 02:
First question is, imagine that the first panel had only considered a paper record and nothing else.

[00:10:14] Speaker 02:
Could the second panel consider the same paper record?

[00:10:19] Speaker 05:
It could potentially consider that paper record.

[00:10:22] Speaker 02:
But why?

[00:10:22] Speaker 02:
Maybe there's some prejudice that we don't know about and no prejudice needs to be proven.

[00:10:26] Speaker 05:
Your Honor, the papers are submitted at an early stage in the proceeding before the judges necessarily have an opportunity to inject their views.

[00:10:35] Speaker 02:
So you're saying there's no possibility of prejudice?

[00:10:37] Speaker 05:
I'm not saying that there's no possibility of prejudice, Your Honor.

[00:10:42] Speaker 05:
We are not taking the position that they would necessarily, if it were a papers only proceeding, that they would necessarily be prevented from considering that.

[00:10:52] Speaker 02:
Well, why not?

[00:10:52] Speaker 02:
I'm trying to figure out why.

[00:10:53] Speaker 02:
I want to know why your no prejudice needs to be proved argument doesn't go to meaning.

[00:10:59] Speaker 02:
Basically, it can't do anything that the previous panel did.

[00:11:02] Speaker 05:
Well, Your Honor, if it is the case that there is no prejudice from the earlier papers, it's only because of the chronology, because they're filed so early before the judges have a chance to act.

[00:11:13] Speaker 05:
We are taking the position that it would be proper to require them to submit new papers, however.

[00:11:20] Speaker 02:
Just resubmit exactly the same papers.

[00:11:22] Speaker 05:
No, Your Honor, to allow them to open the docket up at least for new paper submissions if the parties choose to.

[00:11:27] Speaker 02:
And why is that?

[00:11:28] Speaker 02:
So if the parties in the first instance decided they only wanted to put in certain papers, why does the second panel have to?

[00:11:36] Speaker 02:
Why is that as a constitutional matter?

[00:11:38] Speaker 02:
I understand you may have another argument, but why as a constitutional matter does the second panel have to allow a reopening of the entire proceeding?

[00:11:47] Speaker 05:
Your Honor, it's not our position that it is a constitutional requirement.

[00:11:50] Speaker 05:
It is an argument that it would be

[00:11:54] Speaker 05:
Prudential in light of the passage of time and this is what the court was I think speaking to in action on smoking when it held that when a when a decision is vacated I do want to talk about the Action on smoking that clearly not a constitutional decision, right?

[00:12:08] Speaker 02:
Correct.

[00:12:09] Speaker 02:
All right, but one more question about Landry Landry says that the reason it's imposing this

[00:12:14] Speaker 02:
no prejudice required standard is that otherwise there would be a catch-22 and we'd never be able to vacate improper appointments, right?

[00:12:23] Speaker 02:
But here we've already vacated it, right?

[00:12:25] Speaker 02:
We've already vacated the improper appointment.

[00:12:28] Speaker 02:
Landry was not a case where there had been a vacation and then another proceeding by the newly appropriately appointed person, right?

[00:12:37] Speaker 05:
That is correct, Your Honor.

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However,

[00:12:40] Speaker 05:
the vacator was not fully affected for the reasons we mentioned, which are that the judges considered exclusively the original record and with respect to the $500 fee, arrived at exactly the same determination as their predecessors.

[00:12:55] Speaker 02:
That alone, you don't think constitutionally or the panel required there be a different decision with respect to the $500 fee, do you?

[00:13:03] Speaker 05:
No, Your Honor, but if they were going to arrive at any decision, and in particular an identical, substantively identical decision,

[00:13:10] Speaker 05:
They certainly should not have relied on the record compiled by their predecessors in order to reach that decision.

[00:13:17] Speaker 02:
I monopolize the questioning.

[00:13:19] Speaker 06:
Go ahead.

[00:13:20] Speaker 06:
I don't believe that anyone cited this in their brief, but as I reviewed the regulations, I saw 37 CFR 350.6.

[00:13:29] Speaker 06:
I don't know if you are familiar with it, but it says

[00:13:36] Speaker 06:
The regulations of the copyright royalty judges are intended to provide efficient and just administrative proceedings and will be construed to advance these purposes.

