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Case number 25-1039, Music Choice Petitioner versus Copyright Royalty Board and Librarian of Congress.

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Mr. Fackler for the Petitioner, Ms.

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Moondale for the Respondents, Mr. Hellman and Mr. Ferry.

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Good morning, Your Honours.

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May it please the Court, Paul Fackler for Petitioner Music Choice.

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And I'd like to reserve two minutes of my time for rebuttal, please.

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Your honors, this appeal relates to the royalty calculation rule applicable to a statutory license in the Copyright Act that is available to business establishment services or BES.

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The BES are essentially digital radio services that transmit music programming to retail and other commercial establishments.

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So those businesses can play music in the background while people shop there or otherwise visit the business.

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In the rate-making, reopened rate-making proceedings below, the copper royalty board interpreted the gross proceeds definition in that rule in a manner that's completely inconsistent with the plain meaning of the actual text of that regulation.

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And it's for that reason that Music Choice asks this court to vacate the ruling.

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Now, I understand that Your Honors have some threshold questions about how we got there and how we got here, and I'm happy to address those briefly to start, given that it's on Your Honor's minds.

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Way back in 2019, Sound Exchange sued Music Choice claiming underpayment of its BES royalties.

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Those claims were based on a dispute between the meaning of the gross proceeds definition in this regulation.

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After filing that lawsuit in the district court, Sound Exchange asked the court to invoke primary jurisdiction and refer, as that term is used in primary jurisdiction, the threshold interpretive issue to the Copyright Royalty Board.

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music choice opposed, citing both the plain language of the regulation and also the prejudice to music choice and the likely delay in that sort of referral.

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There had only been one prior instance of a similar referral, and it took many years to get a ruling.

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18 months later, the district court finally issued its ruling, invoking primary jurisdiction and issuing the referral and staying the case.

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At that point, SoundExchange filed motions in front of the copper royalty board in three separate old BES proceedings that had already been closed to reopen those proceedings and handle this referral.

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Copper royalty board agreed to reopen two of those three proceedings.

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And then about three years later issued its decision interpreting the rulings.

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At every step along that long process, each party invoking primary jurisdiction specifically cited the copyright act's rule 803C4 continuing jurisdiction of the corporate royalty judges as the sole grounds for jurisdiction for the CRB to answer these interpretive questions.

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So sound exchange repeatedly cited that rule and the first part of C4 and only that rule.

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The district court cited the cases requiring the district court to find that the agency would have jurisdiction.

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to open proceedings to answer the referral and relied on C-3-4, C-4.

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And of course, the copper royalty board itself, when it issued its final ruling, cited its continuing jurisdiction under C-4.

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Now, for some reason- Where did it do that?

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It did that- That would simplify things, but we haven't seen, I haven't seen an explicit reference to C-4 in this decision.

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Okay, in the CRB, in Joint Appendix 114 and 115, Note 6, you're right, Judge Garcia, that they didn't say specifically 803C4.

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What they did was they cited their continuing jurisdiction and they cited to the Register of Copyrights ruling on the scope of continuing jurisdiction.

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And if you read the Register's ruling, and this was from that prior SiriusXM proceeding,

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was what the register ruled was that the first part of C of C for was the ground for jurisdiction for answering these sorts of interpretive referrals.

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So it's not really clear why the judges when they finally got every in all other instances with the district court and sound exchange, they cited the exact.

[00:05:02] Speaker 05:
Sorry, you explain.

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This language just seems pointedly only saying we have jurisdiction because we did it once before.

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Well, in 115 Note 6, I think that they are the only place that they invoke any jurisdiction.

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And again, in the context where both the district court and sound exchange specifically argued that jurisdiction to them.

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This is their only reference to why they have jurisdiction to issue the ruling.

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And in note six, they cite as the basis of their continuing jurisdiction, they reference the register's ruling.

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And they're adopting that same ground.

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Respectfully, I don't think that there's any other way to read what they're saying in that footnote, other than this is where we're getting our jurisdiction, which they have to do.

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And that was the only ground that the register gave in that ruling as to why the copper royalty board has continuing jurisdiction to consider ambiguous terms in their regulations.

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Am I right that the two proceedings that were reopened were settlements?

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Yes and no, Your Honor.

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They were proceedings that were opened.

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There was a controversy declared.

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There was a notice of commencement of proceedings.

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There was a request for parties who wanted to participate.

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I understand that.

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I'm asking, were they resolved by settlements?

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The proceedings were ultimately resolved by settlements, yes, Your Honor.

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Right.

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When there's not a settlement, you have to have this formal proceedings where the board then makes a determination.

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Well, yes, there was, Your Honor, because the way that it works, there are two different types of proceedings that the Copper Earthly Board can handle.

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One is called a distribution proceeding, and the other is a rate-making proceeding.

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They have different processes in a distribution proceeding and the board cites this independent producers group case as an example from 2014 where this court held that a particular order of the copper early board was not appealable to this court.

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That was a distribution proceeding.

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And the way that those work is the royalties are paid into the copyright office, not to sound exchange, right?

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And the claimants, the only dispute is whether the claimants who are entitled to a share of those royalties, they all file claims on a periodic basis with the copyright office.

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And what happens is every year the Copyright Royalty Board looks at those claims, determines whether there's a controversy.

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In other words, whether there's a dispute between the copyright owners as to how to whack up those royalties.

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If they determine there's no controversy or dispute, there's no commencement of proceeding.

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a notice goes to the register of copyright saying, please just distribute the royalties pursuant to these claims.

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And then there's never a notice of commencement.

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It's different in the rate making proceedings, which is what these are.

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In the rate making proceedings, there's always every five years they issue a notice of commencement of the proceedings.

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The parties then

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to file their notice of intent to participate.

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There are preliminary things that go on related to setting the schedule.

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Then there's a negotiation period.

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And the case can settle then or any time after.

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And these ones settled?

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Yes.

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But once it is settled, here's another difference between distribution and rate making proceedings.

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In a distribution proceeding, the board has no authority to review the settlement terms.

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it has to just implement them as they're given.

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In a rate-making proceeding like these, the court has an independent obligation to review the settlement terms for reasonableness and then implement those terms, if found reasonable, in a final determination that is then

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published in the Federal Register.

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So in both of these real- Does that have a presidential effect?

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Like the parties settle and then the board approves and is that presidential?

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Yes, Your Honor.

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That is then binding on all licensees, whether they participated in the proceeding or not.

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Those rates and terms are then in effect for the next five years of that.

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So if parties agree on a particular interpretation of a regulation or et cetera in a settlement,

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And it goes into effect and that becomes the actual interpretation of that regulation.

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I'm not sure I understand fully the question because I'm asking like if in a settlement negotiation, there was a dispute on the definition of gross proceeds and the parties reach some kind of a settlement, like this is what it means.

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And then the copyright world to board approves that settlement.

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Is that the definition or the interpretation that the copyright world to board adopts then yes to the definition.

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I have to say no to the interpretation, but because the way the settlements work.

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or there's no real way to agree on interpretation in these settlements.

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What the parties agree on are what the regulations will say, the text of the regulations.

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So if the parties believe that there's an ambiguity or have a disagreement on what the regulations mean, what they would be doing is negotiating how will we change that and can we agree on a way to change the terms

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to resolve that ambiguity.

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That never happened in this case.

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Why would you have to do that?

[00:10:30] Speaker 05:
Why wouldn't you just agree that for purposes of this settlement agreement, gross proceeds means X, Y, and Z?

[00:10:38] Speaker 01:
Yes, and that is exactly what- That's not changing the regulation.

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I agree, Your Honor.

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I was merely just trying to respond to- That's an interpretation.

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Oh, okay.

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But all that would be, that would not be in the settlement agreement and that would not be in- Why not?

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Well, having done several of them, it's just not normally in the settlement.

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I get you haven't done it before.

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I guess we wouldn't be here if you had.

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But I don't see what principles of settlement agreements that would preclude parties.

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I'm saying for purposes of the settlement agreement, we all agree that gross proceeds means X, Y, Z.

[00:11:13] Speaker 01:
I think the reason that that wouldn't happen, Your Honor, is because the settlement agreements themselves are not typically made part of the record.

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What is issued in the federal regulations is here are the terms, the terms of the rules that the parties have now agreed to, and we're going to put those into the CFR.

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I don't disagree, Your Honor.

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One, I don't see any way you can do it.

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And two, whatever, you have a contractual relationship that could be enforced.

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I agree, Your Honor, if I understand the question that the parties could enter into settlement agreements like that, and as long as that part of the settlement agreement was made part of the public record so other licensees knew that that was

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part of the settlement.

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But in my experience, it's a much better approach to just change the regulation so there's no ambiguity and then you don't have to discuss.

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What do you mean by change the regulation?

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The terms of the agreement that's filed in the Federal Register changes the terms of the regulation?

[00:12:22] Speaker 01:
Yes, the settlement can.

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It can either roll over the existing terms and just change the rates.

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But what you're always working off of in these

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after you're past the first rulemaking proceeding where the terms are initially set, from there on, you're starting with the old terms and you're saying, do we need to make any changes to this?

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Sometimes all that you change are the royalty rate, right?

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The percentage of revenue in the case of- Can you make this concrete in the context of this VES term and gross proceeds?

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What did they decide in the settlement agreement about

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gross proceeds and what does that mean?

[00:13:00] Speaker 01:
Okay, so in the two proceedings that the board reopened, I do not believe there was any discussion about that provision and what it meant or even any disagreement among the parties.

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Then in reopening, they can't be clarifying an ambiguity if it wasn't addressed in the first determination, can they?

[00:13:23] Speaker 01:
Well, yeah, I think that they can if the ambiguity only comes to light

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later.

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And I think that's the reason that the register found that this continuing jurisdiction was necessary and appropriate under correcting errors and that you could reopen prior proceedings even after that rate period was closed.

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Because if the ambiguity only becomes clear as further rate periods go on.

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So in the settlement agreements that were previously

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reached, what did they decide about the rates to be paid for these BES gross proceeds percentages?

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In some of the rate periods, the rate has crept up slightly from period to period, the percentage of revenue, but the language about gross proceeds and how it's defined has not changed.

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But I'm just wondering what number did they come up with and did that number reflect

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including or not including the BES?

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It reflected the gross proceeds definition as it has always been since the first CARP, after the first CARP.

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And so the only thing that- Which means it didn't include the BES?

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It was only BES.

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So these regulations only apply to revenues received by a BES for provision of its BES

[00:14:47] Speaker 07:
Right.

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I'm just wondering, like the issue before us, whether to include or not include certain things within it.

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Right.

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And I'm just wondering if the number that they came up with included or did not include that.

[00:15:02] Speaker 01:
Well, based on the plain language of the regulation, music choices position is that it always included this limitation on gross proceeds.

[00:15:13] Speaker 07:
And was that reflected in the prior things that were reopened, the prior determinations?

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It was never specifically discussed.

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It wasn't discussed, but the number must have reflected a calculation, and that calculation reflected music choices position?

[00:15:26] Speaker 01:
Yes, because it's in the plain language of the regulations.

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The royalty is just... Go ahead.

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What you're saying is that there was a prior proceeding, this regulatory text was the same, and that was mainly about the number 10, 11, 12.

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Now it's 14.5%, right?

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And that's what you agreed on.

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And it's just that nobody had thought of this question.

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What do you do with a sole purpose versus a dual purpose channel?

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And that's the ambiguity that has arisen in the context of this dispute.

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So you reopened that proceeding.

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And in your telling, we have jurisdiction.

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Is it as simple as it was a reopening under 803C-4?

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So this is a contested order of the board under 803C.

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You have jurisdiction.

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Is that any more complicated than that?

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I certainly don't think it's more complicated than that because that is the sole basis for jurisdiction that was cited.

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803D, the appellate jurisdiction provision, says any step back.

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C4 only allows the board to issue an amended determination.

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to correct an error, right?

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So all that they could have done is issue an amended determination.

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In D, the appellate jurisdiction, it says any determination under 803C is

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appealable to this court, right?

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So it clearly, based on the only possible grounds of jurisdiction that the board could have exercised, because it has no other jurisdiction, that is clearly subject to appeal in this court.

[00:17:03] Speaker 02:
Well, they might stand up and say they have some other authority.

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But can I ask you about the merits?

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Yes.

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Just as a practical matter.

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And this is going to simplify somewhat.

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Your basic position is if Music Choice offers a channel and it only goes to BES customers, you pay the royalty on revenue received in connection with that channel.

[00:17:26] Speaker 01:
Not exactly, Your Honor.

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What it has to do with is what technology is used.

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How does the transmission, the broadcast transmission get... Okay, so the one more detail would be you use at least one ephemeral copy in transmitting that channel to your BES customers.

[00:17:42] Speaker 01:
Right.

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There are some subscribers to MusicChoice's BES for which the exact same transmission that goes to other types of services goes to the BES without any additional copies being made.

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It's only a performance.

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But there are some subscribers that Music Choice has to use a different technological system to get those broadcasts to the location that do require at least one additional copy to be made.

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And Music Choice pays the BS royalty on all of those.

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So my understanding, the briefs and the record don't say much about the technology, but

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To my understanding, it was essentially a difference between channel one goes just to BES customers and it has to, for whatever technical reason, you have to create at least one new ephemeral copy.

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Channel two, you are also creating ephemeral copies.

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It's just that it ends up

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that it serves two services, your PSS and the BES.

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And you think you don't pay any royalties for the revenue from BES customers on channel two?

[00:18:55] Speaker 01:
Almost.

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Almost.

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OK.

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And the reason that you don't see a lot of these facts in the briefing is because what was presented to the board was purely a legal issue of how do you interpret

[00:19:06] Speaker 01:
these, then whether the facts line up with that interpretation would be for the district court to sort out, right?

[00:19:13] Speaker 01:
But to answer your question, there are channels that go both to BES subscribers

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and to other types of service subscribers, right?

[00:19:25] Speaker 01:
And the ephemeral copies at issue are server copies.

[00:19:28] Speaker 01:
They're basically these copies of the recordings that sit on computer servers and that are drawn from to create these broadcasts, right?

[00:19:35] Speaker 01:
Those are the copies.

[00:19:36] Speaker 01:
So once a channel is created using those copies, they can go to BES subscribers and they can go to other types of subscribers, right?

[00:19:45] Speaker 01:
Same exact channel.

[00:19:46] Speaker 01:
But even within the BES subscribers,

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Some of them get it directly in the exact same way so that no additional copies have to be made.

[00:19:56] Speaker 01:
Other BES subscribers get it through a different, more of an internet type system that requires the making of separate server copies that have to create those performances.

[00:20:07] Speaker 01:
So basically it's a subset even of BES subscribers.

[00:20:11] Speaker 01:
There are certainly a number of subscribers of the BES who Music Choice does pay royalties on.

[00:20:18] Speaker 01:
Otherwise, they wouldn't be paying any royalties.

[00:20:21] Speaker 01:
If they had a way of getting the performances to all of their BES subscribers without... Let's take one of the hypotheticals.

[00:20:30] Speaker 02:
Ways you just described is you need to create new server copies in delivering the music.

[00:20:37] Speaker 02:
My understanding of what this case is about is if that channel only goes to BES customers, you pay royalties.

[00:20:46] Speaker 02:
But if you also send the same channel to some other service, you don't pay royalties on what your BES customers pay, right?

