Tag: Copyright Office

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

The Intention of Justice:  In Which The MLC Loses its Way on a Copyright Adventure

ARTHUR

Let’s get back to justice…what is justice?  What is the intention of justice?  The intention of justice is to see that the guilty people are proven guilty and that the innocent are freed.  Simple, isn’t it?  Only it’s not that simple.

From And Justice for All, screenplay written by Valerie Curtin and Barry Levinson

Something very important happened at the MLC on July 9:  The Copyright Office overruled the MLC on the position the MLC (and, in fairness, the NMPA) took on who was entitled to post-termination mechanical royalties under the statutory blanket license.  What’s important about the ruling is not just that the Copyright Office ruled that the MLC’s announced position was “incorrect”—it is that it corrected the MLC’s position that was in direct contravention of prior Copyright Office guidance.  (If this is all news to you, you can get up to speed with this helpful post about the episode on the Copyright Office website or read John Barker’s excellent comment in the rulemaking.)

“Guidance” is a kind way to put it, because the Copyright Office has statutory oversight for the MLC.  That means that on subjects yet to be well defined in a post-Loper world (the Supreme Court decision that reversed “Chevron deference”), I think it’s worth asking whether the Copyright Office is going to need to get more involved with the operations of the MLC.  Alternatively, Congress may have to amend Title I of the Music Modernization Act to fill in the blanks.  Either way, the Copyright Office’s termination ruling is yet another example of why I keep saying that the MLC is a quasi-governmental organization that is, in a way, neither fish nor fowl.  It is both a private organization and a government agency somewhat like the Tennessee Valley Authority.  Whatever it is ultimately ruled to be, it is not like the Harry Fox Agency which in my view has labored for decades under the misapprehension that its decisions carry the effect of law.  Shocking, I know.  But whether it’s the MLC or HFA, when they decide not to pay your money unless you sue them, it may as well be the law.

The MLC’s failure to follow the Copyright Office guidance is not a minor thing.  This obstreperousness has led to significant overpayments to pre-termination copyright owners (who may not even realize they were getting screwed).  This behavior by the MLC is what the British call “bolshy”, a wonderful word describing one who is uncooperative, recalcitrant, or truculent according to the Oxford Dictionary of Modern Slang.  The word is a pejorative adjective derived from Bolshevik.  “Bolshy” invokes lawlessness.

In a strange coincidence, the two most prominent public commenters supporting the MLC’s bolshy position on post-termination payments were the MLC itself and the NMPA, which holds a nonvoting board seat on the MLC’s board of directors.  This stick-togetherness is very reminiscent of what it was like dealing with HFA when the NMPA owned it.  It was hard to tell where one started and the other stopped just like it is now.  (I have often said that a nonvoting board seat is very much like a “board observer” appointed by investors in a startup to essentially spy on the company’s board of directors.  I question why the MLC even needs nonvoting board seats at all given the largely interlocking boards, aside from the obvious answer that the nonvoters have those seats because the lobbyists wrote themselves into Title I of the MMA—you know, the famous “spirit of the MMA”.)

Having said that, the height of bolshiness is captured in this quotation (89 FR 58586 (July 9, 2024)) from the Copyright Office ruling about public comments which the Office had requested (at 56588):

The only commenter to question the Office’s authority was NMPA, which offered various arguments for why the Office lacks authority to issue this [post-termination] rule. None are persuasive. [Ouch.]

NMPA first argued that the Office has no authority under section 702 of the Copyright Act or the MMA to promulgate rules that involve substantive questions of copyright law. This is clearly incorrect. [Double ouch.]

The Office ‘‘has statutory authority to issue regulations necessary to administer the Copyright Act’’ and ‘‘to interpret the Copyright Act.’’  As the [Copyright Office notice of proposed rulemaking] detailed, ‘‘[t]he Office’s authority to interpret [the Copyright Act]  in the context of statutory licenses in particular has long been recognized.’’

Well, no kidding.

What concerns me today is that wherever it originated, the net effect of the MLC’s clearly erroneous and misguided position on termination payments is like so many other “policies” of the MLC:  The gloomy result always seems to be they don’t pay the right person or don’t pay anyone at all in a self-created dispute that so far has proven virtually impossible to undo without action by the Copyright Office (which has other and perhaps better things to do, frankly).  The Copyright Office, publishers and songwriters then have to burn cycles correcting the mistake.  

