Thanks to the efforts of the “frozen mechanicals” commenters to the Copyright Royalty Judges and the labels who agreed to the structure, there is now an annual cost of living adjustment (called a “COLA”) for the statutory mechanical royalty paid for songs on physical (like vinyl or CDs) and permanent downloads. Starting this month and going forward, that COLA is made by the Copyright Royalty Judges in December, effective the next January 1.
Remember that the frozen minimum statutory mechanical rate was 9.1¢ since 2006 but increased to 12¢ effective 1/1/23.
The Copyright Royalty Judges announced the new COLA rate yesterday which has increased to a minimum rate of 12.40¢ for recordings of songs with a running time of 5 minutes or less, and a per-minute long-song rate of 2.39¢. Depending on how frequently you get accountings, you could see that COLA rate increase show up on your next statements for sales after 1/1/24.
Remember, the purpose of having a COLA is to preserve the buying power of the government’s royalty because songwriters get one opportunity every five years to negotiate compensation for mechanical royalties. Of course, the COLA rate may get distorted by “controlled compositions” clauses in artist agreements, so check your contracts.
Also remember that the rate paid for physical and downloads is actually paid by the record companies as the “licensee” who agreed to the COLA on royalties they pay.
The rate paid for streaming is paid by the digital music platforms like Spotify, Apple, Google, Amazon, Tidal and others.
There is no COLA adjustment for streaming even though same songs and same time period and even though the MLC gets a guaranteed annual increase in its “administrative assessment”.
2024 rate. For the year 2024 for every physical phonorecord and Permanent Download the Licensee makes and distributes or authorizes to be made and distributed, the royalty rate payable for each work embodied in the phonorecord or Permanent Download shall be either 12.40 cents or 2.39 cents per minute of playing time or fraction thereof, whichever amount is larger.
What’s a better way to hide a story than a Friday news dump? A long weekend news dump. (Remember when The MLC announced that they had “decided” to pick the Harry Fox Agency as their principal vendor after jerking chains for months?).
So I’m not surprised that the BMI sale got a turkey press release on the Thanksgiving long weekend. BMI’s press release is remarkable for what it doesn’t do. For example, it doesn’t announce the financial terms of the deal in favor of the bright and shiny object of a $100,000,000 tip to its 1.4 million “affiliates” which works out to about $71 each. Want to bet that BMI’s shareholders and executive team are pocketing a bit more on the deal?
Which is fine—it’s their company, they can decide how they want to share the sale price windfall. But if you’re going to be a capitalist, be a capitalist and don’t try to sugar coat the fact that you got rich(er) selling data that doesn’t belong to you and trading on the efforts of songwriters. In the great tradition of streaming that we’ve become accustomed to from Big Tech, songwriters get the shortest end of the stick. Oh, and don’t overlook how BMI intends to distribute that $100 million—my bet is that 90% of BMI songwriters won’t even net anything like $71.
But here’s the line that BMI definitely buried in the very last sentence of their press release: “As part of New Mountain’s investment, CapitalG will also invest a passive minority stake in BMI.”
Now who might CapitalG be? CapitalG is a side venture fund owned by Google. So that’s right—after 20 years of fighting the biggest copyright offender in the history of commerce, a seller of advertising on pirate sites like Megavideo, BMI has invited them inside the wire.
“Passive” normally means the party does not participate in the management decisions of a company they have invested in. However, without knowing the terms of the investment, there’s really no way to know what that means. “Minority” typically means that the party holds less than 50% plus one of the outstanding voting shares of the target company on an as-converted basis, in this case the BMI shares following the closing of the sale transaction. Again, without seeing the post-money capitalization table, you really have no way of knowing what “passive minority stake” really means.
So that leads me to look at the public statements of CapitalG, such as on its website. Here’s a couple of examples:
“CapitalG is Alphabet’s (Google’s) independent growth fund.”
“By maintaining a small, concentrated portfolio, we are able to invest heavily in each company’s success, fueling them with recurring, significant capital and consistent, hands-on operational and strategic support.”
What this sounds like is what you would expect—a very engaged, Silicon Valley style venture investment. It is inevitable that this investment will result in at least one board seat or “board observer” which is even worse from the company’s point of view. And that investment style is confirmed by another statement on CapitalG’s website:
“3000 Googlers have advised 4500 portfolio employees. Hands-on go-to-market, people & talent, and product & engineering support, often producing multimillion-dollar value within the first year.”
What that means is that Google will be all up in your grill, BMI folk. Get ready for it, because they will now be able to push you around for real with your jobs on the line because THEY OWN YOU.
What is worse than Boston Consulting Group telling you what you ought to do? Google telling you what you must do. And they will.
Why do they do it?
“16 IPOs and 9 M&A exits. Laser focused on each company’s success–with the track record to prove it.”
“Each company’s success” means the exit. That’s all it means. All those smiling people are smiling for a reason. They don’t care about songs, songwriters, writer relations or anything else. They are about the data, the tech, and all their hairbrained ideas about how the music business really should work in their utopia. Assuming “owning” the MLC and BMI passes antitrust scrutiny at President Biden’s FTC.