[00:20:56] Speaker 01:
no because even if even if um you know uh only in instances where additional copies are made does the does music choice pay the bes royalties okay well that's what you think the rule should be right there the sound exchange thinks the rule should be in even if you have a dual purpose copy you ought to uh

[00:21:24] Speaker 02:
Let me just simplify this.

[00:21:25] Speaker 02:
This is how it appears to a judge who has read this opinion and doesn't know exactly how it works.

[00:21:31] Speaker 02:
You're saying that if you make $1 million from your BS subscribers for a channel,

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And that's only people you make money from for it.

[00:21:41] Speaker 02:
You will pay the royalty rate, and in some subset of these situations.

[00:21:47] Speaker 02:
But in that exact situation where you otherwise would have paid, I think it's right now, $145,000, you will pay zero on that $1 million so long as you also deliver that channel to a PSS.

[00:22:00] Speaker 02:
customer, to someone other than a BES subscriber.

[00:22:04] Speaker 02:
Isn't that what this case is all about?

[00:22:06] Speaker 02:
Because if it's not, I have no clue what this case is about.

[00:22:11] Speaker 01:
That's the point of your solely argument.

[00:22:13] Speaker 02:
It is not going solely to BES.

[00:22:15] Speaker 02:
It's going to two services.

[00:22:17] Speaker 02:
And so we don't pay any royalties on the BES.

[00:22:19] Speaker 01:
But it's not whether the transmission is going to.

[00:22:22] Speaker 01:
Because remember, the odd thing about BES services is there is no public performance right.

[00:22:28] Speaker 01:
Okay, so the question of whether services are receiving performances should be irrelevant to the value of this license.

[00:22:35] Speaker 01:
That's not even how it works on your view, counsel.

[00:22:38] Speaker 02:
Your view is as long as you make one, if you have a BS only channel, you might need to make one ephemeral copy or you might need to make a million.

[00:22:46] Speaker ?:
Right.

[00:22:46] Speaker 02:
It doesn't vary.

[00:22:47] Speaker 02:
Your royalty payment does not vary based on one copy or a million.

[00:22:51] Speaker 02:
It varies based on the payment your customer gives you because no one cares about how many ephemeral copies you make.

[00:22:57] Speaker 02:
They care about what value are you deriving from it.

[00:23:01] Speaker 01:
Well, but that is driven by what's in the actual regulation.

[00:23:05] Speaker 01:
And I would just point out that sound exchanges and the board's interpretation would have the same effect as long as music choice changed so that all of its revenue came from payments in kind.

[00:23:16] Speaker 01:
It would, so.

[00:23:18] Speaker 05:
Can I just get an answer to Judge Garcia's question, which was if you've made a copy, you've made your copy and you've used it for your PSS service.

[00:23:32] Speaker 05:
And then you use that same copy to send out to your BES customers.

[00:23:37] Speaker 05:
Do you pay anything on the proceeds from those BES customers?

[00:23:42] Speaker 01:
You do not, according to the terms of the regulation.

[00:23:45] Speaker 02:
Because those are... This is what I'm trying to build up.

[00:23:47] Speaker 02:
Why does that make any sense, right?

[00:23:51] Speaker 02:
This might not be the reality, but it would allow the result that you get $1 from a PSS customer and $1 billion from BES customers, and you'll pay whatever the royalty rate is on your PSS income and $0 on your BES income.

[00:24:10] Speaker 02:
And these terms are supposed to reflect real world.

[00:24:15] Speaker 02:
So I want to know, that seems to be the rule.

[00:24:18] Speaker 02:
Why would someone agree to that?

[00:24:21] Speaker 01:
Well, it's not a question of agreeing to it.

[00:24:23] Speaker 01:
It's a question of what is in, you know, what are you looking at the statutory basis and regulatory?

[00:24:28] Speaker 02:
I just want to understand as a practical matter why it's not a seemingly absurd result.

[00:24:32] Speaker 01:
Absolutely, because there are certain types of services that Congress has decided are exempt from public performance royalties.

[00:24:39] Speaker 01:
Terrestrial radio is one of them.

[00:24:41] Speaker 01:
Business establishment services are another.

[00:24:45] Speaker 01:
So when the law was changed in 1995 and 1998, and even recently in the Music Modernization Act.

[00:24:54] Speaker 01:
Congress still has not changed any of that.

[00:24:56] Speaker 01:
So there's already been this idea.

[00:24:58] Speaker 01:
And let's be clear, the value of a radio transmission to the consumer is the performance.

[00:25:04] Speaker 01:
The rest of it, they don't care, as you said, how many ephemeral copies are made.

[00:25:09] Speaker 01:
So Congress has already said as a starting point, the record companies aren't entitled to a royalty for the performances.

[00:25:16] Speaker 01:
And by maintaining that, even when they created this ephemeral copy provision and this license,

[00:25:24] Speaker 01:
Certainly it would be possible, for example, a BES could decide to stream all of its performances from CDs, not make any copies at all.

[00:25:34] Speaker 02:
Even if they don't happen to have dual use copies.

[00:25:37] Speaker 02:
And then you wouldn't need a 112e license at all.

[00:25:40] Speaker 01:
Correct.

[00:25:41] Speaker 01:
Correct.

[00:25:42] Speaker 01:
But it's clear here that because if a BES shouldn't have to decide to be all in or all out, there's no rational reason.

[00:25:49] Speaker 01:
If the record company can get a little more money because for some of their customers, they prefer to use a different technological system where they have to make additional copies, then they pay a royalty.

[00:26:01] Speaker 01:
But in our view,

[00:26:04] Speaker 01:
what this regulation does is balance this admittedly odd situation where Congress had said they're not entitled to royalties for the performance, which everybody knows is where the actual value is.

[00:26:17] Speaker 01:
But if you want to make these serocopies,

[00:26:20] Speaker 01:
you can get this license to do that.

[00:26:22] Speaker 01:
So this is a way of balancing, because reading it as if all fees and revenues, even where no additional copies are made, fall within this, that essentially gives the record companies a royalty payment for the performance where no copies were made.

[00:26:39] Speaker 02:
Here's another, maybe this is a technical question, but it's actually about the

[00:26:44] Speaker 02:
regulatory text, it refers to derived from the use of a lot of words that I think mean ephemeral recordings.

[00:26:51] Speaker 02:
So derived from the use of ephemeral recordings.

[00:26:54] Speaker 02:
And whenever you describe your argument, you say derived from the making of ephemeral copies, because you want to say that whenever you make a copy for two purposes, it's not included.

[00:27:10] Speaker 02:
And I'm just, is there a difference between the making of the copy and the using of it?

[00:27:15] Speaker 02:
Because you could imagine a world in which you're making an ephemeral copy, it's stored on the server, and then you're just calling on it on different times for your different services.

[00:27:26] Speaker 02:
One reasonable view of that would be you made it at time one, now you're using it.

[00:27:31] Speaker 02:
And the second time when you use it, it's for the sole purpose of facilitating a BES song performance.

[00:27:37] Speaker 02:
What's your response to that?

[00:27:40] Speaker 01:
Yes.

[00:27:41] Speaker 01:
Yes.

[00:27:41] Speaker 01:
Well, my response to that is, first of all, you have to look at when it's talking about use under 112, it says use under section 112.

[00:27:50] Speaker 01:
Section 112 only relates to the reproduction right, the making of a copy.

[00:27:56] Speaker 01:
There is no, in section 106 of the Copyright Act, it sets out specific individual exclusive rights.

[00:28:03] Speaker 01:
There is no, a copyright owner doesn't get the right to use the copyrighted work in the broadest sense.

[00:28:08] Speaker 01:
There are these exclusive rights.

[00:28:09] Speaker 01:
And the only right that is granted under section 112, under the 112 license, is the right to make reproductions, to make copies.

[00:28:21] Speaker 01:
So that's why, and because of our particular use,

[00:28:24] Speaker 01:
Yes, for particular use.

[00:28:27] Speaker 01:
But the way that MusicChoice's technology works in these situations is that the use is the same.

[00:28:33] Speaker 01:
It's the same transmission that goes to cable companies and then it either winds up, after MusicChoice is done with its part of the process, it either goes to a commercial customer or a residential customer.

[00:28:45] Speaker 01:
So even with respect to the question of different use, it wouldn't make a difference in its application to music choices situation.

[00:28:53] Speaker 01:
Because it's always using, even if you were going to say- Sort of going out.

[00:28:58] Speaker 02:
The channel is going out, and however you're making and using ephemeral copies, it's being done the same way for the P. It's simultaneous for both customers.

[00:29:08] Speaker 01:
Exactly.

[00:29:08] Speaker 01:
There's no distinct copies at any time involved in the process.

[00:29:13] Speaker 01:
The only time that there's a difference is at the final performance.

[00:29:18] Speaker 01:
And that's why trying to capture that into the- If you're calling performance the use

[00:29:24] Speaker 01:
No, no, the performance, the use is the use by music choice when they're transmitting.

[00:29:29] Speaker 01:
It's because the use is transmitting.

[00:29:31] Speaker 05:
Let's just make it simple down your BS line or down your subscriber line.

[00:29:35] Speaker 01:
There's only one line.

[00:29:37] Speaker 01:
And then at the cable company point, it then branches out to particular subscribers.

[00:29:45] Speaker 01:
Some are business subscribers.

[00:29:46] Speaker 05:
You must be in control of that branching process because that's how you're making your money is from those people on the receiving end of this music, correct?

[00:29:55] Speaker 01:
We do get royalties from the cable company that are passed on based from the subscribers.

[00:30:03] Speaker 05:
Do you tell us, sorry, is the cable company some freestanding player that does what it wants, or do you say, here's my list of BES customers, they get this music, here's my list of subscribers, they get this music?

[00:30:17] Speaker 01:
It's actually the cable company that

[00:30:19] Speaker 01:
has the direct relationship with the business subscribers in those instances.

[00:30:23] Speaker 05:
They may have a direct relationship.

[00:30:25] Speaker 05:
Do you have any control over it or any input into it?

[00:30:27] Speaker 01:
No, I don't believe so.

[00:30:29] Speaker 05:
You have one customer and it's a cable company?

[00:30:33] Speaker 01:
No, there are many cable companies and then there are other business establishment subscribers that go through another process and those are the ones that we're paying the royalties on and why we have to set up

[00:30:44] Speaker 01:
different servers for that purpose.

[00:30:48] Speaker 01:
But again, the use here, the key thing, I think, to respond to your question is the use that's described here is use for the purpose of facilitating a transmission.

[00:30:56] Speaker 01:
So the use is not the transmission.

[00:30:58] Speaker 01:
It's the use of the copy to facilitate.

[00:31:01] Speaker 01:
It's before.

[00:31:01] Speaker 01:
What is captured in here, what is supposed to be captured in here, are the uses before the actual final performance.

[00:31:10] Speaker 02:
What are those?

[00:31:11] Speaker 02:
What technically is happening?

[00:31:12] Speaker 02:
How are you using the ephemeral copy?

[00:31:15] Speaker 01:
They're sitting on servers, and they're then being used to generate streams of bits.

[00:31:20] Speaker 01:
And once those streams of bits are going through the pipes, the DC circuit has a case, I'm a pizza, that says those sorts of, I'm a pizza, honestly.

[00:31:33] Speaker ?:
I love that.

[00:31:33] Speaker 01:
It's a great title.

[00:31:35] Speaker 01:
But it's a greater case because it makes very clear that once these digital files are being transmitted for the purpose of these performances, like as they're being transmitted through these pipes just in bits and bytes, those are not copies under the actionable under the Copyright Act.

[00:31:52] Speaker 01:
You can't sue somebody.

[00:31:53] Speaker 01:
In that case, it had to do with jurisdiction.

[00:31:55] Speaker 01:
And the only conduct that was happening within the United States were

[00:32:00] Speaker 01:
allegedly infringing images, digital images, being transmitted through the internet to get other places.

[00:32:09] Speaker 01:
And what the court found is because those files were not assembled and then viewed, there was no public display because for images it's not public performance but public display.

[00:32:20] Speaker 01:
Because that all took place outside the United States and only these

[00:32:24] Speaker 01:
uh, what they called ephemeral copies.

[00:32:26] Speaker 01:
It was a different use of the term than is used in the statute.

[00:32:29] Speaker 01:
Those ephemeral types of ephemeral copies are not even actual under the Copyright Act.

[00:32:34] Speaker 01:
So to say that that would be covered by the license, you know, it couldn't be covered by the license because you don't need a license for those.

[00:32:40] Speaker 07:
So, but you can see that you are using the ephemeral recordings

[00:32:45] Speaker 07:
into streams to your individual listeners and to your business establishment customers.

[00:32:52] Speaker 07:
So it is a use of ephemeral recording either way.

[00:32:56] Speaker 01:
There is a use of an ephemeral recording.

[00:33:03] Speaker 01:
In some instances, it's being used to facilitate more than one transmission, one transmission that goes to multiple non-BES customers and BES customers.

[00:33:15] Speaker 01:
So it's not for the sole purpose of a BES transmission.

[00:33:19] Speaker 07:
Let me ask you this council, because when I look at the language that we're interpreting here, it's for the sole purpose of facilitating a transmission to the public of a performance of a sound recording.

[00:33:33] Speaker 07:
That is the definition of an ephemeral recording.

[00:33:37] Speaker 07:
Like the definition of ephemeral recording under 17 USC section 112 is

[00:33:43] Speaker 07:
blah, blah, blah, but it's used solely for the transmitting of organizations own transmissions within its local service area.

[00:33:50] Speaker 07:
I think solely in this context seems to me just to be describing what an ephemeral recording is.

[00:33:56] Speaker 07:
It's used solely to facilitate transmission.

[00:33:59] Speaker 07:
Like you had to make this copy to facilitate transmission.

[00:34:03] Speaker 07:
And if that's what for the sole purpose means, they're just talking about

[00:34:07] Speaker 07:
ephemeral recordings, it seems to me that the best reading of this is that you have to pay any time you're using an ephemeral recording.

[00:34:14] Speaker 07:
And it's not about whether it has a dual use or whatever use.

[00:34:17] Speaker 07:
You just have to pay whenever you're using it.

[00:34:20] Speaker 01:
Well, respectfully, Your Honor, that leaves out the rest of that clause, okay?

[00:34:24] Speaker 01:
It doesn't just say for the sole purpose of facilitating a transmission.

[00:34:30] Speaker 01:
It says a transmission under the limitation on exclusive rights specified in 17 USC 114 D1C4.

[00:34:38] Speaker 07:
Which I thought was the BE, the provision that says you have to pay.

[00:34:42] Speaker 07:
Yes.

[00:34:43] Speaker 01:
But only for a, no, no, no, that's- The ephemeral recording.

[00:34:47] Speaker 01:
I'm sorry.

[00:34:48] Speaker 01:
The 114 that they're citing here is the exemption that BESs have for the public performance right.

[00:34:54] Speaker 07:
Right.

[00:34:55] Speaker 07:
But you have to pay the ephemeral, the license for the ephemeral recording.

[00:34:58] Speaker 07:
That's what this is saying.

[00:35:00] Speaker 01:
Well, it's saying only if it was used solely for the purposes of a BES transmission.

[00:35:06] Speaker 07:
I think sole purpose goes to just this is an ephemeral recording.

