An Analysis of Title I and Title III of The Music Modernization Act, Part 2 of 2 (Guest Blog Post)
Guest Blog Post by Tyler Ochoa
[This is part 2 of a 2-part series on the Music Modernization Act. Check out part 1 before reading this post.]
The Musical Works Database
One of the most important provisions in the MWM Act is the provision requiring the Collective to “establish and maintain a database containing information relating to musical works (and shares of such works) and, to the extent known, the identity and location of the copyright owners of such works (and shares thereof) and the sound recordings in which the musical works are embodied.” [17 U.S.C. §115(d)(3)(E)(i)] The database shall include the title of the work, the copyright owner(s) and ownership percentage(s), contact information for the copyright owner (if known), and “to the extent reasonably available,” “the international standard musical work code” for the work, and “identifying information for sound recordings in which the musical work is embodied,” including titles, featured artists, sound recording copyright owners, producers, and international standard recording code. [17 U.S.C. §115(d)(3)(E)(ii)] “[T]o the extent practicable,” musical work copyright owners have an obligation to “engage in commercially reasonable efforts” to supply such information to the Collective. [17 U.S.C. §115(d)(3)(E)(iv)] The statute also contemplates that there will be “unmatched works,” or shares of works, for which a copyright owner cannot be identified or located (i.e., orphan works), for which the database will include as much of the information as is known. [17 U.S.C. §115(d)(3)(E)(iii)] Most importantly, “[t]he musical works database shall be made available to members of the public in a searchable, online format, free of charge.” [17 U.S.C. §115(d)(3)(E)(v)] The database must also be made available “in a bulk, machine-readable format, through a widely available software application,” free of charge to digital music providers, significant nonblanket licensees, authorized vendors of the above, and the Register of Copyrights; and “for a fee not to exceed the marginal cost of providing the database” to “any other person or entity.” [Id.]
The Collective is also required to “maintain a current, publicly accessible list of blanket licenses” and another list of “notices of nonblanket activity” of significant nonblanket licensees, including contact information for both types of licensees and effective dates. [17 U.S.C. §115(d)(3)(F)]
Collecting and Distributing Royalties
Digital music providers must report and pay royalties to the Collective each month, 45 calendar days after the end of the monthly reporting period. [17 U.S.C. §115(d)(4)(A)(i)] The reports “shall be in a machine-readable format that is compatible with the information technology systems” of the Collective, and must include usage data for musical works under the blanket license, and for voluntary licenses and individual download licenses, along with identifying information for each sound recording and information concerning the authorship and ownership of each musical work. [17 U.S.C. §115(d)(4)(A)(ii),(iii)] The provider “shall engage in good faith, commercially reasonable efforts” to obtain this information from sound-recording copyright owners. [17 U.S.C. §115(d)(4)(B)]
Upon receiving “reports of usage and payments of royalties from digital music providers for covered activities,” the Collective has five obligations: (I)(aa) to “engage in efforts to” identify the musical works and their copyright owners, (bb) to confirm uses subject to voluntary licenses and individual download licenses, and calculate the amounts to be deducted from the royalties otherwise due under the blanket license, and (cc) to confirm payment of royalties due; (II) to distribute royalties to copyright owners that can be identified and located; and (III) to deposit unclaimed or disputed royalties into an interest-bearing account. [17 U.S.C. §115(d)(3)(G)(i)] Any additional royalties that are collected as a result of enforcement efforts shall be distributed in the same manner on a pro rata basis. [17 U.S.C. §115(d)(3)(G)(ii)]
A digital music provider is in default if it fails to file a monthly report, to make a monthly royalty payment or late fee payment when due, or to pay its administrative assessment, or if it provides a monthly report that is “materially deficient as a result of inaccurate, missing, or unreadable data” that was available to it; or if after being provided written notice, the provider refuses for at least 60 days to comply with any other material term. [17 U.S.C. §115(d)(4)(E)(i)] The Collective must then send written notice “describing with reasonable particularity the default,” and giving the provider 60 days to cure the default. [17 U.S.C. §115(d)(4)(E)(ii)(I)] If the provider fails to cure the default within 60 days, the blanket license automatically terminates, leaving the provider liable to an infringement action. [17 U.S.C. §115(d)(4)(E)(ii)(II)] The provider may seek judicial review of any such termination in U.S. District Court. [17 U.S.C. §115(d)(4)(E)(iv)]