In other words, they are going to pump you up and sell your ass. And they’ll do it with the blood money they made by ripping us off for decades. That’s one way to get a job at Google.
So—as long as we understand each other. Something to think about when your writers and publishers start firing you.
[This post first appeared on MusicTechPolicy referenced by David in his post below from X]
Remember the millions of flawed “address unknown” NOIs that the Copyright Office allowed to be filed by the largest corporations in commercial history, including Google, because they were unable to locate the copyright owners? Aside from the sheer hilarity of the statement “Google can’t find [X]” it is almost certain that the absence of the line of researchers at the Copyright Office at the time suggests that the big tech companies never really did all the research and were allowed to file false statements with the government. Any guesses as to which Copyright Office lawyer was principally involved in allowing them to get away with that massive charade to the tune of approximately 100,000,000 notices? (See my article from the ABA Entertainment & Sports Lawyer.). That might be the one who left the Copyright Office for the riches of private practice shortly after the incident. Mr. Damle also has pretty consistently represented the Digital Licensee Coordinator. More on that later.
Another fake enterprise seems to have been uncovered by Politico this week, this time apparently in what I think is Mr. Damle’s latest assault on creators, his fascination with Open AI. As Politico reports:
The message in the open letter sent to Congress on Sept. 11 was clear: Don’t put new copyright regulations on artificial intelligence systems.
The letter’s signatories were real players, a broad coalition of think tanks, professors and civil-society groups with a stake in the growing debate about AI and copyright in Washington.
Undisclosed, however, were the fingerprints of Sy Damle, a tech-friendly Washington lawyer and former government official who works for top firms in the industry — including OpenAI, one of the top developers of cutting-edge AI models. Damle is currently representing OpenAI in ongoing copyright lawsuits.
Damle did not sign the letter, and did not reply to multiple attempts to contact him with questions about his involvement. But data contained in a publicly posted PDF of the letter show the document was authored by “SDamle,” and three signatories confirmed to POLITICO that Damle was involved in its drafting and circulation. Two of them said they were first made aware of the letter by Damle, and signed it at his invitation.
The letter’s covert origin offers a window into the deep and often invisible reach of Big Tech influence in the Washington debate over AI — a fast-moving part of the policy landscape where Congress is hungry for outside advice, and which is still new enough to create strange political bedfellows. Signatories included the American Library Association, the progressive nonprofit Public Knowledge and the free-market R Street Institute.
Oh my. This bears all the hallmarks of Google policy washing, while the company is at the same time engaging in a charade with artists through the YouTube AI Music Incubator. And as usual, Mr. Damle is only too happy to accommodate.
Before we get to George’s letter, a little context. If you’re coming to this subject for the first time, mechanical royalties are paid to songwriters (and their publishers) for the mechanical reproduction of their songs. The federal government established a compulsory license for this purpose and corresponding royalty rates starting in 1909. The license has evolved over time and now includes physical configurations like vinyl (paid by record companies) and digital transmissions like streaming (paid by DSPs like Spotify).
Until the Music Modernization Act, songs were licensed on a song-by-song basis notice-based system except for catalog licenses. Or at least theoretically–pre-MMA most of the streaming services didn’t take advantage of the statutory license they were entitled to because they couldn’t be bothered. (Until David’s class action called them out. We note that the Copyright Office, in particular a former lawyer at the Office now representing Big Tech against songwriters, allowed the streamers to get away with tens of millions of flawed “address unknown NOIs” that a cynic might say was a catastrophe with a purpose. Chris has an article about this fiasco that went largely unreported except by Hypebot.)
Fast forward to today. Every five years the Copyright Office is required to review the company that the Office has designated to run the Mechanical Licensing Collective. Currently that entity is The MLC, Inc. designated by the Copyright Office on July 8, 2019. Remember that The MLC, Inc. was independently chosen by the Copyright Office as the best in breed of all applicants after a rather odd beauty contest. This is their thing, and the MLC, Inc. is their idea. So do you think that creates an incentive to create a five year review that everything is peachy and they were geniuses for creating this dumpster fire?
Even though the first five year review is set to happen next year, Congress has already held a hearing about the MLC, Inc. which frankly did not go well for the company. Nobody got their ears nailed to the barn door, but the hearing was not the usual love fest. The review is to be conducted by the Copyright Office, so there’s a question as to why Congress decided that the House Judiciary Committee IP Subcommittee should conduct the first of what may be multiple hearings.
Everyone assumed that the Copyright Office would choose the first MLC as the NMPA-backed entry, The MLC, Inc. That company was so confident of winning the contract their confidence made people ask why anyone else bothered to try out. And when the next charade resulted in The MLC, Inc. choosing the former NMPA affiliate the Harry Fox Agency as their data vendor, everyone knew there was definitely gambling at Rick’s. All paid for by Big Tech (or maybe we should say Really Big Tech) because not even the taxpayer is stupid enough to fall for this BS. After all, nothing blew up and nobody died.
So the lobbyists and lawyers and the Copyright Office were busily building up a new bureaucracy to drive mechanical licensing back to the future and essentially preserve the 1909 compulsory license that George refers to. Because what they didn’t do was throw out the compulsory license and come up with an alternative more in keeping with streaming. You know, modernization.
