Update on Increased Streaming Mechanical Rates and Frozen Physical/Download Rates

CRB Decision

For more information read here.

The CRJs have not issued a public version of their ruling as yet, but this notice gives the headline rates.

It appears that physical and permanent download mechanicals will continue to be frozen at no more than 9.1 cents minimum statutory.

This appears to mean that the mechanical for “physical phonorecords” and permanent downloads has been frozen since 2009 and will remain frozen until 2022.  “Physical phonorecords” are CDs and vinyl and permanent downloads is iTunes.  These configurations are not nothing and are still about $800 million industry wide in the US alone for the first half of 2017 alone.  And while its declining, that’s still a lot of songs.


The Music Modernization Act Could Make One Small Change in Favor of Songwriters: Put the Copyright Office on a Schedule

Readers may be wondering why we haven’t seen a solution to the mass NOI loophole in the controversial Music Modernization Act or otherwise.  (For background, read my article on the subject from the ABA Entertainment & Sports Lawyer last year.)

There is one solution to the NOI loophole problem that is entirely within the power of the Congress to solve immediately–instruct the Librarian of Congress to require the Copyright Office to get the lead out on processing copyright registrations.  The current turn around time is over six to eight months for electronic filing and eight to 10 months for paper registrations! These bureaucratic delays have a disastrous effect on new registrations (usually new releases) that get caught up in the mass NOI loophole because the registration does not appear in the public records of the Copyright Office until the Copyright Office processes a registration.

Ordering the Copyright Office to bust a move is not an ideal long term solution to closing the mass NOI loophole.  It is a solution that commends itself by the speed with which the operational change could be accomplished.  Because it is the Congress requiring a change to the operational efficiency of the Library of Congress, I personally don’t believe this instruction would require anything like an Act of Congress to accomplish, or even regulations.  Surely not even the federal government requires passing a law to order a government agency to accomplish that which they already have the statutory authority to do,  just do it more efficiently.  The issue could probably be solved with a phone call, strong letter to follow.

It’s fair to say that songwriters should accept as a given that the Congress does not intend to fix the mass NOI problem.  To my knowledge, there has been no official discussion of the issue by any Member of Congress, much less the Copyright Office itself, and the Music Modernization Act doesn’t solve the problem, either, at least not retroactively.    But this shouldn’t surprise anyone because the Congress and the Copyright Office also forgot to raise the mechanical royalty rate from 1909 to 1978–sixty nine years.  And has frozen the mechanical rate for physical and downloads at 9.1 cents for thirteen years.

Failure to address the loophole will hand DiMA companies like Google, Spotify, Amazon and Pandora a sobering royalty free windfall for the period April 2016 to the effective date of the MMA.  The least Congress could do is to require the Copyright Office to start processing copyright registrations in 10 business days.  And start that schedule immediately.  

If the Copyright Office fails to process registrations in that time, there should arise after 10 business days a rebuttable legal presumption that the registration was properly filed until such time as the copyright owner filing the registration receives a conformed registration or a rejection from the Copyright Office.  The contact information for the copyright owner of the pending registration could easily be placed in a searchable database so that those wishing to file NOIs under the current regime–all 60 million or so–could be found and removed from the loophole.  So praesumptio iuris tantum to you, too.

A music user and putative compulsory licensee could challenge the presumption of a valid registration if they were sued before the registration were approved (which of course they would and do anyway as a matter of drill).  But they would still send their notice, accountings and payment to the copyright owner at the address in the new “public records” of the Copyright Office.

It’s important to note that the loophole is based entirely on whether the copyright owner is identifiable in the public records of the Copyright Office–not whether the copyright owner actually owns the copyright or has filed a registration.  It is merely coincidental that the registration is the easiest way to get into the public records of the Copyright Office.  Therefore, it is entirely appropriate that the Copyright Office include contact information from “work in progress” registrations in a more searchable format–the filing itself is arguably in the public records already as it could no doubt be obtained with a Freedom of Information Act request.

The current situation where the Copyright Office simply sits on a registration for an unlimited period of time–thus preventing the registration from appearing in the “public records” of the Copyright Office and inserting new song registrations into the loophole pool for mass NOIs–is likely unlawful and unconstitutional.  It certainly is for other types of government work like SEC filings in the securities context and parade permits in another free expression context.

Conversely, the Copyright Office promptly processes the mass NOIs while expressly and unilaterally disclaiming responsiblity for verifying whether the NOIs were filed properly.  The Copyright Office tells songwriters that their sole remedy is to sue (37 CFR Sec. 201.18(g)):

If any issue (other than an issue related to fees) arises as to whether a Notice filed in the Copyright Office is sufficient as a matter of law under this section, that issue shall be determined not by the Copyright Office, but shall be subject to a determination of legal sufficiency by a court of competent jurisdiction.

This seems to be a violation of due process on its face.

