D.C. Circuit Appears Skeptical of CRB Webcasting Appeals

U.S. Court of Appeals for the D.C. Circuit judges appeared skeptical Friday of separate oral arguments from NAB, the National Religious Broadcasters Noncommercial Music License Committee and SoundExchange against the Copyright Royalty Board’s ruling on rates for webcast music (dockets 21-1245 for NAB, 21-1243 for NRBNMLC, and 21-1244 for Sound Exchange). Judge Patricia Millett told SoundExchange's attorney that evidence in the record "blows up" his arguments and had a back-and-forth disagreement with another lawyer over whether asking the court to calculate a rate that wasn't in the record was permissible. “Should we be doing that as a court?” Judge Florence Pan asked in response to an NRB argument that the court should use data in the record to calculate an extrapolated royalty rate. “Are you asking us to make a fact-finding that the board did not?” Millett added.

Each of the entities is challenging a different aspect of the CRB’s 2021 ruling on webcasting, known as “Web V.” In that ruling, CRB set royalties for nonsubscription services at .0021 cent per song per listener from 2021 until 2025, and increased the annual minimum fee paid by webcasters from $500 to $1,000. NAB argued the CRB should have charged lower rates to broadcasters simulcasting their radio programming online than are paid by custom streaming services like Spotify and Pandora. NRB said the CRB discriminated against religious broadcasters by not giving them rates similar to NPR, and SoundExchange argued the rates should be higher because the CRB didn’t correctly calculate the opportunity cost of collecting fees.

Millett and to a lesser degree Pan seemed unmoved by SoundExchange’s and NRB’s arguments, volleying them with questions while largely letting CRB’s representative, DOJ attorney Jennifer Utrecht, respond uninterrupted. Only during arguments on NAB’s issue did the panel appear to have almost as many questions for the appellee as for the appellant, though Millett still appeared more sympathetic to CRB’s stance. SoundExchange, CRB and NRB didn’t comment. The judge panel appeared “well prepared,” said NAB Chief Legal Officer Rick Kaplan. Several attorneys at the hearing told us it's difficult to determine a case’s outcome from oral argument.

Arguing for NAB, Latham & Watkins attorney Samir Deger-Sen said the CRB erred by treating simulcasting as similar to custom radio despite evidence and industry precedent for their being different services. There's no legal precedent for CRB requiring services to prove they're fundamentally different from others to receive different rates, he said. “You are carving yourself out,” Millett said. She said it made sense for CRB to be concerned about “balkanization” of the different services paying royalties. The statute places the obligation on the CRB to root its findings in evidence, Deger-Sen said: “The market recognizes these as different categories.”

CRB said NAB failed to show that a willing buyer or willing seller would treat simulcast as different from custom radio services. A broadcast simulcast feels different to the user from Spotify, but, without evidence, “that’s a hypothesis,” Utrecht said. It's “just common sense” that it's “very different” to use Pandora from listening to a radio online simulcast, said Judge Robert Wilkins. NAB hasn’t shown in the record that buyers and sellers would agree with that, Utrecht said. The statute requires CRB to distinguish among differing services, Millett said.

Arguing for NRB, Fletcher Heald’s Karin Ablin said the CRB violated the Administrative Procedure Act and the Religious Freedom Restoration Act because it allowed NPR’s secular, noncommercial stations to pay lower rates than NRB’s member stations under the terms of a settlement. Millett questioned whether the law allowed the CRB to set a special rate only for members of the NRB’s trade association, and Pan appeared skeptical of the religious discrimination argument. The CRB rejected NRB’s arguments that NPR’s rates were higher because of a lack of expert testimony to that effect, said Pan. If the D.C. Circuit rules that rejecting that argument was within the CRB’s discretion, there would be no basis for a religious discrimination claim that NPR was treated better, she said.

SoundExchange argued CRB didn’t correctly account for opportunity cost in its rate calculation because it switched to using a calculation based on industry benchmarks after it found flaws in a calculation based on game theory. This led to an extended exchange between Millett and SoundExchange attorney Matthew Hellman, of Jenner and Block , with the judge repeatedly asking how CRB switching to the benchmark-based method could be an error since the other method was flawed and using industry benchmarks takes opportunity cost into consideration. “What am I missing here?” asked Millett, saying the opportunity cost was “baked in.” The CRB didn’t definitely find an opportunity cost using the game theory method, Pan said. “This number you’re trying to rely on is not the number if it doesn’t account for these flaws.” This “is the board attempting to do something and not getting it right,” Hellman said.