Category: Redesignation of the MLC and DLC

Frozen Ledgers and Living Systems: What King William’s Domesday Book Can Teach Us About the Mechanical Licensing Collective

A static record can support governance, but it cannot replace it. When a dynamic economy is ruled by a frozen ledger, injustice is structural rather than accidental. The lesson of Domesday is not to abandon centralized records, but to build institutions that acknowledge change, dispute, and time.

Introduction: The Problem of the Frozen Record

The Domesday Book was not wrong so much as frozen. It rendered a living, changing system of land tenure into a static ledger that became authoritative precisely because it could not keep up with reality. The Mechanical Licensing Collective (“MLC”) repeats this error in digital form. Musical works ownership is dynamic, relational, and contested, yet royalties flow based on a fixed snapshot that is at least potentially outdated the moment it is operationalized. In both systems, the problem is not bad data but the pretense that a static record can govern a dynamic economy without producing systemic error.[1] That’s why I always recommend Weapons of Math Destruction by Kathy O’Neil to MLC executives, which they promptly ignore. 

I argue that the failure mode is mostly structural, not technical. The technical part is relatively trivial, compared to say AI training or protein folds.  I think it could be built far quicker, far cheaper, and far more accurately than the MLC which has blown a unique opportunity to start with a blank sheet of paper and instead perpetuated the Harry Fox Agency which was founded well before FoxPro.  The lesson of Domesday is not that better enumeration solves governance problems, but that static records require institutional counterweights to prevent injustice, capture, and permanent misallocation.  That is, to prevent the MLC to be like the MLC.

Background: Two Authoritative Ledgers

A. The Domesday Book

Commissioned by William the Conqueror in 1085–1086, the Domesday Book was a comprehensive survey of landholding and economic resources in post‑Conquest England.[2] Its purpose was fiscal and administrative: to identify who held land, what that land was worth, and what obligations were owed to the Crown.[3] Domesday recorded information through sworn local inquests and was intended to be definitive.

Crucially, Domesday was never designed to be updated, at least not in real time. It froze a moment in time and became authoritative precisely because it was fixed. Almost immediately, it diverged from reality as land changed hands through death, forfeiture, re‑grant, and political favor.[4] Rather than revise Domesday, medieval England developed supplementary institutions—annual fiscal records, local courts, and royal adjudication—to manage change and dispute.[5]

B. The Mechanical Licensing Collective

The Mechanical Licensing Collective was created by Congress in Title I of the Music Modernization Act of 2018 to administer the blanket mechanical license for digital music services in the United States.[6]  (More accurately, Title I was written by the lobbyists and imposed on the world with Congress’s chop.). The MLC maintains a centralized database of musical works ownership, collects mechanical royalties from digital service providers, and distributes those royalties to songwriters and publishers.[7]

Musical works ownership, however, is inherently dynamic. Writers change publishers, estates open and close, ownership splits are disputed, and metadata is frequently incomplete or corrected only after use aka “Copyright Control.”[8] As a result, the MLC’s database—however well‑intentioned—is outdated almost as soon as it is operationalized (particularly because it was and is based on the Harry Fox Agency’s database that MLC passed off as state of the art over the objections of others).

Domesday as a Governance Tool, Not a Truth Machine

Domesday succeeded at centralizing authority, not at preserving truth over time. Land tenure in eleventh‑century England was dynamic, relational, and politically contingent. Domesday froze these relationships into an official record that quickly diverged from lived reality, yet retained legal force because it was authoritative rather than accurate.[9]. Nothing that a Norman knight with broadsword and mace couldn’t fix.

Importantly, medieval England did not rely on Domesday alone. The development of Pipe Rolls, hundred and shire courts, and royal justice provided mechanisms to contextualize, correct, and supersede the frozen record.[10]

The MLC as Digital Domesday

The MLC performs a structurally similar function today. It fixes ownership claims, establishes a canonical record, and allocates ongoing revenue streams while disputes remain unresolved. Royalties flow based on the database snapshot in effect at the time of use, even when that snapshot is known to be incomplete or incorrect.[11]

As with Domesday, authority substitutes for adaptability. The database becomes dispositive not because it reflects reality, but because it governs the flow of money. In other words, the MLC is not authoritative because it is accurate or complete; it is authoritative because Congress made its use compulsory. That’s right—it’s not authoritative because it’s accurate, it’s authoritative because it’s authorized.

