CARP Controversy Back on Front Burner

The controversy over a royalty rate structure for Internet radio streams has
again been pushed to the front burner with news that both the Recording
Industry Association of America (RIAA) and a group of webcasters will appeal
the CARP

There is no word on when the actual appeals will be filed but briefs are
expected to be submitted to U.S. Court of Appeals for the D.C. Circuit later
this year.

While the move by the Internet radio broadcasters to challenge the ruling
had been expected, the RIAA decision to file a court appeal further adds
fuel to the fire that has boiled since the Library of Congress accepted the
CARP recommendation for a per-performance royalty fee of 0.07 cents.

“The RIAA intends to argue that the Librarian’s interpretation of the deal
with Yahoo! was incorrect, and that the Librarian improperly threw out 140
licensing deals that the record companies and RIAA signed with webcasters
and other similar companies,” the association said.

The CARP found that the RIAA/Yahoo agreement represented
“the best evidence of what rates would have been negotiated in the
marketplace between a willing buyer and a willing seller.”

Interestingly, both sides point to the CARP use of the Yahoo deal as creating grounds for an appeal. “The Librarian of
Congress was duped by Yahoo’s self-serving testimony in the CARP. Yahoo
testified in the CARP for one reason, and one reason only — to lower the
rate that would be paid for Internet-only transmissions, Yahoo’s principal
business,” the RIAA complained.

It plans to argue in the appeal that the Copyright Office mistakenly
concluded that “Yahoo’s business model is unique, unlike webcasters that
create their own programming, Yahoo merely offers programming by AM/FM radio
stations and other webcasters.”

“Nothing could be further from the truth. At the time Yahoo! testified, it
had already acquired and intended to commit significant resources
to Internet radio,” the association said. It will argue in its court
appeal that Yahoo downplayed its Internet-only business during the CARP
process “to obtain a lower royalty rate, and in fact, days after the
Librarian’s decision, announced it was closing down its entire radio
retransmission business.”

“If the Librarian had correctly based his decision on Yahoo’s actual
business plans rather than the firm’s self-serving testimony, the final
royalty rate would have been significantly higher,” the RIAA said.

RIAA CEO Hilary Rosen argued that the eventual decision was based on a
“misguided reading of the record.”

“Not only was improper weight given to the testimony of Yahoo! but some 140
separate licensing deals were thrown out by the Librarian. The end result
significantly undervalued the music used by Internet radio companies,” Rosen

On the other side, 19 small commercial webcasters led by ioMediaPartners have retained the law firm
of Shaw Pittman LLP to handle its own appeal of the CARP process. The group
of 19 includes Radio Free Virgin, Live365, Radioparadise, Chatmasters
Streaming Network, SomaFM and WebMedia Consulting Inc. (DigitallyImported),
according to RAIN, which has led the
internet radio lobby.

The webcasters have long argued a per-performance rate structure would force
them out of business and, with the admission from the Librarian that the
CARP “misinterpreted” some aspects of the RIAA/Yahoo agreement, the
Webcasters will argue that the process was flawed throughout.

“One of the most significant errors by the CARP was its conclusion that the
parties must have agreed that radio retransmissions have a tremendous
positive promotional impact on sales of phonorecords — an impact that it
did not find Internet-only transmissions have — and that this promotional
impact explained the decision of RIAA and Yahoo! to set a higher rate for
Internet-only transmissions,” the Librarian said when its acceptance was

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