The U.S. Court of Appeals for the D.C. Circuit yesterday heard the opening of oral arguments in webcasters’ appeal of the Copyright Royalty Board’s determination on royalties. The hearing was intended to focus on the soundness of the CRB’s 2007 Internet radio royalty rate decision, but attacks on the CRB’s constitutionality raised by Royalty Logic appear to have stolen the show.

Kenneth Freundlich, the attorney representing Royalty Logic, argued that the three CRB judges are sitting in violation of the appointments clause. He said the judges, who were appointed by the Librarian of Congress, are “inferior officers who can only be appointed by the president, the courts, or a department head.” Because the Librarian of Congress is not part of the courts nor is a department head, he or she cannot make appointments and therefore the CRB is not constitutional.

Royalty Logic originally challenged the CRB’s constitutionality in a motion to the federal Appeals Court in May of 2008 (RAIN coverage here). Royalty Logic, an independent royalty organization, is challenging the CRB decision because it gives SoundExchange the sole agency for collecting royalties, thereby shutting Royalty Logic out. Freundlich said the CRB’s ruling, “has created a monopoly that does not give webcasters a genuine choice in how royalty payments are collected.” Countering was Paul Smith, representing SoundExchange, who said SoundExchange is necessary because “the complexity of figuring out who gets the money is enormous.”

CRB representative Mark Freeman of the Justice Department Civil Division said the Librarian of Congress is, in fact, a department head. Freeman said the Librarian of Congress is part of the Executive Branch — not the Legislative as commonly believed — because he or she reports directly to the President. This would make any appointments by the Librarian of Congress — the CRB included — constitutional under the appointments clause.

The Court of Appeals’ judges found the issue “fascinating,” but were reportedly hesitant about “rushing in to what was collectively deemed a ‘monumentous’ decision in declaring that the judges of the Copyright Royalty Board are sitting in violation of the appointments clause.”

If the CRB is found to be unconstitutional, “it could wipe out all CRB decisions” including the current Internet radio royalty rates, according to Billboard senior correspondent for legal and publishing issues Susan Butler (RAIN coverage here).

Regardless of the CRB’s constitutionality, the Court of Appeals “still must decide whether the royalty fee structure is sound and whether an increase in fees was justified,” according to the Legal Times’ blog (here).

Arguing against the rate decision were Wiley Rein, representing noncommercial webcasters, and David Oxenford (pictured left) representing small commercial webcasters. This may be webcasters’ last chance at overturning the CRB’s high royalty rate decision, outside of a negotiated settlement with SoundExchange.

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