We once had a mechanical licensing system in the U.S. that worked well enough for songwriters for 100 years. The problem with the mechanical licensing system wasn’t so much the licensing function it was the royalty rate. The government held down songwriters for 70 years to a 1909-based royalty rate that for some reason was frozen in time (more on frozen mechanicals here). But if users failed to license, songwriters could at least sue for statutory damages.
After the Music Modernization Act passed in 2018, they managed to even give away songwriters’ rights to sue. The songwriter part of the three-part MMA is called “Title I” and that’s the part that gave away the one hammer that songwriters had to be heard when their rights were infringed. They called it the “limitation on liability” and it was retroactive to January 1, 2018—before the bill was actually passed by Congress and signed into law.
It’s entirely possible that even if you knew about the MMA, you didn’t know about this new safe harbor created by the same uber-rich companies that wrote themselves the DMCA safe harbor that has created the value gap and plagued artists for years and the “Section 230” safe harbor in the “Communications Decency Act” that services use to profit from human trafficking and revenge porn stalkers. And now there’s the MMA safe harbor.
Only a handful of insiders got to be at the table when they gave away your rights in Title I without your even knowing what they were up to. Don’t get us wrong, there are great things in the other parts of MMA dealing with closing the pre-72 loophole, some important changes to the rules for ASCAP and BMI with rate courts, and the fix for producers getting a fair share of SoundExchange royalties. These are all good things.
The part that sucks is Title I that created this new safe harbor give away that will bedevil songwriters for generations to come.
So you may be asking how do we know this? Since the so-called “negotiations” for the Title I give away happened behind closed doors, how do we even know what happened? The answer is that we didn’t have the proof because anyone who tried to offer constructive criticism to the “negotiators” for songwriters was menaced, threatened and stabbed in the back. Nobody was talking about the safe harbor give away.
But now we do have the proof courtesy of the music services representative at the “Digital Licensee Coordinator” who opened the kimono in their recent comments to the Copyright Office about the black box. (Read the entire DLC comment here.) Their comments make for quite a read, not only about the so-called “negotiations” by the unrepresentatives of songwriters but also about the run-up to the MMA in the private settlements that nobody sees.
The first issue is that the Copyright Office has proposed some well-meaning regulations to increase the likelihood that the black box will actually get paid to the songwriters who earned the money. The services seem to be all in a huff about rules applying retroactively when they’ve been using old rules to organize their data. You know, they don’t like this retroactive thing unless it’s a retroactive expansion of their safe harbor. Then they like it just fine.
“The DLC emphatically opposes the Office’s proposal to retroactively expand the required reporting of sound recording and musical work information beyond that which is required by the existing regulations in 37 C.F.R. § 210.20. Those regulations were issued in interim form in December 2018, and finalized in March 2019, and unambiguously required collection of reporting information under the existing monthly statement of account regulations in 37 C.F.R. § 210.16. The Office has now proposed, in paragraph (e) of the proposed rule, to change the required reporting elements for the individual tracks, nearly two years after the MMA’s enactment and months before cumulative statements of account are due to be served.”
Sorry, but we think that the richest companies in commercial history, with trillions and trillions of dollars in market capitalization and the most advanced data mining capability in the known universe, can manage to figure out how to pay songwriters in a way that will actually result in songwriters getting paid. The truth is that they are so used to screwing songwriters that they are not going to lift a finger to help beyond the absolute minimum they have to do.
They got their retroactive safe harbor to give away, so don’t come whinging about retroactivity if it makes the distributions more likely to get to the right person, something the services have uniformly failed to do from their founding.
But now it gets interesting.
“It is well-known that—prior to enactment of the MMA—a number of DMPs entered into industry-wide royalty distribution agreements under the auspices of the NMPA, structured to allow all unmatched works to be claimed by their owners and all accrued royalties to be paid out, in what became the model for the MMA. These agreements were designed to, and did, put tens of millions of dollars in statutory royalties in the hands of copyright owners—money that they had been unable to access due to the broken pre-MMA statutory royalty system.”
First of all—“money that they had been unable to access due to the broken pre-MMA statutory royalty system” is utter crap. The reason that services didn’t pay out is because they didn’t clear the songs but exploited them anyway. For example, that’s also why Spotify got sued so many times and is still getting sued. It’s not that the system was broken, it’s that the services didn’t care and handled licensing in an incompetent manner. In case you missed it, that’s what they want to keep doing by extending into the future the same sloppy practices they got sued for in the past. The only thing new and improved about it is their absurd and undeserved safe harbor.
We don’t know what these “industry-wide royalty distribution agreements” were all about, but one thing we know for sure is that they weren’t “industry-wide” and the NMPA wouldn’t have had the authority to make those deals “industry-wide” in the first place. “Industry-wide” seems to mean “with the major publishers” or with NMPA members or just plain insiders. The implication is that “industry-wide” means everyone, which it clearly does not and cannot if you think about it for 30 seconds.
And if the copyright owners were owed a payment with their own money, the only reason that they couldn’t “access” the funds is that the services wouldn’t let them. When you owe somebody money, you should pay them because you owe them, not act like you’re doing them a favor.
But here it comes:
Congress in the MMA’s limitation on liability provision enacted a compromise among stakeholders’ interests: elimination of the uncertainty of litigation facing DMPs in exchange for the transfer of accrued royalties to the MLC.
In other words, the services sat on the money and refused to pay until they got the MMA safe harbor. That was the “trade”—do something the services were already required to do in return for something the songwriters were never obligated to do. The songwriters paid for the safe harbor with their own money.
“As set forth in the relevant statutory provision, in exchange for payment of accrued royalties from “unmatched” usage prior to license availability date (and related reporting), DMPs are protected from the full brunt of copyright damages in any infringement lawsuits based on alleged failures to comply with the requirements of the prior mechanical licensing regime. The provision provides a clean slate for any past failures under the prior licensing regime for those DMPs who pay those back royalties and provide associated reporting. It provides requirements for DMPs that seek to take advantage of the limitation on liability, ensuring that DMPs that pay accrued royalties to the MLC can do so without having to second-guess whether the payment was worth it—that is, whether they qualify for the limitation.
This was the heart of the deal struck by the stakeholders in crafting the MMA: to provide legal certainty for DMPs, through a limitation on liability, in exchange for the transfer of accrued royalties.
Which “stakeholders” were these? Did they include any of the plaintiffs who were then suing the services? No. Did they include anyone who didn’t drink the Kool-Aid? No.
So let’s be clear—the reason that the services deigned to actually pay money they owed for failing to license properly is because they didn’t want to be sued for screwing up. They wanted a vig of a new safe harbor, and as the DLC tells us very, very clearly this issue was at the core of the deal you didn’t make for Title I.