No more than once every three years, the Collective may audit the records of a digital music provider to verify the accuracy of its royalty payments for the preceding three years. [17 U.S.C. §115(d)(4)(D)(I)] If there is an underpayment of ten percent or more, the digital music provider must pay the reasonable costs of the audit as well as paying the underpaid royalties. [17 U.S.C. §115(d)(4)(D)(VI)] The statute of limitations for any action to collect underpaid royalties is 6 years after the audit is commenced. [17 U.S.C. §115(d)(4)(D)(VII)]
If the musical work copyright owner cannot be identified or located, the Collective is required to hold the royalties in an interest-bearing account for at least three years after the royalties were accrued or received (whichever period expires sooner). [17 U.S.C. §115(d)(3)(H)] (Exactly how royalties could be received before they accrued is left unexplained.) If the musical work copyright owner is identified and located during that three-year period, the Collective shall pay the accrued royalties and a proportionate share of the interest to the copyright owner. [17 U.S.C. §115(d)(3)(I)]
The Collective must “maintain a publicly accessible online facility … that lists unmatched musical works (and shares of works)” and “engage in diligent, good-faith efforts to publicize … the ability [and procedures] to claim unclaimed accrued royalties for unmatched musical works.” [17 U.S.C. §115(d)(3)(J)(iii)] The Collective must also establish policies and procedures “to address in a timely and equitable manner disputes relating to ownership interests in musical works … and allocation and distribution of royalties.” [17 U.S.C. §115(d)(3)(K)(iii)]
If royalties for an “unmatched” work remain unclaimed after three years, the Collective shall distribute the unclaimed royalties and interest to other musical work copyright owners, “in a transparent and equitable manner based on data indicating the relative market shares of such copyright owners.” [17 U.S.C. §115(d)(3)(J)(i)(II)] (Market shares are to be based on usage data reported to the Collective, but the Collective “shall take appropriate steps to safeguard the confidentiality and security of” the data. Id. The Act does not specify how the Collective is to harmonize “transparency” with “confidentiality.”) “The first such distribution shall occur on or after January 1 of the second full calendar year to commence after the license availability date.” [17 U.S.C. §115(d)(3)(J)(i)(I)] The license availability date is January 1, 2021, so the date specified to begin distributions is “on or after” January 1, 2023. This creates a logical conundrum, since reports and royalties are only due beginning on the license availability date, so the three-year waiting period cannot have expired before January 1, 2024. One suspects this is simply a typographical error, and that Congress will likely be asked to fix it sometime before then. In any case, subsequent distributions must take place at least once every calendar year after that. [17 U.S.C. §115(d)(3)(J)(i)(I)] Musical work copyright owners must then pay at least 50 percent of those distributions to songwriters, in proportion to the reported usage of their musical works. [17 U.S.C. §115(d)(3)(J)(iv)]
The Collective is not liable for “good-faith administration of policies and procedures adopted and implemented to carry out” these provisions, “except to the extent of correcting an underpayment or overpayment of royalties.” “Good-faith administration” means “in a manner that is not grossly negligent.” [17 U.S.C. §115(d)(11)(D)] However, “the collective may participate in a legal proceeding as a stakeholder party if the collective is holding funds that are the subject of a dispute between copyright owners.” [Id.] “The holding and distribution of funds by the [Collective] … shall supersede and preempt any State law … concerning escheatment or abandoned property.” [17 U.S.C. §115(d)(11)(E)] Whether distributing unclaimed royalties to other copyright owners complies with the Due Process Clause of the Fifth Amendment, however, is a serious and open question.
The Collective “shall insure” that its records “are preserved and maintained in a secure and reliable manner” for at least seven years after creation or receipt. [17 U.S.C. §115(d)(3)(M)(i)] No more than once a year, a copyright owner may audit the records of the Collective to verify the accuracy of its royalty payments for any or all of the preceding three years (except that it may not audit the records for any calendar year more than once). [17 U.S.C. §115(d)(3)(L)(i)(I)]
Section 102(f) of the MWM Act directs the Copyright Office to prepare a report recommending best practices to “identify and locate musical work copyright owners with unclaimed accrued royalties,” “encourage musical work copyright owners to claim” those royalties, and “reduce the incidence of unclaimed royalties.” The report is due to Congress no later than 2 years after the initial designation of the Collective (which will occur no later than July 8, 2019).
