• Copyright Office Adopts Interim Rule Allowing Copyright Owners to Give Notice of Intent to Audit Statements of Account
  • December 26, 2013 | Authors: Seth A. Davidson; Arthur H. Harding
  • Law Firm: Edwards Wildman Palmer LLP - Washington Office
  • Faced with a year-end deadline, the Copyright Office has adopted an “interim” procedural rule that is intended to preserve copyright owners’ ability to audit cable and DBS statements of account (SOA) dating back to the 2010/1 accounting period. Because of the last-minute nature of the Office’s action, copyright owners will have, at best, a very short “window” to send out notices of intent to audit 2010/1 SOAs and cable operators should be on the lookout for such notices prior to the end of the year or shortly after the new year.

    Background. The Satellite Television Extension and Localism Act of 2010 authorized copyright owners to “audit” the semi-annual compulsory license SOAs filed by cable operators and DBS providers starting with the 2010/1 accounting period. The statute also required that a request to audit an SOA must be made within 3 years after the last day of the year in which the SOA was filed (December 31, 2013 for the 2010/1 SOA).

    Although STELA was enacted in 2010, the Office did not propose rules to implement the audit provision until June 2012. The proposed rules addressed a wide range of issues relating to the audit process, including the selection of an auditor, the scope of the audit, the number of audits that a cable operator could face in a year, and the frequency with which a particular system could be audited. The Office also proposed cost-sharing and cost-shifting rules and rules allowing operators to review the auditor’s findings and, if necessary, cure any underpayments uncovered by the auditor.

    Neither the cable industry nor the copyright owners were satisfied with the specific rules proposed by the Office and, in October 2012, NCTA and a group of copyright owners jointly submitted to the Office a compromise set of audit rules. In May 2013, the Office finally got around to soliciting comment on the proposed rules, as somewhat modified by the Office. The comments generally supported the joint proposal and opposed the Office’s modifications.

    Decision. Despite the general consensus favoring the audit rules as jointly proposed by NCTA and the copyright owners, the Office apparently is still not ready to adopt a final set of rules. Therefore, in order to preserve the ability of copyright owners to audit the 2010/1 SOAs, the Office has decided to adopt an “interim” procedural rule that only addresses the filing of notices of intent to audit. Such notices must be filed with the Copyright Office and served on the cable operator or DBS provider whose SOAs the owners want to review. This interim rule will take effect immediately on publication in the Federal Register, which the Office expects to occur on or before the end of the year.

    It is not clear at this point whether the copyright owners will rush to file notices of intent in order to preserve their audit rights with respect to 2010/1 SOAs or whether they will allow their right to review the 2010/1 SOAs to lapse while they wait for the adoption of final, substantive audit rules governing the frequency of audits, cost sharing, etc. If and when the copyright owners begin filing notices of intent to audit, the Office is required to publish information about those notices in the Federal Register; however, until the Office adopts additional rules, a cable operators that receives a notice of intent does not have to take any particular action (although it may be advisable to preserve information relating to any accounting periods specified in the notice of intent).