What Does the New MLC Candidate Mean for the Copyright Office?

Nate Rau reports in The Tennessean that there is a new group competing to be the “Mechanical Licensing Collective” under the Music Modernization Act.  I would expect there will be at least one more group come forward in the coming weeks.  This competition was easy to expect, but it does call to account the short time frames for setting up the MLC in the Music Modernization Act.  Those time frames fail to take into account the potential delaying effects of competition.

Multiple competitors also suggests that whoever wins the designation of the Copyright Office should be looking over their shoulder before the 5 year review of the MLC’s performance by the Copyright Office.  It’s likely that whoever is the runner-up in that designation pageant will still be around and may be critical of the winner when that 5 year review comes around.

It’s also worth noting that no one seems to be very interested in the music services’ counterpart to the MLC, being the “Digital Licensee Coordinator” or the “DLC”.  Whoever ends up getting to be the DLC is also going to be subject to a 5 year review, likely to be side by side with the MLC’s review.

As it now seems like there may be hard feelings on the part of the runner up for the MLC, this would be a good time for the Copyright Office to come up with objective criteria for both the selection of a winner and the definition of success when the 5 year review comes up.  It appears from the statutory language that Congress intends for the Copyright Office to come up with these criteria, and the clearer and more transparent the criteria, the less likely it will be for hard feelings to result in a meltdown.

The review of both the MLC and the DLC are governed by the same language in the Music Modernization Act:

Following the initial designation of the [mechanical licensing collective/digital licensee coordinator], the Register shall, every 5 years, beginning with the fifth full calendar year to commence after the initial designation, publish notice in the Federal Register in the month of January soliciting information concerning whether the existing designation should be continued, or a different entity meeting the criteria described in clauses (i) through (iii) of subparagraph (A) shall be designated. Following publication of such notice, the Register shall—

“(I) after reviewing the information submitted and conducting additional proceedings as appropriate, publish notice in the Federal Register of a continuing designation or new designation of the [mechanical licensing collective/digital licensee coordinator], as the case may be, and the reasons for such a designation, with any new designation to be effective as of the first day of a month that is not less than 6 months and not longer than 9 months after the date on which the Register publishes the notice, as specified by the Register; and

“(II) if a new entity is designated as the [mechanical licensing collective/digital licensee coordinator], adopt regulations to govern the transfer of licenses, funds, records, data, and administrative responsibilities from the existing mechanical licensing collective to the new entity.

The Congressional mandate to the Copyright Office is very broad–“soliciting information” could mean just about anything even remotely germane.  Given that the Copyright Office is to designate each of these crucially important offices empowered by Congress and to then measure their competency five years from now, it does seem that the Copyright Office would do well to give both the MLC and the DLC notice of what’s expected of each of them, and to do so before the designation is made.

For example, record keeping regarding customer service responsiveness, accuracy of the ownership database, overbudget or underbudget spending, complaints by songwriters, matching rates, number of audits of services undertaken, audit recoveries and distributions and executive compensation might all be relevant in the case of the MLC.

Some of these same criteria might be relevant for the DLC, although the DLC would have its own issues not common to the MLC.  These might include responsiveness of the DLC to potential blanket licensees, confidential treatment of competitive information, fair allocation of the assessment and communication with all licensees, especially the significant nonblanket licensees.

The Copyright Office would do well to recall the “seven anonymous amici” from the Microsoft antitrust litigation who were so dependent on Microsoft and so afraid of retaliation that they could not even use their own names to file an amicus brief in the case.  If the Copyright Office intends to have a candid assessment of either the MLC or the DLC, it might be a good idea to make an anonymous comment process available to competitors who fear retaliation.

If the Copyright Office makes a nonexhaustive list of qualities that constitute a successful completion of the five year trial period at the beginning of that period rather than the end, it might make succesful completion more likely.

Save the Date! NYC Music Business & Law Conference November 16

I’m honored to be included in a panel at the New York State Bar Association’s annual Music Business & Law Conference on November 16 with truly awesome panelists.

11:50am-12:50 pm      Music Modernization Act (US) / International Developments

The Music Modernization Act could be the most consequential copyright legislation in a generation. This panel will describe what it does, what it doesn’t do, how it affects current business and legal practices, and its effect on domestic and international copyright holders.  Bring your questions.