Three Solutions Grounded in Domesday’s Afterlife

1. Authoritative Record Plus Living Supplement (The Pipe Roll Model)

Domesday was supplemented by the Pipe Rolls—annual fiscal records that reflected changes in obligations over time.[12] Applied to the MLC, this suggests separating baseline records from continuous reconciliation layers and treating unmatched royalties as unreconciled obligations of the MLC rather than abandoned property of the songwriter.

2. Jurisdictional Pluralism (The Hundred and Shire Court Model)

Domesday did not eliminate local adjudication. Disputes were resolved in courts that contextualized Domesday entries rather than deferring blindly to them.[13]  Similarly, ownership and split disputes should be resolved in external and independent fora, with the MLC conforming its records and payouts to those determinations.

3. No Profit from Unresolved Ownership (The No Escheat Without Judgment Model)

In medieval England, the Crown could claim land only through recognized legal mechanisms such as forfeiture or escheat.[14] Uncertainty alone did not justify enrichment.  A Domesday‑informed reform would prohibit institutional profit from unresolved ownership and require segregation of disputed funds.

By contrast, the MLC “black box” is not escheatment at all—yet it functionally resembles one-sided escheatment without due process. Under traditional escheat or unclaimed-property regimes, the state’s claim arises only after defined predicates: notice, diligence, and a lawful adjudication or administrative determination of abandonment, coupled with a public fiduciary obligation to locate the owner. The black box instead permits private retention and deployment of other people’s money based solely on unresolved ownership, without a judgment of abandonment, without a comparable duty to search for the owner, and with the economic upside of delay accruing to the intermediary rather than the missing payee.

For example, California requires some effort:

California law requires all holders (corporations, businesses, associations, financial institutions, and insurance companies) of unclaimed property to attempt to contact owners before reporting their property to the State Controller’s Office.

Holders are required to send a notice to the owner’s last known address informing them that the property will be transferred to the State Controller’s Office for safekeeping if the owner does not contact them to retrieve it.

The State Controller’s Office sends notices to all owners of property that will be transferred to the state. These notices are sent out before the property is to be transferred, giving owners an opportunity to retrieve property directly from the holder.

The constitutional problem is sharpened by Title I of the MMA, which expressly preempts state escheatment and unclaimed-property laws—but arguably does not replace them with functionally equivalent federal protections. States are forbidden to take custody of abandoned property without notice, diligence, and due process; yet the MMA authorizes a private entity to hold, invest (or so MLC argues), and ultimately distribute unmatched royalties on a market share basis (including to companies represented on MLC’s board of directors) without any finding of abandonment, without judicial process, and without a neutral public custodian.

Specifically, Title I provides at 17 U.S.C. § 115(d)(11)(E):

(E)Preemption of state property laws.—

The holding and distribution of funds by the mechanical licensing collective in accordance with this subsection shall supersede and preempt any State law (including common law) concerning escheatment or abandoned property, or any analogous provision, that might otherwise apply.

So with a waive of the hand, Title I preempts the detailed protection of escheatment traditions that date back to the doctrine of defectus sanguinis in the 12th century (the Pipe Roll of 1130 (31 Henry I)). This asymmetry raises serious Due Process and Equal Protection concerns (not to mention conflicts of interest), and potentially a Takings Clause problem: Congress may not displace state escheat safeguards and simultaneously permit private enrichment from unresolved ownership where states themselves would be constitutionally barred from proceeding without judgment and owner-protective procedures.  It also raises a classic unconstitutional state preemption without federal statute problem.[15]

Three Contemporary Reforms the MLC Could Adopt

1. Authoritative Record + Living Reconciliation Layer (The Pipe Roll Model)

Adopt a structural separation between the MLC’s baseline ownership database and a continuous reconciliation system that tracks changes, corrections, disputes, and late‑arriving claims on a monthly basis.

In practice, unmatched royalties would be treated as unreconciled obligations rather than quasi‑abandoned funds. The MLC would maintain a rolling, auditable ledger capable of updating distributions when ownership data changes, including retroactive true‑ups once claims are resolved, instead of locking outcomes to a stale snapshot.

This reform acknowledges that ownership is dynamic and prevents early database errors from permanently reallocating value.

2. Independent Adjudication with Mandatory Conformance (The Hundred and Shire Court Model)

Formally decouple ownership and split dispute resolution from the MLC’s internal processes and require the MLC to conform its records and payouts to determinations made by independent fora.