[00:13:48] Speaker 06:
For purposes of an individual proceeding, the provisions of this subchapter may be suspended or waived in whole or in part upon a showing of good cause to the extent allowable by law.

[00:14:05] Speaker 06:
I read that as saying that we have these regulations, but for good cause, if it's efficient and just to do so, we can suspend regulations in whole or in part, you know, in an individual case as necessary.

[00:14:26] Speaker 06:
And isn't that precisely the finding that they made at J.A.

[00:14:30] Speaker 06:
224 and 225 when they said that for efficiency purposes, we don't need to have another hearing?

[00:14:40] Speaker 06:
I mean, weren't they essentially invoking 350.6 without explicitly saying so?

[00:14:47] Speaker 05:
They may have been doing so, Your Honor, and it certainly would promote efficiency to suspend the hearing.

[00:14:52] Speaker 05:
But there are other criteria, including to promote justice.

[00:14:57] Speaker 05:
And the situation that results from them choosing not to have that hearing is that to this day, IBS's members have not had the chance to present live argument and testimony to a constitutionally appointed panel of judges.

[00:15:13] Speaker 05:
So although it would certainly promote the expedient resolution of the matter, there are other concerns

[00:15:21] Speaker 05:
including the resolution of the constitutional injury that led the court to remand the case in 2012.

[00:15:28] Speaker 05:
And I think that additionally, Your Honor, to go back to that point, this does tie in with the decision in action on smoking that said that when there is a vacator and a remand, the original record is without any effect.

[00:15:44] Speaker 05:
And so if the judges wanted to rely on something

[00:15:48] Speaker 06:
additional to the papers that were initially submitted, they were required to conduct a new proceeding in order to elicit... But I guess my point in signing the statute is that even if I accept your proposition that the original record was of no effect,

[00:16:04] Speaker 06:
The regulations say that the new panel could say, okay, the original record is of no effect as it is, but if we take affirmative action to say that we see no reason to supplement the record,

[00:16:19] Speaker 06:
and we will therefore incorporate that vacated record as our record here, and we think it's efficient and just to do so.

[00:16:29] Speaker 06:
The regulations give them the power to make that determination, don't they?

[00:16:33] Speaker 05:
They may give them the power to decide not to conduct oral testimony, but by

[00:16:39] Speaker 05:
By saying that this record is of no effect because of the vacator, but we choose to incorporate it into our record, that is giving it effect.

[00:16:49] Speaker 05:
That is essentially giving it the effect that action on smoking says that it should not have.

[00:16:54] Speaker 06:
But if they make a finding that we don't believe that there's anything that was omitted from the original record that the parties have identified that they would put in a new record, we'll just rely on the old record,

[00:17:08] Speaker 06:
aren't we elevating form over substance at that point?

[00:17:13] Speaker 05:
I don't think so, Your Honor, because again, by doing that, they're allowing the earlier judges who were unconstitutionally appointed to have some amount of influence in the current proceedings.

[00:17:26] Speaker 05:
And again, as I mentioned, this would be inconsistent with action on smoking, which requires them to build a new record, in part for no other reason than the passage of time and the fact that here at the tail end of the royalty rate period,

[00:17:41] Speaker 05:
the parties are necessarily going to have a better understanding of the factors that should go into these rates.

[00:17:46] Speaker 06:
Did you ever below say here is some specific evidence we want to put in the record that was not available or that was excluded

[00:18:01] Speaker 06:
by the invalidly appointed judges?

[00:18:05] Speaker 05:
No, Your Honor, we did not mention any specific piece of evidence other than to say that in light of the remand, we requested at the very least that we be able to submit additional papers.

[00:18:19] Speaker 05:
And I would briefly just like to add on the point of the substance of the royalty rates.

[00:18:25] Speaker 02:
Before we get to that, let me just ask you about action on smoking and health.

[00:18:28] Speaker 02:
So that's a rule-making case, right, under the APA?

[00:18:31] Speaker 05:
Yes, Your Honor.

[00:18:32] Speaker 02:
And at the very end, it says, we do not hold that an agency must start from scratch in every situation in which rules are vacated or remanded.

[00:18:41] Speaker 02:
An exception is provided by the APA itself when the Agency for Good Cause finds that

[00:18:49] Speaker 02:
notice on public procedure thereon are practical, unnecessary, or contrary to public interest.