Panelists:
Marc Jacobson, Esq. (Moderator)
Chris Castle, Esq. – CC Legal Firm and Music Tech Solutions Blog
Charlie Sanders, Esq. – Counsel-Songwriters Guild of America
Alexander Ross, Esq. – Wiggin LLP (UK)
Christine Pepe, Esq. (IP, Music, and Digital Law Consultant)

Read Highlights of Managing Change Under the Music Modernization Act’s Music Licensing Collective in the current issue of the Texas Entertainment & Sports Law Section Journal by Chris Castle.

Read Meet the New Boss:  Tech Giants Rely on Loopholes to Avoid Paying Statutory Royalties with Mass Filings of NOIs at the Copyright Office from the American Bar Association, Entertainment & Sports Lawyer (Spring 2017) by Chris Castle.

 

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.

 

HFA is Getting Blamed Unfairly

 

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A Friend In Need

When you’ve been around as long as the Harry Fox Agency, you’re going to make some enemies, screw some things up, over react and over reach.  You’re also going to do a lot of things right, make some friends and do some good.  But most of all, you’re going to be the whipping boy for your client’s enemies, screwups, overreacting and over reaching.

From one whipping boy to another, that’s just not fair and anyone who has ever tried to do anything really hard with data in the music business knows it.  So pish and pshaw on those who gang up on HFA in the debate on the Music Modernization Act.  Let’s look at the facts.

When HFA developed the first digital download mechanical license in the late 1990s, the current crop of critics were nowhere to be seen.  Was it a perfect solution?  Not entirely, no.  But it did work and business got done and songwriters made money.  We were all feeling our way along the digital precipice and making it up as we went along.

I will go out on a limb here and say that if it weren’t for people like HFA’s Ed Murphy, it’s entirely possible that there would be no “streaming mechanical” at all.  That would be the same Ed Murphy who stepped up and licensed Napster’s effort at a p2p subscription service in 2001.  Again, the current crop of critics were nowhere to be seen.

Here’s another fact that you won’t hear about.  When it came time to mete out justice to a massive infringer record company who had been ripping off Texas singer-songwriters for years and years, it was HFA who stood with us.  Not because they made money, not because there was some pot of gold for them–there wasn’t and they didn’t.

They did it because it was the right thing to do.

They may not be choir boys, but they have their moments.  When we really needed them, they showed up for Texas songwriters.  And that’s how we measure friendship in my part of the world.

HFA is often blamed for the Spotify meltdown which in its own way led directly to the controversial safe harbor in the Music Modernization Act.  You can tell that’s true because the MMA’s proponents never talk about the safe harbor except to say that they negotiated away the rights of all the world’s songwriters in some “grand bargain,” the grandness of which elludes me almost as much as the legitimacy of consent.

The fact that Spotify chose to go forward without all the rights necessary to do business is not HFA’s fault.  It is Spotify’s fault.  If Spotify has an issue with HFA, that’s between them.  Ultimately, Spotify knew what it was doing and I seriously, seriously doubt that HFA told them otherwise.  I won’t believe it without both pictures and tapes.

Another fact is that the clearance problems that Spotify and some other HFA clients have were set in motion well before SESAC’s acquisition of HFA in 2015.   If anything, HFA’s been doing it better and cleaner after the acquisition in my opinion.  So if there is blame to go around, then the blame should go all the way around.

You may hear some pretty nasty comments about HFA now that its parent’s parent company is lobbying for a seat at the table on the Music Modernization Act.  Pay them no mind.  If SESAC and HFA had been dealt in at the beginning of the MMA process–which it sounds like they were not along with a lot of other people who should have been there, too–then there’d be some actual evidence that they were reneging on a commitment instead of no evidence that a commitment was ever made.  If you’re going to bet the farm, don’t take silence as consent.

Bashing HFA won’t fix the failure to include them, and I for one think it’s really unfair.  The solution isn’t dealing them out, the solution is embracing SESAC and HFA by respecting their efforts to make MMA a better bill that will have a greater chance of flourishing.

The Music Modernization Act’s New Burdens for Labels Identifying Unmatched Songs

The Music Modernization Act is definitely the gift that keeps on giving.  It seems like every time I read it, a new toad jumps out from under a rock.