In fact, they never really considered how one might implement mechanical licensing without the compulsory part. And that’s probably because there is a cottage industry of lobbyists, lawyers, and government clerks built up around compulsory licensing that would simply be out of a job if the compulsory were rejected. But they will get out the green eyeshades and the furrowed brow and tell you that mere songwriters cannot appreciate the complexity of getting rid of the compulsory license that governs their lives and has done for over a century.
But then there’s this five year review. What is the review reviewing if it never takes into account the compulsory license itself. Are we to just assume that the compulsory lasts forever? Are they just to review how The MLC, Inc. and HFA are doing administering a law that itself doesn’t work? Where does the failure of one start and the other begin?
The effectiveness of the statute itself really must be part of the five year review as well as a review of the MLC.
Enter George Johnson. George is a songwriter who has effectively represented himself at the Copyright Royalty Board and is fighting hard for increased songwriter royalty rates, holding up a mirror to the emperor in the Imperial City of Washington, DC. Needless to say, George has made no new friends among the grandees and courtiers who all see the advantage in complementing the emperor on his new clothes and complain that George does not shut up and let his betters run things the way they like. Billboard did an extensive profile on George during the frozen mechanicals crisis in which he played a major part.
George has written a timely letter to the Copyright Office anticipating the need for a review of the compulsory license statute itself from which spring all these problems for the obvious reason that you can’t really talk about the MLC with out talking about that statute (17 USC §115). (You may want to take a look at a proposal that David made a few years ago for a US version of extended collective licensing.) Just remember that it’s not really that difficult to transition off of song-by-song licensing to a blanket license administered by the MLC fiasco compared to extended collective licensing with an opt-in for songwriters who want to get away from HFA and the compulsory licesne.
Following is George’s letter to the Copyright Office and we will later post the Copyright Office response. You can read George’s white paper here.
Monday, June 12, 2023
Via Email
Attn: Ms. Shira Perlmutter,
Register of Copyrights and Director
U.S. Copyright Office
101 Independence Ave. S.E.
Washington, D.C., 20559-6000
Re: Study to Repeal §115 Compulsory License & Ex Parte Meetings to benefit Congress and all U.S. Songwriters and Music Publishers
Dear Register Perlmutter,
For the benefit of all American songwriters and music publishers “bound by” 1 the 114 year old §115 compulsory license, and to benefit Congress in their upcoming 2 decision making processes involving intellectual property law and music copyright policy, I respectfully request that the Copyright Office please initiate a compulsory license study and roundtables regarding it’s full repeal, including ex parte meetings.
The century old compulsory license is no longer an incentive or profitablefor all U.S. songwriters and music publishers, and there are many problems arising from it’s use, and misuse, not intended by Congress, the Constitution, and copyright law.
The 1909 compulsory license was designed for a different time, for the local sale of piano rolls and not contemplated to be used by the largest trillion-dollar corporations in the history of the world, with teams of attorneys, with no sale, by “access”, on “computers” or telephones, distributed digitally, through the air, and all for free from songwriters and publishers? Now, with no COLA for streaming.
Former Register Ms. Marybeth Peters initiated several studies 3 that questioned the continued necessity of the compulsory license, and for it’s full repeal or fullreform 4. Unfortunately, those studies are now outdated and considering the vast changes in the delivery of musical works and sound recordings, experts5 6 now think a new study would be very helpful in updating Congress on how the license is functioning post Music Modernization Act (MMA), to benefit their 2024 MLC review, but primarily so Congress can make an informed decision on full repeal or full reform?
While my comments here are my own and separate from my participation in the current Phonorecords III & IV proceedings at the Copyright Royalty Board, please feel free to notify me if there is any conflict or other legal protocol to be followed.
Other than the obvious economic arguments to finally pay songwriters the true value of their copyrights, the primary reason I believe compulsory license roundtables are necessary and so dire is the 3 major record labels’ current anticompetitive misuse of the compulsory license 7 at the CRB (See #1, 2, 3 in the attached white paper) that I’ve experienced as a 4 time CRB participant and appellant in Sound Exchange v. CRB 8 and Johnson v. CRB 9. The 3 major labels’ misuse of the license is the #1 issue including several dozen other serious issues.
The license, the rate-structure, and the CRB process are all trulybroken in almost every way and must be fixed immediately or completely abandoned. All rational market actors who currently use private collective blanket licensing providers would certainly switch, proving no need for federal licensing to operate efficiently.
We all could really benefit from the Copyright Office’s input, ideas, and legal opinions on these extremely important issues since each and every songwriter cannot compete with RIAA and NMPA counsel, nor 25 years of their regulatory capture.
We songwriters truly need Congress and the Copyright Office’s help and guidance.
We pray the Copyright Office 11 will initiate a study with roundtables, in addition to ex parte communications and meetings to benefit Congress, and all American songwriters and music publishers “subject to”11 the license — for these good reasons, good cause, and those contained in the following white paper attached below.
Thank you for your time and thoughtful consideration.