[00:35:10] Speaker 07:
It's the definition of an ephemeral recording.

[00:35:12] Speaker 07:
So if you use for the use of an ephemeral recording, you pay.

[00:35:15] Speaker 07:
And this rest of it just says you would be exempt from performance licensing fees, but you still have to pay the ephemeral recording licensing fee.

[00:35:24] Speaker 07:
And so you should have to pay any time you use the ephemeral recording.

[00:35:28] Speaker 01:
Well, respectfully, Your Honor, I just don't think that's what it says.

[00:35:31] Speaker 01:
The 114 is not the ephemeral recording.

[00:35:34] Speaker 01:
That's saying it's the BES service.

[00:35:37] Speaker 07:
Under the limitation on exclusive rights specified in there, so you wouldn't have to pay for the performance recording, but you would have to pay for the ephemeral recording.

[00:35:45] Speaker 01:
But this regulation has nothing to do with whether or not Music Trust has to pay for the performance.

[00:35:52] Speaker 01:
And by the way, I would point out that neither the board... Correct, correct.

[00:35:54] Speaker 07:
So the only thing that that is referencing is we're not saying you have to pay for the performance recording.

[00:35:59] Speaker 07:
You have to pay for the ephemeral recording anytime you use it.

[00:36:02] Speaker 07:
So it's not about whether it has a dual use or a single use.

[00:36:04] Speaker 07:
If you use it, you pay.

[00:36:07] Speaker 01:
Your Honor, I would say that first of all, neither the board nor Senate change even argued that it was that broad.

[00:36:13] Speaker 07:
No, I understand that.

[00:36:14] Speaker 07:
But I mean, if we get to the merits, it seems like we have to look at this afresh in some sense.

[00:36:20] Speaker 07:
And it just seems to me that the most logical reading of this regulation is that this whole disputed language, it's not that it's modifying in kind.

[00:36:29] Speaker 07:
It's that this is describing ephemeral recordings.

[00:36:32] Speaker 07:
It is exactly the definition of an ephemeral recording under the statute.

[00:36:35] Speaker 07:
And so all this is saying is you pay when you use an ephemeral recording.

[00:36:39] Speaker 07:
That's the way I read it.

[00:36:40] Speaker 01:
Your honor, respectfully, that's not true.

[00:36:44] Speaker 01:
This is not the definition of ephemeral recording.

[00:36:46] Speaker 01:
There are all types of ephemeral recordings other than the ephemerals.

[00:36:49] Speaker 07:
Well, I'm just looking at 17 USC section 112, and it uses the word solely, but it's only trying to describe that you're making these ephemeral recordings

[00:36:59] Speaker 07:
for the use of transmission, you use it to facilitate transmission.

[00:37:02] Speaker 07:
That's what solely means in this context.

[00:37:05] Speaker 07:
It's not about the difference between dual uses of an ephemeral recording.

[00:37:09] Speaker 07:
It's just what an ephemeral recording is.

[00:37:11] Speaker 01:
But that is the purpose of saying solely for the transmission under the limits of a BES transmission, which is what 114D1C4 means.

[00:37:24] Speaker 01:
It is not saying you don't have to pay for the performance.

[00:37:30] Speaker 01:
That would have no logical relationship to how you calculate the royalty just for the ephemeral copies.

[00:37:40] Speaker 07:
It's ephemeral recordings subject to the limitation on exclusive rights specified in 17114D1C4, which just says you don't pay for the performance.

[00:37:51] Speaker 07:
So you still have to pay for the ephemeral recordings.

[00:37:53] Speaker 01:
But then what work is for the sole purpose doing in the regulation?

[00:37:58] Speaker 07:
That's the definition of what an ephemeral recording is.

[00:38:00] Speaker 07:
It's made for the sole purpose of facilitating transmissions.

[00:38:04] Speaker 07:
And the word sole is in the definition of ephemeral recordings.

[00:38:09] Speaker 01:
But that would already be captured in the citation to 112E then, if that were

[00:38:19] Speaker 07:
derived from the use of copyrighted sound recordings during the license period pursuant to 112E for the sole purpose, which is ephemeral recordings.

[00:38:27] Speaker 07:
I mean, it's not obviously a great drafting job, but it just seems to me that the most logical reading of this is sole purpose is just the definition of ephemeral recordings, because sole purpose is in the definition of ephemeral recordings, and it's not about splitting up whether it has a dual purpose or a sole purpose.

[00:38:46] Speaker 07:
It's just ephemeral recordings.

[00:38:49] Speaker 01:
Well, as I said, that would have the effect, reading it that way would have the effect of capturing all of the value of all of the performances, even where no additional, the very usage that's allowed by the license isn't being taken advantage of.

[00:39:03] Speaker 07:
When you make an ephemeral recording, it looks like you make it and it's good for six months, right?

[00:39:09] Speaker 01:
In practice, those time periods are waived by the regulations and the agreements of the parties in the industry.

[00:39:15] Speaker 01:
People are not refreshing their server copies every six months.

[00:39:18] Speaker 01:
OK.

[00:39:18] Speaker 07:
But you use that ephemeral recording, I guess, once during the six months for each of these two streams?

[00:39:24] Speaker 07:
Or how often do you use ephemeral recordings?

[00:39:26] Speaker 01:
They essentially sit there indefinitely.

[00:39:28] Speaker 01:
I mean, there may be times when they- But you're using the same one over and over.

[00:39:31] Speaker 01:
Yes.

[00:39:32] Speaker 07:
You're transmitting the same one over and over.

[00:39:33] Speaker 07:
That's correct.

[00:39:34] Speaker 07:
So right now, you would theoretically be paying it once.

[00:39:40] Speaker 07:
for a dual purpose thing.

[00:39:41] Speaker 07:
And if you just read a family recordings in this provision way, you would just be paying it twice, because you would use it once in this stream and once in that stream.

[00:39:51] Speaker 07:
And that's the way it would work?

[00:39:55] Speaker 01:
It would all depend on whether for a particular subscriber, specific copies were made solely for that BS subscriber.

[00:40:06] Speaker 07:
But take away your reading, under my reading, which is that for the sole purpose of facility, it just means ephemeral recording.

[00:40:14] Speaker 07:
So basically you pay if you use an ephemeral recording.

[00:40:18] Speaker 07:
It's the same recording.

[00:40:20] Speaker 07:
How many times do you use it?

[00:40:22] Speaker 07:
Do you just use it twice when you're using it for both streams?

[00:40:27] Speaker 01:
It's used, no new copies are made, but it's used every time a channel is transmitted to its broadcast model.

[00:40:35] Speaker 01:
So there's one transmission that goes to tons of subscribers.

[00:40:39] Speaker 07:
And what do you pay?

[00:40:40] Speaker 07:
Do you pay every time it's used or only?

[00:40:42] Speaker 07:
How do you pay for it?

[00:40:44] Speaker 01:
We pay based on all of the revenue from subscribers.

[00:40:49] Speaker 01:
going on, you know, in perpetuity that are relying on these server copies that are only.

[00:40:58] Speaker 07:
So gross proceeds based on the ephemeral record.

[00:41:01] Speaker 07:
Correct.

[00:41:02] Speaker 07:
No matter how many times you use it, it's just.

[00:41:04] Speaker 07:
Right, because you're paying based on the revenue.

[00:41:09] Speaker 07:
So under my reading of the statute then, if I think that this just means sole purpose equals using the federal recordings, you would just pay gross proceeds based on your BES stream as well as your, I guess, private listener stream, whatever you want to call that.

[00:41:22] Speaker 01:
It would be just the totality under that reading.

[00:41:25] Speaker 01:
It would capture, irrespective of how the ephemeral copies were used, all gross revenue.

[00:41:33] Speaker 01:
It would essentially render all of this kind of beside the point.

[00:41:38] Speaker 02:
But it would capture it so long as you were using an ephemeral copy to transmit songs to BES customers.

[00:41:43] Speaker 02:
Right, but if you are not, I'm sorry.

[00:41:46] Speaker 02:
Go ahead.

[00:41:47] Speaker 01:
If you're not using any ephemeral copies, so if you went back to the system where you're playing it off of CDs, you wouldn't need the license that you wouldn't be paying any royalties anyway, right?

[00:41:57] Speaker 07:
So why don't they do that?

[00:42:00] Speaker 01:
I don't know.

[00:42:01] Speaker 01:
I know that earlier in the history of music choice, I think there was a time when they were... Music quality is probably not as good.

[00:42:07] Speaker 01:
Oh, I don't think that's the case.

[00:42:09] Speaker 01:
But yeah, digital compression is not great over the internet necessarily.

[00:42:14] Speaker 05:
Why are you doing worse music then?

[00:42:18] Speaker 01:
Honestly, Your Honor, as far as the facts related to this, why the music choice makes, you know, I'm sure that there are benefits to doing it the way that they do it, right?

[00:42:27] Speaker 01:
It's cost benefit analysis.

[00:42:29] Speaker 02:
So Judge Pan was asking why it's unreasonable if, I think we all agree that if you have a BES channel that doesn't use ephemeral copies at all,

[00:42:40] Speaker 02:
that you don't pay royalties.

[00:42:42] Speaker 02:
And what Judge Pan, I think, was suggesting was all that would happen under her reading is that you pay the royalty based on the total BES revenue for a channel that you do use an ephemeral copy in, one or more, right?

[00:42:58] Speaker 02:
Why is that unreasonable?

[00:43:01] Speaker 01:
I believe it's unreasonable because if that was what the regulation was trying to accomplish,

[00:43:08] Speaker 01:
it would have ended just with gross proceeds are all, like all of this other, like, so for example, you know, received from any source during or after the license period, you wouldn't need any of these qualifiers on the revenue.

[00:43:22] Speaker 01:
You would just say all fees and payments, including those made in kind, derived from the use of any ephemeral recording.

[00:43:30] Speaker 07:
That is what it says, because before that, they don't define ephemeral recording.

[00:43:34] Speaker 01:
But then it goes on and it says use for the sole purpose of a BES transmit, of facilitating a transmission to a BES.

[00:43:42] Speaker 01:
Right, that's the definition of ephemeral recording.

[00:43:44] Speaker 05:
Don't you want two solis in here?

[00:43:46] Speaker 05:
You want the word soul, it's just fancy, and that's just describing the soul, the purpose of facilitating a transmission.

[00:43:53] Speaker 05:
But you want another soul further down that says transmission to the public of performance of a sound recording,

[00:44:00] Speaker 05:
solely under limitation, we would say solely to a BS customer, you want another, you want actually a solely

[00:44:08] Speaker 01:
You want an adverb.

[00:44:09] Speaker 01:
I don't believe so, Your Honor.

[00:44:10] Speaker 01:
I think the soul, I don't think you have to repeat.

[00:44:12] Speaker 01:
I'm sorry.

[00:44:13] Speaker 05:
So it's just going a long way down the sentence, and it's doing two, it's doing, you want that soul up there to do two things, be an adjective and an adverb.

[00:44:21] Speaker 01:
But there's no intervening switch.

[00:44:23] Speaker 01:
There's nothing linguistically like there is with the, including those made in kind reference, which does operate as an independent thought.

[00:44:33] Speaker 01:
There's nothing in the rest of that sentence that would require another soul.

[00:44:37] Speaker 05:
It does, because you want it to describe both the purpose of facility and transmission definition and that transmission has to be solely for BES customers.

[00:44:52] Speaker 01:
that right.

[00:44:54] Speaker 01:
No, I don't think you need another solely because that's one law admittedly, it's an awfully long sentence, but that's not unusual in an agency regulation.

[00:45:02] Speaker 01:
There's nothing that switches solely.

[00:45:05] Speaker 05:
It has to go solely to a BS customer.

[00:45:08] Speaker 05:
Transmission.

[00:45:10] Speaker 05:
We only pay if it goes solely to BS.

[00:45:13] Speaker 01:
only to facilitating a transmission to the public of a sound recording under the BES statute.

[00:45:18] Speaker 01:
That's all one clause.

[00:45:20] Speaker 05:
I'm just saying, you want the soul to operate on where this ends up.

[00:45:25] Speaker 05:
On the entire rest of that sentence, yes.

[00:45:27] Speaker 01:
You want it to go where this ends up.

[00:45:30] Speaker 01:
It limits the entire remainder of the sentence.

[00:45:37] Speaker 07:
But if the sole purpose is facilitating a transmission, that just means it's an ephemeral recording.

[00:45:42] Speaker 07:
So the use of this definition of ephemeral recording under the limitation of BES means if you use the ephemeral recording for a BES transmission, you pay.

[00:45:55] Speaker 05:
In the way authorized by law.

[00:45:59] Speaker 01:
I'm not sure.

[00:46:01] Speaker 01:
It's solely for the purpose of a BES, of a transmission to a BES.

[00:46:04] Speaker 01:
That's what the- That's what Judge Millett is saying.

[00:46:06] Speaker 07:
You want to add an additional meaning of solely, because I read solely just to mean the use of it is for an ephemeral recording.

[00:46:13] Speaker 07:
It's used to facilitate the transmission.

[00:46:15] Speaker 07:
That's the sole purpose of it.

[00:46:16] Speaker 07:
But you're trying to say, and it has to go solely to a BES.

[00:46:22] Speaker 01:
I believe that's what the sentence says because it's one continuous sentence.

[00:46:26] Speaker 07:
But not if soul means my meaning of it.

[00:46:30] Speaker 07:
Soul modifies purpose here.

[00:46:33] Speaker 05:
That's just grammatical.

[00:46:34] Speaker 05:
Soul modifies purpose.

[00:46:35] Speaker 01:
Sure, but the purpose, in describing what the purpose is... Just trying to get it out so you can understand.

[00:46:42] Speaker 05:
There's two things that could be.

[00:46:43] Speaker 05:
The sole purpose could be to facilitate a transmission.

[00:46:47] Speaker 05:
to the public of a performance, definition of ephemeral recording, or you want it to be sole both as to the purpose of facilitating a transmission to the public and that transmission is solely for BES performance.

[00:47:06] Speaker 05:
Which by the way is solely, not sole.

[00:47:09] Speaker 01:
I think that because of the construction of the sentence, I just don't think you need that second solely.

[00:47:17] Speaker 05:
Can I haul you probably against your will back to jurisdiction?

[00:47:23] Speaker 05:
Sure.

[00:47:25] Speaker 05:
So to start, you made a point that somehow there is a determination, even when there's a settlement in royalty proceedings.

[00:47:34] Speaker 05:
I don't see that in 803.

[00:47:35] Speaker 05:
They just have to, you know, if it's royalty.

[00:47:40] Speaker 05:
notify people, have your period of voluntary negotiation, and the same for distribution.

[00:47:45] Speaker 05:
And the board only does anything more under four and five.

[00:47:50] Speaker 05:
Where is this requirement that if it's a voluntarily negotiated settlement involving royalty proceedings, then there will still be a determination by the board?

[00:48:05] Speaker 01:
Is that in the statute?

[00:48:08] Speaker 01:
I don't have the side off the top of my head, Your Honor.

[00:48:11] Speaker 01:
I do know I believe it's a distinction in your brace at all.

[00:48:15] Speaker 01:
Well, I think the reason for that is if you were to look at the actual in each of these proceedings, if you look on the docket of these proceedings that were reopened after the settlements.