The Digital Licensee Coordinator
The Act also authorizes the Register of Copyrights to designate a “digital licensee coordinator” to participate in certain proceedings. [17 U.S.C. §115(d)(5)] The digital licensee coordinator shall be a nonprofit, not owned by any other entity, endorsed and supported by “digital music providers and significant nonblanket licensees that together represent the greatest percentage of the licensee market for uses of musical works in covered activities … over the preceding 3 full calendar years” (again, “preceding” what is not specified; the best answer is preceding the designation date), and it must demonstrate it has or will have the administrative capability to perform its required functions. [17 U.S.C. §115(d)(5)(A)] As with the Collective, the Register must make the initial designation no later than July 8, 2019, and must revisit the designation every five years after that. [17 U.S.C. §115(d)(5)(B)(i),(ii)] Unlike the Mechanical Licensing Collective, however, “[i]f the Register of Copyrights is unable to identify an entity that fulfills each of the qualifications … the Register may decline to designate a digital licensee coordinator.” [17 U.S.C. §115(d)(5)(B)(iii)] In that case, statutory references to the digital licensee coordinator may be ignored; except that sometimes the statute allows digital music providers and significant nonblanket licensees representing more than half the licensee market to participate instead of the digital licensee coordinator. [e.g., 17 U.S.C. §115(d)(7)(D)(v)]
The digital licensee coordinator is authorized to perform the following eight functions: (I) create a governance structure, criteria for membership, and establish dues; (II) help enforce notice and payment obligations for the administrative assessment; (III) initiate and participate in proceedings before the Copyright Royalty Board with regard to the administrative assessment; (IV) initiate and participate in proceedings before the Copyright Office; (V) gather and provide documentation for use in proceedings before the Copyright Royalty Board; (VI) maintain records of its activities; (VII) assist in publicizing the ability of copyright owners to claim royalties for unmatched musical works; and (VIII) any other activities that are “necessary or appropriate” to fulfill its responsibilities. [17 U.S.C. §115(d)(5)(C)(i)]
Significant Nonblanket Licensees
A “significant nonblanket licensee” is defined as any entity that engages in covered activities outside the blanket license, if it exceeds a certain size: either (I) it makes more than 5,000 different sound recordings available on a single day, or (II) it has revenue that exceeds $50,000 in any calendar month, or $500,000 in any 12-month period. 17 U.S.C. §(e)(31). Each such licensee must identify itself to the Collective, 45 days after January 1, 2021 (or 45 days after the end of the first month in which it qualifies); and each must report its usage activity to the Collective and pay its administrative assessment each month, due 45 days after the end of the month. [17 U.S.C. §115(d)(6)(A)(i),(ii)] If an entity ceases to qualify, it may notify the Collective and cease reporting; but it must resume reporting again if it reaches the threshold size. [17 U.S.C. §115(d)(6)(A)(iii)]
If the Collective becomes aware of a significant nonblanket licensee that is not complying with the reporting or payment requirement, it must report that entity to the digital licensee coordinator [17 U.S.C. §115(d)(6)(B)]; and either may commence an action in U.S. District Court to obtain an injunction and damages. [17 U.S.C. §115(d)(6)(C)] Absent excusable neglect, the court must award treble the administrative assessment due, plus reasonable attorney’s fees and costs. [17 U.S.C. §115(d)(6)(C)(i)]
Subsection (d)(9)(A) provides that a blanket license shall supersede existing compulsory licenses for digital phonorecord delivery, with one exception. “On the license availability date [January 1, 2021], a blanket license shall … be automatically substituted for and supersede any existing compulsory license previously obtained under this section … to engage in … covered activities with respect to a musical work.” [17 U.S.C. §115(d)(9)(A)] (Recall that “covered activity” is limited to “digital phonorecord delivery of a musical work, including in the form of a permanent download, limited download, or interactive stream.” [17 U.S.C. §(e)(7)]) The exception is “that such substitution shall not apply to any authority obtained from a record company pursuant to a compulsory license to make and distribute permanent downloads unless and until such record company terminates such authority in writing to take effect at the end of a monthly reporting period, with a copy to the mechanical licensing collective.” [17 U.S.C. §115(d)(9)(A)]
This section is ambiguous, with two possible meanings. It could mean that if a digital music provider wants to engage in covered activity, it must either do so on an individual work-by-work basis, or obtain a blanket license; and that if it obtains a blanket license, that blanket license supersedes any individual licenses (except a permanent download license, which will continue in effect unless and until the record company terminates it in writing, in which case the blanket license will supersede it at the beginning of the next month). Or, it could mean that the substitution of “a blanket license” is mandatory, whether or not the digital music provider wants a blanket license or attempted to obtain one. Given that Congress used the words “may obtain a blanket license” in subsection (d)(2), and provided a procedure for obtaining the blanket license as an alternative to an individual license, the better reading is the first one; but litigation about the meaning of this section certainly is possible.
