e 2 percent of the transfer price. Only the first person to
manufacture and distribute or import and distribute such device shall be
required to pay the royalty with respect to such device.

(2) Calculation for devices distributed with other devices. With respect
to a digital audio recording device first distributed in combination
with one or more devices, either as a physically integrated unit or as
separate components, the royalty payment shall be calculated as follows:

(A) If the digital audio recording device and such other devices are
part of a physically integrated unit, the royalty payment shall be based
on the transfer price of the unit, but shall be reduced by any royalty
payment made on any digital audio recording device included within the
unit that was not first distributed in combination with the unit.

(B) If the digital audio recording device is not part of a physically
integrated unit and substantially similar devices have been distributed
separately at any time during the preceding 4 calendar quarters, the
royalty payment shall be based on the average transfer price of such
devices during those 4 quarters.

(C) If the digital audio recording device is not part of a physically
integrated unit and substantially similar devices have not been
distributed separately at any time during the preceding 4 calendar
quarters, the royalty payment shall be based on a constructed price
reflecting the proportional value of such device to the combination as a
whole.

(3) Limits on royalties. Notwithstanding paragraph (1) or (2), the
amount of the royalty payment for each digital audio recording device
shall not be less than $1 nor more than the royalty maximum. The royalty
maximum shall be $8 per device, except that in the case of a physically
integrated unit containing more than 1 digital audio recording device,
the royalty maximum for such unit shall be $12. During the 6th year
after the effective date of this chapter, and not more than once each
year thereafter, any interested copyright party may petition the
Librarian of Congress to increase the royalty maximum and, if more than
20 percent of the royalty payments are at the relevant royalty maximum,
the Librarian of Congress shall prospectively increase such royalty
maximum with the goal of having no more than 10 percent of such payments
at the new royalty maximum; however the amount of any such increase as a
percentage of the royalty maximum shall in no even