The latest one I found is a new burden the MMA places on all sound recording owners, large and small, to help the digital services comply with their obligation to locate song copyright owners in order for the services to keep the new “reachback” safe harbor also referred to as the “Limitation on Liability”.  This is the retroactive safe harbor given effect on January 1, 2018 regardless of when the bill actually is passed by both houses of Congress and signed by the President.

Here’s the relevant clause (at pages 100-101 of the House bill):

REQUIREMENTS FOR LIMITATION ON LIABILITY.—The following requirements shall apply on the enactment date and through the end of the period that expires 90 days after the license availability date to digital music providers seeking to avail themselves of the [reachback safe harbor]:

‘(i) No later than 30 calendar days after first making a particular sound recording of a musical work available through its service via one or more covered activities, or 30 calendar days after the enactment date, whichever occurs later, a digital music provider shall engage in good-faith, commercially reasonable efforts to identify and locate each copyright owner of such musical work (or share thereof). Such required matching efforts shall include the following:

(I) Good-faith, commercially reasonable efforts to obtain from the owner of the corresponding sound recording made available through the digital music provider’s service the following information:

(aa) Sound recording name, featured artist, sound recording copyright owner, producer, international standard recording code, and other information commonly used in the industry to identify sound recordings and match them to the musical works they embody.

(bb) Any available musical work ownership information, including each songwriter and publisher name, percentage ownership share, and international standard musical work code.

And yes, that is a double “good-faith, commercially reasonable” predicate–a drafting bugaboo of mine.  I guess it means really, really, really good faith and absolutely positively commercially reasonable since they said it twice.

So what this means is that labels are required to provide to digital services a lot of song ownership information that they may or may not have.  For example, if the label licenses in a sound recording and puts the publishing payments on the licensor (very common practice) the information might be “available” but it is just not available to them.

Note that despite the fact that “good faith” and “commercially reasonable” are repeated twice for emphasis, those concepts modify the efforts of the digital service and not the efforts of the label to respond.  (Not surprising, if you believe as I do that the MMA was largely written by the lobbyists for the services and not the publishers or songwriters.)

At a minimum, the clause should be revised to extend the “good faith” and “commercially reasonable” modifiers to the label’s efforts to provide song information.  Having said it twice, why not three times?

There’s also no procedure for how this request is to be made or responded to, nor is there reimbursement of the costs incurred by the label in complying.  There’s also no limitation on liability for the label if it provides the service what turns out to be incorrect information.

Of course, what should really happen is that the entire paragraph (bb) should simply be struck.  It has long been the practice of record companies to refuse to provide publisher information to digital services and it has long been the practice of digital services to not ask for it.

In all likelihood, the services will engage a third party to do their song research, which is covered in the very next clause:

(II) Employment of one or more bulk electronic matching processes that are available to the digital music provider through a third-party vendor on commercially reasonable terms, but a digital music provider may rely on its own bulk electronic matching process if it has capabilities comparable to or better than those available from a third-party vendor on commercially reasonable terms.

Taking a long look at the clause, it seems reasonable to simply strike the entire clause (I) and keep the labels out of it as has long been the practice, and require the services to either use their own systems or hire a vendor.  And that’s where there should be some criteria for what constitutes a proper vendor.  If there’s going to be any work done by the labels, then–as advertised–the digital services should pay the label’s cost of compliance as part of the assessment and the label should have no liability if they happen to not have the song information “available”–in a commercially reasonable manner.

We all want the MMA to work, but we also all want to avoid unfunded mandates imposed by the federal government that create unintended consequences.

Will DOJ Consent Decree Review Obviate Any Rationale for the Music Modernization Act?

Let’s be clear–one reason why there are problems with mechanical licensing in the US is the loophole created by the government consent decrees that block ASCAP and BMI from issuing a “unilicense” for both performances and streaming mechanicals.  I have argued for years that PROs should be allowed to administer existing statutory mechanical licenses for services that they already license on the performance side of the song.  Personally, I think it is the main reason for creating the situation (such as the mass address unknown NOIs) that gets abused by the services like other loopholes.

I’m not alone in making this argument for “bundling” rights to be administered by PROs: According to the Copyright Office Music Licensing Study (pp. 103-104):

“NSAI, for example, opined that ‘[t]he most efficient path to digital service providers obtaining necessary licenses would be to allow the PRO’s to license and collect mechanical royalties;’” “NMPA suggested that bundled rights could be sought directly from the music publishers that own and administer the song in question.   But the PROs suggested that their existing structures could be leveraged to facilitate bundled licensing on a blanket basis, if only the consent decrees were amended.”