2. Upcoming 5 year work product review of the Music License Collective (“MLC”) by Congress in 2024.
3. https://www.copyright.gov/newsnet/2022/981.html September 30, 2022 — In Memory of Marybeth Peters. “Her leadership of the Office also included the generation of several landmark studies, such as those on statutory licenses…”
4. To me, a full overhaul in dollars of the “nano-penny” rate-structure in §385 Subpart C streaming.
5. https://musictechpolicy.com/2023/04/05/should-the-copyrightoffice-begin-at-the-beginning-with-the-mlcs-first-five-year-review/ April 5, 2023 — by attorney and Phonorecords IV Commenter Mr. Chris Castle. Should the Copyright Office Begin at the Beginning With The MLC’s First Five year Review “The continued need for a song compulsory license is just the kind of information that Reps. Jordan and Issa could use in case they were inclined to just get rid of it. It would be a great topic for the Copyright Office to study and hold round tables on, this time preferably lead by a Copyright Office lawyer who was not being recruited by Spotify.”
7. …through NMPA’s, et al. re-writing all laws and definitions, and MMA, to fit label business models, not U.S. songwriters. This is also in no way the Judges fault, they have to deal with it too, so reform would help them. The Judges are great and not to blame when I say the process is broken.
11. https://app.crb.gov/document/download/3715 September 29, 2016, SDARS IIIOrder Denying Services’ Motion To Dismiss George D. Johnson d/b/a Geo Music Group. “The Services’ reliance on the Librarian’s decision in PSS II—a decision that involved neither a copyright owner nor a copyright user—is misplaced because it is based on an erroneous premise. Unlike the party in PSS II, GEO is subject to the license at issue…and GEO would have no say in the matter—that is the essence of a statutory license. For the forgoing reasons, the Judges DENY the Services’ Motion.”
MRA asks a good question. There's nearly half a billion in songwriter "black box" money sitting at the Music Licensing Collective. What do they have it invested in? Unlike foreign songwriter rights societies, the US MLC doesn't have to disclose this. https://t.co/z5Co2VSfv0
Well, another quarter is rolling around and the MLC is still sitting on 100s of millions of dollars of songwriter money as far as I can tell. Billboard says the MLC has “matched”–maybe different than “paid”–$200 million of the $427 million in black box that it was paid by the services in 2021. This doesn’t count the unmatched that the MLC has itself added to that sum. And Congress still haven’t required them to disclose their investment policy, returns on investment or much of anything else.
Compare the MLC to community banks. There are approximately 1,000 community banks with net assets between $250,00,000 to $500,000,000. There are approximately another 1,200 community banks with net assets between $100,000,000 to $250,000,000. It’s admittedly rough justice, but why should one entity holding hundreds of millions of other peoples’ money have virtually no disclosure requirements and be essentially unregulated while another is the opposite?
Remember that the MLC is supposed to pay interest “at the Federal, short-term rate” “for the benefit of copyright owners entitled to payment of such accrued royalties.” Note that the Federal short-term rate is today a lot higher than it was when the lobbyists wrote the Music Modernization Act, currently 4.21% or thereabouts. And through the power of compound interest, that’s a bunch of cash the MLC is supposed to come up with. I wonder where they’ll get it from. Wouldn’t you like to know?
Anyway, let’s talk about interest rates. The “risk free rate” is often thought of as the rate of interest paid on US government bonds. That interest rate is thought of as risk free because it is backed by the full faith and credit of the United States that you hear so much about these days. Want to know where you can find that full faith and credit? Look in the mirror.
When you ask around about what collective management organizations do with their “black box” monies while they are waiting to match money with songwriters or at least copyright owners, you often hear that the money is invested in very safe instruments, like U.S. treasury bonds. This might be particularly true of CMOs that are required to pay interest on black box because that interest has to come from somewhere.
But–and here it is–but, as we have learned from the Silicon Valley Bank collapse and the number of federal government officials in the mumble tank about why these banks are failing and why they are getting bailed out by, you know, the full faith and credit of the United States, “risk free” seems to be a relative concept. When you buy US government bonds, there are a number of different maturity dates available to you, kind of like buying a certificate of deposit. A common maturity date is the 10-year bond and the two-year bond, both of which were recently down sharply.
But–there is a connection between the interest rate that the bond pays, the price of the bond, and the maturity date of that bond. When bond interest rates increase, the face price tends to decrease. So if you paid $100 for a bond with a interest rate of say .08% and that rate then increased to say 4.5%, the face price of that bond will no longer be $100, it will be less. If that increase happens fairly quickly, you can have difficulty finding a buyer. The good news is that when the Federal Reserve raises the interest rate, there is about as much news coverage of the event as it is theoretically possible to have, both before during and after the rate increase, not to mention the Federal Reserve chair testifying to Congress. It’s very public. Closely watched doesn’t really capture that level of attention.
When bond prices decline, holders only “realize” the loss or gain if they sell the bond unless the bond is marked to market so the firm has to disclose the amount of what the loss would be if they sold the bond. Hence the concept of “unrealized losses,” “maturity risk,” or “interest rate risk.” Some think that US banks currently have $620 billion in unrealized losses due to interest rate risk. And don’t forget, these are your betters. These are the smart people. These are the city fellers.