In the case of the termination issue, the MLC managed to do both: They either paid the wrong person or they held the money.  That’s a pretty neat trick, a feat of financial gymnastics for which there should be an Olympic category.  Or at least a flavor of self-licking ice cream.

The reason the net effect is of concern is that this adventure in copyright has led to a massive screwup in payments illustrating what we call the legal maxim of fubar fugazi snafu.  And no one will be fired.  In fact, we don’t even know which person is responsible for taking the position in the first place.  Somebody did, somebody screwed up, and somebody should be held accountable.

Mr. Barker crystalized this issue in his comment on the Copyright Office termination rulemaking, which I call to your attention (emphasis added):

I do have a concern related to the current matter at hand, which translates to a long-term uneasiness which I believe is appropriate to bring up as part of these comments. That concern is, how did the MLC’s proposed policies [on statutory termination payments] come in to being in the first place? 

The Copyright Office makes clear in its statements in the Proposed Rules publication that “…the MLC adopted a dispute policy concerning termination that does not follow the Office’s rulemaking guidance.”, and that the policy “…decline(d) to heed the Office’s warning…”. Given that the Office observed that “[t]he accurate distribution of royalties under the blanket license to copyright owners is a core objective of the MLC”, it is a bit alarming that the MLC’s proposed policies got published in the first place. 

I am personally only able to come up with two reasons why this occurred. Either the MLC board did not fully understand the impact on termination owners and the future administration of those royalties, or the MLC board DID realize the importance, and were intentional with their guidelines, despite the Copyright Office’s warnings. 

Both conclusions are disturbing, and I believe need to be addressed.

Mr. Barker is more gentlemanly about it than I am, and I freely admit that I have no doubt failed the MLC in courtesy.  I do have a tendency to greet only my brothers, the gospel of Matthew notwithstanding.  Yet it irks me to no end that no one has been held accountable for this debacle and the tremendous productivity cost (and loss) of having to fix it.  Was the MLC’s failed quest to impose its will on society covered by the Administrative Assessment?  If so, why?  If not, who paid for it?  And we should call the episode by its name—it is a debacle, albeit a highly illustrative one. 

But we must address this issue soon and address it unambiguously.  The tendency of bureaucracy is always to grow and the tendency of non-profit organizations is always to seek power as a metric in the absence of for-profit revenue.  Often there are too many people in the organization who are involved in decision-making so that responsibility is too scattered.  

When something goes wrong as it inevitably does, no one ever gets blamed, no one ever gets fired, and it’s very hard to hold any one person accountable because everything is too diffused.  Instead of accepting that inevitable result and trying to narrow accountability down to one person so that an organization is manageable and functioning, the reflex response is often to throw more resources at the problem when more resources, aka money, is obviously not the solution.  The MLC already has more money than they know what to do with thanks to the cornucopia of cash from the Administrative Assessment.  That deep pocket has certainly not led to peace in the valley.

Someone needs to get their arms around this issue and introduce accountability into the process.  That is either the Copyright Office acting in its oversight role, the blanket license users acting in their paymaster role through the DLC, or a future litigant who just gets so fed up with the whole thing that they start suing everyone in sight.   

Saint Thomas Aquinas wrote in Summa Theologica that a just war requires a just cause, a rightful intention and the authority of the sovereign (Summa, Second Part of the Second Part, Question 40).  So it is with litigation.  We have a tendency to dismiss litigation as wasteful or unnecessary with a jerk of the knee, yet that is overbroad and actually wrong.  In some cases the right of the people to sue to enforce their rights is productive, necessary, inevitable and—hopefully—in furtherance of a just cause like its historical antecedents in trial by combat.  

It is also entirely in keeping with our Constitution.  The just lawsuit allows the judiciary to right a wrong when other branches of government fail to act, or as James Madison wrote in Federalist 10, so the government by “…its several constituent parts may…be the means of keeping each other in their proper places.”  

That’s a lesson the MLC, Inc. had to learn the hard way.  Let’s not do that again, shall we not?