In practice, disputes would be resolved in courts, arbitrations, or designated independent neutral bodies, and the MLC would treat those determinations as binding inputs rather than discretionary metadata updates. The database would no longer enjoy a presumption of correctness when ownership is contested and disputes would not be resolved by conflicted statutory committees.

This prevents the MLC from acting as judge, jury, and paymaster and restores legitimacy to ownership determinations.

3. Mandatory Segregation and No Profit from Unresolved Ownership (The No Escheat Without Judgment Model)

Prohibit the MLC from retaining, investing, or reallocating royalties tied to unresolved ownership and incentives them to find the correct owners.

In practice, all black‑box royalties would be held in segregated custodial accounts or at least ledgers. Market‑share distributions would be barred unless and until lawful abandonment is established, and the MLC would carry an affirmative duty to search for and notify potential claimants, analogous to the duties of traditional unclaimed‑property regimes.

This removes perverse incentives to delay resolution and aligns the MLC with basic due‑process and fiduciary norms, especially critical given the MMA’s preemption of state escheat laws (which itself may be unconstitutional).

Taken together, these reforms shift the MLC away from treating a frozen ledger as dispositive authority and toward an institutional design that acknowledges change, dispute, and time—without sacrificing administrative efficiency. At $40 million a year, they should be able to pull this off or at least start slouching toward Bethlehem.

[1] S.F.C. Milsom, Historical Foundations of the Common Law (2d ed. 1981).

[2] Domesday Book (1086).

[3] R. Allen Brown, The Normans and the Norman Conquest (2d ed. 1985).

[4] J.C. Holt, Domesday Studies (1987).

[5] Mark Hagger, William: King and Conqueror (2012).

[6] Music Modernization Act, Pub. L. No. 115‑264, 132 Stat. 3676 (2018).

[7] 17 U.S.C. § 115(d).

[8] U.S. Copyright Office, Music Modernization Act Implementation Report (2019). “Copyright Control” is often a metadata band-aid: it flags that publishing info is incomplete or self-administered. The publisher share can wind up unmatched/unallocated even though ownership is knowable or is ultimately known after an indeterminate number of accounting periods.

[9] F.W. Maitland, Domesday Book and Beyond (1897).

[10] Richard FitzNigel, Dialogus de Scaccario (Dialogue concerning the Exchequer) (c. 1179).

[11] Copyright Royalty Judges, Phonorecords III & IV.

[12] Pipe Roll Society, The Pipe Roll of Henry I.

[13] Paul Brand, The Origins of the English Legal Profession (1992).

[14] Escheat is a common-law legal mechanism by which real property reverted to the Crown when a tenant died intestate and without lawful heirs. At common law, escheat required the extinction of the tenant’s line of inheritance; mere uncertainty of title or ownership was insufficient. In modern U.S. law, escheat has been adapted to intangible and unclaimed property, but it retains the same core features: notice, diligence, and a lawful determination of abandonment or lack of heirs before the sovereign (in our case a State) may take custody.

[15] See Connecticut Mutual Life Ins. Co. v. Moore, 333 U.S. 541 (1948); Texas v. New Jersey, 379 U.S. 674 (1965) (states may take custody of abandoned property only subject to procedural protections and priority rules); Cf. Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980) (interest on private funds held by a custodian remains private property; government may not appropriate economic benefits without just compensation).

The DLC Nails it on Conditional Redesignation of the MLC

I’m certainly not a fan of really any of the companies that comprise the Digital Licensee Coordinator’s membership (DLC). In fact, you probably couldn’t find a more complete rogues’ gallery of most of my least favorite Big Tech companies—but when they’re right, they’re right.

Redesignation is the Copyright Office’s periodic check on whether the Mechanical Licensing Collective still meets the Music Modernization Act’s criteria to run the §115 blanket license. The Office can renew, or replace the designation to protect songwriters and licensees. In my view and the view of many others including the Digital Licensee Coordinator, The Office could also condition any renewal (or “redesignation”) of the MLC on improving its lackluster performance and postpone the renewal until the MLC improves, if ever. That’s just common sense.

The DLC’s most recent “ex parte” letter answers years of songwriter and publisher requests that the MLC has brushed aside—better matching, transparency, governance, timeliness, metrics, and accountability. Crucially, it confronts repeated, credible criticisms that the MLC’s investment of unmatched royalties is ultra vires (outside the law): the MMA authorizes collection and distribution, not portfoio-management schemes of a fund that is likely in excess of $1.2 billion of the songwriters’ money.