Subsection (d)(9)(B) provides: “Except to the extent provided in subparagraph (A), on and after the license availability date [January 1, 2021], licenses other than individual download licenses obtained under this section for covered activities prior to the license availability date shall no longer continue in effect.” Grammatically, there are four possible ways to read this section:
- “[Except as provided in (A),] licenses // other than individual download licenses obtained under this section for covered activities prior to the license availability date // shall no longer continue in effect.” This is the only reading that definitely can be excluded, because it does not specify which licenses “shall no longer continue in effect.” Surely Congress did not intend to nullify all licenses (or all those relating to musical works).
- “[Except as provided in (A),] licenses // other than individual download licenses obtained under this section for covered activities // prior to the license availability date shall no longer continue in effect.” In other words, unless subsection (A) applies, one needs to get a new license [individual or blanket] after January 1, 2021. This reading is possible, but unlikely, because there is an implicit verb missing. If this reading was intended, it should have said “licenses … made or obtained or entered into prior to the license availability date shall no longer continue in effect.”
- “[Except as provided in (A),] licenses // other than individual download licenses obtained under this section // for covered activities prior to the license availability date shall no longer continue in effect.” This further limits the licenses that “shall no longer continue in effect” to those “for covered activities” (meaning that licenses for things other than digital phonorecord delivery would continue in effect); but it suffers from the same grammatical problem as the second reading, thereby also making it unlikely.
- “[Except as provided in (A),] licenses // other than individual download licenses // obtained under this section for covered activities prior to the license availability date shall no longer continue in effect.” This reading makes the most sense grammatically, as the clause “prior to” now modifies the verb “obtained.” Under this reading, section 115 licenses for covered activities (digital phonorecord delivery) obtained prior to January 1, 2021 shall no longer continue in effect, with two exceptions: 1) individual download licenses may continue in effect; and 2) licenses that are automatically substituted under (A) or that are exempt from automatic substitution under (A) may continue in effect. The only significant objection to this reading is that it is redundant, because the “individual download licenses” that continue in effect under subparagraph (B) overlap substantially with the “permanent downloads” that may continue in effect under subsection (A). Nonetheless, this appears to be the best reading of this poorly-written subsection.
Subsection (d)(9)(C) provides: “A voluntary license for a covered activity in effect on [January 1, 2021] will remain in effect unless and until the voluntary license expires according to [its] terms … or the parties agree to amend or terminate [it].”
Subsection (d)(9)(D) provides that as of the enactment date (October 11, 2018), “the Copyright Office shall no longer accept notices of intention with respect to covered activities,” and that “notices of intention filed before [October 11, 2018] will no longer be effective or provide license authority with respect to covered activities.” However, if a valid notice of intention was filed with the Copyright Office before October 11, 2018, the person who filed it cannot be held liable for infringement for covered activities before January 1, 2021.