Chronology: The Week in Review: Search is Ripping Us Off Again, this time for AI; #FreeJimmyLai; the MLC loves the MLC almost as much as the NMPA

In case you think that infringement of copyrights in AI training happens only to rock stars, photographers, record companies or movie studios, let me give you a personal anecdote that might cause you to reconsider. I asked Bing’s Copilot AI tool to list the deal points in a record producer agreement, and this is what I got back:

Copilot

Certainly! When negotiating a producer agreement, several key points should be considered. Here are some common negotiation points from the artist’s perspective:

  1. Scope of Engagement:
    1. The producer is generally engaged for one album project at a time.
    1. Clarify the scope of work, including the number of songs or recordings to be produced.
  2. Budget and Compensation:
    1. Determine the budget for the project (e.g., $10,000 in your case).
    1. Agree on the producer’s compensation, which may include an upfront fee, points on sales, or a combination.
  3. Ownership and Rights:
    1. Address ownership of the master recordings:
      1. Will the artist own and control the masters?
      1. Does the producer retain any rights?
  4. Credits and Royalties:
    1. Specify how the producer will be credited on releases.
    1. Discuss any royalties or backend points for the producer.
  5. Recording Schedule:
    1. Set a timeline for recording sessions.
    1. Define the two-week period for your project.
  6. Logistics:
    1. Determine where the recordings will take place.
    1. Outline the artist’s approval process.
    1. Define the producer’s deliverables.
  7. Termination Clause:
    1. Include provisions for termination if either party breaches the agreement.
    1. Address payment for work completed up to that point.

Remember that each negotiation is unique, and it’s essential to tailor the agreement to your specific needs and circumstances. Legal advice is recommended to ensure compliance with local laws and industry standards1 3 4.

Source(s)

1. An Artist’s Guide to Negotiating Record Producer Agreements – Medium

2. Negotiating a Music Producer Agreement: 7 Key Issues

3. 5 Things to Look for in a Music Producer Agreement – Lawyer Drummer

4. How to Negotiate: Steps, Phrases & Tips to Win the Deal – Selling Signals

Notice that Copilot lists “Source(s)” and that source #1 is an article from Medium.

My article.

I’ve written a number of articles about negotiating producer agreements and I can categorically say I haven’t given permission or been asked to give permission for any of those articles to be scraped and used to train AI. So how did it come to be in Copilot’s training materials?

My guess is that Medium (and probably a lot of other sites) were crawled by Bing’s spider and that copies of Medium pages were stored in Bing’s (or Microsoft’s) data centers. When Microsoft launched its Copilot AI tool, one could imagine that the temptation would have been strong to use those copies as part of the training tools for Copilot. In fact, the Verge reports that “companies around the web are using your site and its data to build massive sets of training data, in order to build models and products that may not acknowledge your existence at all.”

Are you surprised then that two of the biggest operators in the AI space are the search engine operators Google and Microsoft? This is another example of how Big Tech helps itself to your data and work product without you even knowing it’s happening. So now what? Now I know I’m being ripped off, and I’m wondering if Medium is in on it.

The Verge tells us:

The ability to download, store, organize, and query the modern internet gives any company or developer something like the world’s accumulated knowledge to work with. In the last year or so, the rise of AI products like ChatGPT, and the large language models underlying them, have made high-quality training data one of the internet’s most valuable commodities. That has caused internet providers of all sorts to reconsider the value of the data on their servers, and rethink who gets access to what. 

Ya think?

#FreeJimmyLai

In case you were wondering if the Chinese Communist Party is serious about using TikTok to collect data as they please, Hong Kong publisher Jimmy Lai is a perfect example of what happens when a company refuses to cooperate. The CCP took over Jimmy’s Apple Daily newspaper and arrested him. Jimmy has been in prison for three years and has still not come to “trial” (whatever that means under the CCP).

Blake Morgan sounds off in Hypebot on how TikTok uses music as a honeypot to hook innocent users

The MLC Reup

The MLC gets a five year review of how they are doing. The Copyright Office conducts that review of both the MLC and the DLC. The public (that’s you) gets a chance to weigh in now because the MLC and the DLC filed their respective written statements about their respective awesomeness.

One of the most interesting exchanges happened between Graham Davies (who essentially is the public face of the DLC and is the head of the Digital Media Association) and the NMPA. Graham offered muted criticism of the MLC which irked the easily irked NMPA who offered a rather scathing response.

