If the music-tech industry has one major failing from which all of their messaging and legal problems flow, it is their fascination with loopholes that predictably harm creators.  Whether it’s YouTube’s nefarious reliance on a tortured interpretation of the DMCA safe harbors that bears no relation to the law, Pandora and SiriusXM’s bone headed refusal to pay statutory royalties on pre-72 sound recordings (not to mention Pandora’s purchase of a radio station in a failed attempt to pay songwriters lower royalties), Spotify’s absurdly unnecessary collision with Taylor Swift over windowing, the MIC Coalition’s ridiculous manipulation of the Department of Justice on 100% licensing, or Amazon’s bizarre fascination with compulsory licenses for which songwriters have no audit right, these companies rival each other in the undignified pursuit of loopholes.

And in particular, loopholes that hurt songwriters who can’t afford the litigation and lobbying machine that is always the not-so-veiled threat brought by all these companies.  The latest debacle is no different–mass filings of NOIs to avoid paying mechanical royalties because of a loophole that is detritus left over from the 1909 Copyright Act that is being manipulated to benefit the rich Silicon Valley companies at the expense of songwriters.

Yes, that’s right.  They’d rather pay enormous sums in filing fees that vastly exceed any royalties payable just to get out of paying royalties at all.  You have a better chance of recovering an old utility deposit from a state unclaimed property office than you have of getting mechanicals once you fall victim to this latest move.

I have been reliably informed that Google, Amazon and Music Reports among others are filing “millions” of “address unknown” NOIs with the Copyright Office based on a database that these companies are purchasing for tens of thousands of dollars from the Library of Congress (remember that the Copyright Office is under the jurisdiction of the Library of Congress).  And by the way–once they file this NOI, they don’t pay royalties until the copyright owner can be identified in the records of the Copyright Office.  Regardless of how easily the copyright owner could be found in other readily accessible databases.

Mystified?  I will explain.  Rest assured, you’re not the only one who is surprised.  And remember that bit about the utility deposit, we’ll come back to that one.

As you read this post, remember one thing–it didn’t have to be this way.  This is all happening for the same reason.  Google, Amazon, Spotify, and likely soon Pandora (for its yet-to-be-launched on demand service) are all far more likely to take the legalistic and aggressive route rather than reach out to the songwriting community to work cooperatively to find a solution.

One music tech executive told me, we decide what’s fair and then we jam it down your throat.

That doesn’t work.

Mechanical Licensing and the Compulsory License

For one reason or another, the U.S. Government has a tradition of being very interested in regulating songwriters.  The Copyright Act of 1909 established the baseline rules that compel songwriters to license their songs and sets the terms on which those songs are licensed including the royalty rate.

Even if you are not troubled by this degree of attention that is probably the original wage and price control, it would be nice if the USG is going to pay enough attention to songwriters that they set the price at which they can license their work, that the same USG not forget to raise that rate for 60-odd years.

That’s right–the government set the mechanical rate in 1909 at 2 cents and refused to raise it until 1978 (as part of the 1976 Copyright Act revision).  Adjusted for inflation, that 2 cent rate would now be about 80 cents.  Instead, it’s been 9.1 cents for the last 10 years.

The current compulsory license law was crafted in 1909 and slightly amended in 1976, and amended again a couple times to include the concept of “digital phonorecord deliveries” which essentially makes that compulsory applicable to streaming.

The 1976 Act also got rid of the copyright registrations that formed the basis of copyright under the 1909 Act with the exception of requiring a registration to sue for statutory damages and attorneys fees in a copyright infringement lawsuit.  (Not quite that straight a line, but that’s where we ended up.)

But here’s the twist–the compulsory license rules are a notice based system.  A music user who intends to use a song that is subject to the compulsory license must send a notice to the copyright owner.  These notices are called a “notice of intention” or “NOI”.  If you’re going to require an NOI, then how do you deal with copyright owners who cannot be found?

There was an easy answer to this that derives from the registration requirements–look them up in the Copyright Office.  If the copyright owner can’t be identified in the records of the Copyright Office, then the music user can send a notice to the Copyright Office which the Copyright Office then publishes.  Just like when your state publishes a list of unclaimed utility deposits, closed bank account balances, etc.

Now we all know that nobody uses the records of the Copyright Office to find a copyright owner, or if they use those records they don’t use them exclusively.  Most people will look first at the PRO databases, cue sheets, publisher websites, other materials like that.  When all else fails, then they look at the Copyright Office.  This is partly due to the lag time between filing a copyright registration and receiving a conformed copy of that registration (which is when it is “official”).

There is also another public record maintained by the Copyright Office called the “recordation section”.  This is where people file documents relating to works of copyright, such as a notice of assignment or a mortgage of copyright (which is kind of like a UCC-1 financing statement).  The recordation section requires paper filings and typically only ingests a handful of titles from a large acquisition.  That results in a filing of “‘Yesterday’ and 10,000 other songs” or something along those lines.

In other words, the recordation section is not all that reliable either–and neither is dispositive because there hasn’t been a registration requirement for decades.  Is it a good practice to register?  Yes.  Is it required to have valid copyright?  No.

And it’s particularly not required for non-US songwriters.  In fact, there’s a good argument that a registration requirement in order to enjoy your rights (such as the statutory mechanical royalty, however poorly handled by the government) is actually barred by the Berne Convention’s prohibition on formalities.

Yet, the U.S. Copyright Act allows a valid compulsory license to issue for a copyright owner who may be listed in the PRO databases, may be a foreign copyright owner, or be under license (even direct license) for other songs with the same music user–if that copyright owner of a particular song cannot be identified from the public records of the Copyright Office–as determined by the music user.

Now why is this a moral hazard that should not be resolved by the music user?

Because the Copyright Act also provides that the music user filing that “address unknown” NOI is not required to pay royalties until that copyright owner is identifiable in the public records of the Copyright Office.

And who decides if the NOI is properly filed for the right song title?  That’s right–the music user.  Who is incented to play games with the song metadata?  That’s right–the music user.

So what comes next should be of no surprise given the bad advice that these giant companies receive about their artist and writer relations.

Continued in Part 2.