The Digital Licensee Coordinator urges the Copyright Office to conditionally redesignate the Mechanical Licensing Collective (MLC) and pair that step with stronger oversight. This approach reflects common sense and Congressional intent: if redesignation weren’t meant to be used as leverage to correct course, Congress wouldn’t have created a periodic redesignation process at all—it would have handed the MLC lifetime appointments. They didn’t, as one would expect. The MLC isn’t the Harry Fox Agency after all. Conditional redesignation is therefore the appropriate tool to ensure the MLC performs its uniquely powerful statutory role responsibly, transparently, and in the interest of all rightsholders. 

The DLC stresses how the MLC’s powers—collecting and distributing over a billion dollars annually, enforcing the blanket license, and imposing costs on licensees—demand robust governance and accountability distinct from what’s expected of the DLC itself. With that asymmetry in mind, the Office should focus the redesignation decision on whether the MLC needs additional safeguards to fulfill Congress’s vision for §115. Debating whether those safeguards arrive as explicit conditions on redesignation or as stand-alone regulations is a matter of form, not substance; either pathway legitimately implements the MMA and squarely fits within the Office’s authority. 

To “tee up” the record, the DLC attaches a helpful and representative Exhibit cataloging songwriter, independent publisher, and creator-group critiques across six themes: unmatched “black box” royalties; data/matching problems; governance and conflicts; transparency and accountability gaps; operational and technical delays; and the investment of unclaimed royalties. That comment supports conditional redesignation backed by measurable performance metrics(e.g., black-box reduction targets, matching accuracy, timeliness, dispute resolution KPIs) or by new, targeted regulations—and, if needed, both. 

Finally, immediate triage should begin with abandoning the contested investment policy for unclaimed royalties—criticized by many stakeholders as ultra vires (which by the way, eliminates any indemnity protection in the MMA)—and liquidating the portfolio so cash flows to the people Congress intended to benefit: songwriters. Conditional redesignation gives the Office the oversight handle to make those corrections now, align incentives going forward, and ensure the MLC’s stewardship is limited to the scale of its statutory power. 

It also must be said that if the MLC doesn’t clean up its act, what comes next may not be so genteel. Conditional redesignation may look awfully good in the rear view mirror.

Digital-Licensing-Coordinator-to-USCO-2-Sept-22-2025Download

Who’s Coming to Lunch? What Do Personnel Changes at Copyright Office Mean for MLC?

If you’ve been following the news lately, you’ll have heard that President Trump has made some personnel changes at the Library of Congress and the head of the U.S. Copyright Office (styled as the “Register of Copyrights”). When the dust settles we’ll see if these changes stick, but my bet is they probably will. This is because the President was probably within his authority to replace the Librarian of Congress (a presidential appointee). Remember that the Librarian is a “principal officer of the United States” who ultimately reports to the President. We’ll come back to that point.

Because the Librarian appoints the head of the Copyright Office for an unspecified term and can terminate that person, there’s probably an argument for the President being able to terminate the “Register” directly if there’s a vacancy in the Librarian’s office especially if there’s urgent business before the Copyright Office. Alternatively, there’s definitely an argument for the replacement Librarian, “Acting” or otherwise, to be able to terminate the non-Senate confirmed Register. (See a similar argument from Professor Volokh.)

So whatever the sequence, the result is likely the same. Was it prudent? No. Was it well-handled? No. Is it enforceable? Quite probably. That doesn’t mean that those who are terminated can’t or shouldn’t pursue claims, but I think it does mean that their respective replacements are going to take over. The topic that is front and center in most discussions of these movements is Big Tech’s lobbying on AI and that is well to be concerned about because today is Wednesday and Big Tech is still trying to screw us. In that regard it is a day like any other.

But there is other pending business before the Copyright Office that will now be supervised by a Department of Justice lawyer with an entirely different background and set of relationships to all prior Registers. My bet is that the culture at the Copyright Office is about to change. I would say change radically, but I’d be skeptical that anything in Washington changes radically. For example, remember that the Library of Congress/Copyright Office public database apparently uses an older Oracle database system and/or COBOL or PL/SQL for data processing.  The user interface is HTML with embedded JavaScript, and uses CGI or early Java-based web tools for query submission. That’s right–1998 technology. Helloooo DoGE.

One item of pending business is the 5-year redesignation oversight review of the MLC’s operations and a review of the MLC’s investment policy on the $1.2 billion black box (or more) that is gradually inching its way toward a market share distribution with little or no explanation.