[00:48:27] Speaker 01:
there was a final determination issued by the Copyright Royalty Board.

[00:48:30] Speaker 01:
This is not something I think that sound exchange or the board would dispute.

[00:48:34] Speaker 01:
If you look, there was in the federal register, there's a final determination and the judges recite, first they publish, there's a process for these.

[00:48:43] Speaker 05:
Are you saying that you're not aware of a statutory provision that says even after a voluntary settlement,

[00:48:53] Speaker 05:
No, I believe there is proceeding.

[00:48:55] Speaker 01:
Okay, I believe there is.

[00:48:56] Speaker 01:
I just can give me that on my bubble then.

[00:48:59] Speaker 01:
Okay.

[00:49:00] Speaker 01:
But I would also point out that it's it's it can couldn't possibly be disputed that in both of these proceedings and in all of the proceedings that have ever been settled.

[00:49:08] Speaker 01:
What the judges do is royalty and

[00:49:11] Speaker 01:
Oh, I don't not distribution.

[00:49:13] Speaker 01:
I'm just talking about excellent distinction but but for for rate making proceedings, the process is and I'm sure it's required by statute is that they the first the judges publish the settlement terms and there's a period of where people can the interested parties can comment.

[00:49:32] Speaker 01:
Okay.

[00:49:33] Speaker 01:
And then after the review for reasonableness that I discussed, they then issue a final

[00:49:40] Speaker 01:
the terms and implement those into the federal array.

[00:49:43] Speaker 01:
And both of the proceedings that were reopened, they were- Adopting and put it into the federal register.

[00:49:50] Speaker 01:
In a final, but what they issue and what they- Do they decide anything?

[00:49:55] Speaker 01:
Well, they decide that the terms are reasonable.

[00:49:57] Speaker 02:
Yeah.

[00:49:58] Speaker 02:
And they have authority to change them?

[00:49:59] Speaker 05:
Yes.

[00:50:03] Speaker 05:
And then the other thing that I'm a little confused about

[00:50:10] Speaker 05:
is what was reopened in here were two settlements.

[00:50:17] Speaker 05:
Was everyone who was a party to that settlement, those two settlements, everyone,

[00:50:25] Speaker 05:
notified of this proceeding.

[00:50:27] Speaker 01:
Yes, Your Honor.

[00:50:29] Speaker 01:
And technically, what was reopened were not settlements.

[00:50:32] Speaker 01:
What was reopened were the prior proceedings before the corporate royalty board.

[00:50:36] Speaker 05:
I understand, but they're changing.

[00:50:37] Speaker 05:
If they're going to change, as we can see, had someone said, when you all agreed into this agreement here,

[00:50:45] Speaker 05:
Did you know copyright holders that you were giving up this thing given this, as you read it, definition of gross proceedings?

[00:50:54] Speaker 05:
I would have thought there would have been a lot of very unhappy copyright holders in the proceeding.

[00:51:00] Speaker 01:
Um well, first of all, let me ask you a question directly.

[00:51:04] Speaker 01:
Yes, both when when sound exchange filed its motions to reopen the proceedings and every other filing that either party made during that process, they were all served on all of the participants to the original rate proceedings.

[00:51:20] Speaker 01:
So, that notice did go out.

[00:51:24] Speaker 01:
They all did have notice of it.

[00:51:25] Speaker 01:
Now, with respect to copyright owners, their interests are represented by sound exchange, so.

[00:51:31] Speaker 01:
Every single copyright owner.

[00:51:33] Speaker 01:
I don't want to speak to sound exchange, but you would, they were the only ones who participated in the prior proceedings on behalf of the copyright owners.

[00:51:42] Speaker 01:
So they would be the only ones who would have standing to participate.

[00:51:45] Speaker 07:
Would they have the notice and comment period?

[00:51:47] Speaker 07:
Do you typically not get comments from individual copy holders?

[00:51:51] Speaker 07:
They just trust sound exchange to handle that for settlements.

[00:51:55] Speaker 07:
You're talking about when a settlement, the whole process, I guess there are a lot of different.

[00:51:59] Speaker 07:
types of processes here and some require notice and comment.

[00:52:02] Speaker 07:
And during the notice and comment period, I'm just wondering if you typically do get input from individual copyright owners or do they just trust SoundExchange to represent them?

[00:52:10] Speaker 01:
Well, with respect to final determinations, I don't believe there is a notice and comment period.

[00:52:16] Speaker 01:
If you are a participant, you can object or you can appeal.

[00:52:20] Speaker 01:
Once it's final, the final determination is made, then participants who are aggrieved can appeal to this court.

[00:52:28] Speaker 01:
But there's no general notice to the public for comment.

[00:52:31] Speaker 07:
So for a usual determination, I was under the impression, maybe I misread something, that I thought when you're just doing a determination, not an amendment, just a determination.

[00:52:39] Speaker 07:
Is there like a notice in common?

[00:52:42] Speaker 01:
I don't I think that the law is that you have to be people can.

[00:52:48] Speaker 01:
I believe when there's a settlement, a proposed settlement that the judges are going to adopt, at that point, there's a publication and there's an opportunity for comment.

[00:52:58] Speaker 01:
But the corporate royalty board has held, I believe, that unless you were a participant, the objections really don't count for a whole lot.

[00:53:08] Speaker 01:
But with the final determination, it's not.

[00:53:10] Speaker 01:
It calls for petitions to participate, I guess.

[00:53:13] Speaker 01:
Correct.

[00:53:13] Speaker 01:
You have to be in, and you have to be in for the whole thing.

[00:53:17] Speaker 01:
in order to maintain the ability to appeal or have some sorts of objections.

[00:53:22] Speaker 07:
So I'm just trying to figure out what might have been missing from the process here if it were inadequate, like because if they're trying to amend a determination and we think an amendment has to deal to technical things and this went beyond that.

[00:53:40] Speaker 07:
What normally would have had to have happened?

[00:53:44] Speaker 07:
Like if it's not technical and it's so it's not an amendment, it's a determination.

[00:53:48] Speaker 07:
What would have had to have happened here to make a new determination as opposed to reopening an old determination?

[00:53:53] Speaker 01:
Yeah, I believe as long as all of the people who had filed notices and had actually participated all the way through.

[00:54:01] Speaker 01:
had notice, that's it.

[00:54:05] Speaker 01:
There's no general public right to participate in these proceedings if you don't file a notice.

[00:54:11] Speaker 07:
So if Judge Walton had certified this over to the copyright royalty board and instead of you

[00:54:17] Speaker 07:
Petitioning to reopen, you just said we would like a determination on this issue.

[00:54:21] Speaker 07:
What would have happened?

[00:54:22] Speaker 01:
They have no jurisdiction to do that.

[00:54:25] Speaker 01:
They can only institute a proceeding on the rulemaking side.

[00:54:29] Speaker 01:
There are several different statutory licenses.

[00:54:34] Speaker 01:
Each one comes up for renewal every five years.

[00:54:38] Speaker 01:
And that's the only way they come up?

[00:54:39] Speaker 07:
That is for an initial determination.

[00:54:41] Speaker 01:
There's another.

[00:54:42] Speaker 01:
There's one other way.

[00:54:43] Speaker 01:
Okay.

[00:54:43] Speaker 01:
And I think about it.

[00:54:44] Speaker 01:
If there's a new type of service that falls within a statutory category.

[00:54:50] Speaker 01:
then SoundExchange or the service can then ask the board to institute a new proceeding.

[00:54:57] Speaker 01:
But it's only that would be to set different rates and terms for a statutory license that there's never been a service like that.

[00:55:05] Speaker 07:
I see.

[00:55:06] Speaker 07:
I see.

[00:55:06] Speaker 07:
So the only game in town is an amendment to a prior determination based on the facts we have here.

[00:55:13] Speaker 07:
It's the only way you can sort of do something that's not on the five-year license clock.

[00:55:19] Speaker 01:
That is correct, Your Honor.

[00:55:20] Speaker 01:
The board does not have jurisdiction to just institute proceedings because it wants to, or even because parties ask them to.

[00:55:27] Speaker 01:
It has to be linked to the statute and these, particularly these licenses.

[00:55:31] Speaker 05:
Interesting.

[00:55:33] Speaker 05:
So C4 is the basis for them acting, for acting under C?

[00:55:38] Speaker 05:
Correct.

[00:55:41] Speaker 05:
How much money is at stake in your differing interpretations of that regulation?

[00:55:47] Speaker 01:
In the actual royalty, I'm sure it's tens of millions of dollars.

[00:55:53] Speaker 01:
Wow.

[00:55:54] Speaker 05:
Is that a technical or clerical correction?

[00:55:58] Speaker 01:
Well, I think it's technical.

[00:56:00] Speaker 01:
And the argument from the register is... No, I understand the register's argument here.

[00:56:05] Speaker 05:
Technical or clerical is a term that's used in statutes elsewhere.

[00:56:09] Speaker 05:
And it means, oops, misspelled word.

[00:56:14] Speaker 05:
doesn't mean a decision, a hotly contested decision between copyright holders and users of their music that will determine where tens of millions of dollars go or don't go.

[00:56:29] Speaker 05:
And what possible dictionary definition can you give me that would fall within that?

[00:56:36] Speaker 01:
Well, Your Honor, I would say first seems like it's unsettling a settlement agreement.

[00:56:40] Speaker 01:
I don't think whether the error is clerical or technical clerical.

[00:56:45] Speaker 01:
Well, what's technical about it?

[00:56:49] Speaker 01:
Well, I think that the argument would have to be that there's an ambiguity that by by implementing a regulation that was ambiguous, that amounted to either a clerical or a technical error.

[00:57:01] Speaker 05:
Right.

[00:57:01] Speaker 05:
We would have to hold.

[00:57:03] Speaker 05:
that this substantial dispute on the meaning of determining what royalties are to be paid, right?

[00:57:12] Speaker 05:
This is tens of millions of dollars in royalties that you would or would not have to pay, correct?

[00:57:17] Speaker 01:
Yes, I would say.

[00:57:18] Speaker 05:
And if they normally, I mean, they can do technical errors, clerical records, or modified terms, but not the rates of royalties.

[00:57:26] Speaker 05:
Correct.

[00:57:26] Speaker 05:
Payments.

[00:57:27] Speaker 05:
Isn't this directly resolving an issue about the rate of royalty payments?

[00:57:34] Speaker 01:
But it's not modifying.

[00:57:36] Speaker 01:
It's saying what the regulation was supposed to mean.

[00:57:39] Speaker 05:
Is that a technical or clerical?

[00:57:43] Speaker 05:
That's not clerical.

[00:57:44] Speaker 05:
I don't see how that's technical.

[00:57:46] Speaker 05:
in the way that that is used in other statutes or court rules?

[00:57:52] Speaker 05:
Do you have any definition where something that is a substantive dispute about royalties that are owed or not under this statute would qualify as technical?

[00:58:05] Speaker 01:
Whether the board introduced an ambiguity into the regulations or allowed an- No, they didn't introduce an ambiguity.

[00:58:11] Speaker 05:
The parties here

[00:58:13] Speaker 05:
chose to carry this regulation, with all its baggage or not, into a settlement agreement.

[00:58:23] Speaker 05:
And we're going to—I'm just asking you for any natural meaning of—and it's clerical or technical, those errors.

[00:58:29] Speaker 05:
That's a category, and that's a category that's different than modifying the terms.

[00:58:34] Speaker 01:
Your Honor,

[00:58:36] Speaker 01:
It could only be, and the reason that my husband's, I'm not trying to be difficult, in candor to the court, music choice made the argument to the district court that this was, there was no jurisdiction for the copper early board to issue these types of records.

[00:58:49] Speaker 05:
Yeah, this doesn't fall within C4 at all, right?

[00:58:51] Speaker 01:
I'm agreeing with you.

[00:58:52] Speaker 01:
I understand, but we lost that, and now we're five years later.

[00:58:55] Speaker 01:
You lost it before them, not before us.

[00:58:57] Speaker 01:
Understood, Your Honor.

[00:58:58] Speaker 02:
Understood, Your Honor.

[00:58:58] Speaker 02:
Sorry, can you clarify one thing?

[00:59:00] Speaker 02:
You never argued that 803C4's technical or clerical authority does not encompass the ability to clarify regulations, right?

[00:59:08] Speaker 02:
You made other objections to 803C4.

[00:59:11] Speaker 01:
We argued that before Judge Walton.

[00:59:14] Speaker 01:
We did not argue that before the Copyright Royalty Board because there was the register's ruling, which was binding on the Copyright Royalty Board that came out the other way.

[00:59:22] Speaker 02:
Judge Walton, did you argue that register is wrong and you can't, they have no authority to clarify any regulation under 803C4?

[00:59:32] Speaker 01:
My recollection is we didn't specifically say the register was wrong.

[00:59:36] Speaker 01:
We just went straight to C4 and said, this is not a technical correction.

[00:59:41] Speaker 01:
We made other arguments as to why it wasn't appropriate for a referral, but we did argue that.

[00:59:47] Speaker 05:
That it's not a technical correction because technical correction in the statute means what in your view?

[00:59:52] Speaker 05:
Right.

[00:59:52] Speaker 05:
It means what in your view?

[00:59:54] Speaker 01:
Well, in that technical correction or a clerical, we didn't really say what it would mean, but we said that just resolving an ambiguity where parties have differing views of what the regulation means was not a technical correction.

[01:00:09] Speaker 01:
Admittedly, we didn't spend a lot of time on it in the brief, but we certainly made the argument.

[01:00:13] Speaker 07:
So it seems to me then the upshot is,

[01:00:16] Speaker 07:
The copyright royalty board attempted to, well, purported to reopen a determination to resolve a question.

[01:00:25] Speaker 07:
But under the provision for reopening, C4, it was only allowed to do technical, make technical corrections.

[01:00:36] Speaker 07:
And so it exceeded its authority to do that.

[01:00:39] Speaker 07:
And so if that's what we think, then we have jurisdiction because they purported to

[01:00:45] Speaker 07:
amend.

[01:00:46] Speaker 07:
That's what's before us.

[01:00:47] Speaker 07:
But we vacated because it wasn't technical.

[01:00:51] Speaker 07:
And I don't even think a remand is

[01:00:53] Speaker 07:
appropriate, is it?

[01:00:55] Speaker 07:
If we think there's no way you can do this under C-4, and C-4 is the only game in town, then it seems like there's not even a point to remand it.

[01:01:02] Speaker 07:
We just vacate.

[01:01:03] Speaker 07:
And then you go back to Judge Walton and say, you resolve this.

[01:01:07] Speaker 07:
Is that what happens?

[01:01:08] Speaker 01:
Your Honor, I agree with you.

[01:01:09] Speaker 01:
I agree with you.

[01:01:10] Speaker 01:
If Your Honors find that the CRB didn't have jurisdiction under the first part of C-4, then you would have to vacate.

[01:01:18] Speaker 01:
Under any part of C-4, honestly.

[01:01:19] Speaker 01:
Well, yes, because I think the second part is a non-starter.

[01:01:23] Speaker 01:
because of unforeseen future occurrences that frustrate, if you look at the legislative history of that provision, the example they gave was if sound exchange, if the collective that had been designated to collect royalties went out of business in the middle of a rate period, could the copper royalty board, you know, change the collective?

