Before the UNITED STATES COPYRIGHT OFFICE LIBRARY OF CONGRESS Washington, DC DRlr.lNAl In the Matter of Determination of Reasonable Rates Docket No. 2000-9 CARP and Terms For the Digital Performance DTRA 18:2 Of Sound Recordings and Creation of Ephemeral Phonorecords IMCEIJUvZDo SP so Ãm MOTION FOR STAY PENDING APPEAL GENERAL COUNSFJ. OF COPYRIGHT Live365.com, Inc. John O. Jeffrey Executive Vice President Corp. Strategy and General Counsel Elizabeth H. Rader Stanford Law School Center for Internet 8 Society 559 Nathan Abbott Way Stanford, CA 94305-8610 (650) 724-0517 September 27, 2002 TABLE OF CONTENTS I. Introduction. 11. The Librarian Can And Should Grant A Stay For All Parties Bound By The Determination. To Preserve The Status Quo Pending Appeal. III. The Webcasters Will Prevail On The Merits Of Its D.C. Circuit Appeal ... A. The Rates in the Librarian's Final Rule Place Webcasting Out ofReach of All But Profitable, Commercial Entities and Therefore. Violates The First Amendment. B. Live365 Will Prevail On Appeal Because The Rates Chosen Frustrate The Statutory Purpose ofEliminating Transaction Costs To Facilitate and Encourage Webcasting of Copyrighted Works. C. Live365 Will Prevail Because The Librarian Acted In An Arbitrary Manner By Setting Rates Using The RIAA/Yahoo! Agreement As A Benchmark 13 D. Live365 Will Prevail On Appeal Because The Librarian Acted Arbitrarily By Accepting A Recommendation That Condoned The Panel's Ignoring The National Public Radio License......................................................... .18 E. Live365 Will Prevail On Appeal Because The Librarian Acted Arbitrarily By Accepting A Recommendation That Condoned The Panel's Rejection of the Musical Works Benchmark.. 20 F. Live365 Will Prevail On Appeal Because The Librarian Acted Arbitrarily By Setting A Minimum Fee That Punishes Small Webcasters..... 21 IV. The Moving Party Will Be Irreparably Harmed Absent A Stay. 23 V. Many Other Entities Will Be Irreparably Harmed Absent A Stay. 25 A. College Webcasters Will Be Severely, Irreparably Harmed Absent a Stay..........25 B. Recording Artists Whose Work Is Played On Internet Radio Will Be Severely, Irreparably Harmed Absent A Stay. .31 C. Companies That Benefit From Internet Radio Wil] Be Harmed Absent A Stay .......34 VI. Copyright Owners Will Not Be Harmed By A Stay And Most Will Benefit From The Survival Of Internet Radio.. .36 VII. The Public Interest Favors Granting A Stay .37 VIII. Conclusion 40 Before the UNITED STATES COPYRIGHT OFFICE LIBRARY OF CONGRESS Washington, DC ) In the Matter of ) Determination ofReasonable Rates ) Docket No. 2000-9 CARP DTRA and Terms For the Digital Performance ) DTRA 18;2 Of Sound Recordings and ) Creation ofEphemeral Phonorecords ) ) MOTION FOR STAY PENDING APPEAL I. INTRODUCTION Live365.corn, Inc. ("Live365"), seeks a stay of the Librarian's Final Rule and Order ("Final Rule"), 67 Fed. Reg. 45240 (July 8, 2002), requiring statutory licensees to make royalty payments, based on stated rates and minimum fees, on October 20, 2002 and monthly thereafter. Live365 requests this stay for very simple reasons. One. without a stay, there will be no webcasting "industry"—only a few companies that are able to finance the royalties set by the Final Order through revenue generated by corporate activities other than webcasting. The irreparable harm that will result without this stay is not speculative but is already evidenced in the marketplace. Since the Final Rule was announced on July 8, 2002, scores ofInternet radio stations have fallen silent already. More fall silent every day.'bsent a stay pending appeal. on October 20. 2002. those left in the market will pay substantial sums to SoundExchange, that will put the smallest out ofbusiness and will threaten the viability ofthe most successful. Two. Live365 is likely to succeed in its appeal filed with the D.C. Circuit. The rates set in the Final Order are arbitrary and capricious in light of the record, clearly frustrate the Congressional intent in establishing a compulsory license for sound recording performance royalties, and eliminate a new, but powerful, engine of fR:e expression for all but the wealthiest. thereby burdening the First Amendment's right of free speech. Three, both the Copyright Office and Congress recognize that the current system for determining sound recording royalties is broken and intend to overhaul the system in the near future. As the Register of Copyrights stated in recent Congressional hearings. "the CARP system is far from perfect.'ubstantive hearings have been held in both the House and Senate." the Copyright Office has solicited suggestions fiom and held a meeting with legal practitioners in this field to obtain input for CARP reform and i See httn::www.kurthanson.corn SoundExchange is one of the agents charged with collecting webcasting royalties and distributing them to the copyright owners. 3 Statement of Marybeth Peters. Register of Copyrights. Before The Subcommittee on Courts, The internet and Intellectual Property ofthe House Committee on the Judiciary. 