Limitation on Liability
If a digital music provider complies with certain requirements, then the copyright owner’s “sole and exclusive remedy” against the provider for engaging in covered activities between January 1, 2018 and January 1, 2021 is limited to the royalty for digital phonorecord deliveries established by the Copyright Royalty Judges. [17 U.S.C. § 115(d)(10)(A)] The four requirements are (i) within 30 days after first making a musical work available (or within 30 days after enactment), the provider “shall engage in good-faith, commercially reasonable efforts to identify and locate each copyright owner of such musical work,” including obtaining information from the sound recording copyright owner, and using a “bulk electronic matching process” provided by a third-party vendor (or its own such process, if comparable or better); (ii) the matching efforts must be repeated once a month “for so long as the copyright owner remains unidentified or has not been located”; (iii) if the matching effort is successful within the first 30 days, the provider “shall provide statements of account and pay royalties” to the copyright owner; and (iv) if the matching effort is not successful within the first 30 days, the provider shall accrue and hold royalties until they “can be paid to the copyright owner or are required to be transferred to the” Collective. [17 U.S.C. § 115(d)(10)(B)] Accrued royalties (with statements) must be paid within 45 days after the end of the calendar month in which the musical work copyright owner was identified and located, with monthly statements and royalties thereafter. [17 U.S.C. § 115(d)(10)(B)(iv)(II)] If the owner is not identified or located by January 1, 2021, then the provider must transfer the accrued royalties (with statements) to the Collective no later than February 15, 2021. [17 U.S.C. § 115(d)(10)(B)(iv)(III)] No late fees accrue until royalties are due to be paid or transferred. [17 U.S.C. § 115(d)(10)(B)(v)] The statute of limitations for these royalties is the later of three years from the date of accrual, or two years from January 1, 2021. [17 U.S.C. § 115(d)(10)(C)]
The MWM Act extends the existing antitrust exemption to “negotiations and agreements between and among copyright owners and persons entitled to obtain a compulsory license for covered activities,” including with respect to the administrative assessment. [17 U.S.C. § 115(d)(11)(A)] Except for the administrative assessment and interim rates and terms, “neither the [Collective] nor the digital licensee coordinator shall serve as a common agent with respect to the establishment of royalty rates or terms.” [17 U.S.C. § 115(d)(11)(B)] The antitrust exemption also extends to the Collective’s administration of voluntary licenses, except that each copyright owner must establish its own rates and terms for voluntary licenses, without acting in concert with other copyright owners; each digital music provider must agree to rates and terms individually, without acting in concert with any other digital music providers; and the Collective must keep the voluntary licenses confidential (to avoid conscious parallel behavior). [17 U.S.C. § 115(d)(11)(C)] Finally, the Register of Copyrights may “adopt such regulations as may be necessary or appropriate to effectuate the” Act, subject to judicial review under the Administrative Procedure Act. [17 U.S.C. § 115(d)(12)(A),(B)]
Performing Rights Organizations
Performing rights organizations (PROs) license the right to publicly perform any of the musical works in their repertoire, collect the royalties, and distribute them to musical work copyright owners. The three longstanding PROs are ASCAP (American Society of Composers, Authors and Publishers, BMI (Broadcast Music, Inc.), and SESAC (originally the Society of European Stage Authors and Composers, but now open to American copyright owners as well). They were recently joined by a new invitation-only PRO for musical work copyright owners called Global Music Rights (GMR).
Both ASCAP and BMI were sued by the Justice Department on antitrust grounds in the 1940s. Those cases were settled with consent decrees that require them to accept all musical work copyright owners with at least one published piece of music, and that limit the duration of their exclusive contracts to two-year terms. Most importantly, if a licensee is unhappy with the rates charged by ASCAP or BMI, the licensee may challenge those rates in the U.S. District Court for the Southern District of New York, which will determine a reasonable rate. (SESAC and GMR do not operate under consent decrees, so they may set rates without court review.)
Until now, successive rate proceedings for each PRO were typically assigned to the same judge each time (provided that judge was still active), on the theory that the judge had continuing jurisdiction over the consent decree and would already be familiar with the consent decrees, the parties, and the methodology. To overcome any actual or perceived bias, however, section 104(b)(1)(B) of the MWM Act provides that rate proceedings will now be “randomly assigned to a judge of that district court according to the rules of that court for the division of business among district judges,” except that such rate proceedings specifically shall not be assigned to “a judge to whom continuing jurisdiction over … any performing rights society consent decree is assigned or has previously been assigned,” or to a judge to whom any other rate proceeding has been assigned. Under section 104(b)(1)(C), however, this random assignment does not apply to proceedings under 17 U.S.C. § 513, which provides that individual proprietors who own seven or fewer non-publicly traded establishments may challenge the ASCAP or BMI rates either in the Southern District of New York, or in the District Court “that is the seat of the Federal circuit … in which the proprietor’s establishment is located.” Moreover, under section 104(b)(2), the judge with continuing jurisdiction over the consent decree will still construe the meaning of any terms in the consent decree; he or she is divested only of rate-setting proceedings.