My view is that bundling should occur at the pubisher level and also at the PRO level for all publishers who do not license directly.

Remember–streaming mechanicals track the exact same song, the exact same use, the exact same copyright owners, the exact same transactions and the exact same services as the PROs already license on the performances.  The PROs already have the most comprehensive ownership databases for songs and those databases are immediately accessible.  This is likely to remain true for a long time.

The ASCAP and BMI consent decrees have been in place for decades.  We accept them as a fact of life, something of an immovable object.  For example, the only part of the Music Modernization Act that affects ASCAP and BMI relates to changes that these PROs evidently would like to make to the consent decrees but cannot get the Justice Department to address.  (“Part” may be overstated–it’s about 1-1/2 pages out of the 151 page bill.)

But–what we were told at the outset of the MMA is that legislation to sunset the consent decrees would never pass due to the lobbying power of the digital media companies, the broadcasters, and the general business establishments.  The MIC Coalition, in other words.  And supposedly we can’t beat them, so we need to give up on that idea and take what we’re given and like it.  (Good thing that guy was not at the Alamo, the Edmund Pettus Bridge, Thermopylae or the Battle of Britain.  Horatius he ain’t.)  This is, of course, entirely the wrong approach–if that thinking is not the ennui of learned helplessness, what is?  As the Reverend Martin Luther King, Jr. said, “Ultimately a genuine leader is not a searcher for consensus, but a molder of consensus.”

No one considered what would happen if the consent decrees actually went away either entirely or substantially because the DOJ wanted them to.  If that happy event came to pass, I would suggest that there would be little to nothing in the Music Modernization Act of any value or relevance to ASCAP and BMI.  If anything, the collective established by the MMA is or could easily become a direct competitor of all the PROs which is likely why the broadcasters are “positively neutral” on the bill.  I seriously doubt that any of them anticipated the consent decrees might go away.

Makan Delrahim, the new head of the Department of Justice Antitrust Division, may have just obviated any reason why the PROs should support the MMA or perhaps whether the MMA is even relevant.

During a speaking engagement on March 27 at Vanderbilt Law School, Mr. Delrahim gave us some insights into his plans for the ASCAP and BMI consent decrees in a discussion with Professor Rebecca Allensworth.  As reported in Broadcasting & Cable he said:

“As public agencies we need to take a look and see if those consent decrees are still relevant in the marketplace,” which he was clearly signaling was up for debate. “If they have solved the competitive problem,” he said, “they could become anticompetitive tools over time[.   I]f they were not necessarily the best ideas at the time, it doesn’t make a whole lot of sense for them to stay.”

Mr. Delrahim has put his finger right on the problem.  In my view, the consent decrees have become weaponized–for example, the last head of the Antitrust Division was closely linked to Google and after an ostensible review of the consent decrees, suddenly launched into the absurd “100% licensing” episode to the great–albeit short lived–satisfaction of the MIC Coalition.

Not only is there serious competition in the PRO marketplace unlike it was in 1941 when the ASCAP consent decree started, the 2015 SESAC acquisition of the Harry Fox Agency actually demonstrates that if left alone, the marketplace will close the mechanical license loophole that the MMA purports to solve.   There is no longer a need for the consent decrees, rate courts, none of it.

This isn’t to say that the PROs should get an exemption from the antitrust laws, far from it.  But it does mean that the broadcasters, the MIC Coalition and the Digital Media Association should not be allowed to play with the “anticompetitive tools” of the entire consent decree apparatus.

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So it appears that Mr. Delrahim thinks there’s actually a chance that the consent decrees could go away.  If that happens, the PROs will have a golden opportunity to close the mechanical licensing loophole without all of the apparatus of the MMA.  In that new world, the major publishers would possibly not have to continue to use pretzel logic to administer the rights in their catalogs and the PROs could provide coverage on everything else.

And unlike the MMA, that world would actually be getting the government further out of the lives of songwriters.  It would avoid songwriters being beholden to the DiMA fox that would at least financially control the collective’s chicken coop.

It would also put to rest the ridiculous premise that the biggest corporations in commercial history need the government to protect them from songwriters–corporations that are themselves subject to antitrust enforcement, at least in Europe.  And that may be the other shoe Mr. Delrahim could be dropping.

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