107'" Congress. June 13. 2002 (describing problems with CARP system and advocating significant reform measures). See also Statement ofCongressman Rick Boucher ("The CARP process is badly broken." "We must avoid a repeat of rulings like the most recent one. through which a one-size fits all approach was adopted. and small webcasters that measure annual revenues in the tens of thousands of dollars were saddled with royalty fees in the hundreds ofthousands.') 4 Copyright Royalties: Where is the Right Spot on the Dial for Webcasting. Before the Senate Committee on the Judiciary. 107' Congress. May 15. 2002: The Copyright Arbitration Royalty Panel Structure and Process. Before the House Subcommittee on Courts. the Internet and Intellectual Property. June ] 3. 2002. corrective legislation has been introduced.- It is clear that reform ofthis rate setting process is imminent and the Librarian should not extinpush an entire industry shortly before that reform takes place. II. THE LIBRARIAN CAN AND SHOULD GRANT A STAY FOR ALL PARTIES BOUND BY THE DETERMINATION, TO PRESERVE THE STATUS QUO PENDING APPEAL. Four factors bear on v hether the Librarian should grant a stay of the Order pending appeal: they are 1) the likelihood that the party seeking the stay v ill prevail on the merits ofthe appeal: 2) the likelihood that the moving party will be irreparably harmed absent a stay; 3) the prospect that others will be harmed if the court wants the stay; and 4) the public interest in granting the stay. While the Webcasters have a high probability ofprevailing on the pending appeal. for the reasons discussed below, it need only show that it has more than a mere possibility of success on the merits. Cuomo v. U.S. Nuclear Reg. Comm 'n., 772 F.2d 972, 974 (D.C. Cir. 1985). A moving party need not show that it has a high probability of success, if the showing on other factors is strong. The overwhelming evidence that third parties and the public will suffer irreparable harm absent a stay also favors granting a stay. Copyright owners wiII suffer See internet Radio Fairness Act. H.R. 5287 introduced by Congressmen Inslee. Boucher and Nethercutt on July 26. 2002. See Order, Adjustment of Rates for the Satellite Carrier Compulsory License. Docket No. 96-3 CARP SRA, (November 14. 1997): Order Docket No. 2000-9 CARP DTRA 1 k2 (August 8. 2002). at 2. (Denying Motion of intercollegiate Broadcasting System inc. and Harvard Radio Broadcasting Company. inc.) 'ive365 was one party to the webcasting CARP proceeding. 67 Fed. Reg. At 45241 (Ju)y 8. 2002). On August 7. 2002. a group ofwebcasters including Live365 ("The IOMedia Group" ) filed a Notice of Appeal in the U.S. Court of Appeals for the D.C. Circuit. pursuant to 17 U.S.C. q~ 802(g)(2002). On September 9. 2002. the Librarian moved to dismiss the appeals of all the webcasters in the )OMedia Group except for Live365.corn. The Librarian's briefnotes that it does not seek dismissal of Live365's appeal, recognizing that Live365. as a CARP participant. has the right to seek review of the Final Order. Movant contends that the other parties to the IOMedia Group appeal also have standing to appeal the Final Order pursuant to 17 U.S.C. (l 802(g) because they are aggrieved parties who v ould be bound by the determination. Nothing in this Motion should be construed to concede that any other webcaster appel) ant lacks standing to appeal the Final Order. little, if any. harm from the stay and. indeed. have also appealed the Librarian's Final Rule. The purpose of a stay pending appeal is to preserve the status quo pending a final determination ofthe merits of the appeal. I 'ashington Metro .Crea Transit Comm 'n. i. Holiday Tours, Inc. 559 F.2d 841 (D.C. Cir. 1977). The Librarian's Final Rule sets rates for a compulsory license that already has been exercised by thousands of webcasters since as early as 1998. As sho~n below, among the factors strongly favoring a stay are irreparable harm to webcasters that were unable to participate in the CARP, and irreparable harm to other third parties. such as recording artists. that directly benefit from webcasting. and indeed harm to the public. if a stay is not granted. Accordingly. a stay„ to preserve the status quo and avoid these harms, must apply to all entities subject to the Librarian's Final Rule, III. THE WESCASTERS WILL PREVAIL ON THE MERITS OF THEIR D.C. CIRCUIT APPEAL A. The Rates in the Librarian's Final Rule Place Webcasting Out of Reach of All But Profitable, Commercial Entities and Therefore, Violates The First Amendment. Webcasters are engaged in expressive activity protected by the First Amendment. The Supreme Court has held that "[ejntertainment, as well as political and ideological speech, is protected; motion pictures, programs broadcast by radio and television, and live entertainment, such as musical and dramatic works, fall within the First Amendment guarantee." Schad v.