The most interesting thing about the exchange was that it was the NMPA–not the MLC–that responded to Graham. Tell you anything?

Chronology: The Week in Review: MLC Redesignation Proceeding Highlights Ownership Issues for the Government’s Musical Works Database; TikTok’s SOPA Problem; Google’s Nonindemnity Indemnity for AI

One of the few things Congress got right in Title I of the Music Modernization Act is the five-year review of the mechanical licensing collective. Or more precisely, whether the private company previously designated by the Copyright Office to conduct the functions of the Mechanical Licensing Collective should have another five years to continue doing whatever it is they do.

Impliedly, and I think a bit unfairly, Congress told the Copyright Office to approve its own decision to appoint the current MLC or admit they made a mistake. This is yet another one of the growing list oversights in the oversight. Wouldn’t it make more sense for someone not involved in the initial decision to be evaluating the performance of the MLC? Particularly when there are at least tens of millions changing hands as well as some highly compensated MLC employees, any one of whom makes more than the Copyright Royalty Judges.

What happens if the Register of Copyright actually fires The MLC, Inc. and designates a new MLC operator? The first question probably should be what happens to the vaunted MLC musical works database and the attendant software and accounting systems which seem to be maintained out of the UK for some reason.

I actually raised this question in a comment to the Copyright Office back in 2020. In short, my question was probably more of a statement: ‘‘The musical works database does not belong to the MLC or The MLC and if there is any confusion about that, it should be cleared up right away.” The Copyright Office had a very clear response:

While the mechanical licensing collective must ‘‘establish and maintain a database containing information relating to musical works,’’ the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘‘owned’’ by the collective itself….Any use by the Office referring to the public database as ‘‘the MLC’s database’’ or ‘‘its database’’ was meant to refer to the creation and maintenance of the database, not ownership. [85 FR at 58172, text accompanying notes 30 and 31.]

So if the current operator of the MLC is fired, we know from the MMA and the Copyright Office guidance that one thing The MLC, Inc. cannot do is hold the database and its attendant systems hostage, or demand payment, or any other shadiness. These items do not belong to them so they must not assert control over that which they do not own.

Which would include the hundreds of millions of black box money that the MLC, Inc. has failed to distribute in going on four years. I’ve even heard cynics suggest that the market share distribution of black box will occur immediately following The MLC, Inc.’s redesignation and the corresponding renewal of HFA’s back office contract which seems to be worth about $10 million a year all by itself.

What would also have been helpful would be for Congress to have required the Copyright Office to publish evaluation criteria for what they expected the MLC’s operator to actually do as well as performance benchmarks. Like I said, it’s a bit unfair of Congress to put the Copyright Office in the unprecedented position of evaluating such an important role with no guidance whatsoever. Surely Congress did not intend for the Copyright Office to have unfettered autonomy in deciding what standards to apply to their review of a quasi-governmental agency like the MLC, yet seems to have defaulted to the guardrail of the Administrative Procedures Act or some other backstop to sustain checks and balances on the situation.

But at least the ownership question is settled.

Breaking the Internet Yet Again: TikTok’s SOPA Problem

TikTok users swarmed over the Capitol to protest and impede a Congressional vote that would force the sale of the ubiquitous TikTok. Can Camp Pelosi redux be far behind? Well, no, because this was a digital swarm which is just different, you see. It’s just different when Big Tech tries to protect an IPO.

TikTok’s tactics are very reminiscent of Google’s tactics with SOPA or Napster’s tactics with Camp Chaos.

But not even Napster had the brass to go to full on papal indulgences. Yes, that’s right: NunTok will save the IPO.

Nuns good, TikTok bad!

I wonder which Washington lobbyist thought of NunTok? Perhaps this guy:

Google’s Nonindemnity Indemnity for AI

Some generative AI platforms are trying to make users believe that the company will actually protect them from copyright infringement claims. When you drill down on what the promise actually is, it’s pretty flimsy and may itself be consumer fraud.