This interest rate risk issue is not limited to banks, however. It is also present anytime that an entity tasked with caring for other people’s money invests that money in treasury bonds, crypto, or whatever. Like the MLC. You don’t have to be Wall Street Bets to end up losing your shirt or something in this environment.
So the point is that the same problem of interest rate risk and unrealized losses could apply to CMOs, such as The MLC, Inc. because of their undisclosed “investment policy” of investing the $424 million of black box they were paid by the services. They don’t disclose what the investment policy is and they don’t disclose their holdings so we don’t really know what has happened, if anything. The money could be perfectly safe.
Snoop Dogg had strong words for Spotify, Apple Music, and other music streaming services during an interview with former Apple Music Creative Director Larry Jackson at the Milken Institute Global Conference.
“I know I’m going off-script right now, but fuck it. This is business,” said Snoop “In a room full of business people and somebody may hear this so the next artist don’t have to struggle and cry for his money because some of these artists are streaming millions and millions and millions and millions of fucking streams and they don’t got no millions of dollars in the pot.”
Silicon Valley’s answer to Charles Ponzi may be called StubHub or its parent company Viagogo. I’m sure you’ve run into the StubHub grift. A band releases tickets for a show, the bots descend and having grabbed the best seats turns to StubHub and its ilk to resell the ill-gotten tickets at ever higher prices. Everyone denies they did anything wrong, they had no idea where their tickets were coming from. Instead of being prosecuted for wire fraud and other bad juju, these ticket scalpers allow reselling of botted tickets on a grand scale. All the while decrying bots as an illegal practice while leaving out the “but we make money together” part. See Better Online Ticket Sales Act (“the BOTS Act”), 15 U.S.C. § 45c.
However vile is this grift, it’s kind of an old story. The only thing that’s breaking news about a Ponzi scheme is not the ghost of Charles Ponzi. Rather, its when smart people–you know, your betters–fall for it yet again. But StubHub revealed yesterday in the Georgia Legislature that they actually thought they would put one over on a wiley old committee chairman who just didn’t buy the huge helping of Smarm by the Bay when the Silicon Valley lobbyists oiled their way into the Georgia House of Representatives Regulated Industries Committee. You have to get up pretty early in the morning to fool and old fox and Valley Boys are not early risers.
The Chairman caught onto the con very quickly, and David Lowery helped to highlight the scalper scam. But the thing you always have to remember about our brilliant friend David is that he’s been known to pick up his pen and write the song that struggled to be written or the song that was not well received, but five years later be promoted as his best work. That’s why he’s got so many loyal fans. David takes know your customer to a whole new level, so was the perfect subject matter witness for the committee.
So here’s the new twist. What if you didn’t have a ticket but thought that you could get one, no problem once they went on sale–thanks to your friendly neighborhood ticket bot farmer. But what if StubHub made a market for people to buy the opportunity to buy a ticket at some point in the future. That’s right–selling the botted ticket itself isn’t enough for these people.
Now they want to sell bot futures.
The seller could not sell the ticket yet because there was no ticket available. But why leave money on the table?
The seller of these future contracts was confident enough to make a contract with someone of unknown business acumen or sophistication who they convince that the seller would have a ticket available by the time the underlying tickets went on sale. As a market maker, StubHub would bring buyers and sellers together in a supposedly arms length transaction–I guess, I mean how would you really know how arms length it was–and the seller sold the buyer a contract to deliver a future ticket. Let’s call these contracts “futures” or “naked call options”. Or perhaps we should call them “securities.”
So just like short sellers have to cover their shorts, when the tickets get released somebody has to come up with the real tickets. Somebody would have to be confident they could get the very ticket described in the option contract–like you would be if you were the beneficiary of botting. Which, as StubHub will tell you, is illegal. So I’m probably just being cynical.
Technically, “botting” is circumventing “a security measure, access control system, or other technological control or measure on an Internet website or online service that is used by the ticket issuer to enforce posted event ticket purchasing limits or to maintain the integrity of posted online ticket purchasing order rules.”
Personally I think it’s worth asking if the act of selling the futures contract is itself a violation of the BOTS Act as a circumvention of various elements. StubHub may have a legal opinion telling them this is outside the BOTS Act, but let’s ask the FTC, shall we?
On the other hand, if StubHub is selling securities, there’s a whole different regulatory agency that should be examining their business, or it could just be Silicon Valley’s answer to hawala.
So when is a ticket a security? One way we can determine this is through a U.S. Supreme Court case that gives us a pretty clear test. One way—and it’s just one way–that an option on a ticket might be regulated as a security is if it is determined to be an “investment contract” under the test in SEC v. W.J. Howey Co.[1]
The Howey test asks if:
1. there is an investment of money or some other consideration, [Yes]
2. in a common enterprise, [yes]
3. with a reasonable expectation of profits, [oh, yes]
4. to be derived from the efforts of others. [Mos Def]
So that’s pretty inclusive criteria. Before anyone brushes aside the possibility that the SEC could determine a futures contract to buy tickets to be a security, take a close look at those criteria because how the basic question is answered is one to discuss thoroughly with your securities litigation lawyer (or engage one). That advice may be a good idea whether you are either an issuer or an endorser of at the ticket or ticketing platform..
