On Tuesday September 30, the United States Senate passed the Webcaster Settlement Act of 2008 (H.R. 7084), which previously was passed by the House of Representatives on Saturday, September 27. It now awaits President Bush's signature to become law.

This measure increases the likelihood that webcasters and SoundExchange, the entity charged with collecting and distributing webcasting royalties to the recording industry, will be able to reach agreement setting different royalty rates and terms than those that were set by the Copyright Royalty Board (CRB) in its decision of May 1, 2007. That CRB decision is currently on appeal before the U.S. Court of Appeals for the District of Columbia Circuit.

Even apart from the Act, SoundExchange has the ability to negotiate and reach binding agreements on behalf of the roughly 95% of sound recording copyright owners it is authorized to represent, but not the other 5%. SoundExchange and the webcasting services believe that the administrative burdens of requiring services to pay (and SoundExchange to distribute) under two different fee structures for even 5% would be daunting. The bill thus provides that any agreement reached by SoundExchange with a webcasting service or services is binding on all sound recording copyright owners.

The legislation essentially is a revival and expansion of the Small Webcaster Settlement Act of 2002 (SWSA), which was enacted to provide relief to small and noncommercial webcasters after the first statutory royalties for webcasting were set by a "Copyright Royalty Arbitration Panel"—the CRB's predecessor. Pursuant to the SWSA, small commercial and noncommercial webcasters reached agreements with SoundExchange that provided for the payment of reduced fees by those entities.

Some of the important provisions of the newly passed legislation, and the ways in which it differs from the 2002 SWSA are as follows:

  • Whereas the 2002 SWSA was limited to small and noncommercial webcasters, the 2008 Act makes the negotiation procedure available to all webcasters regardless of size or commercial nature. The term "webcaster" is defined broadly to include services such as radio broadcasters and satellite radio broadcasters that simulcast their broadcasts over the Internet.
  • Agreements with Sound Exchange will apply to all copyright owners of sound recordings, including the approximately 5% of copyright owners that are not directly represented by SoundExchange. Thus, webcasters would need to reach only one agreement, and they would be covered for all sound recordings they might perform.
  • Agreements may be reached any time before February 15, 2009. The agreements may cover a period of up to 11 years beginning on January 1, 2006, when the new CRB rates went into effect retroactively.
  • SoundExchange is protected from claims asserted by copyright owners or musicians that it acted unreasonably in entering into an agreement for rates lower than those set by the CRB.
  • SoundExchange's agreements with a webcaster or group of webcasters will be published in the Federal Register; each agreement then will become available to any other webcaster that meets the eligibility provisions it contains. Although this could allow small services the opportunity to take advantage of a settlement without going to the expense of conducting negotiations themselves, it is possible that agreements may contain eligibility conditions or establish fee terms that would exclude certain other services. For example, SoundExchange may reach an agreement with Internet-only webcasters that excludes broadcast or satellite services or an agreement that defines revenue in a manner that is not favorable for other types of services. Political pressure may make it difficult, however, for SoundExchange to discriminate.
  • Agreements reached pursuant to the new law will not be admissible as precedent or evidence in future rate-making proceedings unless SoundExchange and at least one service that is a party to the agreement agree otherwise. The 2002 Act included a blanket prohibition on admissibility, without the exception. The new exception, permitting admission of certain agreements into evidence, may favor SoundExchange. First, it gives SoundExchange veto power over the persuasive or binding effect of an agreement. Even worse, if SoundExchange were to find just one service willing to enter into an agreement with high rates, it may then be able to offer only that one high-priced agreement into evidence in future proceedings. SoundExchange has been found to have engaged in such tactics in the past. In the 2002 rate-setting proceeding, for example, the arbitration panel found that the recording industry adopted a negotiating strategy to make agreements only with webcasters that were within what it called its "sweet spot"—a range of rates favorable to the record labels that could then be used as precedent in the rate-setting proceeding. By finding a small number of services willing to agree to unreasonable rates, the recording industry skewed the precedent away from what was generally reasonable.