“In April 2018, the Antitrust Division of the Department of Justice announced its intention to review over 1300 ‘legacy’ consent decrees, including those governing ASCAP and BMI.” [<a href=https://www.copyright.gov/legislation/mma_conference_report.pdf >Goodlatte Report</a>, p. 13] This action was announced despite the fact that “[i]n 2016, the Department of Justice concluded a multi-year review of these [two] decrees, determined that they still serve the public interest, and declined to modify the decrees.” [Id.] In the legislative history, Congress expressed its concern that “sections of the legislation assume the continued existence of the decrees,” and that “terminating the ASCAP and BMI decrees without a clear alternative framework in place would result in serious disruption in the marketplace.” [Id., pp. 13-14] Accordingly, section 105 of the MWM Act provides that on request, the Justice Department must brief the members of the House and Senate Judiciary Committees on the status of these two reviews [§105(b)(1)]; and before the Justice Department may make a motion to terminate either of the two consent decrees, it must notify the Chairmen and ranking members of those Committees, provide a report on the process and any public comments received [§105(c)(2)], and brief Congress on “the impact of the proposed termination on the market for licensing the public performance of musical works.” [§105(c)(1)(B)]
The Digital Audio Transmission Right for Sound Recordings
The Copyright Act provides to sound recording copyright owners an exclusive right “to perform the copyrighted work publicly by means of digital audio transmission.” [17 U.S.C. § 106(6)] The digital audio transmission right is subject to section 114(d), which splits such transmissions up into three categories. Section 114(d)(1) provides that digital broadcast transmissions made by FCC-licensed broadcast stations are exempt from paying royalties to sound recording copyright owners. Section 114(d)(2) provides that non-interactive subscription transmissions (such as Sirius XM) and eligible non-subscription transmissions (such as webcasting) are subject to a compulsory license. Section 114(d)(3) provides that interactive transmissions (such as Spotify) require a negotiated license from the sound recording copyright owner. [17 U.S.C. § 114(d)]
In the absence of a voluntary agreement, the rates for the section 114(d)(2) compulsory license are set by the Copyright Royalty Board. Former section 114(f) provided for two types of rates for compulsory licenses: one for “subscription transmissions by preexisting subscription services and transmissions by preexisting satellite digital audio radio services” [Former 17 U.S.C. § 114(f)(1)] and one for “eligible nonsubscription transmission services and new subscription services” [Former 17 U.S.C. § 114(f)(2)]. The dichotomy arose because the 1998 Digital Millennium Copyright Act amended section 114 by adding “eligible nonsubsciption transmissions” to the statute and providing that those transmissions (and new subscription services) would be subject to “rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” [Former 17 U.S.C. § 114(f)(2)(B)] Because of the reliance by preexisting services on the terms of the 1995 Digital Audio Performances in Sound Recordings Act, however, Congress left the terms of the statute alone with regard to those preexisting services. In particular, Congress did not impose the “willing buyer, willing seller” standard on preexisting services.
Congress has apparently now decided that the dichotomy between preexisting services (those that existed before the DMCA) and new services (including webcasting) are no longer justified. [The legislative history refers to “the now unnecessary discount for so-called “pre-existing services” and states “[w]hatever justification for the discounts has long since vanished.” [Goodlatte Report, p. 13] Section 103 of the MWM Act eliminates the distinction between preexisting services and new services, combining both into an amended section 114(f)(1), and subjecting both to the “willing buyer, willing seller” standard. [17 U.S.C. §114(f)(1)] To placate the preexisting services (Sirius XM and Music Choice), Congress extended the existing rates for such services until December 31, 2027. [MWM Act §103(i)] The remaining three subsections (f)(3), (f)(4) and (f)(5) are renumbered as (f)(2), (f)(3) and (f)(4), but are otherwise unchanged.