Chronology: The Week in Review: Can an independent auditor look for overpayments?; @Helienne Explains the EU’s Cultural Protections Against Streaming Monopolists; @MikeHuppe Comment on AI Justice

The MLC announced it was auditing 49 users of the blanket mechanical license, a massive undertaking. This announcement sent me back to the audit provisions of Title I of the Music Modernization Act to review what the role of the auditor actually is for audits of music users by the MLC as opposed to audits of the MLC by copyright owners. As often happens when reviewing little-used code sections that abruptly become important, I was reminded of a couple nuances that were obviously flawed when drafted. The key nuance is how can a royalty examiner be looking for overpayments against the interest of the party that hired her but still be independent? 

How qualified is qualified?

The first issue is with the definition of a “qualified auditor”, a glitch that I’ve harped on a few times. The term “qualified auditor” comes up in two different contexts in the MMA–first, a qualified auditor who prepares the MLC’s audited financial statements. The definition of qualified auditor is in 17 USC § 115(e)(25) as “an independent, certified public accountant with experience performing music royalty audits.” The reason why this term is a drafting error is two fold–first, you don’t need a CPA to conduct music royalty audits and there is nothing on the CPA licensure exams that requires any knowledge of “music royalty audits.” Second, you do need a CPA to prepare audited financial statements if the books are maintained according to generally accepted accounting principles particularly if a financial audit requires an opinion as an attest service, but that role does not require knowledge of royalty audits. So the defined term has an internal contradiction. 

The Gaap, ruler of 25 legions of spirits from the Munich Manual of Demonic Magic grimoire

Not only is the definition hinky but it’s common knowledge (outside of the Imperial City, I guess) that many if not most royalty auditors are not CPAs. (There’s also a long-standing assumption among artist lawyers when this concept comes up in record or publishing deals that a CPA requirement for audits is intentionally punitive. The assumption is that CPAs charge more making the cost of auditing more burdensome (therefore less likely to happen), which remains to be proven but is pretty widely accepted.) So the definition should be limited to requiring a CPA for the MLC’s audited financial statements and the common alternate definition of “experienced royalty auditor” for the audit clauses. But let’s put that to one side. 

Overpayments and Independence

The MMA rule for auditing digital music providers states:

The qualified auditor shall determine the accuracy of royalty payments, including whether an underpayment or overpayment of royalties was made by the digital music provider to the mechanical licensing collective, except that, before providing a final audit report to the mechanical licensing collective, the qualified auditor shall provide a tentative draft of the report to the digital music provider and allow the digital music provider a reasonable opportunity to respond to the findings, including by clarifying issues and correcting factual errors.

Realize that the MLC and the services monitor payments and make frequent adjustments to royalties (which may be reflected on your royalty statement if you can find them). That’s different than an auditor who works for a client going and seeking out an overpayment as part of their audit report. Relieving the auditor of this conflict does not preclude the service from claiming an overpayment which is an ongoing part of invoicing (see, e.g., 37 CFR §210.27(d)(2)(ii)). You would not be creating a windfall for the party receiving the overpayment.

I would interpret the statute as not requiring the auditor to seek an additional overpayment not previously invoiced, but rather confirming the accuracy of any adjustments made for overpayments or underpayments already reflected on the statements that are the subject of the audit. That’s quite a different thing.

What makes an auditor independent is that they do not have a conflict of interest as to their client, in this case the MLC. The royalty auditor is intended to be an advocate for their client (who pays them) and they are hired to look for ways that the other side has failed to account to their client properly to their client’s disadvantage. Improper payments are most commonly underpayments, i.e., the music user has failed to pay all that the client is entitled to receive. Royalty statements are regularly recalculated for a host of reasons in the normal course of business without regard to the presence or absence of any audit. This is not to say that somehow the MLC (and eventually the copyright owners) get some kind of windfall because the services missed something if any auditor is not seeking out an overpayment. That’s particularly true since there will likely be multiple sets of eyes on the field work and draft audit report. And trust me, they will all be trying to find somebody else’s mistake.

Or said another way, copyright owners don’t receive a windfall that was somehow missed by the largest corporations in commercial history who can determine what floor of which building you are on at what time of day at what address, e.g., sporting goods or children’s toys, so they can serve ads to your phone. Are we really worried about these little lambs getting lost in the woods?

