A federal judge has denied a preliminary injunction challenging the constitutionality of the process by which the Librarian of Congress appoints the three-judge Copyright Royalty Board, which is charged, among other things, with setting royalty rates for various copyright statutory licenses. On February 23, 2010, Judge Reggie B. Walton of the U.S. District Court for the District of Columbia issued his opinion in the case Live365, Inc. v. Copyright Royalty Board, Civ. No. 09-01662 (RBW) (D.D.C. Feb. 23, 2010) ("Mem. Op."), ruling that the plaintiff was not likely to succeed on the merits of its claim. He observed that the judges of the Copyright Royalty Board "seemingly" are inferior, not principal, officers of the United States and that the Librarian of Congress, who appoints them, "is seemingly a principal officer that heads an Executive Department." Id. at 27. The entire opinion can be found at the court's website here.

The Copyright Royalty Board was established by Congress in 2004 to, among other functions, adjust rates under certain statutory licenses under the Copyright Act, such as the cable and satellite statutory licenses, the statutory license covering the digital public performance of sound recordings in such media as webcasting and satellite radio and the statutory license for making and distributing recordings of musical compositions. 17 U.S.C. § 801(b). The three judges of the Board (known as the Copyright Royalty Judges), according to statute, are appointed by the Librarian of Congress upon the advice of the Register of Copyrights for staggered six-year terms. 17 U.S.C. §§ 801(a), 802(c). Since January 2006, when the original three judges-all of whom remain in office-were sworn in, the Board has completed several rate-setting, distribution and rulemaking proceedings.

Early in 2009, the Board initiated a proceeding to set sound recording performance royalties for webcasting for 2011 to 2015. But before the parties were required to submit their initial filings, Live365, a large webcaster and one of the participants in the proceeding, filed suit in federal court and sought a preliminary injunction staying the proceeding and a determination that the Board's appointment by the Librarian of Congress violated the Appointments Clause of the Constitution.

In its preliminary injunction motion, Live365 argued that the Copyright Royalty Judges are principal officers of the United States and must therefore, under the Appointments Clause, be appointed by the President with the advice and consent of the Senate. Alternatively, Live365 argued that even if the Copyright Royalty Judges are inferior officers, they must be appointed by the President, a court of law, or a "Head of Department" under the Appointments Clause and that the Librarian of Congress does not qualify as the head of a department because he is an official of the legislative branch of government, not the executive branch.

The court, after first addressing and rejecting an argument by the Board that the court lacked subject matter jurisdiction to hear the case, found that Live365 had failed to demonstrate that either of its arguments was substantially likely to succeed on the merits. Mem. Op. at 13-27. The court also ruled that the plaintiff had failed to demonstrate irreparable harm, that SoundExchange (the entity charged with collecting and distributing sound recording royalties to record labels and performing artists, which had intervened as a defendant) and copyright owners would suffer "some adverse impact" if an injunction were issued, and that "all parties have presented compelling reasons why the public interest will be advanced by either granting or denying an injunction," thus neutralizing this factor. Id. at 27-33.

On the merits, the court first ruled that "the guiding precedent of the Supreme Court seemingly requires the conclusion that despite the level of autonomy the CR Board judges exercise, the degree of direction and supervision exercised over them by the Librarian and the Register renders them inferior rather than principal officers." Id. at 20. The court acknowledged that "there is no bright line rule distinguishing principal and inferior officers" but observed that the holdings reached in three Supreme Court decisions on this issue "support this position." Id. at 17, 20.

The court then ruled that "the Librarian is seemingly a principal officer that heads an Executive Department, and therefore, has the power to appoint inferior officers." Id. at 27. In rejecting Live365's argument that the Library of Congress is part of the legislative branch, the court reasoned that "[m]ost importantly, the Librarian is appointed by the President with the advice and consent of the Senate," that "the President, not Congress, has the power to remove the Librarian at will," and that the Librarian performs both legislative and executive functions. Id. at 25.

It is unclear whether the U.S. Court of Appeals for the D.C. Circuit would uphold the court's decision if Live365 decides to challenge it. In finding that the Library of Congress was the head of a department in the executive branch, the court relied heavily on a 1978 decision from the U.S. Court of Appeals for the Fourth Circuit finding that "the Copyright Office is an executive office" appointed "in conformity with the Appointments Clause" (but stating only that the Librarian is an "Officer," not the "head of a department"). See Eltra Corp. v. Ringer, 579 F.2d 294, 300-01 (4th Cir. 1978). The court disregarded reliance, however, on two more recent decisions by the D.C. Circuit itself that made clear that the Library of Congress was "part of the legislative branch." Wash. Legal Found. v. U.S. Sentencing Comm'n, 17 F.3d 1446, 1449 (D.C. Cir. 1994); Judd v. Billington, 863 F.2d 103, 104 (D.C. Cir. 1988).

In two recent appeals of Board sound recording performance rate decisions, at least some judges on the D.C. Circuit already have indicated that Live365's Appointments Clause challenge may carry some weight. In an appeal of the Board's determination of webcasting rates, the Appointments Clause issue was raised and briefed on a supplementary basis and was a significant subject of questioning from the judges at oral argument. Although the court ultimately declined to address the merits of the challenge because it had not been timely raised or fully briefed, it did observe that "the parties failed to cite or discuss the effect of our statements, in other contexts, that the Library of Congress is not part of the executive branch," which perhaps indicates an openness to considering Live365's "legislative versus executive branch" argument. See Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Board, 574 F.3d 748, 755-56 (D.C. Cir. 2009) (per curiam opinion of Chief Judge Sentelle and Judges Rogers and Griffith).

In an appeal of the Board's determination of satellite radio rates, the issue was not raised or briefed, but Judge Kavanaugh nonetheless raised it with the parties during oral argument and observed in a concurring opinion that "[t]he new statutory structure raises a serious constitutional issue." SoundExchange v. Copyright Royalty Board, 571 F.3d 1220, 1226 (D.C. Cir. 2009). He wrote that the Copyright Royalty Judges "appear to be principal officers-not inferior officers-because they are not removable at will and their decisions regarding royalty rates apparently are not reversible by the Librarian of Congress or any other Executive Branch official." Id. This may indicate a willingness on his part to consider ruling for Live365 on its "principal versus inferior officers" argument.