If this new solution for the government’s responsibility to copyright owners would cost money, never fear.  The Copyright Office is enjoying a financial windfall in the form of millions of dollars in filing fees for mass NOIs that should cover these costs.  Or the Congress could simply increase the Office’s budget to bring it into compliance with common sense if not its Constitutional responsibilities.  What the Office should be barred from doing is increasing the filing fees for basic copyright registrations simply because they have to pick up the very sleepy pace.

And by the way, I recall that the Constitution says something about due process and the government’s effective annexation of property rights by an unmovable government agency. The Copyright Office has had two years to fix this problem which is entirely within their operational control.  Failing to do so, Congress could act–without an Act of Congress.

Somebody needs to pick up the phone, strong letter to follow.

Why Does the Music Modernization Act Fail to Deal with Mass NOIs?

MTS readers will recall what I’ve called the “mass NOI” problem–the flawed loophole in the Copyright Act created in 1976 that the biggest digital services have turned into a cottage industry to avoid embracing comprehensive song licensing on their services.

In a nutshell, the government takes away a songwriter’s property right to control how their songs are exploited and forces songwriters to allow those songs to be reproduced and distributed by others.  This is a Bill of Rights constitutional issue because the government is prohibited by the 5th Amendment from taking property from citizens without just compensation.

The compensation in the case of the compulsory mechanical license is that the government requires the user to comply with certain requrements that increase the likelihood that the songwriter will know of the use and have the ability to chase the royalty that the government also sets as part of the “just compensation” for taking away those rights.  (Professor Richard Epstein wrote a highly influential and must-read book on the subject of “takings.”)  Thus you have the quid–the compulsory license–and the pro quo–the obligation to notify, account and pay royalties.

The government froze the mechanical royaly from 1909 to 1978 and again in 2009 for no apparent reason, but that’s another story.   Aside from the inexplicable failure of the controversial Music Modernization Act to modernize the 2009 freezing of the mechanical rate.

After the class actions filed by David Lowery and Melissa Ferrick in December 2015 and January 2016 respectively, Amazon, Google, Spotify, Pandora and others suddenly became very interested in a loophole in the Copyright Act relating to filing these notices.  If they can’t “find” the copyright owner in the public records of the Copyright Office, then these services can send their notice of intent to use (or “NOI”) to the Copyright Office and receive a rebuttable compulsory license–without the obligation to pay royalties until the copyright owner became identifiable in the Copyright Office records.

Sounds reasonable, right?  Wrong.  What may have seemed reasonable in 1976 is certainly not in 2016 or now.  Note that the obligation isn’t to find the copyright owner, the obligation is only to find the copyright owner in the public records of the Copyright Office.  The most common way for song owners to end up in those public records is by registering their songs which they are not obligated to do unless they want to sue for statutory damages and attorneys fees under the Copyright Act’s “private attorney general” provisions.  Certainly no foreign owner is obligated to register as that is a clear violation of international law.

As MTS readers know, the digital services, many of whom are represented by the Digital Media Association or the MIC Coalition, began filing these notices at the Copyright Office at a rate of millions of notices per month.  There is a growing belief that none of these services are actually attempting to find the copyright owners at all, they are simply serving all these notices on the Copyright Office.  The party in the best place to determine the legitimacy of these notices is, of course, the Copyright Office itself, which has not lifted a finger that I can see to even confirm if a sample of these notices have been correctly filed.

Now comes the Music Modernization Act (“MMA”) which has a golden opportunity to clean up the past and to require retroactive payment of royalties on all these notices–no black box required because each song has already been identified and no royalties have been paid at all to date.

Unfortunately, the MMA does nothing that I have been able to find to address the some 60 million of these notices that have been served on the Copyright Office other than to say that the MMA’s blanket license would govern and that:

previously filed notices of intention will no longer be effective or provide license authority with respect to covered activities; provided, however, that there shall be no liability pursuant to section 501 [for infringement] for the reproduction or distribution of a musical work (or share thereof) under a validly filed notice of intention through the license availability date [Jan 1 following the second anniversary of the passing of MMA].

No retroactive payment, no review of the mass NOIs, nothing except a sweep of the magic wand from Washington–because they’re here to help.  Absolution for all involved.

This is simply wrong.  The solution to the issue is to freeze the mass NOIs (since they like freezing royalties so much), review what harm has been done, and enact suitable regulations to provice the legitimate safety valve that the Congress intended in 1976.  The fact that Members didn’t anticipate the loophole seeking behavior should not be bootstrapped into a payday holiday for companies with a combined market cap of over $2 trillion in the business of search.  Otherwise, the government is rewarding loophole seeking behavior and abusing the 5th Amendment protection from takings of property without just compensation–property that is itself created by the same Constitution in the case of copyright.

But the MMA misses this opportunity to right a wrong.   As songwriter Guy Forsyth said in his iconic “Long Long Time,” Americans are freedom loving people and nothing says freedom like getting away with it.