[01:01:45] Speaker 01:
Like actually that would be a substantive amendment changing what the regulation is.

[01:01:50] Speaker 01:
right?

[01:01:50] Speaker 01:
And they need to be able to do that in exception.

[01:01:52] Speaker 02:
Why didn't you argue this in your brief?

[01:01:56] Speaker 02:
If you disagree that it doesn't go to our jurisdiction, it actually sounds like a straightforward ground on which you would argue this exceeded the board's authority under 803C4.

[01:02:06] Speaker 02:
And the normal response we would give was, well, you didn't exhaust that before the agency and you forfeited it on appeal.

[01:02:13] Speaker 02:
So why is that not the way to think about it?

[01:02:15] Speaker 01:
Well, your honor, for a number of reasons.

[01:02:17] Speaker 01:
Number one, there is the registers ruling.

[01:02:19] Speaker 01:
And I do think that is music choice just didn't take a position because frankly, to be again candid, we're now five years down the road music choice is a tiny company in Horsham, Pennsylvania.

[01:02:31] Speaker 01:
We didn't want any of this happened to begin with.

[01:02:33] Speaker 01:
But now that we've gone through it, we wanted to get a resolution.

[01:02:37] Speaker 01:
So we didn't

[01:02:38] Speaker 01:
You know, and there is an, I mean, the register's decision, you can, I would understand if the court disagrees with it, but it's not like it wasn't based on anything.

[01:02:49] Speaker 01:
It was an interpretation of what the register thought.

[01:02:52] Speaker 01:
Now, whether under Skidmore, the court finds that persuasive or not, it's certainly the register of copyrights talking about a technical provision of the Copyright Act.

[01:03:03] Speaker 02:
So I appreciate that.

[01:03:05] Speaker 02:
And just one last question about the practical.

[01:03:08] Speaker 02:
We have all these strange jurisdictional questions.

[01:03:10] Speaker 02:
And I'm not sure how this connects technically.

[01:03:13] Speaker 02:
But in a practical way, we're just reviewing an interlocutory order.

[01:03:17] Speaker 02:
There's an ongoing district court proceeding.

[01:03:20] Speaker 02:
And it's very odd that we're here.

[01:03:23] Speaker 02:
And I think the practical way of asking the question is, you chose to appeal now.

[01:03:28] Speaker 02:
You also could have just gone back to the district court.

[01:03:31] Speaker 02:
I suppose there would have been a judgment entered against you, and you would have appealed to us then.

[01:03:36] Speaker 02:
What is lost if you have to do the latter thing?

[01:03:40] Speaker 01:
Well, a couple of things.

[01:03:42] Speaker 01:
That process would take—it's not just that we go back there and the case is over, right?

[01:03:47] Speaker 01:
The case never got started.

[01:03:49] Speaker 01:
So at that point, assuming and Judge Walton indicated he felt like our deference should be paid to this, we disagree with that for a number of reasons.

[01:03:59] Speaker 01:
But he already indicated he was inclined to go with whatever the board said.

[01:04:04] Speaker 01:
But then we would be, there are other disputes in the case and damages and everything else.

[01:04:11] Speaker 05:
So you're talking about another- Those are there either.

[01:04:14] Speaker 05:
You got to deal with those regardless.

[01:04:16] Speaker 01:
Well, not if we prevailed on this appeal.

[01:04:19] Speaker 02:
I mean, it would be likely if... Well, if you're listening to the first argument, you're asking for a ruling to guide further proceedings on remand in the district court.

[01:04:28] Speaker 02:
It's just a little bit odd.

[01:04:29] Speaker 01:
Yeah.

[01:04:29] Speaker 01:
I mean, I think the bottom line is that this decision, if it stands as a determination, an amended determination, the Copper Royalty Board also has independent legal significance other than in connection with our district court litigation.

[01:04:44] Speaker 01:
Because in the next BES proceeding, which is going to start in two years, this court is held that to the extent a court wants to change

[01:04:53] Speaker 01:
regulations.

[01:04:54] Speaker 01:
They have to support that.

[01:04:55] Speaker 01:
There has to be more of a showing than if they're writing on a blank slate.

[01:04:59] Speaker 01:
Like what is motivating the change, especially if the parties have relied on that for a number of years, right?

[01:05:05] Speaker 01:
So having this final determination about the meaning of this regulation will change.

[01:05:11] Speaker 05:
Well, it's going to change either way, but someone's going to be unhappy.

[01:05:16] Speaker 05:
You're going to have a new interpretation.

[01:05:20] Speaker 05:
And quite frankly, the district court could have just asked for it.

[01:05:22] Speaker 05:
Maybe, I guess, we'll hear what the government says, an amicus brief from, I don't know whether it's the register or the Library of Congress or the royalty board, but somebody on what this means.

[01:05:32] Speaker 05:
He can read what they did.

[01:05:33] Speaker 05:
But the question is, if there's going to be a decision, there's going to be a decision.

[01:05:39] Speaker 05:
Well, I was not the time to I should have thought you would want to go back and make sure make your legal arguments in the district court.

[01:05:46] Speaker 05:
But this is jurisdictionally baseless.

[01:05:49] Speaker 01:
The government seems to be well, I mean, I agree.

[01:05:54] Speaker 01:
I mean, the music choice was trying to get the issue, the key issue resolved.

[01:06:00] Speaker 01:
And the quickest way, having taken this detour, was this.

[01:06:04] Speaker 01:
If it was an amended determination, which is the only thing it could have been, if they had jurisdiction to do what they do, it could only be a determination.

[01:06:12] Speaker 01:
And it would be subject to appeal in this court.

[01:06:14] Speaker 01:
So.

[01:06:18] Speaker 05:
OK.

[01:06:18] Speaker 05:
Questions?

[01:06:20] Speaker 05:
All right.

[01:06:20] Speaker 05:
Thank you.

[01:06:21] Speaker 05:
Thank you, Your Honor.

[01:06:22] Speaker 05:
The government now.

[01:06:39] Speaker 04:
Good morning, Your Honors.

[01:06:40] Speaker 04:
May it please the court, Amanda Mundell on behalf of the government.

[01:06:43] Speaker 04:
I want to pick up right where the court left off with a colloquy with my friend on the other side.

[01:06:48] Speaker 04:
And this somewhat extraordinary claim that an agency simply has no authority to offer a non-binding interpretation of its own regulations.

[01:06:59] Speaker 04:
And instead, there needs to be some sort of express statutory grant of authority to do that.

[01:07:03] Speaker 04:
That is quite extraordinary.

[01:07:05] Speaker 04:
Agencies have always been understood to possess a measure of authority to issue, again, non-binding interpretive guidance, which is exactly what the copyright royalty judges did here.

[01:07:14] Speaker 04:
What is the source of that authority?

[01:07:16] Speaker 04:
I'm sorry, Your Honor?

[01:07:17] Speaker 05:
What is the source of that authority?

[01:07:18] Speaker 04:
It's inherent authority.

[01:07:20] Speaker 04:
And the district court actually recognized that in its opinion, referring the matter to the court.

[01:07:24] Speaker 05:
You've got an agency here where Congress has been very, very specific about what their role is and is not.

[01:07:31] Speaker 05:
Make determinations.

[01:07:34] Speaker 05:
if people don't work it out themselves.

[01:07:37] Speaker 05:
That's it.

[01:07:39] Speaker 05:
The only authority even to make regulations are all procedural ones for conducting their determinations.

[01:07:46] Speaker 05:
So anything that they decide about how they interpret some term or something has got to be done either through a determination and a contested dispute or adopted by the parties in a settlement agreement.

[01:07:58] Speaker 05:
There's just no other

[01:08:00] Speaker 04:
Rob?

[01:08:01] Speaker 04:
Your honor, respectfully, I disagree with that.

[01:08:03] Speaker 04:
Now, if the board were taking some sort of regulatory action, issuing a regulation, making a determination, things to that effect, of course, we agree there'd have to be some sort of statutory grant of authority unless some other independent basis gave the board that authority.

[01:08:16] Speaker 04:
But that's not what the board did here.

[01:08:18] Speaker 05:
What is your best case for this inherent authority to provide opinions?

[01:08:23] Speaker 04:
Well, Your Honor, I don't think there really is a case that has grappled with this background principle.

[01:08:29] Speaker 05:
Well, you were shocked that we hadn't recognized this inherent authority, but there's no case recognizing it.

[01:08:36] Speaker 04:
Your Honor, I think cases like Auer and Kaiser, of course, recognize an agency's authority to interpret its own regulations.

[01:08:45] Speaker 05:
There's other cases that are- It wasn't the board's regulation.

[01:08:47] Speaker 05:
This was the Register's.

[01:08:49] Speaker 05:
regulation.

[01:08:50] Speaker 05:
She's the one that put all this, she or he put all this language in to this gross proceeds definition.

[01:08:56] Speaker 04:
I think the librarian might've introduced that language and this was all... It's a weird procedure.

[01:09:01] Speaker 05:
Okay.

[01:09:01] Speaker 05:
There are a number of players.

[01:09:02] Speaker 05:
And the Library of Congress is or is not even in the executive branch.

[01:09:06] Speaker 05:
That's a whole other thing we don't want to go to today.

[01:09:08] Speaker 05:
It's been indicated in other contexts.

[01:09:11] Speaker 05:
And so does the Library of Congress have the inherent authority to provide

[01:09:17] Speaker 05:
an interpretation, Your Honor?

[01:09:19] Speaker 05:
An interpretation of regulation to the district court?

[01:09:20] Speaker 04:
Well, I don't think the librarian's the one providing this interpretation here.

[01:09:24] Speaker 04:
And in fact, the librarian added that language in part and parcel of the predecessor agency's regulation to the board.

[01:09:32] Speaker 04:
And so really, what we have to think about is this regulation originated with the CARP, which was the predecessor agency.

[01:09:38] Speaker 04:
And now the board, which has inherited all of the CARP's authority, is issuing a ruling on regulatory interpretation.

[01:09:47] Speaker 04:
And the court asked me for a case about this inherent authority.

[01:09:50] Speaker 04:
I don't have a specific case that grapples with this principle.

[01:09:54] Speaker 04:
There are cases that get at this, though, in other contexts.

[01:09:58] Speaker 04:
I could point the court to Barr versus Mateo, which is 360 US, 564.

[01:10:03] Speaker 04:
And that doesn't deal with an agency.

[01:10:05] Speaker 04:
It dealt with Bill Barr's inherent authority to issue a press release on matters connected with his duties when he was an acting director.

[01:10:14] Speaker 07:
That seems a lot more obvious than what happened in this case.

[01:10:17] Speaker 07:
That an attorney general can issue a press release is very different from what happened in this case.

[01:10:22] Speaker 04:
I don't think it's any less obvious than here.

[01:10:24] Speaker 07:
I'm just very surprised that you would get up and start with there's some kind of inherent authority to do this when it seems clear that what the board thought it was doing was reopening a determination.

[01:10:32] Speaker 07:
It reopened a determination and was trying to amend a determination.

[01:10:36] Speaker 07:
So why aren't you just relying on what the board actually thought it was doing?

[01:10:40] Speaker 04:
Well, Your Honor, and I think some of the call we pointed this out, the board didn't actually say that it was proceeding under 803C4.

[01:10:47] Speaker 04:
It referenced the register's opinion that the board has authority to issue rulings on regulatory interpretation under 803C4.

[01:10:55] Speaker 07:
Which was relying on C4, like that note six.

[01:10:57] Speaker 04:
That's true.

[01:10:57] Speaker 07:
Ultimately is relying on C4.

[01:10:59] Speaker 05:
But I think 803C4's language matters here.

[01:11:01] Speaker 05:
Did the register just claim inherent authority?

[01:11:04] Speaker 05:
at that time and say, you've got to go under C-4?

[01:11:07] Speaker 05:
I'm sorry.

[01:11:07] Speaker 05:
Can you see the register in that decision, disclaim inherent authority and say instead the board can only act under 803 C-4?

[01:11:13] Speaker 04:
I don't think so, Your Honor.

[01:11:14] Speaker 04:
I have that decision with me.

[01:11:15] Speaker 04:
I don't see that expressed disclaimer.

[01:11:18] Speaker 04:
And in fact, the register even didn't bother to grapple with other possible sources of authority like the APA.

[01:11:23] Speaker 04:
So it was simply focused on if you're going to issue an amendment that clarifies a regulation, you can do it under 803 C-4.

[01:11:29] Speaker 02:
to build on these questions, right?

[01:11:31] Speaker 02:
Normally, when there's a question about the source of an agency's authority, we expect the agency to identify that authority and we apply the Channery Rule to what authority and regardless of how you read note three and note six, which think like, you know, if that's all we have, it seems to tilt towards they thought they were doing 803C4.

[01:11:51] Speaker 02:
I don't think there's anywhere that they say something like we are relying on our inherent authority to respond to.

[01:11:57] Speaker 02:
give an advisory opinion under the doctrine of primary jurisdiction, right?

[01:12:01] Speaker 04:
And of course, it's not surprising that the judges didn't say that because neither party suggested that the judges couldn't respond to this.

[01:12:08] Speaker 02:
But I think that's right.

[01:12:09] Speaker 02:
So if you think about it in a channery way, the only authority anyone ever mentioned was 803C4.

[01:12:14] Speaker 02:
We've got some footnotes that gesture at 803C4.

[01:12:18] Speaker 02:
And the natural conclusion would be that's the only authority the board thought it was invoking.

[01:12:24] Speaker 04:
And again, Your Honor, I think that even if the board thought that 803C4 allowed it to reopen proceedings, the question is, what did it do once it reopened those proceedings?

[01:12:34] Speaker 04:
All it did was issue an advisory opinion.

[01:12:36] Speaker 04:
It didn't make an amendment.

[01:12:36] Speaker 07:
But the point is, if it had this inherent authority, why wouldn't it just said so instead of gesturing at C4?

[01:12:40] Speaker 07:
Since it's as obvious as you think it is, why didn't the board think so?

[01:12:44] Speaker 07:
Your honor, I don't know if the board thought it was obvious or not.

[01:12:47] Speaker 04:
It's not in the decision.

[01:12:48] Speaker 07:
They wouldn't have had to gesture at C4 if they had obviously this inherent authority to do what you said that they could do.

[01:12:54] Speaker 04:
Respectfully, your honor, I think this is the sort of conduct that when a district court asks an agency for an answer, what is the agency supposed to do?

[01:13:03] Speaker 04:
The agency gives the court an answer.

[01:13:04] Speaker 04:
And it's not the kind of thing that- That's not really the issue.

[01:13:07] Speaker 07:
The issue is it gave an answer, but it proceeded under C4.

[01:13:11] Speaker 07:
And again, your honor, I think it didn't say I haven't inherent authority to answer the district court.

[01:13:16] Speaker 07:
And here's my advisory opinion.

[01:13:18] Speaker 07:
It's that it went to the trouble of reopening to prior determinations and presumably or purportedly amending them.

[01:13:26] Speaker 04:
And I have a couple of responses to that, Your Honor.

[01:13:28] Speaker 04:
I just want to pick up on the reopening aspect because it's come up a couple of times.

[01:13:33] Speaker 04:
Simply as a ministerial matter, there had to be some place on the docket to answer this question.

[01:13:39] Speaker 07:
That's why the board... Not according to you.