[00:18:54] Speaker 02:
That wasn't an issue in that case.

[00:18:57] Speaker 02:
However, this deception doesn't apply to the present case.

[00:19:00] Speaker 02:
The agency has done just that.

[00:19:02] Speaker 02:
They put out a notice, they've asked what changes are necessary, and they've concluded that none are necessary and your client has not really offered any new evidence to persuade them that anything is different.

[00:19:17] Speaker 02:
I don't see how this is inconsistent with action on smoking and health.

[00:19:21] Speaker 05:
Well, Your Honor, I would make two points in response to that.

[00:19:25] Speaker 05:
The first is that the specific rate-making procedures that the board engages in are governed by the Copyright Act, not the APA.

[00:19:34] Speaker 05:
And so I don't know that the judges could necessarily rely on that APA exception.

[00:19:38] Speaker 05:
And if they did choose to do so,

[00:19:40] Speaker 05:
While they did make findings that it was unnecessary for them to reopen the record, I think they would need to make explicitly the finding that the requirements of that particular exception had been met.

[00:19:52] Speaker 05:
I don't believe that that is in the record.

[00:19:54] Speaker 05:
And so I don't believe that they've satisfied the exception articulated in action on smoking.

[00:19:59] Speaker 02:
Well, the statute provides for a paper record.

[00:20:03] Speaker 02:
Your position is that you can't have a paper record plus.

[00:20:07] Speaker 02:
It's the limited paper record or nothing.

[00:20:11] Speaker 02:
Yes, Your Honor.

[00:20:12] Speaker 02:
Why would that make any sense?

[00:20:13] Speaker 02:
If they wanted to improve, to give even more than the paper record, why should we read the paper record requirement as a maximum of paper rather than a minimum?

[00:20:25] Speaker 05:
They certainly can supplement the paper record, Your Honor, but that doesn't necessarily mean that they can supplement it with any particular piece of evidence they choose.

[00:20:32] Speaker 02:
Well, that would be a question of arbitrary and capriciousness, not a statutory question.

[00:20:36] Speaker 05:
Well, Your Honor, the statute limits the paper record proceeding to the written direct statements and the responses that are filed.

[00:20:44] Speaker 02:
Well, that's the question.

[00:20:44] Speaker 02:
Does it limit or does it authorize?

[00:20:46] Speaker 02:
Does it authorize a paper proceeding with this basic minimum requirements, or does it limit it to those basic requirements?

[00:20:54] Speaker 02:
And I think it's a little hard to read the statute as being a cap on the paper record.

[00:21:00] Speaker 05:
Well, Your Honor, I would argue that it is a cap because it specifically enumerates those types of papers and nothing else.

[00:21:07] Speaker 02:
That must be in the record.

[00:21:10] Speaker 02:
That must be permitted in the record.

[00:21:13] Speaker 05:
It simply says that they can conduct a proceeding based on the written direct statements and the responses.

[00:21:19] Speaker 05:
Now, of course, they certainly can supplement the record with witness testimony.

[00:21:25] Speaker 05:
And in fact, we would like them to do that here.

[00:21:28] Speaker 05:
It's just that they cannot supplement it with testimony that was taken by judges who had no authority.

[00:21:33] Speaker 02:
Well, that's a constitutional question, not a statutory question.

[00:21:36] Speaker 02:
Yes, sir.

[00:21:36] Speaker 02:
OK, go ahead with your argument about the $500.

[00:21:39] Speaker 05:
I would only briefly note Your Honor that it is not supported by the evidence.

[00:21:45] Speaker 05:
The judges have used the same logic that the Court rejected in 2009.

[00:21:49] Speaker 05:
They cited an absence of evidence that the $500 fee was

[00:21:54] Speaker 05:
untenable for IVS's members, but they did not put forward any evidence that the $500 fee was specifically appropriate for all of IVS's members, especially the small and very small webcasters.

[00:22:08] Speaker 05:
Their own witness, Barry Kessler, whose testimony they rely on, testified that while $500 is the average administrative cost, that cost can vary wildly, and yet the judges made no more specific findings to show why $500 would be appropriate for smaller webcasters.

[00:22:23] Speaker 02:
Do you think they have to have evidence that it would be appropriate for every single smaller webcaster?