Congress also repealed 17 U.S.C. §114(i), but then re-enacted the repealed language (with a new statutory exception) in section 103(c)(1) of the MWM Act (leaving the reenacted language uncodified). The language that was repealed and re-enacted states: “License fees payable for the public performance of sound recordings under section 106(6) … shall not be taken into account in any administrative, judicial, or other governmental proceeding to set or adjust the royalties payable to musical work copyright owners for the public performance of their works …” The new statutory exception states “except in such a proceeding to set or adjust royalties for the public performance of musical works by means of a digital audio transmission other than a transmission by a broadcaster.” [MWM Act §103(c)(1)] The net result is that the prohibition on introducing evidence of sound recording license fees in setting royalties for using musical works remains, except for digital audio transmissions. (Transmissions by FCC-licensed broadcasters are exempt from paying royalties to sound recording copyright owners, so they are excluded.)
What is the purpose of this repeal and re-enactment? The original purpose of former section 114(i) is evident in its original second sentence (which was not reenacted), which read: “It is the intent of Congress that the royalties payable to copyright owners of musical works for the public performance of their works shall not be diminished in any respect as a result of the rights granted by section 106(6).” Congress was apparently concerned that digital broadcasters would plead poverty, and would try to use the existence of their new royalty obligations to sound recording copyright owners (added in 1995) to reduce the royalty rates due to musical work copyright owners (collected by PROs such as ASCAP and BMI) for the public performance of their musical works. The legislative history says that the repeal was intended “to address the longstanding concern that songwriters have not been adequately compensated for their contributions and section 114(i) prevents songwriters from introducing potentially relevant evidence in rate court proceedings.” [Goodlatte Report, p. 13] In other words, songwriters (the initial musical work copyright owners) believed that introducing evidence of sound recording license fees would not harm them, and might help them, in setting royalty rates for the use of musical works. Nonetheless, because of the re-enactment with an exception, the repeal is effectively limited to rate proceedings for the use of musical works in digital audio transmissions. This apparently includes rate proceedings under the ASCAP and BMI consent decrees, plus the new blanket license for interactive streaming (which is, by definition, also a digital audio transmission).
In repealing subsection 114(i), Congress did not redesignate existing subsection 114(j). So, section 114 now has subsections (a) through (h) and subsection (j), skipping subsection (i) altogether. One suspects this will be cleaned up in a subsequent technical amendment.
Allocation for Music Producers
Title III of Public Law 115-264, the Allocation for Music Producers Act, or AMP Act, amends section 114(g) of the Copyright Act. Under existing law, section 114(g) provides that proceeds from the compulsory license for digital audio transmission of sound recordings are to be distributed as follows: 50 percent to the sound recording copyright owner, 45 percent to featured artists, 2.5 percent to non-featured musicians, and 2.5 percent to non-featured vocalists. That distribution remains unchanged, except that all references to a collecting “agent” are amended to refer instead to a “nonprofit collective” (the current nonprofit collective for the section 114 compulsory license is SoundExchange), and three new subsections are added.
New subsection 114(g)(5) requires the collective to “adopt and reasonably implement a policy that provides … for acceptance of instructions from” either sound recording copyright owners or featured artists, directing the collective to pay a portion of their share of royalties to “a producer, mixer, or sound engineer who was part of the creative process that created a sound recording.” [17 U.S.C. § 114(g)(5)(A)] These instructions are dubbed “letters of direction.” The statute does not specify any particular share of royalties to be paid to producers, mixers, and sound engineers. Letters of direction are voluntary under the statute, although one assumes that producers, mixers, and sound engineers may require them in their record contracts. (In fact, according to the legislative history, “SoundExchange has had a policy since 2004 of honoring” such letters of direction, and has approximately 2,000 already on file. [Goodlatte Report, p. 16] Thus, this section seems designed simply to give Congressional imprimatur to existing policy.