[01:13:41] Speaker 07:
According to you, they have inherent authority just to answer the question.

[01:13:44] Speaker 07:
They didn't need to go to the docket at all, according to you.

[01:13:47] Speaker 04:
My understanding is that in order to...

[01:13:50] Speaker 04:
issue that ruling in some way, it has to do it on a docket.

[01:13:54] Speaker 07:
That's my understanding.

[01:13:55] Speaker 07:
Why would they have to do that if they have inherent authority to ensure advisory opinions?

[01:13:58] Speaker 04:
Your Honor, I think there might have been a manner where the board could have answered this question in a different way.

[01:14:03] Speaker 04:
Perhaps the parties could have asked for the board or the librarian to offer a statement of interest in district court.

[01:14:09] Speaker 04:
But the way that this all came about was that sound exchange moved to reopen the proceedings.

[01:14:13] Speaker 04:
There is an opposition to reopen one versus three, and at the end of the day, the board determined that it would reopen the proceedings solely for the limited purpose of answering the district court's question, not to amend any regulation or modify the text of a regulation, which of course this- This doesn't fall under, what they did does not qualify under C4.

[01:14:29] Speaker 04:
I don't think so, Your Honor.

[01:14:31] Speaker 05:
They're not allowed to do this under C4.

[01:14:32] Speaker 05:
Well, 803 C4 just isn't relevant to what happened.

[01:14:36] Speaker 05:
So you just said they didn't amend, they didn't modify, they didn't correct an error.

[01:14:40] Speaker 04:
I would say that 803 C4 is just not, it's ill-suited and it's not relevant to what they did.

[01:14:46] Speaker 05:
I would like to know whether the government thinks that what they did here does fall under C4 or any part of C.

[01:14:54] Speaker 07:
No, I don't think so, Your Honor, because there's no amendment and no modification.

[01:14:57] Speaker 07:
Nothing changed.

[01:14:58] Speaker 07:
So you're disavowing the register's memorandum opinion that says that they can do this as a technical clarification.

[01:15:05] Speaker 07:
So you agree that that

[01:15:07] Speaker 07:
is not permissible.

[01:15:09] Speaker 04:
No, Your Honor.

[01:15:10] Speaker 04:
And I want to be specific about what the question here is.

[01:15:13] Speaker 04:
There may be circumstances where the board uses 803C4 to issue a technical amendment.

[01:15:18] Speaker 04:
There may be times when in issuing that technical amendment, the board is construing a regulation to do so.

[01:15:23] Speaker 04:
It just so happens that here, the board's answer to the district court question has nothing to do with an amendment.

[01:15:28] Speaker 04:
It doesn't change the text, the regulation.

[01:15:30] Speaker 04:
It doesn't add a word or take anything away.

[01:15:33] Speaker 07:
The board thought it was amending its regulation.

[01:15:35] Speaker 07:
It's gesturing at C4.

[01:15:37] Speaker 07:
got authority that says it can do this.

[01:15:40] Speaker 07:
This registers a memorandum of opinion that says that it is a technical amendment to clarify an ambiguity.

[01:15:47] Speaker 07:
You're coming in and sort of saying, no, no, that's not what they were trying to do.

[01:15:51] Speaker 07:
But the record shows that they thought that they were reopening and amending, which they thought they had authority to do based on this memorandum of opinion, which is cited in J.A.

[01:16:01] Speaker 07:
115, note six.

[01:16:03] Speaker 07:
And so I'm asking you, if that's what they thought they were doing, are you agreeing that they could not do that and that this registers a memorandum of opinion is incorrect, false, cannot be relied upon?

[01:16:15] Speaker 04:
We haven't taken a position on whether the register's opinion is false or unreliable.

[01:16:20] Speaker 07:
I think you just have, by answering Judge Millett's question and saying that C4 doesn't allow them to do that, because that's exactly what that memorandum says.

[01:16:27] Speaker 04:
Your Honor, I'm talking about this case specifically.

[01:16:29] Speaker 04:
There may be other cases where that register's opinion actually makes a lot of sense for what the board is trying to do.

[01:16:35] Speaker 04:
And here, even though the board gestures to 803 C4, I think this court still has to take a hard look on what the board actually issued.

[01:16:43] Speaker 04:
And here, the board didn't issue an amendment.

[01:16:46] Speaker 04:
It didn't issue a modification.

[01:16:48] Speaker 02:
That's not what the register's ruling says you can do.

[01:16:51] Speaker 02:
It says you can clarify.

[01:16:52] Speaker 02:
Give your position on what an existing regulation means.

[01:16:55] Speaker 02:
Of course, it didn't give an amendment.

[01:16:57] Speaker 02:
It issued what it calls a ruling on regulatory interpretation.

[01:17:00] Speaker 02:
It published it in the Federal Register.

[01:17:03] Speaker 02:
Isn't that exactly what the guidance, what the register's ruling envisions you would do in this situation?

[01:17:09] Speaker 04:
Your Honor, I think the register's ruling envisions some sort of technical or clerical correction.

[01:17:14] Speaker 04:
I would have to go back to that particular instance, because it entailed a provision about whether an exclusion included or didn't include certain things.

[01:17:21] Speaker 04:
And the regulatory text has since changed.

[01:17:24] Speaker 04:
So it's very possible that in response to that register's opinion, all of that work then resulted in some sort of change to the regulation that, of course, is different here.

[01:17:33] Speaker 04:
I'm not steeped in that instance, so I don't want to express a clear view on that.

[01:17:37] Speaker 05:
But I think even sounds like, so, I mean, this is why the Department of justice represents agencies to express the views of the United States.

[01:17:44] Speaker 05:
And so looked at what happened here and have concluded that it is not at least in this case, as it's occur as it's risen in this context and what they decided.

[01:17:55] Speaker 05:
There is no authority under statutory authority under subsection C to have made the decision they made here.

[01:18:02] Speaker 05:
And so you are offering another legal source of authority for their actions.

[01:18:08] Speaker 05:
Is that how I should understand what you're saying in this case?

[01:18:11] Speaker 04:
I think, correct your honor, I just want to make sure I'm clear, 803C4, the agency didn't need to invoke 803C4 to accomplish what it did here, which is just issue a non-binary response.

[01:18:22] Speaker 05:
It's a very different response.

[01:18:22] Speaker 05:
Mine is that I thought you had answered me directly.

[01:18:25] Speaker 05:
What they did here does not fall, does not qualify under C4.

[01:18:30] Speaker 05:
Yes, I think that's correct.

[01:18:32] Speaker 05:
And then when you talk about the inherent authority, I think another thing that's just very unusual

[01:18:40] Speaker 05:
decide that they didn't invoke it.

[01:18:42] Speaker 05:
There may be a good reason Congress really channeled what they're doing because usually when an agency, they promulgate, they have a power to promulgate substantive regulations freestanding just to administer their program.

[01:18:56] Speaker 05:
Here they only have authority to promulgate procedural regulations.

[01:19:01] Speaker 05:
And then as it turns out, they make decisions that then get labeled regulations in the course of, they could do that in the course of a determination, a contested determination.

[01:19:12] Speaker 05:
Or parties could say,

[01:19:16] Speaker 05:
But we like, I guess, I guess it's originated in this gross force.

[01:19:20] Speaker 05:
They didn't say originated and originated and they disputed such case 2002, if I have that right.

[01:19:26] Speaker 05:
Anyhow, you've got a regulation to go, well, we're going to put that into our settlement agreement.

[01:19:32] Speaker 05:
Are you aware of any case where an agency has the inherent authority to interpret a substantive dispute in a settlement agreement?

[01:19:46] Speaker 05:
Uh, because you have the consequence of that is, is be very unsettling to a settlement agreement, one side or the other.

[01:19:55] Speaker 05:
And isn't that what's where this, why this becomes very complicated?

[01:20:00] Speaker 04:
I'm not, I'm not aware of a case off the top of my head, your honor.

[01:20:02] Speaker 04:
or something analogous, but I actually don't think that the settlement overlay is relevant to this dispute because the regulation arose not because of negotiated language between parties, but because the predecessor agency, the CARP, needed to craft a regulation and the librarian added some language to it.

[01:20:22] Speaker 05:
So it's not as if... Yes, but they only reopened

[01:20:25] Speaker 05:
two of the three proceedings, and then it did not include the original one.

[01:20:29] Speaker 05:
This was adopted in a contested proceeding.

[01:20:32] Speaker 05:
They reopened two proceedings that were not the formal determinations under the statute.

[01:20:38] Speaker 05:
They were just settlement, negotiated resolutions of royalty rates, at which point parties chose to incorporate that pre-existing regulatory language

[01:20:53] Speaker 05:
and it seems to be quite a different thing for an agency to step in, reopen an approved settlement and say what the meaning of terms in that settlement agreement mean.

[01:21:09] Speaker 05:
If you say they're just clarifying, to clarify what a term, a substantive term, this is the rate they have to pay in a settlement agreement,

[01:21:19] Speaker 04:
is.

[01:21:20] Speaker 04:
And I take the court's point that if that was what was going on here, reopening a settlement agreement, clarifying terms in a settlement agreement, that might look a little different from what we typically see agencies do.

[01:21:31] Speaker 04:
I'm not exactly sure that that's what's going on here.

[01:21:33] Speaker 04:
I agree with my friend on the other side that the board's not really reopening an agreement.

[01:21:38] Speaker 04:
It's reopening a proceeding that resulted in a determination that flowed from

[01:21:42] Speaker 04:
a settled understanding between the parties of what a percentage rate ought to be.

[01:21:46] Speaker 04:
And it's true that that, of course, referenced and incorporated the regulation.

[01:21:50] Speaker 04:
But I think the board here was interpreting a regulation, not really trying to interpret terms in a settlement agreement, even though they may have been referenced.

[01:21:58] Speaker 05:
And we have said that when the board adopts a settlement agreement, that is not a subsection C determination.

[01:22:07] Speaker 05:
They want to say it's different for distributions and royalties.

[01:22:09] Speaker 05:
We can debate that.

[01:22:10] Speaker 05:
But it's not a subsection C. So they're outside their subsection C bailiwick altogether.

[01:22:17] Speaker 04:
And that might be true.

[01:22:18] Speaker 04:
I confess, I don't know if that's right.

[01:22:22] Speaker 04:
I'd have to think about that a little more and look a little more closely at the text.

[01:22:25] Speaker 04:
But I think the upshot of this, Your Honor, is that even if the court thinks that the board didn't

[01:22:32] Speaker 04:
couldn't reopen a proceeding to clarify a term in a settlement agreement.

[01:22:35] Speaker 04:
I think that only underscores why what the board here did is just non-binding guidance, that the district court can take from it what it wants, that this proceeding actually belongs in district court, where the district court will make a final determination as the meaning of this regulatory language.

[01:22:52] Speaker 04:
And then the party who is unhappy with that result on final judgment can appeal to this court or even seek a 1292

[01:22:59] Speaker 04:
B and move things along a little more closely.

[01:23:02] Speaker 04:
So I think no matter how you slice it, whether the court doesn't think this is an inherent authority thing.

[01:23:08] Speaker 05:
Are you saying they can bring this up on 1292B when our jurisdiction is limited to proceedings under C?

[01:23:14] Speaker 04:
No, no.

[01:23:14] Speaker 04:
I'm talking about appellate jurisdiction from a district court determination.

[01:23:18] Speaker 04:
And I think this underscores why this court lacks jurisdiction in the first instance to review the challenge here.

[01:23:26] Speaker 05:
You have I said one other question.

[01:23:31] Speaker 05:
How does primary jurisdiction still work in a Kaiser Loper bright work world?

[01:23:36] Speaker 05:
Does the government have a view on that?

[01:23:38] Speaker 04:
We haven't taken a position on that in this case.

[01:23:42] Speaker 05:
We taking it anywhere?

[01:23:43] Speaker 04:
I don't know, Your Honor.

[01:23:45] Speaker 04:
I don't want to speak for other matters that our office is handling that may or may not take that position.

[01:23:50] Speaker 04:
I don't see the parties really disagreeing that the district court could refer a matter to the board for ruling on regulatory interpretation.

[01:23:58] Speaker 04:
I think the parties maybe just disagree on what the impact of that referral was in this case.

[01:24:03] Speaker 04:
So that's why we haven't taken a position on the primary jurisdiction question.

[01:24:07] Speaker 02:
Just one clarifying question going back to the discussion earlier, page 21 of your brief says the judges have continuing jurisdiction to correct technical errors in the board's regulations, including clarify their scope, citing this registered termination.

[01:24:21] Speaker 02:
But that was not the authority they exercised here.

[01:24:23] Speaker 02:
Is that the same or different than what you're saying today?

[01:24:26] Speaker 04:
I think that's the same, Your Honor.

[01:24:28] Speaker 04:
I think, you know, we're not trying to disclaim what the Register has said in that 2015 opinion and whether the judges have authority under either 3C4 to issue technical corrections and to, you know, clarify the scope and connection with that opinion.

[01:24:40] Speaker 04:
That's just not.

[01:24:41] Speaker 04:
really what they did here.

[01:24:43] Speaker 04:
There's no change or modification to the regulatory tax.

[01:24:47] Speaker 04:
Instead, I think this court could consider what the board did akin to submitting an amicus brief.

[01:24:53] Speaker 04:
There's just no final action.

[01:24:55] Speaker 04:
There's no impact on the parties.

[01:24:57] Speaker 04:
District court gets to decide how much weight to give this at the end of the day when it goes back to district court.

[01:25:03] Speaker 04:
I know we've been talking a lot about jurisdiction.

[01:25:06] Speaker 04:
I was hoping I might have a little bit of time to respond to some of the other statements that have been made earlier, although I see that my time has expired.

[01:25:12] Speaker 07:
Before you do that, I wonder if you could comment.

[01:25:15] Speaker 07:
We have a case Johnson versus copyright royalty board from 2020.

[01:25:19] Speaker 07:
And in that case, we rejected, quote, vacillating gestures to uninvoked authority.

[01:25:25] Speaker 07:
And we vacated the copyright judge's action and we said,

[01:25:30] Speaker 07:
And this is a quote, the board has considerable freedom to determine its own procedures, but that flexibility must be exercised within the lines drawn by the authorizing statute.

[01:25:40] Speaker 07:
Congress's decision to limit rehearing to exceptional cases and to confine other post-hoc amendments to cases involving technical or clerical errors would be a nullity if the board also had plenary authority to revise its determinations whenever it thought appropriate.

[01:25:54] Speaker 07:
How does that fit in with you coming in and saying that the court has inherited authority to do what I think this case says it can't do?

[01:26:01] Speaker 04:
We disagree that the board is revising anything.

[01:26:05] Speaker 04:
I think that's the big distinction between Johnson and this.

[01:26:08] Speaker 04:
There's simply no change.

[01:26:09] Speaker 04:
And in fact, music choice doesn't identify a change.

[01:26:11] Speaker 04:
I think it's pretty telling that at the end of the day, music choice is still going to have to go before the district court, just like sound exchange, and hash out whether the board's interpretation is right or wrong.

[01:26:21] Speaker 04:
There's actually nothing that happens as a result of this interpretation.

[01:26:24] Speaker 07:
But I guess there's the statutory authority to do this if it's not within the context of

[01:26:30] Speaker 07:
the procedures that are permitted under C4.