For reasons known only to the lobbyists who wrote Title I of the Music Modernization Act, the Copyright Office was given oversight of the MLC and its hedge fund.   As anyone could have predicted who’d studied the culture of the Copyright Office for five minutes, that oversight is effectively meaningless.  The MLC has just refused to allow any transparency over their hedge fund—over a billion dollars of other people’s money—and the Copyright Office so far has let that happen.  As Guy Forsyth wrote, Americans are freedom loving people and nothing says freedom like getting away with it.

So there’s a deeper structural issue with the MLC’s oversight: the Copyright Office is required to review the MLC every five years, but it has no real enforcement powers other than refusing to redesignate the quango which would create a huge disconnect between the sunny narrative of aspirations for the “historic” Title I of the MMA that created the MLC and the dark underbelly of the utter failure of that legislation that no one talks about at parties. Unlike executive agencies like the DOJ, FTC or SEC, the Copyright Office can’t subpoena records, issue fines, or force compliance. Its first five-year review—launched in January 2024—is now grinding on in its second year, with no public recommendations or reforms issued to date despite the requirements of the moment.

With an emphasis on regulatory accountability, the Trump administration might push for more rigorous oversight of the MLC’s operations, including its data practices and how it invests the black box OPM funds. Oversight could be enhanced through a combination of Copyright Office audits and a potential executive branch role—such as a streamlined agency focused on government efficiency. The goal: protect creators’ money and ensure the MLC’s compliance without increasing taxpayer burden. Costs for such oversight could, and arguably should, be charged back to the MLC which is funded by the richest corporations in commercial history.

In fact, beefing up the Copyright Office’s oversight role may actually be required. As Professor Volokh observes:

The answer appears to be that the Library of Congress is actually an Executive Branch department for legal purposes [and not in the Legislative Branch], though it also provides some services to Congress. Indeed, I think it has to be such a department in order to have the authority that it has over the implementation of copyright law (via the Register of Copyrights): As Buckley v. Valeo (1976) made clear, in a less famous part of its holding, Congress can’t appoint heads of agencies that exercise executive powers.

Of course the Librarian has to be confirmed by the Senate, although under vacancies rules, an acting Librarian has pretty much the full authority of the office for 210 days without Senate confirmation. The Register is not Senate confirmed, so there’s an odd juxtaposition where Trump’s Acting Librarian could be replaced, but the Register is not subject to the 210 day clock.

This is all down in the weeds in Appointments Clause land. But you get the idea. Paul Perkins, who was serving as an Associate Deputy Attorney General at the U.S. Department of Justice, will soon be looking at the MLC. My understanding is that Mr. Perkins is the deputy of Todd Blanche, who is now taking over as acting Librarian. (Todd Blanche who currently serves as the 40th United States Deputy Attorney General, having been confirmed by the Senate. He was formerly a partner at Cadwalader and former federal prosecutor in the SDNY.)

And just wait til DoGE gets a load of that COBOL programming and a billion dollar hedge fund at a quasi governmental agency. Remember, the Presidential Signing Statement for the Music Modernization Act–signed by Trump 45–specifically designates the MLC board members as inferior officers of the United States. That means on a certain level that they report to the Librarian, a new twist for music business executives. If it comes to a showdown between Trump and the MLC, my money is on Trump. So there’s that.

Time will tell. But one thing is certain: The DOJ lawyer coming in to supervise the entire situation is unlikely to care whether he’ll ever have lunch in that town again.

Blowing up the Compulsory in Washington DC

There is loose talk these days about something called “blowing up the compulsory” license for songs in the US under Section 115 of the Copyright Act. This is odd. It is particularly odd given that a lot of the same people now trying to find a parade to get in front of were the very people who championed–barely five years ago–the bizarre and counterintuitive Title I of the Music Modernization Act (aka the Harry Fox Preservation Act). Title I was the part of the MMA legislation that created the Mechanical Licensing Collective and invited Big Tech even further into our house. (Don’t forget there were other important parts of what became the MMA that were actually well thought out and helpful.)

The geniuses who came up with Title I are also the same people who refused to include artist pay for radio play in the package of bills that became the sainted MMA back in 2018. So at the very least before anyone takes seriously any plan to “blow up the compulsory”, the proponents who want buy-in on that change in policy can get right with history and atone by declaring their support–vocal support–for artist pay for radio play. This would be supporting the American Music Fairness Act recently introduced in this Congress by our allies Senator Blackburn and Rep. Issa and their colleagues.