[00:22:29] Speaker 05:
Your Honor, they would certainly need to have additional evidence to respond to the testimony that the $500 average could vary wildly.

[00:22:37] Speaker 05:
With that being in the record, they would be obligated to show why the wild variation did not.

[00:22:44] Speaker 02:
Well, imagine there's one who can't afford it.

[00:22:46] Speaker 02:
They have to have a very, very, very, very, very, very, very, very small group.

[00:22:53] Speaker 02:
Composed of the one who can't afford it?

[00:22:56] Speaker 05:
No, Your Honor.

[00:22:57] Speaker 05:
They would not necessarily need to create a group so small that it only included one.

[00:23:02] Speaker 05:
Two?

[00:23:03] Speaker 05:
No, Your Honor, and I think that the judges do have the authority to draw that line.

[00:23:08] Speaker 05:
However, the testimony that they rely on to support the blanket $500 fee is weakened by the additional testimony that that average can vary wildly.

[00:23:20] Speaker 02:
Well, they also have the evidence of another group like your own who agreed to the $500.

[00:23:30] Speaker 02:
You don't respond to that in your brief at all.

[00:23:31] Speaker 05:
We don't, Your Honor, and I will say that CBI tends to have very large members.

[00:23:37] Speaker 05:
Many of IBS's member stations are extremely small.

[00:23:40] Speaker 05:
Some of them are essentially after school.

[00:23:42] Speaker 02:
None of this material is in the record, though, I take it, right?

[00:23:45] Speaker 02:
At least it's not in the brief.

[00:23:46] Speaker 05:
It is not in the brief, Your Honor.

[00:23:48] Speaker 05:
It is in the... IBS has put evidence in front of the copyright judges that it has very small webcasters, including high school students.

[00:23:58] Speaker 04:
That's not part of the law.

[00:23:59] Speaker ?:
Go ahead.

[00:24:00] Speaker 04:
I thought part of the logic also was that there wasn't evidence that sellers would offer the $500 rate.

[00:24:08] Speaker 05:
That is correct as well, Your Honor.

[00:24:09] Speaker 04:
Even if the $500... So maybe that some people can't afford to pay it, but under the statute, the question would be whether that would be a rate that would be entered into in the open marketplace.

[00:24:19] Speaker 05:
That's correct, Your Honor, and it's hard to imagine that a willing licensee would negotiate a rate that they couldn't afford.

[00:24:27] Speaker 05:
And so, again, that is why, especially since... Wait, are you saying there's a veto?

[00:24:35] Speaker 02:
It's what a willing buyer and seller would negotiate.

[00:24:38] Speaker 02:
Are you saying that the buyer could simply refuse to negotiate a rate and that's the end of it?

[00:24:45] Speaker 05:
No, Your Honor, but it is a factor that the judges need to consider.

[00:24:49] Speaker 05:
And when the evidence that SoundExchange puts forward is that the $500 average could vary wildly from station to station, they need more than simply to say that IBS's numbers didn't show why they couldn't afford it.

[00:25:03] Speaker 05:
They would need to show why a $500 blanket rate would be appropriate for all webcasters when SoundExchange's own witness testified that there was variability among the rates.

[00:25:13] Speaker 02:
Can I ask you one sort of underlying logic question about this?

[00:25:17] Speaker 02:
So the statute says, such rates and terms shall distinguish among the different types of eligible non-subscription transmission services.

[00:25:24] Speaker 05:
Yes.

[00:25:25] Speaker 02:
And they do distinguish between commercial and non-commercial, correct?

[00:25:31] Speaker 02:
And one of the distinctions I take it is that although they both have to pay $500 minimum, the per song royalty rate only applies to commercial.

[00:25:42] Speaker 02:
So that is a distinction that they're making.

[00:25:44] Speaker 05:
Yes, it is.

[00:25:45] Speaker 02:
OK.

[00:25:46] Speaker 02:
Now, who has the burden of showing that there are different types of eligible?

[00:25:52] Speaker 02:
That is, what you want to do is, among the non-commercial, you want to separate between, what were the words again, large and small or something like that, right?

[00:26:01] Speaker 05:
Small and very small.

[00:26:02] Speaker 02:
Small and very small.

