Parties Suggest Some Changes to Proposed Compulsory License Audit Procedures
Content owners and pay-TV distributors suggested some changes to a proposed rule from the U.S. Copyright Office that would allow rights holders to audit the compulsory license fees they receive from distributors. The office initiated the rulemaking in June after content owners petitioned in January for action on an element of the 2010 satellite-TV reauthorization bill that called for establishing such audit procedures. All the parties generally supported the proposed rules. Distributors sought to limit the audit system from being provided retroactively or expanded, and content owners sought to impose payment deadlines and expand their access to confidential material.
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The copyright owners, a group made up of sports leagues, TV programmers, music publishers and composers and broadcasters, said they generally support the office’s proposed rules (http://xrl.us/bnkt7u). The office’s notice of proposed rulemaking (http://xrl.us/bnb9t7) largely reflected suggestions the copyright owners made themselves in their rulemaking petition, they said. One point where the petition and the proposed rules diverge is on whether satellite distributors’ statements of account (SOAs) prior to 2010 should be subject to audits. The copyright owners’ comments seemed to drop this request. “While Copyright Owners disagree with the Office’s characterization of a verification procedure for pre-2010 statements of account as a ‘retroactive’ obligation, Copyright Owners nonetheless support the uniform approach proposed by the Office” that treats satellite and cable operators similarly “because they share the view that a single procedure” is best, they said.
The copyright owners also asked to expand access to confidential business information in audits. The NPRM proposed limiting access to confidential material to auditors and those working for auditors. Copyright owners suggested content owners and/or designated representatives should get the same access as long as they sign nondisclosure agreements. “Such access may be necessary in the event that statutory licensees dispute the findings and conclusions in the auditor’s final report and the dispute relates to the interpretation of confidential business information,” they said.
The American Cable Association urged the office not to allow cost-shifting in the audits (http://xrl.us/bnkt9y). “The audit process proposed in the NPRM allows for a potentially lengthy back-and-forth process between the auditor and statutory licensee, a process that would appear to cost thousands of dollars,” ACA said. Because this process is involuntary for the licensee, and begun at the request of the copyright owner, “it would be inequitable to include a provision for audit cost-shifting,” it said. If the office does adopt a cost-shifting mechanism, it should provide some relief for smaller operators, ACA said. Cable operators should also get more time to respond to audits they disagree with than the two-weeks proposed in the NPRM, it said.
Distributors also proposed limits on the frequency of audits. AT&T proposed multiple systems operators (MSOs) be subject to one audit a year. “Thus, once an audit is initiated, all copyright owners should be required to agree on the particular systems to be audited and the years that are to be the subject of the audit,” the telco-TV provider said (http://xrl.us/bnkuct). It also urged the office not to put the audit costs on distributors. Ordering licensees to pay auditor’s fees is beyond the scope of the statute and inconsistent with its purpose, AT&T said. “A cost-shifting provision would create improper incentives for copyright owners and the auditors they retain to seek out and raise as many issues as possible, whatever their merit."
DirecTV suggested the office even out rules about restitution of over- and under-payments of royalties. The rules would give copyright owners the ability to seek restitution for underpayment in perpetuity, but limit distributors to a 30-day window to collect overpayments they make, DirecTV said (http://xrl.us/bnkudm). “Such a disparity is indefensible,” it said. “Mistakes in statements of accounts should be rectified regardless of who happens to benefit from such rectification."
NCTA and others urged the office to set up a more balanced process in selecting auditors. The NPRM gives copyright owners the responsibility for selecting an auditor, the association said. “An auditor selected by the copyright owners may well have business reasons to satisfy its clients that could make for a less even-handed audit than otherwise would be the case” (http://xrl.us/bnkudq). A collaborative approach between operators and copyright owners will make sure a neutral auditor is chosen, NCTA said.