New subsection 114(g)(6) provides for mandatory payments to producers, mixers, and sound engineers who meet certain criteria, but only if they tried and failed to obtain a voluntary letter of direction, and only for sound recordings fixed before November 1, 1995, the effective date of the Digital Performance Rights in Sound Recordings Act. (“Prior to this date, producers, mixers, and sound engineers “would not have contemplated or predicted the payment of digital royalties in their contracts with an artist.” Goodlatte Report, p. 17). To be eligible, the producer, mixer, or sound engineer must certify under penalty of perjury that he or she “made a creative contribution to the creation of the sound recording” [17 U.S.C. §114(g)(6)(B)(iii)] and that he or she has a written contract with the record company or the featured artist that entitles them to a share of the featured artists’ royalties [17 U.S.C. §114(g)(6)(B)(ii)], and must submit a copy of the written contract to the collective. The producer, mixer, or sound engineer must also certify under penalty of perjury that, for at least 120 days, “that person made reasonable efforts to contact the artist payee … to request and obtain a letter of direction,” and that “the artist payee did not affirm or deny in writing the request for a letter of direction.” [17 U.S.C. §114(g)(6)(A)(i)] The collective must then attempt “in a reasonable manner” for at least 120 days to notify the artist payee of the certification. [17 U.S.C. §114(g)(6)(A)(ii)] If the artist payee does not object in writing to the collective [17 U.S.C. §114(g)(6)(A)(iii)], then the collective is required to deduct 2 percent of the total royalties from the 45 percent share due to the featured artist and pay it in equal shares to all of the producers, mixers, and sound engineers who have submitted the required certification for that sound recording. [17 U.S.C. §114(g)(6)(A),(C)] If, however, the artist payee objects in writing, then within 10 business days after receiving such objection, the collective must cease making payments to the producers, mixers, and sound engineers. [17 U.S.C. §114(g)(6)(D)] (The producers, mixers, and sound engineers may retain any royalties distributed to them before expiration of 10 business days after receipt of the objection. Id.) If there are multiple featured artists, a written objection by any such artist only terminates that artist’s share of the distribution and does not affect redistribution of the shares of those featured artists who did not object. [17 U.S.C. §114(g)(6)(F)]
New subsection (g)(7) provides that the federal law concerning distribution of these royalties preempts any state law concerning abandonment and escheat. [17 U.S.C. § 114(g)(7)] The effective date for the collective to accept letters of direction and make mandatory distributions (or, more precisely, to limit its liability for doing so) is January 1, 2020. [AMP Act §303(b)] The rest of the AMP Act went into effect upon enactment.
The MWM Act is so complex that words like “baroque” or “byzantine” are inadequate to fully capture its complexity. Instead, one can only recall the title of an article that David Nimmer wrote on the Digital Performance Rights in Sound Recordings Act, Ignoring the Public, Part I: On the Absurd Complexity of the Digital Audio Transmission Right, 7 UCLA Ent. L. Rev. 189 (2000). Like section 114 and former section 115, the subjects of that article, the new section 115 (as amended by the MWM Act) is even more absurdly complex, and it essentially ignores the public interest in favor of a negotiated agreement between existing stakeholders, exacerbating a trend toward regulatory and legislative capture first identified by Jessica Litman in her seminal article, Copyright, Compromise, and Legislative History, 72 Cornell L. Rev. 857 (1987). These statutes read like negotiated agreements between existing stakeholders because that is exactly what they are: Congress invites existing stakeholders to negotiate what they want, and it enacts whatever contractual provisions the stakeholders agree upon, so long as they keep the campaign contributions flowing.
On the plus side, the MWM Act resolves some disputes between the existing stakeholders concerning the application of former 115 to interactive streaming services, and it potentially reduces the transactions costs needed for digital music providers to obtain a license to make musical works available through such services. It also attempts to grapple with the problem of orphan works in the music industry. Indeed, creating a comprehensive musical works database and making it public is perhaps the single best thing to emerge from the Act. But those benefits come with the costs of further entrenching existing stakeholders and business models in statutory language, erecting barriers to entry for new entities in the form of an impenetrable tangle of statutory language that deters all but repeat players from engaging in the system. Moreover, distributing unclaimed royalties from orphan musical works to other musical work copyright owners seems like little more than a naked money grab. To those that complain that corporate interests have captured Congress and that the public has little to no say in the laws that Congress enacts, the MWM Act might well serve as Exhibit A.