On Friday, the U.S. Court of Appeals for the District of Columbia Circuit held that the Copyright Royalty Board—at least as currently established—is unconstitutional.  The D.C. Circuit’s decision in Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board and Library of Congress, 11-1083, eliminated portions of the Copyright Act in order to extricate the offensive provisions and allow the Copyright Royalty Board to remain viable.

The three Judge Copyright Royalty Board (“CRB”) was created by the 2004 revisions to the Copyright Act.  The CRB determines the terms (most importantly the rates) for statutory copyright licenses—such as for cable, internet and satellite exploitations of music—dictating the rate for billions of dollars in licensing since its formation.

The CRB Judges are appointed by the Librarian of Congress, which creates the Constitutional dilemma here—and was the basis for the appeal by Intercollegiate Broadcasting Services (“IBS”).  IBS, an association of college radio stations transmitting music over the internet, challenged the rates fixed by the CRB for educational and noncommercial webcasters. IBS argued that the CRB violates the Appointments Clause of the U.S. Constitution, which requires that all officers who hold “significant authority” be appointed by the President and confirmed by the Senate. 

Almost exactly three years ago, in a concurring opinion in SoundExchange, Inc. v. Librarian of Congress, Judge Kavanaugh of the D.C. Circuit explained:

[B]illions of dollars and the fates of entire industries can ride on the [CRB]’s decisions. The [CRB] thus exercises expansive executive authority analogous to that of, for example, FERC, the FCC, the NLRB, and the SEC.  But unlike the members of those similarly powerful agencies, since 2004 [CRB Judges] have not been nominated by the President and confirmed by the Senate. Instead, as a result of a 2004 statute[CRB Judges] are appointed by the Librarian of Congress alone. . . . Moreover, in exercising important duties, [CRB Judges] are apparently unsupervised by the Librarian of Congress or by any other Executive Branch official.

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[CRB Judges] plainly are officers of the United States. And they appear to be principal officers – not inferior officers – because they are not removable at will and their decisions regarding royalty rates apparently are not reversible by the Librarian of Congress or any other Executive Branch official.

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If  [CRB Judges] are in fact principal officers, then the present means of appointing [CRB Judges] is unconstitutional. But no party here has timely raised a constitutional objection. We therefore may resolve the case without deciding whether the Board is constitutionally structured, and so I join the opinion of the Court.

Taking Judge Kavanaugh’s suggestion, IBS properly and timely raised the issue.  And, of course, the D.C. Circuit agreed with IBS and Judge Kavanaugh’s prior reasoning, ruling that the appointment of judges to the CRB by the Librarian of Congress violated the Constitution’s appointments clause. The court explained that CRB judges exercise a significant ratemaking authority without any substantial oversight; they can only be removed for misconduct and their rulings are final.  The rulings by these judges affect various industries.  As such, CRB Judges are “principal officers,” who should be appointed by the President and confirmed by the Senate, leading the court to hold that “without the unrestricted ability to remove the [CRB] judges, Congress’ vesting of their appointment in the librarian rather than in the President violates the appointments clause.”

In order to solve the unconstitutional nature of the CRB’s current structure, the D.C. Circuit invalidated and severed the portion of the Copyright Act limiting the Librarian’s ability to remove the CRB Judges.  “With unfettered removal power, the librarian will have the direct ability to ‘direct, supervise,’ and exert some ‘control’ over the judges’ decisions,” the Court explained.  This, in turn, makes the CRB Judges validly appointed “inferior” officers not subject to presidential approval.  “With such removal power in the Librarian’s hands, we are confident that the Judges are ‘inferior’ rather than ‘principal’ officers, and that no constitutional problem remains.” 

The CRB’s ruling as to the rates to be paid by IBS was deemed void.  The impact of the D.C. Circuit’s holding is being debated–some suggesting that it will not impact prior CRB rulings, others stating that all such rulings may be subject to attack.