@Helienne Explains the EU’s Cultural Protections Against Streaming Monopolists

We were lucky to get an interview with ESCA President Helienne Lindvall about the European Parliament’s report on cultural protections against streaming monopolies. This is a very important development and something we could use in the United States where this focus is sadly lacking.

@MikeHuppe Made an Important Comment on AI Justice for Creators

SoundExchange CEO Mike Huppe’s comment on AI justice is welcome from a rights platform.

Chronology: The week in review: The MLC’s First Royalty Audit, @CommonsCMS hears from @VVBrown, Spotify discovers cost cutting

It is commonplace for artists to conduct a royalty examination of their record company, sometimes called an “audit.” Until the Music Modernization Act, the statutory license did not permit songwriters to audit users of the statutory license. The Harry Fox Agency “standard” license for physical records had two principal features that differed from the straight statutory license: quarterly accounting and an audit right. When streaming became popular, the services both refused to comply with the statutory regulations and also refused to allow anyone to audit because the statutory regulations they failed to comply with did not permit an audit. I brought this absurdity to the attention of the Copyright Office in 2011.

After much hoopla, the lobbyists wrote an audit right for copyright owners into the Music Modernization Act. However, rather than permitting copyright owners to audit music users as is long standing common practice on the record side, the lobbyists decided to allow copyright owners to audit the Mechanical Licensing Collective. This is consistent with the desire of services to distance themselves from those pesky songwriters by inserting the MLC in between the services and their ultimate vendors, the songwriters and copyright owners. The services can be audited by the MLC (whose salaries are paid by the services), but that hasn’t happened yet to my knowledge.

But the MLC has received what I believe is its first audit notice that was just published by the Copyright Office after receiving it on November 9. First up is Bridgeport Music, Inc. for the period January 1, 2021, through December 31, 2023. January 1, 2021 was the “license availability date” or the date that the MLC began accounting for royalties under the MMA’s blanket license.

2023-27554-bridgeport-audit-noticeDownload

Why Audit Now?

Bridgeport’s audit is wise. There are no doubt millions if not billions of streams to be verified. The MLC’s systems are largely untested, compared to other music users such as record companies that have been audited hundreds, if not thousands of times depending on how long they are operating. Competent royalty examiners will look under the hood and find out whether it’s even possible to render reasonably accurate accounting statements given the MLC’s systems. Maybe it’s all fine, but maybe it’s not. The wisdom of Bridgeport’s two year audit window is that two years is long enough to have a chance at a recovery but it’s not so long that you are drowned in data and susceptible to taking shortcuts.

In other words, why wait around?

Auditing the Black Box

A big difference between the audit rules the lobbyists wrote into the MMA and other audits is that the MLC audit is based on payments, not statements. The relevant language in the statute makes this very clear:

A copyright owner entitled to receive payments of royalties for covered activities from the mechanical licensing collective may, individually or with other copyright owners, conduct an audit of the mechanical licensing collective to verify the accuracy of royalty payments by the mechanical licensing collective to such copyright owner…The qualified auditor shall determine the accuracy of royalty payments, including whether an underpayment or overpayment of royalties was made by the mechanical licensing collective to each auditing copyright owner.

Royalty payments would include a share of black box royalties distributed to copyright owners. It seems reasonable that on audit a copyright owner could verify how this share was arrived at and whatever calculations would be necessary to calculate those payments, or maybe the absence of such payments that should have been made. Determining what is not paid that should have been paid is an important part of any royalty verification examination.

Systems Transparency

Information too confidential to be detected cannot be corrected.  It is important to remember that copyright owner audits of the MLC will be the first time an independent third party has had a look at the accounting systems and functional technology of The MLC. If those audits reveal functional defects in the MLC’s systems or technology that affects any output of The MLC, i.e., not just the royalties being audited, it seems to me that those defects should be disclosed to the public. Audit settlements should not be used as hush money payments to keep embarrassing revelations from being publicly disclosed.