It is important to realize that “blowing up the compulsory” cannot be a shoot-from-the-hip reaction to Spotify taking advantage of the gaping bundling loophole left wide open in the highly negotiated streaming mechanical settlement under Phonorecords IV. There are too many factors in that big a shock to the system. Songwriters around the world should not get caught up in throwing toys out of the pram along with 100 years of licensing practice just because they made a bad deal. This is particularly true given that the smart people handed over the industry’s bargaining leverage against Big Tech as part of the MMA debacle in return for what? Allowing Spotify’s public stock offering to go forward on schedule? Another genius move by the smart people. I wonder what they got out of that deal? I mean this stock offering, you know, the one that made Daniel Ek a billionaire:

A good thing we didn’t let another MTV build their business on our backs.

It is also important to recognize the obvious–the compulsory is not really a compulsory, it’s a compulsory in the absence of a negotiated direct agreement such as the one that Universal recently made with Spotify. Copyright owners have always been free to make direct deals with music users. The compulsory is not just a license, it is also a compulsory rate that casts a long commercial shadow over even the big industry negotiations and certainly over rates in the rest of the world.

And for reasons of historical accident those rates are not determined in Nashville, or New York, or Los Angeles, or even Austin, but rather in Washington, DC in front of the Copyright Royalty Board–an agency that itself is on pretty shakey Constitutional grounds after a Supreme Court decision in the 2020 Term. So if we’re going to “blow up the compulsory”, maybe a good place to start is not having lobbyists make these decisions.

Even if the former opponents of artist pay for radio play come to their senses and support fundamental fairness for artists, that’s just a good start. We have to acknowledge that “blowing up the compulsory” is not going to be well received by the streaming services for starters. (Not to mention the labels.) Those would be the same streaming services that the smart people invited into our house by means of underwriting the costs of the Mechanical Licensing Collective.

I don’t know how others feel about it, but I for one am not inclined to go to the mattresses to assuage the multimillion dollar whiplash that the services must feel. We should understand that Big Tech are being asked to abandon their intensely successful lobbying campaign that led songwriters and publishers right down the garden path with the MMA. Not to mention the millions they have spent creating the MLC so the MLC could pass through some of those monies to HFA.

Before Congress goes along with blowing up Title I of the MMA, they’re probably going to want an explanation of why this isn’t just another fine mess in a long string of fine messes. That will probably involve a study by the Copyright Office like the one the Office was asked by a songwriter to conduct as part of the MLC’s five year review (but declined to undertake at that time). Fortunately that five year review is still dragging on over a year after it started so this would be a perfect time to launch that study. Perhaps Congress will instruct them to do so? At this rate, it will be time for a new five year review before the first one gets completed, so as usual, time is not a factor.

Even if the services and Congress would go along with “blowing up the compulsory” what does that mean for the MLC and the sainted musical works database? Remember, the lack of a database was the excuse that services relied on for years for their sloppy licensing practices. The database was the fig leaf they needed to avoid iterative infringement lawsuits for their failure–or the failure of the services outside licensing consultants.

It also must be said that the services were invited by the same smart people to spend millions on setting up the MLC. In fairness they have a right to get the benefit of the bargain they were invited to make by the same people who now want to blow it up. Or get their money back. Plus they have to like the leverage they were handed to go to Congress and complain, and complain quite believably with great credibility.

And perhaps most important of all is what happens to the $1.2 BILLION in publicly traded securities that the MLC announced on their 2023 tax return that they are (or at least were) holding in their name? Does that get blown up, too?

Fired for Cause:  @RepFitzgerald Asks for Conditional Redesignation of the MLC

U.S. Representative Scott Fitzgerald joined in the MLC review currently underway and sent a letter to Register of Copyrights Shira Perlmutter on August 29 regarding operational and performance issues relating to the MLC.  The letter was in the context of the five year review for “redesignation” of The MLC, Inc. as the mechanical licensing collective.  (That may be confusing because of the choice of “The MLC” as the name of the operational entity that the government permits to run the mechanical licensing collective.  The main difference is that The MLC, Inc. is an entity that is “designated” or appointed to operationalize the statutory body.  The MLC, Inc. can be replaced.  The mechanical licensing collective (lower case) is the statutory body created by Title I of the Music Modernization Act) and it lasts as long as the MMA is not repealed or modified. Unlikely, but we live in hope.)

I would say that songwriters probably don’t have anything more important to do today in their business beyond reading and understanding Rep. Fitzgerald’s excellent letter.