[01:26:33] Speaker 07:
Your honor, I don't think there's I don't stay within the statutory lines.

[01:26:37] Speaker 04:
I think, again, and I apologize, guys, this is probably an area of disagreement between the two of us.

[01:26:41] Speaker 04:
But I think that case is talking about revisions that are made by the board.

[01:26:45] Speaker 04:
There is no revision by the board here.

[01:26:47] Speaker 04:
So there's no inconsistency between that case and what we're saying here, which is that the board doesn't need statutory authority to just answer the district court's question and share its views on what the regulation means.

[01:27:00] Speaker 04:
And I think the APA sort of acknowledges that that's permissible.

[01:27:03] Speaker 07:
the board is not allowed to do that, that it actually needs to act in accordance with its statutory limits.

[01:27:10] Speaker 07:
You still think that this is not the kind of thing that we can review?

[01:27:14] Speaker 04:
Yes, Your Honor.

[01:27:15] Speaker 04:
And I would just love to provide a brief answer as to why that is the case.

[01:27:19] Speaker 04:
If this court thinks that the board had to proceed under 803C4 and did proceed under 803C4, I think you still have to look at what the board did.

[01:27:26] Speaker 04:
Did it really issue a determination?

[01:27:29] Speaker 04:
And of course, this ruling on regulatory interpretation doesn't have any of the hallmarks

[01:27:32] Speaker 04:
of a determination or a determination made in a proceeding that would be described under 803C.

[01:27:39] Speaker 04:
And that's why this court wouldn't have jurisdiction anyway under D to hear this dispute on direct review.

[01:27:45] Speaker 04:
That doesn't deprive music choice of this court's jurisdiction down the line.

[01:27:49] Speaker 07:
Is that a jurisdictional question?

[01:27:50] Speaker 07:
Because it seems to me like we get cases where people say they were purporting to make a determination, but they didn't follow the procedures or they're purporting to make a determination, but they weren't allowed to do it this way.

[01:28:03] Speaker 07:
that doesn't become jurisdictional if we agree that they weren't allowed to do it that way.

[01:28:06] Speaker 07:
That makes it not a determination and therefore we have no appellate jurisdiction.

[01:28:10] Speaker 04:
I see the inquiry a little bit differently.

[01:28:14] Speaker 04:
I think even if the court thinks that the board was trying to exercise its authority under 803C4 to issue a technical amendment, I think this court would still then need to ask itself, is the thing they issued actually the reviewable determination that the statute provides exclusive jurisdiction for this court to exercise?

[01:28:33] Speaker 07:
Can you think of a precedent that says that that's the way this works?

[01:28:36] Speaker 07:
Because we get lots of

[01:28:39] Speaker 07:
challenges to determinations or rulings or agency actions.

[01:28:43] Speaker 07:
And if we agree, you could always try to frame it like, so it wasn't a determination at all.

[01:28:47] Speaker 07:
Therefore, you have no jurisdiction.

[01:28:49] Speaker 07:
Like, I just don't understand how that works.

[01:28:51] Speaker 04:
I think, unfortunately, that might just be part and parcel of the statute.

[01:28:55] Speaker 04:
The statute makes pretty clear that this court has jurisdiction to review, in the first instance, final determinations by the board.

[01:29:01] Speaker 04:
And so the court would have to- We do that in IPG.

[01:29:04] Speaker 05:
I'm sorry, Erin?

[01:29:06] Speaker 05:
In IPG, we said that something doesn't count as a determination for purposes of our jurisdiction unless it has the statutory

[01:29:14] Speaker 05:
pieces of a determination because jurisdiction turns on it being an 803C determination?

[01:29:20] Speaker 04:
Yes.

[01:29:21] Speaker 04:
So I think the court has engaged in this analysis before.

[01:29:25] Speaker 05:
I know you have any more at this point questions right now.

[01:29:34] Speaker 02:
Well, I'd love to hear your main points on the merits.

[01:29:37] Speaker 04:
So turning then to the merits.

[01:29:41] Speaker 04:
I think there's a few places to start, but I think music choice is ultimate framing here, which is that it shouldn't have to pay twice for the same copy.

[01:29:50] Speaker 04:
That's a false framing, as I think some of the questions from this panel have gone back and forth with my friend on the other side have perhaps illustrated.

[01:30:01] Speaker 04:
You have to read this regulation in context with the statute and the other regulatory provisions as a whole.

[01:30:07] Speaker 04:
And the starting point, if I could just take a step back and sort of clarify how this all fits in, is that if you're going to run a business establishment service, you got to get a license.

[01:30:15] Speaker 04:
And the license that you get is an ephemeral license.

[01:30:18] Speaker 04:
It's the license you need to make the copies that are then used to facilitate the transmission to the business establishment.

[01:30:23] Speaker 04:
you just can't send music to a business establishment if you can't make the copies to do it in the first place under this license.

[01:30:31] Speaker 04:
So that's why the license is necessary.

[01:30:33] Speaker 04:
And the statute actually makes clear that that license has to be used in connection with that service.

[01:30:38] Speaker 04:
So if you have your cable TV subscribers, you get your ephemeral license for those.

[01:30:43] Speaker 04:
And if you have your business establishment subscribers, you get a separate ephemeral license for those.

[01:30:47] Speaker 04:
And you use that license to make and use the copies to facilitate the music transmission.

[01:30:54] Speaker 04:
The statute also directs the board to set rates for the use of these licenses, and that those rates should reflect what a willing buyer or seller would be paying and negotiating in a marketplace.

[01:31:06] Speaker 04:
So when you think about how this regulation operates, the regulation that directs that business establishment services have to pay a percentage of their gross proceeds, you have to ask yourself, what would a willing buyer or seller negotiate for?

[01:31:20] Speaker 04:
And here, it's pretty hard to imagine that a seller would say, well, if you got an ephemeral license for your cable TV subscribers and you have an ephemeral license for your business, if you use the same copies for both, you don't have to pay any royalties on the stuff you're sending to the businesses.

[01:31:37] Speaker 04:
That's on the house.

[01:31:39] Speaker 04:
It's pretty unusual that a seller would actually negotiate for that.

[01:31:42] Speaker 04:
And I think that's one of the first reasons why we can see that the board's interpretation of this regulation is reasonable and MusicChoice's interpretation is quite unreasonable.

[01:31:50] Speaker 07:
Can you tie that to the statutory language though or the regulatory language?

[01:31:53] Speaker 04:
Of course, Your Honor, I think the starting point there is subsection A1, which just says as a general matter, when you make ephemeral copies, you have to pay a royalty equal to a percentage of the gross proceeds derived from the use of those copies.

[01:32:06] Speaker 04:
It doesn't say, you know, derived from the use of those copies solely in connection with the business establishment if you might have those copies going somewhere else.

[01:32:13] Speaker 04:
It's just as a general matter, pay a percentage equal to the gross proceeds derived from the use of the copies.

[01:32:18] Speaker 02:
What does for the sole purpose do on your reading?

[01:32:20] Speaker 04:
So under A2, as the board explained, the sole purpose clause connects back to in-kind.

[01:32:27] Speaker 04:
And I think it's useful to note that there have been a lot of other interpretations offered back and forth today.

[01:32:31] Speaker 04:
I think that only undersores.

[01:32:32] Speaker 02:
This is the biggest problem with what the board said, is it flies in the face of everything you started out saying about how the world ought to work.

[01:32:39] Speaker 02:
It just has this bizarre rule.

[01:32:41] Speaker 02:
So long as you pay, if it's bizarre, that rule is triggered when you use in-kind payments.

[01:32:47] Speaker 02:
For some reason, no one explains.

[01:32:49] Speaker 04:
I'm not sure it's so bizarre, although I agree that it's not super.

[01:32:52] Speaker 02:
Well, you just started, as your strongest argument, saying this would be bizarre.

[01:32:56] Speaker 02:
And yet the board said, but that's what we wanted for in-kind payments.

[01:32:59] Speaker 04:
And Your Honor, I can try to offer an explanation here.

[01:33:03] Speaker 04:
I will say at the outset, the regulatory history is very unclear as to how the sole purpose clause even popped up, because it wasn't there before the librarian added it.

[01:33:12] Speaker 04:
I think if I understand MusicChoice's position today and their example about how they have cable subscribers and how they get their money, it sounds like they contract with cable companies who have a variety of different streams to businesses and individuals.

[01:33:26] Speaker 04:
And so the money that they're getting from the cable companies might be quite easy to distinguish between the customers that fall under the business category and the customers that fall under the individual category.

[01:33:35] Speaker 04:
But if they have some sort of in-kind arrangement with the cable company,

[01:33:39] Speaker 04:
You can imagine a circumstance where maybe it's not super clear how to allocate that between the business stream and the individual stream.

[01:33:46] Speaker 07:
Can you describe what an in-kind relationship would look like in this context?

[01:33:50] Speaker 04:
I don't have a great example, Your Honor.

[01:33:51] Speaker 04:
Maybe some sort of free advertising agreement or some other exchange that doesn't include actual money or fees.

[01:33:59] Speaker 07:
It seems like that would be kind of a rare thing, wouldn't it?

[01:34:02] Speaker 04:
It's possible.

[01:34:02] Speaker 04:
I know that MusicChoice has suggested that it hasn't accepted in-kind payments.

[01:34:06] Speaker 04:
That, of course, doesn't mean... Very strange.

[01:34:09] Speaker 07:
And it's just the fact that, you know, even if you think the best reading of this regulation is the copyright royalty boards reading, which is that all of that modifies income payments.

[01:34:18] Speaker 04:
I think that's certainly a reasonable reading.

[01:34:20] Speaker 04:
And that's reasonable not just as a matter of grammar and how the language itself reads, but it's reasonable in connection with A1 and the overall statutory scheme.

[01:34:29] Speaker 04:
And I think you can look at it sort of on the other side of the line.

[01:34:33] Speaker 04:
If A2 really means what music choice says it means, that undoes the whole operation.

[01:34:40] Speaker 07:
What if it means what I think it means, which is that for the sole purpose is just ephemeral licenses?

[01:34:46] Speaker 04:
I think that's possible, although, Your Honor, I'm not sure that that would really give effect to the concern that the CARP and the librarian were trying to solve.

[01:34:56] Speaker 07:
Because they would have to pay for every use of an ephemeral recording.

[01:35:00] Speaker 04:
To be sure, to be sure.

[01:35:01] Speaker 04:
But I think in the regulatory history, there's a suggestion that there was a concern that gross proceeds might not fully capture in-kind payments.

[01:35:09] Speaker 07:
In-kind payments are still in there in a prior clause, so in-kind payments are in.

[01:35:14] Speaker 07:
True, true.

[01:35:14] Speaker 07:
And this thing about for the sole purpose, it seems to me just to be describing ephemeral recordings.

[01:35:20] Speaker 04:
Your honor, I think that's a possible reading.

[01:35:22] Speaker 04:
The only reason I'm offering any amount of resistance is because I do think that the board is correct that there's something about making sure that in-kind payments, which aren't like money and easily traceable, making sure that those are solely coming from the business establishment revenue.

[01:35:40] Speaker 04:
So I can see why the board's regulation or interpretation in that sense would be reasonable.

[01:35:44] Speaker 04:
And that might be a little different from how your honor is reading it.

[01:35:47] Speaker 04:
But I think all of that underscores that there are a few interpretations here, none of which align with the interpretation music choices offered, which is that A2 is actually some capacious exception to the general principle that whatever money you're getting from your business establishment service, you have to pay royalties on.

[01:36:04] Speaker 04:
I think is their own hypotheticals illustrate.

[01:36:07] Speaker 04:
If they just choose to use the same copy for the music they provide on all of their channels, let's say they just have one cable provider and 10,000 business establishment service providers, and they're sending the same music to all of them, they get millions of dollars from the businesses, and they pay $0 in royalties.

[01:36:25] Speaker 04:
That can't possibly be what Congress envisioned when it created this federal licensing scheme, directed the board to set rates that reflect what a willing buyer and seller would negotiate,

[01:36:34] Speaker 04:
And then when the board crafted a regulation that said, indeed, you have to pay a percentage of the money that you get from the business establishments.

[01:36:40] Speaker 04:
So even if the court thinks that there might be other interpretations of this regulatory tax that are more sensible, it certainly can't be that music choices interpretation here, which is that it pays nothing for the value that it gets, would be correct.

[01:36:53] Speaker 04:
And that the board's interpretation would be wrong on those grounds.

[01:37:03] Speaker 05:
All right.

[01:37:05] Speaker 05:
Is that of your opportunity to discuss the merits?

[01:37:08] Speaker 04:
I'm just going to check my notes very quickly, Your Honor, if you don't mind.

[01:37:11] Speaker 04:
I don't think I have any other points that I wanted to bring up in response, but if the court has any other questions, I'm happy to answer them.

[01:37:20] Speaker 05:
All right.

[01:37:20] Speaker 05:
Thank you very much, counsel.

[01:37:22] Speaker 05:
I guess we'll hear from sound exchange now.

[01:37:38] Speaker 00:
Thank you, Your Honors, Matt Hellman for sound exchange as amicus.

[01:37:42] Speaker 00:
I'd like to say a few words about the merits, which I hope will clear up some of the questions the court has had this morning, and then a little bit about how we got here as well.

[01:37:51] Speaker 00:
On the merits, Judge Millett, I feel like you read my notes in preparing for this argument.

[01:37:56] Speaker 00:
Your adverb point is exactly right.

[01:38:00] Speaker 00:
The music choice position is that they only pay royalties to the extent that a copy is used solely for the Bez service, and they don't have to pay royalties if that copy is used for other purposes as well.

[01:38:13] Speaker 00:
That solely is not in there.

[01:38:16] Speaker 00:
Instead, as the board found, what the solely means is that

[01:38:20] Speaker 00:
It's not solely, it's only soul.

[01:38:21] Speaker 00:
There's only a soul and the soul has the effect of saying that the question that the soul looks to is, is

[01:38:31] Speaker 00:
consideration being given for this service, whatever somebody is paying for this service, is that only to get a best service or is it also to get something else?

[01:38:42] Speaker 00:
In general, and this is at page 125, JA 125 to JA 126, they make the point there that what matters is that the consideration is solely for

[01:38:55] Speaker 00:
the use of copies to facilitate the best service.

[01:39:00] Speaker 00:
So if I pay for the best service and only for the best service, that's what you calculate royalties off of.

[01:39:07] Speaker 00:
That is, I think, indisputably correct.

[01:39:10] Speaker 00:
And MusicChoice's position has all the problems that the panel has pointed to today.

[01:39:15] Speaker 02:
So you agree that this is not what SoundExchange argued to the board or what the board said?

[01:39:21] Speaker 02:
Right.

[01:39:23] Speaker 02:
Because what the board said is they basically agree with everything music choice says about what for the full for the sole purpose means and just said that it but it only modifies in kind payments not all fees.

[01:39:35] Speaker 00:
So there's two halves to it is how I like to think about it.

[01:39:40] Speaker 00:
That half that where you say they disagree most certainly they disagree and if you look at page one, twenty five to one, twenty six of the you'll see them saying that music choice is wrong and that what matters is that the consideration was offered for the sole purpose of facilitating the best.

[01:39:57] Speaker 00:
That's the.