[00:26:03] Speaker 02:
Who has the burden of establishing that those are cognizable categories?

[00:26:08] Speaker 05:
The proponent of those categories have the burden.

[00:26:11] Speaker 02:
If that's true, then why doesn't the absence of evidence mean you lose?

[00:26:17] Speaker 02:
If you have the burden and you don't put in any evidence,

[00:26:23] Speaker 02:
Why isn't the absence alone?

[00:26:25] Speaker 02:
And I appreciate there's an argument, a considerable argument, that we're not talking about absence, but your argument is all about absence.

[00:26:32] Speaker 02:
So why isn't absence enough to cause you to lose?

[00:26:36] Speaker 05:
Well, Your Honor, if the absence is, if the Board concludes that there is an absence based on a proper record,

[00:26:43] Speaker 05:
proper testimony without the constitutional violation, then that's a proper conclusion.

[00:26:48] Speaker 02:
So you're saying if we decide against you on the constitutional argument, you lose the statutory argument as well?

[00:26:55] Speaker 02:
And the APA argument as well?

[00:26:57] Speaker 05:
Well, no, Your Honor, because we're not conceding that it is a proper conclusion in light of the testimony about the considerable variability among the costs of administrating the stations.

[00:27:08] Speaker 02:
I want to just hold that aside for the moment.

[00:27:10] Speaker 02:
I'm just a little bit stuck on the reason why absence of evidence isn't enough.

[00:27:18] Speaker 02:
Notwithstanding the requirement that the judges act with substantial evidence, in this case the question is the burden of proof.

[00:27:26] Speaker 02:
And if the burden is on you, why isn't the absence of evidence to distinguish the two categories enough?

[00:27:33] Speaker 02:
How do we know that there are, even if there's wild variation, how do we know that there's a small and a very small?

[00:27:39] Speaker 05:
Your Honor, I think that it is, it is IBS's burden to prove that the categories it proposes exist.

[00:27:49] Speaker 05:
But if the judges are going to rely on specific lines of testimony to support the royalties that they

[00:27:56] Speaker 05:
set, then it would be their burden to support that properly, which they have not done by failing to address the variability that's in the record and by merely citing an absence of evidence contrary to their particular position.

[00:28:10] Speaker 05:
So even if the judges don't necessarily want to recognize all of the categories that IBS

[00:28:17] Speaker 05:
It's not IBS's burden to rebut whatever rate the judges choose for the categories that they do recognize.

[00:28:24] Speaker 05:
That burden, and if I didn't clarify earlier in response to your earlier question, I apologize, but it is still the burden on the judges to support the rates that they do arrive at with substantial evidence and not merely an absence of evidence, which is not what they did here.

[00:28:42] Speaker 06:
Can I just clarify, what did you propose before the judges that should be the rate for the small and very small in this category?

[00:28:52] Speaker 05:
$100 and $20 annual fees, Your Honor.

[00:28:59] Speaker 06:
That was based, as I recall in your brief mention or in the record, somewhere it's in the record that some of these kind of clubs and entities that are your members had budgets as low as like 30 some dollars a year or something, right?

[00:29:16] Speaker 05:
Yes, Your Honor.

[00:29:19] Speaker 06:
So that's the evidence that you say supports those levels because you can't point to any negotiated licenses to support those levels, right?

[00:29:33] Speaker 05:
Correct.

[00:29:33] Speaker 05:
It is the budgets of the various members that was the basis of IBS's evidence for the lower rates.

[00:29:39] Speaker 06:
And by statute, aren't the judges supposed to prefer to rely upon negotiated licenses on what the market says as opposed to what people can afford to pay?

[00:29:53] Speaker 05:
They do, Your Honor, but they are necessarily setting rates in the setting where there has not been an agreement in the market.

[00:30:04] Speaker 05:
They don't set these rates to the hearing if the market has produced negotiations.

[00:30:10] Speaker 05:
If the absence of negotiated rates precluded the judges from considering other evidence, there would be no evidence ever in support of any particular rate, unless the parties agreed to settle.

[00:30:26] Speaker 02:
I take it that what you're talking about again is Captain Cass's testimony that was excluded?

[00:30:31] Speaker 05:
Yes, Your Honor.

[00:30:33] Speaker 02:
About how much some of the members have as budgets?

