Category: Redesignation of the MLC and DLC

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.