David Lowery’s Suggestions to the Copyright Office for Regulation of the Mechanical Licensing Collective Part 1

The US Copyright Office solicited comments from the public about the operations of the Mechanical Licensing Collective.  The first round of those comments (called “initial comments”) were due in November and the second round of those comments (which are called “reply comments” because they essentially comment on the initial comments) were due December 20.

All the comments focus on some central themes that seem to be on everyone’s mind which can be boiled down to oversight, oversight and more oversight.  While the DLC controls the MLC’s purse strings, the MLC has been given largely uncontrolled power over songwriters that needs to be checked by the government on behalf of the governed.

David Lowery did not file initial comments but as he notes, developments made him feel compelled to speak up in the reply comments.  We’re going to post his reply comments in four parts, and then we’ll post other commenters who we think made really good points (like CISAC and BIEM among others).  (If you want to skip ahead and read the entire comment, you can download it here.)

Comments of David C. Lowery, Notice of Inquiry for Blanket License Implementation Regulations Issued by the United States Copyright Office Concerning the Orrin G. Hatch-Bob Goodlatte Music Modernization Act of 2018

I respectfully submit these comments in response to the Copyright Office’s September 24, 2019 Notification of Inquiry and request for comments to assist the Office in drafting regulations relating to the implementation of certain parts of Title I of the Music Modernization Act.

Most relevantly for these purposes, I am an American songwriter, music publisher and member of the bands Cracker and Camper van Beethoven. I teach music business courses at the Terry College of Business at the University of Georgia and am co-author with Steven Winogradsky of the latest edition of the book “Music Publishing: The Complete Guide.” I also founded and am the principal writer of the blog The Trichordist (www.thetrichordist.com). I have testified before the House Judiciary Committee and am active in public policy discussions of the copyright law. I was briefly a member of the Mechanical Licensing Collective’s statutory unmatched funds committee, but resigned.

It was not my intention to respond to the Copyright Office request for comments on these regulations. However, several recent events changed my mind: The MLC’s selection of the Harry Fox Agency (formerly owned by NMPA) as its principal vendor; the selection of ConsenSys apparently as the cryptocurrency vendor of MLC; and the adoption by the Copyright Royalty Judges of the voluntary settlement of the initial administrative assessment after allowing the Songwriters Guild of America to be hounded out of the proceeding by the MLC while ignoring the many helpful points and suggestions made by SGA while it was in the proceeding including in its withdrawal papers.

These events range from the bizarre to the suspicious but lead me to the same conclusion—this process needs a whole lot of sunlight.

I found this language in MLC’s comments particularly troubling:

[G]iven that the MLC’s policies and procedures are still being developed with the [License Availability Date] still over one year away, the MLC believes that regulations concerning the Office’s oversight role may be premature at this time. The MLC believes that the promulgation of regulations concerning the Office’s role in overseeing and regulating the MLC’s operations and policies would be more fruitful once the MLC has fully developed its policies and procedures and is able to provide them to the Office for review.

That is exactly backwards. While the MLC may think oversight is not a fit until they decide how they wish to govern themselves with the power of the compulsory license and the biggest corporations in history behind them, the Copyright Office shouldn’t delay establishing the rules of the road.

The MLC is rapidly becoming a self-licking ice cream cone wrapped in cronyism inside a cryptocurrency. The Copyright Office is in a position to turn this erosion of MLC’s statutory mission back to the light and away from “new boss-ism” as in “meet the new boss, worse than the old boss.”

It seems impossible to ignore the fact that the MLC quango has announced their selection of vendors in a news dump over the Thanksgiving holiday. Having selected the Harry Fox Agency and a cryptocurrency outfit as best of breed vendors, I would expect both the substance and the process of this selection to be fair game for a comment about the MLC, its operations and, of course, its management.