[00:30:37] Speaker 05:
Yes.

[00:30:39] Speaker 02:
Thank you.

[00:30:41] Speaker 05:
I exceeded my time, if there's no further questions, only by 20 minutes.

[00:30:45] Speaker 02:
Thank you.

[00:30:46] Speaker 02:
We'll hear from the other side.

[00:31:02] Speaker 01:
Good morning.

[00:31:03] Speaker 01:
Sonia McNeil for the government.

[00:31:04] Speaker 01:
As the court's questions recognize what is before us here is a new decision entered by new constitutionally appointed copyright royalty judges, IBS's argument boils down to an assertion that the new judges in their new determination considered inadmissible evidence.

[00:31:21] Speaker 01:
Now, IBS frames this as constitutional taint, but it's really a straightforward APA review question.

[00:31:28] Speaker 01:
There's no argument here that the new judges were not constitutionally appointed.

[00:31:32] Speaker 01:
The judges were free to look at the oral evidence collected during the prior hearing, particularly after asking the parties whether there was any reason that they shouldn't do so.

[00:31:43] Speaker 01:
And to the extent that that decision was error, IBS has failed to carry its burden to show that that error was harmful.

[00:31:51] Speaker 02:
But what about the Landry point that we don't require proof of prejudice?

[00:31:55] Speaker 01:
Your Honor, Landry was on a direct review case.

[00:31:58] Speaker 01:
Here, as the court observed, the court has remanded.

[00:32:01] Speaker 01:
There's been a new proceeding in front of new judges.

[00:32:04] Speaker 01:
So the procedural posture here is different.

[00:32:06] Speaker 02:
But why does the procedural process posture matter?

[00:32:10] Speaker 02:
In that case, there was a person who was properly appointed who made the same decision.

[00:32:17] Speaker 01:
Yes, Your Honor, but here the properly appointed judges were not presented with the same Catch-22 that this court felt it was in in Landry.

[00:32:25] Speaker 01:
We don't have an officer with purely recommendatory authority.

[00:32:28] Speaker 01:
We instead have three new constitutionally appointed copyright royalty judges carrying out a brand new proceeding that produced a brand new determination.

[00:32:39] Speaker 02:
I don't mean to interrupt the constitutional argument, but actually I do, just for one moment, just to respond to something that the other side said.

[00:32:49] Speaker 02:
He said there was evidence of wildly varying, well, maybe I'm going to ask you to rephrase for me what he said, wildly varying costs or wildly varying budgets, which wasn't

[00:33:06] Speaker 01:
So let me clarify.

[00:33:08] Speaker 01:
SoundExchange's chief operating officer testified that it was difficult to disaggregate between commercial and non-commercial webcasters the average administrative cost.

[00:33:18] Speaker 01:
In its written rebuttal testimony, IBS proposed that the minimum fee should be based on a per-performance administrative cost and went on to say that if the fee were based on a per-performance administrative cost that it would vary wildly because small and very small commercial webcasters

[00:33:36] Speaker 01:
would use less music, would broadcast fewer performances to fewer listeners than others.

[00:33:42] Speaker 01:
And actually, I think it's important to underscore here that the definition of small and very small that IBS proposed in this proceeding had nothing to do with the financial capacity of the webcasters.

[00:33:53] Speaker 01:
Small and very small, as IBS understood it, was about the amount of copyrighted music that the webcaster in question broadcast.

[00:34:04] Speaker 01:
IDS has conceded that there is no specific piece of evidence that it wanted to add that the judge is excluded and that nothing was improperly excluded by the first panel of copyright royalty judges.

[00:34:16] Speaker 01:
It's conceded that the copyright royalty judges are not required to set a rate.

[00:34:20] Speaker 02:
Before we get to that, I still want to, what was it that Sound Exchange, he, your opponent, said that Sound Exchange admitted that there were wildly varying somethings.

[00:34:33] Speaker 02:
And what I'm asking is what did Sound Exchange actually say?

[00:34:36] Speaker 01:
Sound exchange said that the average administrative cost for commercial or non-commercial webcasters was about $825.

[00:34:44] Speaker 01:
Now, the cost could vary if, for instance, a commercial webcaster or even a non-commercial webcaster allowed user-created stations.

