Second Times the Fraud: DC Circuit supports Copyright Royalty Board sanctions against fraudulent royalty fee seeker

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The D.C. Circuit affirms a Copyright Royalty Board decision to sanction a copyright royalty collections agent by preventing the agent from pursuing a number of its royalty claims after the agent claimed to represent a fictitious entity to collect royalties for broadcast copyrights and engaged in other discovery misconduct. The case is Independent Producers Group v. Copyright Royalty Board, No. 18-1337 (D.C. Cir. July 21, 2020).

A Complex Statutory Scheme

The Copyright Act requires that cable and satellite companies who retransmit television programs originally aired on broadcast stations to pay certain royalty fees to the owners of the programs’ copyrights. These royalties are paid to the Register of Copyrights and the Copyright Royalty Board (CRB) distributes them to copyright owners annually after reviewing petitions for distribution by copyright claimants and settling disputes among the claimants as to their proportional share of the distribution. Claimants must certify that they are authorized to represent the copyright holder and file a royalty claim on their behalf; unless someone challenges that certification, the CRB generally applies a “presumption of validity” that a claim is facially valid and the filer is properly authorized.

Imaginary Entities

Independent Producers Group (IPG) – a royalty fee collections agent acting on behalf of various copyright claimants in the devotional and program suppliers categories – petitioned for a number of royalty distributions dating back to the late 1990’s. Other competing claimants challenged IPG’s authority to represent its copyright holders as IPG had previously brought claims on behalf of a fictitious entity (a “Tracee Productions”) and again included claims on behalf of Tracee Productions in these later distribution proceedings. The CRB had noted this fraud previously and instructed IPG to purge this entity from its filings.

Given that IPG had included Tracee Productions again among their claims for the distribution proceedings at issue in this case, coupled with false testimony provided by an IPG witness who previously had been criminally convicted of defrauding the Copyright Office in connection with false claims brought on behalf of Tracee Productions, the CRB did not completely bar IPG from representing its copyright claimants. Instead the CRB merely denied IPG the presumption of validity of its authority to represent its claimants. Yet given IPG’s subsequent refusal to substantiate its authority for a number of its claims through discovery productions, the CRB barred IPG from bringing these claims in the proceedings. IPG appealed this decision to the D.C. Circuit, arguing that this sanction was “so disproportionately harsh as to be an abuse of discretion.” Op. at 2.

On Appeal

The D.C. Circuit affirmed the CRB in all respects. Regarding the decision to deny the presumption of validity to IPG, the D.C. Circuit found that substantial evidence supported the decision, based on the false testimony of IPG’s witness, and the decision was “not so severe as to be an abuse of discretion.” Op. at 14. “The presumption allows efficient distribution of royalties…[and] the relative efficiency of such a system requires the good faith of its participants but is seriously threatened by fraud or other abuse of the presumption. The system accommodates the [CRB’s] excuse of a good-faith mistakes, but it certainly does not require the [CRB] to treat every irregularity as a good-faith error.” This made the CRB’s decision “reasonable and non-arbitrary,” particularly as the removal of this prima facie presumption merely shifts the burden to claimants to actually substantiate their claims. Op. at 14-15. In short, “IPG’s loss of a large number of claims is no draconian sanction but rather the predictable and reasonable result of IPG’s failure to document its authority to represent the copyright holders, its failure to file a complete set of claims on their behalf, and [its witness’s attempt] attempt to cover up the latter failure by blaming the Board.” Op. at 15.

The D.C. Circuit also pointed out that “IPG’s failure to produce a plainly responsive document, even accounting for IPG’s own reading of the document as ultimately exculpatory, was a blatant discovery violation,” Op. at 17, and refused to adopt IPG’s arguments that discovery sanctions standards for civil litigation in federal court should apply to proceedings before the CRB. This would be improper, said the court, as the CRB’s authority derives not from Article III of the Constitution, but Article I as a Congressionally created adjudicative body. Given their “plenary grant of adjudicative authority” over royalty distribution proceedings, the CRB’s “choice of sanction in this case, while severe, was not unreasonable." Op. at 18-19 (quoting Indep. Producers Grp. v. Librarian of Cong., 792 F.3d 132, 138 n.4 (D.C. Cir. 2015)).

IPG had also appealed the final distribution of royalties as arbitrary and capricious, which the D.C. affirmed in favor of the CRB.

Key Takeaways

The D.C. Circuit makes clear that the CRB has “plenary” power over the copyright royalty distribution system and, as such, has the authority to impose a variety of discovery sanctions on participants in CRB royalty distribution proceedings that do not necessarily mirror discovery sanction standards found in Article III federal courts. Participants in royalty distribution proceedings should take note and ensure that they possess all necessary documentation in the event the CRB’s presumption of validity is not applied to your claims.

* Significant contribution from Celine Dorsainvil.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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