One might say that a one-off sale of a unique product—which is truly “nonfungible” in the sense that there is only one of the product in existence—may be less likely to be determined a “security” under the Howey test. But while any one ticket is a one-off, there are many tickets available to many shows as a general rule, so tickets probably are pretty fungible.
You really do have to get up early in the morning to put one over on a wiley old Georgia committee chairman. You can tell just by looking at the body language that he believes what another wise old bird told me as a youngster. If something feels illegal, it probably is.
Suzanne Wilson General Counsel and Associate Register of Copyrights U.S. Copyright Office 101 Independence Avenue S.E. Washington D.C. 20559 Re: Notice of Proposed Rulemaking: Termination Rights and the Music Modernization Act’s Blanket License Docket No. 2022-5 Comment
Dear General Counsel Wilson:
Thank you for the opportunity to make this comment on the docket referenced above.[i]
I am a music lawyer in Austin, Texas and write this comment on my own behalf only and not on behalf of anyone else.
Others will address the substantive termination issues that are well-described and assayed in the Notice, so I will focus on the procedural tension between The Mechanical Licensing Collective, Inc. (“The MLC, Inc.”) currently designated as the mechanical licensing collective (“MLC”), its officers and directors, and the law as described in the Notice.
I argue that the need for this Notice is symptomatic of a larger problem in the relationship between Congress and The MLC, Inc. I hope the Office will consider resolving this tension as it has been authorized to do under the Music Modernization Act[ii] such as through regulations establishing the type of code of conduct that is common for other federal contractors.
This tension is alarming. The Notice states the MLC “does not follow the Office’s rulemaking guidance”[iii] regarding terminations, and that The MLC, Inc. “declin[es] to heed the Office’s warning….”[iv] These disclosures are diametrically at odds with the clear intent of Congress in crafting the MLC’s role.[v]
The disclosures confirm clearly that there are governance and oversight controversies at The MLC, Inc. that in my view need to be conclusively disposed of, and quickly.[vi] These governance issues are symptomatic of what may be much greater problems with the administrative capabilities of The MLC, Inc. that may be metastasizing but have not yet risen to the level of a public inquiry.
The recklessness that gives rise to the Notice also highlights The MLC, Inc.’s general lack of accountability and suggests a conscious disregard for the Copyright Office’s oversight role on a significant matter of law that is not capable of proper resolution through any “business rules.”[vii]
I also note this troubling statement in the Notice:
But, having reviewed the MLC’s policy, the Office is concerned that it conflicts with the MMA, which requires that the MLC’s dispute policies ‘‘shall not affect any legal or equitable rights or remedies available to any copyright owner or songwriter concerning ownership of, and entitlement to royalties for, a musical work.’’[viii]
It seems clear that The MLC, Inc.’s conscious failure to comply with Congressional intent as well as the Office’s guidance is, or ought to be, a decision of some import that surely must have been taken by someone—that is, one or more persons—employed or appointed by the MLC. It seems likely to be a subject that would have been reviewed both by its General Counsel and as part of the millions in outside counsel fees[ix] spent by The MLC, Inc.
The fact that the decision-making process is not readily known is itself of concern and leads one to further consider developing a code of conduct for The MLC, Inc. to assure the Office, the Congress and the public of its administrative capabilities.
Respectfully, I request that you determine how this decision was arrived at and what internal controls The MLC, Inc. has put in place to assure the Congress, the Office and interested parties that these mistakes will not happen again. This should not be an “oh well” moment and should be taken seriously by The MLC, Inc.
If The MLC, Inc. fails to disclose what it is doing by establishing opaque “business rules”, it is essentially creating de facto regulations that have the practical effect of law or regulations made behind closed doors unless the Office or other oversight agency happens to catch them out. The public will never know that the business rule was established, how the “business rule” was arrived at, or have a meaningful opportunity to comment such as in response to this Notice.
For example, do the minutes of The MLC, Inc.’s board of directors or statutory committees reflect a discussion or vote on the adoption of the MLC’s policies on termination treatment? Did such a vote implicate any conflicts of interest? Who determined that there was or was not a conflict of interest in the MLC’s decision to adopt the termination policy, however it was taken? Were there any dissenting votes recorded? Did an officer or director of The MLC, Inc. certify the completeness of the record in these findings in the corporate minute book?
This leads to other concerns under public discussion regarding the hundreds of millions of “black box” monies being held by The MLC, Inc. Given that the public has very little information available to it regarding the results and implications of the MLC’s operational decisions, I respectfully request that you determine what, if any, financial implications have arisen as a result of The MLC, Inc.’s reckless failure to comply with the law and the guidance of the Office in implementing its termination policy. Such determination should likely include any funds[x] that The MLC, Inc. is apparently trading in the market for its own account.[xi] Any curative action required by the Office should, of course, be retroactive in scope which will require considerable before-and-after accounting disclosures.
It must be asked whether the “business rule” established for terminations increases or decreases the enormous black box which was of considerable interest to Chairman Leahy at the recent Copyright Office oversight hearing at which the Register testified.[xii] This is particularly true if the implementation of the business rule results in financial harm to interested parties who rely on The MLC, Inc. to get it right.