[00:34:55] Speaker 01:
In that instance, there would not be a significant additional administrative burden in administering the license.

[00:35:03] Speaker 01:
However, there is no evidence in the record that there would be wild variation in the administrative cost that a small or very small webcaster would have to pay by virtue of their membership in that proposed category.

[00:35:15] Speaker 02:
Can you tell me the pages in the JA that we're talking about here?

[00:35:19] Speaker 02:
Do we have sound exchanges?

[00:35:22] Speaker 01:
We do, Your Honor.

[00:35:23] Speaker 01:
Beginning at JA 23 through 27.

[00:35:30] Speaker 01:
IDS has conceded that the judges were not required to set a rate that kept every webcaster in business.

[00:35:35] Speaker 01:
Here, there was no evidence in the record about either the membership of IDS or of CDI.

[00:35:41] Speaker 01:
IDS has conceded that it bears the burden to demonstrate that the distinctions, the small and very small webcaster categories are warranted, and it's failed to do so here.

[00:35:52] Speaker 01:
I'm happy to take any further questions from the panel, but if the court has no further questions, we ask that the determination be affirmed.

[00:36:00] Speaker 02:
Thank you very much.

[00:36:01] Speaker 02:
Oh yes, we have an intervener, Greg.

[00:36:11] Speaker 03:
Thank you, Your Honor.

[00:36:12] Speaker 03:
Matt Hellman on behalf of the Sound Exchange.

[00:36:15] Speaker 03:
The novel review on the existing record here has the twin virtues of both being lawful and eminently sensible.

[00:36:22] Speaker 03:
There's been a lot of talk of prejudice this morning.

[00:36:25] Speaker 03:
I think prejudice was back when this court first looked at the Appointments Clause violation and did require IBS to show prejudice from that violation in order to make out a claim of an Appointments Clause violation.

[00:36:38] Speaker 03:
Then, when the case went back... You're saying, did require Arshada?

[00:36:42] Speaker 03:
Did not.

[00:36:42] Speaker 03:
Did not.

[00:36:43] Speaker 03:
And that was appropriate under this court's precedence.

[00:36:46] Speaker 03:
But that's the end of the prejudice analysis, at least as this court comes, as the case comes to this court.

[00:36:51] Speaker 03:
At that point, the CRJs looked at the existing record, specifically asked IBS to point to determinations that relied on credibility that they felt could not be considered in light of the Appointments Clause violation,

[00:37:05] Speaker 03:
Nothing was pointed to.

[00:37:06] Speaker 03:
The only evidence that was excluded was this testimony from Captain Kass, as Your Honor has pointed out.

[00:37:14] Speaker 03:
CRJs in their new determination that's on review specifically discussed the import of this testimony and found that it would not have changed their decision in any way.

[00:37:23] Speaker 03:
So I don't believe that there's any role for prejudice to play in this case or a prejudice analysis.

[00:37:29] Speaker 03:
There was some question about the nature of sound exchange's testimony and what they said about the cost of administration, if I understood that correctly.

[00:37:37] Speaker 03:
My friend on the other side pointed

[00:37:39] Speaker 03:
your honor to the appropriate place in the J.A.

[00:37:42] Speaker 03:
J.A.

[00:37:42] Speaker 03:
26 I think is the most pertinent case.

[00:37:44] Speaker 02:
Is this your friend on the other side or your friend on the same side?

[00:37:47] Speaker 03:
My friend on the same side, at least today.

[00:37:52] Speaker 03:
What Ms.

[00:37:53] Speaker 03:
Kessler said on behalf of Sound Exchange was, I think quite candidly, it's difficult to pin a precise administrative cost on a per-station basis because there are some ways in which some stations can make those administrative costs go up.

[00:38:09] Speaker 03:
If they don't report the music that they transmit or broadcast in an easy-to-process way, that can make it more expensive.

[00:38:15] Speaker 03:
But she said that a good faith analysis, and she works through it over two or three pages, is that it works out to be about $833 in administrative costs per station.

[00:38:25] Speaker 03:
The CRJs and their determination below pointed to that as affirmative evidence supporting the $500 minimum fee.

[00:38:32] Speaker 03:
They pointed to the actual agreement by CBI for the 500 minimum fee.

