The U.S. Court of Appeals for the District of Columbia Circuit ruled that the position of Copyright Royalty Judges (CRJs) violates the Appointments Clause of the U.S. Constitution, but remedied the violation by invalidating and severing restrictions on the Librarian of Congress’s ability to remove the CRJs. Intercollegiate Broadcasting System Inc. v. Copyright Royalty Board, Case No. 11-1083 (D.C. Cir., July 6, 2012) (Williams, J.).

Intercollegiate Broadcasting System Inc. (Intercollegiate) is an association of noncommercial webcasters that transmit digitally recorded music over the internet to high school and college campuses. Such webcasting constitutes a digital performance under the Copyright Act and therefore entitles the owner of a song’s copyright to royalty payments. The Copyright Act, 17 U.S.C. §§112 and 114, provides a statutory license for webcasting which allows CRJs to establish reasonable licensing terms if the parties cannot themselves agree to licensing terms. Intercollegiate appealed the final determination of the CRJs that set forth royalty rates and terms applicable to internet-based webcasting of digitally recorded music.

Intercollegiate argued that, as structured, the Copyright Royalty Board violates the Appointments Clause, Art. II, §2, cl. 2, on two grounds: that the CRJs exercise of significant ratemaking authority without any effective means of control, such as unrestricted removability, qualified them as “principal” officers who must be appointed by the President with Senate confirmation; and that even if the CRJs were “inferior” officers, the Librarian of Congress is not a “Head of Department” in whom Congress may vest appointment power.

As to rulemaking authority, the Court agreed that the CRJs significant ratemaking authority coupled with the Librarian of Congress’s restricted ability to remove the CRJs, qualified them as principal officers. Specifically, the Court found that the CRJs exercised significant authority given that their ratemaking decisions have considerable consequences, as the CRJs set the terms of exchange for not only traditional media such as CDs, cassettes and vinyl, but also on digital music downloaded through iTunes and Amazon.com. The Court reasoned that such rates can mean life or death for firms and industries.

The Court further found that the fact that the CRJs could be removed by the Librarian only for misconduct or neglect of duty, further supported the finding the CRJs are principal officers. To correct the violation, the Court invalidated and severed the restrictions on the Librarian’s ability to remove the CRJs. With unfettered removal power, the Court was confident that the CRJs would be inferior, rather than principal, officers.

As to Intercollegiate’s “Head of Department” argument, the Court disagreed. The Court explained that the Librarian is a Head of Department because, among other reasons, the powers of the Library and the Board to promulgate copyright regulations, to apply statutes to affected parties, and to set rates and terms case by case are ones generally associated with executive agencies, and in such a role the Library is undoubtedly a component of the executive branch.