The subject of black box came up in the Questions for the Record from Chairman Leahy. The Copyright Office’s response to Chairman Leahy’s inquiry about the hundreds of millions in black box held by the MLC directed the Chairman to the MLC’s annual report for answers.
Respectfully, I find this odd. Chairman Leahy did not ask what the MLC told the world in its annual report; rather he asked, “What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?”[xiii]The question is transitive: We have oversight of you, you have oversight of The MLC, Inc., therefore we have oversight of the MLC.
Surely no one is surprised by this. The question many have is why The MLC, Inc. itself—a quasigovernmental organization operated by inferior officers[xiv] of the United States–is not the subject of an oversight hearing at Senate Judiciary regarding the hundreds of millions it is sitting on. Maybe next time.
It must also be said that the answer to Chairman Leahy goes on:
Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period [2018-2022] until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period.[xv]
Without getting into the timeline of what came when, how is it exactly that The MLC, Inc. took the decision in February 2021—nearly two years ago–to sit on top of hundreds of millions of other peoples’ money that they were somehow investing under their undisclosed “Investment Policy”? Was anyone asked? Who gave the MLC the permission to do this? Do they not hold the black box corpus in trust for songwriters and copyright owners yet to be identified? Does this not compound the already painful series of failures that resulted in the black box in the first place, the delay in accounting to songwriters (or their families) under Phonorecords III remand, and still more delay while legions of lobbyists and lawyers argue over the post-remand true up accountings?
The MLC reported $2,529,910 investment income on its 2021 US Federal tax return 990
Respectfully, there is also, of course, a larger question that the Office may consider answering: If The MLC, Inc. adopts a policy or takes some action outside of the law or its remit, is that policy binding on any future entities designated by the Office as the MLC?
These are all questions that I would expect to have answers that are readily available to the public given that The MLC, Inc. is in a position of public trust administering a compulsory license on behalf of the United States and has been given great privileges under the MMA.[xvi]
Thank you again for the opportunity to comment.
Very truly yours,
Christian L. Castle
CLC/ko
[i] U.S. Copyright Office, Notice of Proposed Rulemaking, Termination Rights and the Music Modernization Act’s Blanket License 87 FR 64405 (Oct. 25, 2022) (Doc. No. 2022-5) (hereafter “Notice”).
[ii]Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Public Law 115–264, 132 Stat. 3676 (2018) (“MMA”) and specifically Title I thereof.
[v]See S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 7 (“Senate Report”). (“The collective is expected to operate in a transparent and accountable manner.”)
[vi] I would hope that this failure will be weighed and measured by the Copyright Office as part of The MLC, Inc.’s quinquennial review as is required under the legislative history. See, e.g., Senate Report at 5 (“[E]vidence of fraud, waste, or abuse, including the failure to follow the relevant regulations adopted by the Copyright Office, over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective.”)(emphasis added).
[vii] It must be said that the MLC’s disregard for this particular matter may present a moral hazard (at best) for the publishers represented by at least some of its board members.
[x]See the MLC’s annual report stating that the MLC invests the black box according to its internal “Investment Policy” established by its board of directors but not made public. MLC 2021 Annual Report at p. 4 available at https://www.themlc.com/hubfs/Marketing/23856%20The%20MLC%20AR2021%206-30%20REFRESH%20COMBINED.pdf(“Annual Report”) (“Investment Policy: This policy covers the investment of royalty and assessment funds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in [The MLC, Inc.’s] Investment Policy. The Investment Policy was approved by the Board in January 2021.”) (emphasis added).
[xi] Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties. However, the MLC, Inc.’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice. The continuity in ownership for profits derived from The MLC, Inc.’s trading is also unclear; if The MLC, Inc.’s existing designation is not continued but securities are being held or profits generated, what happens?
[xii]Senate Judiciary Committee, Subcommittee on Intellectual Property, Oversight of the U.S. Copyright Office, Responses to Questions for the Record by Shira Perlmutter, Register of Copyrights and Director of the Copyright Office (Sept. 7, 2022), available at https://artistrightswatchdotcom.files.wordpress.com/2022/10/qfr-responses-perlmutter-2022-09-07.pdf. (“Questions for the Record”) (“With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching.”)
[xiv] President Donald J. Trump, Statement on Signing the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (October 11, 2018) available athttps://www.govinfo.gov/content/pkg/DCPD-201800692/pdf/DCPD-201800692.pdf (“Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director.”)
[xvi]See, e.g., Senate Report at 5 (emphasis added). “For the responsibilities described in subparagraphs (J) [distribution of unclaimed royalties] and (K) [dispute resolution] of paragraph (3), the collective is only liable to a party for its actions if the collective is grossly negligent in carrying out the policies and procedures adopted by the Board of Directors pursuant to section 115(d)(11)(D). Since the Register has broad regulatory authority under paragraph (12) of subsection (d), it is expected that such policies and procedures will be thoroughly reviewed by the Register to ensure the fair treatment of interested parties in such proceedings given the high bar in seeking redress.”
In this comment to the Copyright Office, Abby North (independent publisher and Artist Rights Symposium III Moderator) calls on the Copyright Office to stop the MLC quango from unilaterally establishing “business rules” that hurt songwriters and their heirs and protect working families from these arbitrary actions of The MLC. The passing of Jeff Beck reminds us once again that we must take care to protect the heirs of creators.