I am reminded of James Madison’s warning in Federalist 51:

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

Notices of Blanket and Nonblanket Activity

The Office’s request for comments on notices must be seen in light of the subsequent selection of HFA by the MLC. The implications from the MLC being permitted to select their cronies at HFA as a vendor comes up in many places in the Office’s request for comments. In terms of notices, I assume that HFA will be permitted to continue with its business practice of representing both copyright owners and digital music services, most specifically Spotify. In other words, HFA will be on both sides of the same transaction, a clear moral hazard and conflict of interest. Further if HFA is going to continue to collect money from services and pay songwriters, what is the point of inserting a $60 million-dollar layer of MLC bureaucracy in the middle of this transaction? In economic terms this appears to be pure “deadweight loss.”

The MMA clearly envisioned that the establishment of a single MLC would create market efficiency in music licensing. The selection of HFA as a vendor makes a mockery of the MMA by making the market less efficient, and essentially turns the MLC into a parasitic middleman. This is an “own goal.”

At the outset, I must respectfully say that I have first-hand experience with the HFA work product in two different class actions against HFA tech clients. In addition to my two class actions, there have been seven significant lawsuits that I am aware of brought against Spotify, an HFA client. All these lawsuits have similar facts—they were brought by (1) independent publishers that (2) opted out of the “settlement” between Spotify and the National Music Publishers Association and (3) whose claims were summarily ignored until they sued.

In my case, after I sued Spotify I received non-compliant NOIs from HFA (as Spotify’s agent) relating to songs at issue in the case that were backdated approximately five years. These notices were sent from an address that HFA would not have until several years after the back date and that were signed by an officer of Spotify who had left his job over a year before the mailing date. I don’t know what kind of game they were playing—perhaps trying to trick me or my business manager into cashing a paltry check they would argue indicated my acceptance of their license. It didn’t work, and the rest is history.

I have nothing personal against HFA and I actually placed part of my catalog with HFA for administration to see how they would do. At this writing, the jury is out.

I can also not ignore the fact that the entire MLC selection process appears from the outside to be a giant Kabuki dance to cover up business as usual with the reunion of the NMPA with the HFA unit they just sold off. I think it’s fair to say that I’m not alone in raising these questions, which relate directly to the Copyright Office’s questions and the initial round of comments from several commenters.

Public Test of Operability

The following responds to the Office’s questions about usage and reporting requirements.

The MLC announced with no oversight or explanation that is has selected HFA as one of its principal vendors. Because the MLC dragged their heels on disclosing who their vendors would be, the Copyright Office was forced to designate the MLC before the MLC announced its vendors. The Office was therefore largely buying a pig in a poke—as were all songwriters in the history of music. The Office (and the Congress) unintentionally empowered the MLC to essentially do whatever it wanted to fulfill its statutory mandate. The MLC chose HFA in what may be the least suspenseful announcement of the decade.

Respectfully, I think that when the Copyright Office reflects on that decision in a few years, it will be shown to have been a mistake or I will be shown to have been a goat. If HFA works out, I will be happy to be a goat. But if it doesn’t, the bill for both these decisions will come due—and the services won’t be paying that one. Self-published songwriters will be paying with missing or miscalculated royalties.

There have been many notable lawsuits brought against services since I filed my class action in 2015. Some say that these cases drove the services to accept the Title I blanket license due to the retroactive safe harbor. All of these cases have two things in common: They were brought by independent songwriters or publishers and HFA was the backend matching and royalty accounting service in every case. So I would say it differently. What drove the services to take the safe harbor deal (which was great for them) was not the songwriters, it was HFA’s repeated inability to get the job done.

Not only was HFA not punished for its failures, it has been rewarded. This is curious. And the MLC is now supposed to accomplish in 12 months or less that which the industry has been unable to accomplish in decades. Using HFA. Which makes it all very mysterious to people like me.

One way to solve that mystery would be for the MLC to disclose the actual selection criteria and internal recommendations to support the supposed “unanimous” selection of HFA. Was this the work of a dedicated group of likeminded people or was it based on objective criteria? If, for example, MLC were to have given HFA and MRI a problem to solve, I would like to know exactly what that problem is so that I could assign the solution of the problem set as an academic project. I would be happy to publish the results, as could any other academic wishing to conduct such peer review.

Unfortunately, I seriously doubt that MLC has any intention of being that transparent unless they are required to do so by regulations. Which leads one to ask, why so secretive?

To be continued in Part 2