Rep. Fitzgerald’s letter is important because he proposes that the MLC, Inc. be given a conditional redesignation, not an outright redesignation.  In a nutshell, that is because Rep. Fitzgerald raises many…let’s just say “issues”…that he would like to see fixed before committing to another five years for The MLC, Inc.  As a member of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, Rep. Fitzgerald’s point of view on this subject must be given added gravitas.

In case you’re not following along at home, the Copyright Office is currently conducting an operational and performance review of The MLC, Inc. to determine if it is deserving of being given another five years to operate the mechanical licensing collective.  (See Periodic Review of the Mechanical Licensing Collective and the Digital Licensee Coordinator (Docket 2024-1), available at https://www.copyright.gov/rulemaking/mma-designations/2024/.)

The redesignation process may not be quickly resolved.  It is important to realize that the Copyright Office is not obligated to redesignate The MLC, Inc. by any particular deadline or at all.  It is easy to understand that any redesignation might be contingent on The MLC, Inc. fixing certain…issues…because the redesignation rulemaking is itself an operational and performance review.  It is also easy to understand that the Copyright Office might need to bring in some technical and operational assistance in order to diligence its statutory review obligations.  This could take a while.

Let’s consider the broad strokes of Rep. Fitzgerald’s letter.

Budget Transparency

Rep. Fitzgerald is concerned with a lack of candor and transparency in The MLC, Inc.’s annual report among other things. If you’ve read the MLC’s annual reports, you may agree with me that the reports are long on cheerleading and short on financial facts.  It’s like The MLC, Inc. thought they were answering the question “How can you tolerate your own awesomeness?”   That question is not on the list.  Rep. Fitzgerald says “Unfortunately, the current annual report lacks key data necessary to examine the MLC’s ability to execute these authorities and functions.”  He then goes on to make recommendations for greater transparency in future annual reports.

I agree with Rep. Fitzgerald that these are all important points.  I disagree with him slightly about the timing of this disclosure.  These important disclosures need not be prospective–they could be both prospective and retroactive. I see no reason at all why The MLC, Inc. cannot be required to revise all of its four annual reports filed to date (https://www.themlc.com/governance) in line with this expanded criteria.  I am just guessing, but the kind of detail that Rep. Fitzgerald is focused on are really just data that any business would accumulate or require in the normal course of prudently operating its business.  That suggests to me that there is no additional work required in bringing The MLC, Inc. into compliance; it’s just a matter of disclosure.

There is nothing proprietary about that disclosure and there is no reason to keep secrets about how you handle other people’s money.  It is important to recognize that The MLC, Inc. only handles other people’s money.  It has no revenue because all of the money under its management comes from either royalties that belong to copyright owners or operating capital paid by the services that use the blanket license.  It should not be overlooked that the services rely on the MLC and it has a duty to everyone to properly handle the funds. The MLC, Inc. also operates at the pleasure of the government, so it should not be heard to be too precious about information flow, particularly information related to its own operational performance. Those duties flow in many directions.

Board Neutrality

The board composition of the mechanical licensing collective (and therefore The MLC, Inc.) is set by Congress in Title I.  It should come as no surprise to anyone that the major publishers and their lobbyists who created Title I wrote themselves a winning hand directly into the statute itself.  (And FYI, there is gambling at Rick’s American Café, too.)  As Rep. Fitzgerald says:  

Of the 14 voting members, ten are comprised of music publishers and four are songwriters. Publishers were given a majority of seats in order to assist with the collective’s primary task of matching and distributing royalties. However, the MMA did not provide this allocation in order to convert the MLC into an extension of the music publishers.

I would argue with him about that, too, because I believe that’s exactly what the MMA was intended to do by those who drafted it who also dictated who controlled the pen.  This is a rotten system and it was obviously on its way to putrefaction before the ink was dry.

For context, Section 8 of the Clayton Act, one of our principal antitrust laws, prohibits interlocking boards on competitor corporations.  I’m not saying that The MLC, Inc. has a Section 8 problem–yet–but rather that interlocking boards is a disfavored arrangement by way of understanding Rep. Fitzgerald’s issue with The MLC, Inc.’s form of governance:

Per the MMA, the MLC is required to maintain an independent board of directors. However, what we’ve seen since establishing the collective is anything but independent. For example, in both 2023 and 2024, all ten publishers represented by the voting members on the MLC Board of Directors were also members of the NMPA’s board.  This not only raises questions about the MLC’s ability to act as a “fair” administrator of the blanket license but, more importantly, raises concerns that the MLC is using its expenditures to advance arguments indistinguishable from those of the music publishers-including, at times, arguments contrary to the positions of songwriters and the digital streamers.