Re: Termination Rights and the Music Modernization Act’s Blanket License
To the United States Copyright Office:
My name is Abby North. I am a music publishing administrator based in Los Angeles. My views expressed in this letter are solely my own.
With my husband, I am a copyright owner of the classic song “Unchained Melody,” among other copyrights. I also administer musical works and sound recordings on behalf of songwriters, their families and heirs. In many instances, I assist my clients in identifying their termination windows, assist in the research required, and interface with the attorneys who process termination filings.
Abby North, Helienne Lindvall, Erin McAnaly, Melanie Santa Rosa speaking at UGA Artist Rights Symposium III (Nov. 15, 2022 in Athens, GA)
I’m thankful for the opportunity to submit comments in support of the Copyright Office’s proposed rule.
The ability to recapture rights via the United States copyright termination system truly provides composers, songwriters and recording artists and their heirs, a “second bite of the apple.” Many of my clients exercise this right, and in doing so grow their family’s revenue, which, given today’s inflation and very high interest rates, coupled with a depleted stock market, is absolutely necessary.
Allyn Ferguson was a successful composer of film/television scores including “Little Lord Fauntleroy,” “Les Miserables,” “Charlie’s Angels,” and “Barney Miller.” According to Variety in its June 27, 2010 obituary, Ferguson was “among the most prolific composers of TV in the past 40 years.” My company North Music Group administers works controlled by Ferguson’s family.
In addition to his scores, Ferguson wrote songs performed by artists including Johnny Mathis, Count Basie Band and Freddie Hubbard. While the bulk of his film and television scores were created on a work for hire basis, and therefore are not eligible for termination under US copyright law, Ferguson’s commercial compositions and songs were not created as works for hire. Ferguson’s family has been able to exercise its termination rights in various musical works,
thereby increasing its earnings as it now collects the publisher share of United States royalties generated by the terminated works. Individual songwriters and composers and their heirs are not copyright aggregators. Every musical work, and every penny generated is very necessary to these families.
The Music Modernization Act created the blanket digital mechanical license. This move from one-off copyright licenses to a blanket license was a dramatic improvement in US mechanical licensing. However, the suggestion that rights held at the inception of this blanket license might remain, in perpetuity, with the original copyright grantee was frightening. I concur with the Office’s proposed rule and legal analysis of the relevant statutes and authorities.
I appreciate the Office requesting comments on the mechanics of solving the payment issues, because for the independent publishers I speak with and for me personally, many operational questions arise regularly regarding The MLC’s uncharted territories.
As one of The MLC’s statutory goals is to provide transparency to songwriters and copyrightowners, I would ask that the Office require The MLC to notify copyright owners (1) if The MLC’s unilateral termination policy has already been imposed on payments previously paid or that are being held in the historical or current black box, and (2) when the adjusting payment required by the proposed rule had been made.
To be clear, this rule must absolutely be retroactive to inception date of The MLC. Beyond the simple, clarifying amendment to the MMA, I believe there are additional, related issues that must be resolved:
1) What is The MLC’s “business rule” regarding the MLC/HFA Song Code for the terminated work? Prior to the inception of The MLC, the Harry Fox Agency would assign one HFA Song Code fr the work and its pre-termination parties, and a different HFA Song Code for the work with the post-termination parties.
What happens now? Do these multiple HFA Song Codes remain in The MLC’s database? Will there continue to be two separate MLC/HFA Song Codes, particularly given the Harry Fox Agency continues to license physical and download mechanicals on behalf of many publishers? Is it reasonable for the HFA Song Code to be the same as The MLC Song Code, when there is no derivative works exception in Section 115?
2) Which party is entitled to the Unmatched (Black Box) royalties, the related interest fees and to The MLC’s investment proceeds for a terminated work?
Finally, it should be noted that the initial concept proposed by The MLC Board (that the server fixation date should impact termination dates) most likely would have served large publishers, not songwriters.
It is crucial that the Copyright Office exercise vigilant oversight and governance of The MLC’s reporting regarding any payment obligations to copyright owners. Specifically, composers, songwriters and their heirs must have as significant a voice as the largest publishers and copyright aggregators.
Additionally, in the spirit of full transparency, I request full disclosure of board or committee votes, minutes of meetings or other documentation of process. For me and others like me, this would tremendously enhance our understanding of The MLC.
Decisions are being made by The MLC’s board and committee members, while the general MLC member or songwriters have no mechanism to gain information regarding the discussions, the decisions and the implementations thereof. Access to minutes and notes would provide valuable insights to the general membership.
I applaud the Copyright Office for moving swiftly to create this rule and clarify and codify how The MLC must treat copyright terminations. It is important that this rule be dictated by the Office as it is absolutely not The MLC’s job todecide who controls rights and is entitled to collect royalties.
That said, a “business rule” established by The MLC could have the effect of law absent vigilance by the Copyright Office.
On behalf of my family and clients, I wholeheartedly support this proposed regulation, and I truly appreciate the Copyright Office’s consideration of my comments.
The Trichordist 
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