[00:38:37] Speaker 03:
And they point to other non-commercial broadcasters, all of whom had settled or approved minimum fees at that level.

[00:38:46] Speaker 03:
That is more than enough to justify the CRJ's determination in the case.

[00:38:50] Speaker 03:
And unless the Court has further questions, I'm saying I'm out of time anyway.

[00:38:55] Speaker 02:
Okay.

[00:38:56] Speaker 02:
Further questions?

[00:38:57] Speaker 02:
Thank you.

[00:38:58] Speaker 02:
Okay.

[00:38:58] Speaker 02:
Unfortunately, you're also out of time, but we'll give you another minute anyway.

[00:39:08] Speaker 05:
Thank you, Your Honor.

[00:39:09] Speaker 05:
I would like to make just two or three brief points in response to the argument we just heard.

[00:39:14] Speaker 05:
First regards the fact that the de novo review here was all that the court required and that there is no required showing of prejudice.

[00:39:22] Speaker 05:
I think that the judge's own characterization of this procedure is relevant.

[00:39:27] Speaker 05:
At page 235 of the JA, the judges described their role on remand as picking up the process where their predecessors left off.

[00:39:36] Speaker 05:
This suggests a continuation of the unconstitutional work and is not in the spirit of a de novo review.

[00:39:43] Speaker 05:
I would also point out that the argument that no showing of prejudice is required this time around would essentially turn Landry on its head.

[00:39:55] Speaker 05:
As long as the constitutional error made it through the first level of review, it could permeate through future decisions without any requirement of showing.

[00:40:03] Speaker 02:
What about the risk that the second set of judges won't want to offend the previous set of judges

[00:40:14] Speaker 02:
and that that risk therefore taints any possible second set of judges.

[00:40:20] Speaker 05:
Your Honor, I don't believe that there is any evidence of that consideration.

[00:40:24] Speaker 02:
Well, are you saying there has to be evidence of prejudice?

[00:40:26] Speaker 02:
I thought you said there doesn't have to be any evidence of prejudice.

[00:40:28] Speaker 05:
No, Your Honor, but I don't think that the new judges have given any indication that they're afraid of offending their predecessors.

[00:40:36] Speaker 02:
But I'm still asking.

[00:40:37] Speaker 02:
When you say, I'm just trying to figure out exactly what you mean by no evidence of prejudices required.

[00:40:43] Speaker 02:
You don't really mean that.

[00:40:46] Speaker 02:
You mean conceivable prejudice or something like that?

[00:40:52] Speaker 02:
How would you qualify your argument here?

[00:40:54] Speaker 05:
Your Honor, I would qualify it this way.

[00:40:59] Speaker 05:
Whether or not this court chooses to remand the determination should not depend on whether IBS can put forward an affirmative piece of evidence to demonstrate that a prejudice exists.

[00:41:12] Speaker 02:
So why therefore shouldn't it be impossible for any new set of judges to ever decide this case?

[00:41:19] Speaker 02:
If you don't have to show that they could or could not be tainted by

[00:41:27] Speaker 02:
respect for their previous colleagues, why doesn't that mean that we're in stasis here and never have a new decision?

[00:41:36] Speaker 05:
Well, Your Honor, they can easily have a new decision as long as they compile a record that is their own record.

[00:41:41] Speaker 02:
But even so, maybe they would defer to the previous in order to, I don't know, to show that the previous people weren't themselves tainted.

[00:41:51] Speaker 02:
And a mark of their respect for their colleagues is, you know, we've done this ourselves, and now we're going to do exactly what the others said, so they're plaintiffs.

[00:42:03] Speaker 02:
Why isn't that alone sufficient?

[00:42:06] Speaker 05:
I think that that risk would be cured by the fact that the record was compiled independently.

[00:42:13] Speaker 05:
The judges made their determination by citations to the new record that reflects their own judgment.

[00:42:22] Speaker 05:
That would be enough to satisfy Landry and result in a constitutional determination.

[00:42:30] Speaker 05:
I have again gone over my time.

[00:42:32] Speaker 05:
If there are no other questions, I'll take my seat.

[00:42:34] Speaker 02:
Okay, thank you.

[00:42:36] Speaker 02:
Take the matter under submission.

[00:42:37] Speaker 02:
We'll take a brief break.