Unsurprisingly, The MLC lobbied to have broadly confidential treatment of all audits. Realize that there may well be confidential financial information disclosed as part of any audit that both copyright owners and The MLC will want to keep secret. There is no reason to keep secrets about The MLC’s systems. To take an extreme example, if on audit the auditors discovered that The MLC’s systems added 2 plus 2 and got 5, that is a fact that others have a legitimate interest in having disclosed to include the Copyright Office itself that is about to launch a 5 year review of The MLC for redesignation. Indeed, auditors may discover systemic flaws that could arguably require The MLC to recalculate many if not all statements or at least explain why they should not. (Note that a royalty auditor is required to deliver a copy of the auditor’s final report to The MLC for review even before giving it to their client. This puts The MLC on notice of any systemic flaws in The MLC’s systems found by the auditor and gives it the opportunity to correct any factual errors.)

I think that systemic flaws found by an auditor should be disclosed publicly after taking care to redact any confidential financial information. This will allow both the Copyright Office and MLC members to fix any discovered flaws.

The “Qualified Auditor” Typo

It is important to realize that there is no good reason why a C.P.A. must conduct the audit; this is another drafting glitch in the MMA that requires both The MLC’s audited financial statements and royalty compliance examinations be conducted by a C.P.A, defined as a “Qualified Auditor” (17 USC § 115(e)(25)). It’s easy to understand why audited financials prepared according to GAAP should be opined by a C.P.A. but it is ludicrous that a C.P.A. should be required to conduct a royalty exam for royalties that have nothing to do with GAAP and never have.

As Warner Music Group’s Ron Wilcox testified to the CRJs, “Because royalty audits require extensive technical and industry-specific expertise, in WMG’s experience a CPA certification is not generally a requirement for conducting such audits. To my knowledge, some of the. most experienced and knowledgeable royalty auditors in the music industry are not CPAs.”

The “Qualified Auditor” defined term should be limited to the MLC’s financials and removed from the audit clauses.

@VVBrown Articulates the Need for a Complete Reset of Streaming

Spotify Discovers Cost Cutting

After laying off 1500 employees in its latest layoffs, Spotify may consider other costs like rent in its many floors of 4 World Trade Center.

Saddle Up: The Role of the Copyright Office Examiners in the “Noncommercial Use” of Pre-1972 Recordings under the Music Modernization Act

Now I never said that Music Modernization Act was a self-licking ice cream cone.  That was someone else.  Neither did I say it was the gift that keeps on giving.  That wouldn’t have been me–it’s just getting started, after all.  Too soon.

We are now having a look at the first of what will no doubt be many, many regulations to be issued by the Copyright Office that will actually implement the MMA.  Wakey wakey.

Thanks to Senator Ron Wyden’s last minute looney tunes shakedown when the MMA was limping across the finish line in the Senate,  the Copyright Office has circulated a notice of inquiry for the first MMA regulations promulgated by the Copyright Office.  This time it’s regulations under Title II of the MMA for the new “license” request for “noncommercial” uses of pre-72 sound recordings.   Never heard of this “license” before?  Didn’t know it was in the MMA?  Get used to it.  If you’re like most people, you didn’t read the 200 page MMA before it passed, but you would do well to read it very carefully now that it is the law of the land.

The coming wave of regulations to be released by the Copyright Office will be your last chance to eject from the twilight zone–but file it under “M” for “maybe”.  Because the die is cast and the Rubicon is crossed.

It must be said, of course, that the only reason we are having this discussion is because Google’s data farming Senator Ron Wyden threatened to put a hold on the MMA literally at the 11th hour and conducted an entirely predictable but no less grotesque legislative shakedown that is so typical of his Wydeness.

This didn’t come from the members of the House of Representatives who voted unanimously for the pure CLASSICS Act and it didn’t come from the other 99 members of the Senate who would have voted for the same House bill.  No, this came from Senator Wyden and his motley crew from Public Knowledge, aka the Google shillery, the nutty professors and, we must assume, with the blessing of at some of the members of the Digital Media Association.

I want you to remember that after the entire industry burns thousands of productivity hours (not to mention lawyer time) in trying to define this stick in the eye.  This is pure Google and pure, unadulterated Wyden.  (We might call this the “Wyden loophole” but when it comes to loopholes, Senator Wyden is as fecund as the shad so that description wouldn’t narrow it down much.)  Plus it’s the kind of “registration-based” thinking that is straight out of the Samuelson “Copyright Principles Project” and the much ballyhooed American Law Institute Restatement of Copyright, not to mention Lessig and Sprigman.  But after all the handwringing, the pre-72 license is a big victory for the Restatement crowd and it’s the law of the land.