Said another way, Rep. Fitzgerald is concerned that The MLC, Inc. is acting very much like HFA did when it was owned by the NMPA.  That would be HFA, the principal vendor of The MLC, Inc. (and that dividing line is blurry, too).

It is important to realize that the gravamen of Rep. Fitzgerald’s complaint (as I understand it) is not solely with the statute, it is with the decisions about how to interpret the statute taken by The MLC, Inc. and not so far countermanded by the Copyright Office in its oversight role.  That’s the best news I’ve had all day.  This conflict and competition issue is easily solved by voluntary action which could be taken immediately (with or without changing the board composition).  In fact, given the sensitivity that large or dominant corporations have about such things, I’m kind of surprised that they walked right into that one.  The devil may be in the details, but God is in the little things.

Investment Policy

Rep. Fitzgerald is also concerned about The MLC, Inc.’s “investment policy.”  Readers will recall that I have been questioning both the provenance and wisdom of The MLC, Inc. unilaterally deciding that it can invest the hundreds of millions in the black box in the open market.  I personally cannot find any authority for such a momentous action in the statute or any regulation.  Rep. Fitzgerald also raises questions about the “investment policy”:

Further, questions remain regarding the MLC’s investment policy by which it may invest royalty and assessment funds. The MLC’s Investment Policy Statement provides little insight into how those funds are invested, their market risk, the revenue generated from those investments, and the percentage of revenue (minus fees) transferred to the copyright owner upon distribution of royalties. I would urge the Copyright Office to require more transparency into these investments as a condition of redesignation.

It should be obvious that The MLC, Inc.’s “investment policy” has taken on a renewed seriousness and can no longer be dodged.

Black Box

It should go without saying that fair distribution of unmatched funds starts with paying the right people.  Not “connect to collect” or “play your part” or any other sloganeering.  Tracking them down. Like orphan works, The MLC, Inc. needs to take active measures to find the people to whom they owe money, not wait for the people who don’t know they are owed to find out that they haven’t been paid.  

Although there are some reasonable boundaries on a cost/benefit analysis of just how much to spend on tracking down people owed small sums, it is important to realize that the extraordinary benefits conferred on digital services by the Music Modernization Act, safe harbors and all, justifies higher expectations of those same services in finding the people they owe money.  The MLC, Inc. is uniquely different than its counterparts in other countries for this reason.

I tried to raise the need for increased vigilance at the MLC during a Copyright Office roundtable on the MMA. I was startled that the then-head of DiMA (since moved on) had the brass to condescend to me as if he had ever paid a royalty or rendered a royalty statement.  I was pointing out that the MLC was different than any other collecting society in the world because the licensees pay the operating costs and received significant legal benefits in return. Those legal benefits took away songwriters’ fundamental rights to protect their interests through enforcing justifiable infringement actions which is not true in other countries.

In countries where the operating cost of their collecting society is deducted from royalties, it is far more appropriate for that society to consider a more restrictive cost/benefit analysis when expending resources to track down the songwriters they owe. This is particularly true when no black box writer is granting nonmonetary consideration like a safe harbor whether they know it or not.

I got an earful from this person about how the services weren’t an open checkbook to track down people they owed money to (try that argument when failing to comply with Know Your Customer laws).  Grocers know more about ham sandwiches than digital services know about copyright owners. The general tone was that I should be grateful to Big Daddy and be more careful how I spend my lunch money. And yes I do resent this paternalistic response which I’m sorry to say was not challenged by the Copyright Office lawyer presiding who shortly thereafter went to work for Spotify.  Nobody ever asked for an open check.  I just asked that they make a greater effort than the effort that got Spotify sued a number of times resulting in over $50 million in settlements, a generous accommodation in my view. If anyone should be grateful, it is the services who should be grateful, not the songwriters.

And yet here we are again in the same place.  Except this time the services have a safe harbor against the entire world which I believe has value greater than the operating costs of the MLC.  I’d be perfectly happy to go back to the way it was before the services got everything they wanted and then some in Title I of the MMA, but I bet I won’t get any takers on that idea.

Instead, I have to congratulate Rep. Fitzgerald for truly excellent work product in his letter and for framing the issue exactly as it should be posed.  Failing to fix these major problems should result in no redesignation—fired for cause.