[01:40:02] Speaker 00:
Now, the next question is, what consideration?

[01:40:06] Speaker 00:
And the board found that only in-kind consideration tracked to that part of the statute, not all fees and payments, dollars, I guess, that track to that.

[01:40:16] Speaker 00:
Let me say what that works out to be in practice.

[01:40:20] Speaker 00:
That means that the fees and payments that aren't subject to the sole train, if you will.

[01:40:29] Speaker 05:
Sorry.

[01:40:29] Speaker 05:
I grew up in an age when sole train meant something else but good.

[01:40:33] Speaker 00:
aren't subject to that provision, those are just captured by A1, the prior provision in that regulation, which says that gross proceeds count if they are derived from the best service.

[01:40:44] Speaker 00:
So you're still going to have to, it's still eye to the best service, but just not quite as tightly as the sole language does for in-kind payments.

[01:40:54] Speaker 00:
And as my friend from the government said,

[01:40:58] Speaker 00:
As odd as it might be to think about in-kind payments when we haven't seen very many of them, the historical record discussed in our brief and in the government's brief shows that the CARP at that time, and really the register and the librarian reviewing the CARP's decision, heard from industry people that in-kind payments might be made in this area.

[01:41:18] Speaker 00:
And the register says, you know what, it's hard for us to tell exactly what those in-kind payments are, what they look like.

[01:41:24] Speaker 00:
And you get this sole restriction that, as the board founds, ties to that, I think, for that reason.

[01:41:30] Speaker 00:
But really, the key point is that soul isn't solely, to Judge Millett's point.

[01:41:38] Speaker 00:
It doesn't matter if a copy is being used for 10 different things.

[01:41:42] Speaker 00:
It doesn't matter if it's being used to play music in the Music Choices CEO study.

[01:41:47] Speaker 00:
It doesn't matter.

[01:41:48] Speaker 00:
As long as it's being used to facilitate a Bez transmission and somebody is paying,

[01:41:53] Speaker 00:
for the benefit of that, that consideration is subject to the royalty requirement.

[01:42:02] Speaker 00:
And that's really the consideration part.

[01:42:06] Speaker 02:
Part of their argument is if you have an ephemeral copy and at the same time you're using it to facilitate the playing of a song at a bez and a consumer.

[01:42:20] Speaker 02:
Yes.

[01:42:22] Speaker 02:
It is not being used for the sole purpose of the best.

[01:42:27] Speaker 00:
It's not being used solely for the best, but that's not what the regulation says or certainly what it needs to mean what the regulations for the sole purpose and solely just two different ways of saying the exact same thing.

[01:42:39] Speaker 02:
Well, it's really solely to facilitate a best for the sole purpose of facilitating a best.

[01:42:44] Speaker 00:
Yeah, I think to be.

[01:42:46] Speaker 00:
complete.

[01:42:47] Speaker 00:
The point that Judge Millett said that really spoke to me is that you need two souls because the soul here

[01:42:56] Speaker 00:
The sole here is, is there a payment that is, I'm going to use the word solely just because it's easier in English, is it solely for obtaining a Bez service?

[01:43:05] Speaker 00:
Music Choice's position is solely for obtaining a Bez service for a work or a copy that is used solely to facilitate Bez.

[01:43:15] Speaker 00:
It's that second solely that they need.

[01:43:18] Speaker 00:
And the first solely, and again, if you're wondering,

[01:43:22] Speaker 00:
All right, there's only one soul.

[01:43:24] Speaker 00:
What should it mean?

[01:43:25] Speaker 00:
Which one of those two should it mean?

[01:43:26] Speaker 00:
One of them.

[01:43:28] Speaker 00:
a particular music choices view, zeros out the license.

[01:43:33] Speaker 00:
Judge, we'll get to the stakes of this case, but there are millions of dollars at stake and something like 92% of them go away that music choices position is correct because so much of their copies are so often and in general used not just for one purpose, but for multiple purposes.

[01:43:51] Speaker 02:
Just to clarify for me,

[01:43:55] Speaker 02:
what you think the sole purpose is doing is speaking to the sole purpose of the payments you're seeing?

[01:44:02] Speaker 00:
Correct.

[01:44:03] Speaker 00:
And that's what the board says at 125 to 126, the carryover sentence.

[01:44:07] Speaker 00:
That's exactly what they're saying.

[01:44:09] Speaker 00:
It's exactly what we've argued.

[01:44:10] Speaker 00:
And then I think you just get to the question of, okay, well, which payments are we talking about?

[01:44:17] Speaker 00:
All payments or in-kind payments?

[01:44:19] Speaker 00:
As I've said, the historical record shows that there was a concern about the ambiguity of in-kind payments and what they might be and how they might work.

[01:44:28] Speaker 00:
That's why this extra sole provision, the sole provision of the second paragraph of this definition comes into play.

[01:44:35] Speaker 00:
That doesn't mean that A1 already accounts for the other, already requires a nexus between the other fees and payments, the dollars that are paid.

[01:44:46] Speaker 00:
So everything is covered.

[01:44:47] Speaker 00:
And when it comes to in-kind payments, to the extent those are ever made, there's this extra requirement that they be clear that they are solely for the purpose of obtaining the best transmission.

[01:44:58] Speaker 00:
and not for other things as well, which might happen in the case of in-kind payments, which, unlike subscription fees, are very clearly tailored or linked to the service.

[01:45:09] Speaker 00:
That's the board's reading.

[01:45:10] Speaker 00:
That's certainly reasonable.

[01:45:12] Speaker 00:
And again, what my friends on the other side do, turn a license that Congress created and that's been in place for a long time into an effective novelty for sound exchange.

[01:45:26] Speaker 05:
Thank you very much.

[01:45:28] Speaker 00:
Thank you.

[01:45:32] Speaker 05:
Mr. Butler, I think you asked for two minutes for rebuttal.

[01:45:36] Speaker 05:
Yes, right.

[01:45:37] Speaker 05:
Round you up to three because it's been a long time.

[01:45:40] Speaker 01:
Thank you.

[01:45:43] Speaker 01:
Let me just first respond to one of the most recent things that was just argued by sound exchange.

[01:45:49] Speaker 01:
Now their argument is that the solely relates to the consideration that's made, right?

[01:45:56] Speaker 01:
That makes no sense.

[01:45:58] Speaker 01:
Consideration can't be paid to facilitate a transmission to a business establishment services just as a matter of it's just a nonsensical.

[01:46:08] Speaker 01:
And I thought the government claimed that that wasn't really the board's reasoning.

[01:46:13] Speaker 01:
So I just wanted to highlight that.

[01:46:15] Speaker 01:
But going back to some of the jurisdictional arguments that were addressed by the board,

[01:46:23] Speaker 01:
The register's opinion came out of a prior dispute between Sirius XM and Sound Exchange, right?

[01:46:30] Speaker 01:
It was the exact same situation.

[01:46:32] Speaker 01:
The government's trying to argue, I don't know.

[01:46:34] Speaker 05:
Maybe it was different.

[01:46:36] Speaker 01:
It doesn't make it any more right or wrong.

[01:46:38] Speaker 01:
Well, the point is, the important part about it, in that proceeding, the board knew exactly what it was doing, OK?

[01:46:43] Speaker 01:
After the register issued that decision linking the jurisdiction to 803C4, when the board issued its final ruling, it titled it Determination

[01:46:53] Speaker 01:
For stars publish it in the federal register.

[01:46:57] Speaker 01:
Okay.

[01:46:58] Speaker 01:
There was no confusion and cited it or 3, 3, 4, specifically as the ground.

[01:47:03] Speaker 01:
There was no talk of inherent authority.

[01:47:06] Speaker 01:
And I would also know the judge Walton.

[01:47:09] Speaker 01:
cited in his order that's in the record.

[01:47:12] Speaker 01:
He cited the authority in the DC Circuit and the Supreme Court that to invoke primary jurisdiction, the court has to find that the agency has jurisdiction specifically to do that.

[01:47:23] Speaker 01:
That's why Judge Walton cited C-4 and went through the analysis that he believed granted that authority.

[01:47:34] Speaker 01:
Also, I would just note that this decision was published in the Federal Register, right?

[01:47:41] Speaker 01:
This was not an amicus brief, the equivalent of an amicus brief.

[01:47:46] Speaker 01:
It can only be published in the Federal Register if it's meant to have general application in the world.

[01:47:53] Speaker 01:
So trying to rewrite history after the fact about what the judges did, I don't think the court should accept that.

[01:47:59] Speaker 02:
I guess fundamentally, it doesn't bind anyone, right?

[01:48:02] Speaker 02:
It's we now know the board's view on the meaning of its regulation.

[01:48:06] Speaker 02:
Well, but I do, you know, have a lawsuit resolved or a proceeding resolved.

[01:48:11] Speaker 02:
There will be an opportunity to say that's not entitled to our deference.

[01:48:15] Speaker 01:
And I do think it binds.

[01:48:18] Speaker 01:
It has the separate independent legal that's binding on all services now in future proceedings as their interpretation of that regulation, which is likely the next government settlements.

[01:48:31] Speaker 01:
Well, it's it's the settlements interpretation for those two.

[01:48:35] Speaker 01:
So it's the interpretation of the regs that are in the CFR that are also in the settlements.

[01:48:40] Speaker 05:
They're adopted in the settlement.

[01:48:41] Speaker 01:
They're also in the settlements.

[01:48:42] Speaker 01:
They were originally in the corp and then the librarians ruling.

[01:48:46] Speaker 01:
Then they were carried forward by settlements.

[01:48:48] Speaker 01:
But at all times they have legal authority because they're in the CFR.

[01:48:52] Speaker 05:
So my point is that it's consequential in that this is what they have said these settlements mean.

[01:48:59] Speaker 01:
I'm asking a different question is the way this occurred is they reopen to settlement proceedings.

[01:49:24] Speaker 01:
right?

[01:49:24] Speaker 01:
No, I disagree.

[01:49:25] Speaker 01:
I don't think there's such a thing as a settlement proceeding.

[01:49:28] Speaker 05:
We open to proceedings that arose from voluntary settlements rather than contested determinations.

[01:49:33] Speaker 01:
No, the proceedings arose because there was no settlement at the beginning of the of the period and the settlement concluded the proceedings.

[01:49:43] Speaker ?:
Um

[01:49:43] Speaker 01:
But I can also cite, I can give you the sites that your honor asked for about this very point about how the proper royalty board.

[01:49:53] Speaker 01:
I think if you look at section 801 B7A, it talks about how as part of their roles in these rate making proceedings, the courts can adopt as a basis for the statutory terms, the settlement provisions.

[01:50:09] Speaker 01:
And it also talks about how they have to

[01:50:12] Speaker 01:
give notice and publication of the potential settlement, but then discusses them being adopted as the determination set by the agreement, but it's still a determination.

[01:50:24] Speaker 05:
But that is sorry, I'm trying to get to the right page here.

[01:50:31] Speaker 05:
That says to adopt as a basis for statutory terms and rates or as a basis for the distribution of statutory royalty payments.

[01:50:40] Speaker 05:
So that's both for the rates and the distribution.

[01:50:44] Speaker 05:
You said this was a special thing that they do just for royalty rates.

[01:50:47] Speaker 05:
It's different from the distribution proceedings.

[01:50:50] Speaker 01:
Yes, I'm sorry, Your Honor.

[01:50:51] Speaker 01:
There are two things that are different.

[01:50:53] Speaker 01:
What they do, if you look at little one and little two, once they have a settlement in the two types of proceedings, they have to do different things.

[01:51:02] Speaker 01:
OK, that's one distinction.

[01:51:04] Speaker 01:
There's another distinction that has nothing.

[01:51:05] Speaker 05:
You provide notice to people so that if somebody, because people are going to be bound by this, right?

[01:51:11] Speaker 05:
Yes.

[01:51:11] Speaker 05:
And then if someone objects,

[01:51:15] Speaker 05:
Then they can decline to adopt it, but these were not declined to be adopted.

[01:51:18] Speaker 05:
These were adopted.

[01:51:21] Speaker 01:
I don't recall if anybody objected, but ultimately they were adopted.

[01:51:25] Speaker 01:
Yes, right.

[01:51:26] Speaker 05:
So they're doing and you don't know if anyone even triggered that proceeding.

[01:51:30] Speaker 05:
So they gave notice.

[01:51:32] Speaker 05:
Either no one objected or they chose to go ahead and adopt it anyhow, but you don't know that it was the latter.

[01:51:39] Speaker 05:
So they gave notice to everybody.

[01:51:41] Speaker 05:
And that's, there's some very important purpose of this to make sure everybody who's going to be bound has notice, but it's still not a formal determination.

[01:51:50] Speaker 01:
Well, but it says here that it will be the basis for their determination.

[01:51:54] Speaker 01:
And they say that in little one, the people that would be bound by the terms rates or other determinations set by agreement.

[01:52:02] Speaker 05:
So the idea is that I'm just talking about our decision and IPG is what kind of determination is necessary for our jurisdiction.

[01:52:09] Speaker 01:
Okay, well, with respect to IPG, that is a completely separate thing because the holding in that case came about because there was no proceeding.

[01:52:19] Speaker 01:
That's a different distinction between rate-making cases and distribution cases.

[01:52:24] Speaker 01:
In IPG,

[01:52:27] Speaker 01:
There was no dispute between the claimants at the relevant time as to how the royalty should be carved up.

[01:52:35] Speaker 01:
And therefore, there was no notice of commencement proceeding at all.

[01:52:38] Speaker 01:
Instead, the copyright royalty board sent notice to the register of copyright saying there's no dispute.

[01:52:44] Speaker 01:
to distribute the funds pursuant to the claims that were already filed, right?

[01:52:49] Speaker 01:
That's not what we have here.

[01:52:51] Speaker 01:
Here, there was a notice of, in each of these proceedings, there was a notice of commencement, various participants filed notice of intent to participate.

[01:52:59] Speaker 01:
There was a preliminary schedule set.

[01:53:02] Speaker 01:
and ultimately it's settled, but it's settled during a proceeding.

[01:53:06] Speaker 01:
In IPG 1, and keep in mind there's also IPG 2 and IPG 3, right, because for other categories there were proceedings that went forward and therefore this court did have jurisdiction to hear, and I would also point out it's important

[01:53:24] Speaker 01:
In addition to the determinations, any of the ancillary rulings that are part of a proceeding get wrapped up in that determination.

[01:53:32] Speaker 01:
So I would also point out that the government was making it such that when they were discussing the appellate jurisdiction provision, they kept saying only final determinations were appealable to this court.

[01:53:42] Speaker 01:
That's not what it says.

[01:53:44] Speaker 01:
It says any determination under C. That's fine.

[01:53:46] Speaker 05:
I just don't know why you're arguing for jurisdiction.

[01:53:49] Speaker 05:
I don't know why you wouldn't be happy for us to say this thing was a fraudulent detour and go back to the district court and consider it an amicus.

[01:53:58] Speaker 01:
I'm just trying to respond to what I think was an incorrect argument.

[01:54:01] Speaker 01:
That's only right.

[01:54:02] Speaker 01:
Thank you.

[01:54:05] Speaker 05:
Thank you to all counsel.

[01:54:06] Speaker 05:
We really appreciate your time and help.

[01:54:09] Speaker 05:
And the case is now submitted.