So–the MMA includes a Google “license” request for pre-72 recordings that allows a sound recording owner of a pre-72 recording to approve or disapprove a request for a noncommercial use of that recording.  Sounds simple, right?  Not so simple as the Copyright Office notice of inquiry confirms.  It’s a ridiculously complicated loophole that may ultimately lead to no license being issued–and that’s when the handwringing will really begin.

However ridiculous this whole thing is, it is the law, so we must deal with it.  We will have more to say about the proposed regulation in coming days, but a couple points jump right out–most importantly, the obligation on the user to clear the song in the recording before burdening either the Copyright Office or the sound recording copyright owner with a no-money clearance request.

Realize that there are at least two copyrights in any sound recording–the song being performed (the “©”) and the recording of that song (the “℗”).  The “pre-72” issue only applies to the sound recording copyright–which did not enjoy federal copyright protection prior to 1972.  (The MMA gives a partial federalization of state law copyright–beyond the scope of this post.)

But–musical works (aka songs) enjoyed all kinds of federal copyright protection prior to 1972, so the fact that a sound recording might be subject to the new loophole created by Senator Wyden says nothing about the song.  So how does this fit together?

First, the Copyright Office needs to play a real vetting role in this process before the sound recording copyright owner even receives the request and there should be no direct communications between user and copyright owner.  Let’s not repeat the mass “address unknown” NOI mistake.

Recall that the Copyright Office failed to vet any of the millions of “address unknown” NOIs for compulsory song licenses which allowed many of those notices to be filed improperly (in the millions, I would guess which sure sounds like a crime).   This was such a debacle that it gave Big Tech a leg up in passing the MMA, rather than fix the mistake.  We do not need a repeat performance of that catastrophe or even a curtain call.

But perhaps more importantly, there is no reason for anyone to spend a minute on these requests unless the user requesting the pre-72 license for a pre-72 sound recording can show that they have already obtained the rights for any musical work embodied in the pre-72 sound recording.  All those hidden costs were well-covered in the CBO review of the MMA…oh, wait.  They weren’t at all.

And, of course, when the MMA’s super-duper global rights database for every musical work ever written or that ever may be written is up and running in less than two years from now, it will be super duper easy to find these pre-72 songs, right?  For free?

So why should anyone spend any time on a sound recording request if the song rights have not already been obtained since the sound recording is unusable without the song clearance and the song license is not included in the Wyden loophole? (So presumably an arms length market rate unless a compulsory license applies depending on the use, say sync or mechanical.)  And there’s certainly no reason for a user to pay a Copyright Office examiner to review an application that cannot be consummated because the user has been unable to obtain the song rights.  That would be unfair to the user.

If the user wishes to assert fair use as a defense to the rights of the song owner, then presumably they’d also assert fair use against the sound recording owner, too, so they problaby would not even apply.

Hence every application for the pre-72 use would almost by definition require a song license unless the work is already in the public domain (such as recordings of the traditional classical repertoire).  Determining whether the song is in the public domain is exactly the kind of work the user should be paying the Copyright Office examiner to confirm.

So I’d say this “song first” approach makes sense, although I’m willing to be educated otherwise.

 

Mass NOI Charts: An Update from Royalty Claim — MUSIC • TECHNOLOGY • POLICY

An update on the state of the Copyright Office debacle also known as mass filing of “address unknown” notices under Section 115 (you can see the largely unusable posting of these notices at this link on the Copyright Office site). Here’s some charts you won’t see in the trades or even on the Copyright Office site-Royalty Claim’s Address “Unknown” Mass NOI chart that Royalty Claim measured by number of filings January 1-June 30, 2017.

via Mass NOI Charts: An Update from Royalty Claim — MUSIC • TECHNOLOGY • POLICY

Save the Date April 18th in DC: Chris Castle on Copyright Office Moral Rights Symposium

CO Program

I am honored to have been asked to participate in this symposium on moral rights co-sponsored by the U.S. Copyright Office and the Center for the Protection of Intellectual Property at the George Mason University School of Law.

Moral rights is a key area of the law of copyright that is sadly lacking in the United States and an important legal tool to protect the rights of artists.  You can find more about the symposium on the Copyright Office page.