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The United States Copyright Office on Tuesday rejected an arbitration panel ruling on Webcasting royalty rates, a decision that brought smiles to the face of Internet radio executives nationwide.

In a brief note posted on its Web site, the Librarian of Congress rejected the recommendation by the Copyright Arbitration Royalty Panel (CARP) that would have set royalty fees at 14/100 of a cent per performance, a price tag denounced by Webcasters as prohibitive.

"The Register of Copyrights recommends, and the Librarian agrees, that the CARP's determination must be rejected. A final decision will be issued no later than June 20, 2002," the Copyright Office said.

"In accordance with 17 U.S.C. 802(f), the Librarian is given 90 days from date of delivery of a CARP report to review the determination and issue a decision setting forth the final royalty fee and terms of payment. However, if the Librarian rejects the CARP's determination, section 802(f) provides an additional 30 days for the Librarian to render his final determination," it added.

Kurt Hanson, who led a grassroots campaign to have the CARP recommendation thrown out, was positively giddy in reacting to Tuesday's rejection.

"This was what Webcasters had hoped for when we originally objected to the CARP recommendation. I think the decision (on a royalty rate structure) is in good hands. I think they understand the legislative intent of a statutory royalty, which is to encourage the growth and diversity of the industry," Hanson said.

"I have confidence that whatever mechanism they use, it won't destroy the industry," he added.

For its part, the Recording Industry Association of America (RIIA) said today's rejection should not be automatically seen as an automatic win for Webcasters.

"The Librarian has rejected the arbitration panel's determination, but we do not know why or what decision the Librarian will ultimately make based on the evidence presented," said RIAA president Cary Sherman.

"Since both sides appealed the panel's determination, anything is possible. We look forward to the conclusion of this process on June 20th, and to the day when artists and labels finally get paid for the use of their music," Sherman added.

SoundExchange, the RIAA-run group responsible for royalty collection, seemed more resigned to the fact the structure would be modified in favor of the Webcasters.

A statement from SoundExchange executive director John Simson was suggesting long-term "creative solutions" between the recording industry and the Webcasters. "Given the complexity of the issues, I am not surprised by the Librarian's decision. I remain confident that we can find creative solutions to enable Webcasting to thrive while providing recording artists and those who invest in sound recordings a fair and equitable royalty in return," Samson said.

"Over the past three years, Webcasters have paid for bandwidth, rent, hardware, software and other business expenses. It is time that they finally start to pay the Artists and record companies whose creative output is the most important component of their business," he added.

Samson called for the two sides to find "long term solutions" but did not address the potential of a reduced rate structure from the copyright office.

Regardless of the RIAA spin, Tuesday's landmark decision is seen as a massive win for the Webcasting community, which spent the last few months in a bitter campaign to have the CARP ruling thrown out.

Earlier this month, the anti-CARP lobby took its campaign to Washington to protest the royalty rate structure they believe would have "effectively bankrupt" the entire sector.

That came on the heels of a 'Day of Silence' protest against the ruling.

The original CARP recommendation had fixed royalty fees for Web radio stations at 14/100 of a cent per performance, retroactive to October 1998.