Copyright Royalty Board Responds to Coalition of Songwriter Groups on Frozen Mechanicals

A group of songwriter organizations from around the world wrote to the Copyright Royalty Board last week opposing a proposed private “settlement” between the major labels and the major publishers to freeze mechanical rates on physical and downloads at the 9.1¢ 2006 rate that was filed in the current Copyright Royalty Board (CRB) rate court hearing called “Phonorecords IV”. (You can find the entire list of filings in the case here.)

The twist here is that if the CRB approves the private settlement at the request of “the parties” and doesn’t take into account the views and evidence of people who actually write songs and have to earn a living from songwriting, it will be grotesquely unfair and possibly unconstitutional wage and price control. The CRB will have frozen the mechanical rate for physical and downloads at the 2006 rate when inflation alone has eaten away the buying power of that royalty by approximately 30%. This would be like the Minerals Management Service adopting a settlement written by Exxon.

On average–on average–the physical and download configuration make up 15% of billing for the majors and for some artists vinyl is a welcome change from fractions of a penny on streaming. And then there’s Record Store Day–hello? These are a couple of the many reasons anyone who is paying attention should reject the terms of the settlement.

US Revenue by Source 2020

The Coalition had a simple ask: Let the public comment:

In the interests of justice and fairness, we respectfully implore the CRB to adopt and publicize a period and opportunity for public comment on the record in these and other proceedings,especially in regard to so-called proposed “industry settlements” in which creators and other interested parties have had no opportunity to meaningfully participate prior to their presentation to the CRB for consideration, modification or rejection. In the present case, hundreds of millions of dollars of our future royalties remain at stake, even in a diminished market for traditional, mechanical uses of music. To preclude our ability to comment on proposals that ultimately impact our incomes, our careers, and our families, simply isn’t fair.

The Copyright Royalty Board responded! According to our sources, the Copyright Royalty Board said that they would publish the private settlement in the Federal Register and give the pubic the chance to comment. This is great news!

But we will see what they actually do. The Copyright Royalty Board does not have a great track record in understanding songwriter interests in raising the mechanical rates as we can see in this except from their final rule freezing mechanicals again in 2009:

Copyright Owners’ argument with respect to this objective is that songwriters and music publishers rely on mechanical royalties and both have suffered from the decline in mechanical income. Under the current rate, they contend, songwriters have difficulty supporting themselves and their families. As one songwriter witness explained, “The vast majority of professional songwriters live a perilous existence.” [Rick] Carnes [Testimony] at 3. [Rick Carnes signed the Coalition letter as President of the Songwriters Guild of America.] We acknowledge that the songwriting occupation is financially tenuous for many songwriters. However, the reasons for this are many and include the inability of a songwriter to continue to generate revenue-producing songs, competing obligations both professional and personal, the current structure of the music industry, and piracy. The mechanical rates alone neither can nor should seek to address all of these issues.

We simply do not accept that the Founders put the Copyright Clause in the Constitution so creators could have a side hustle for their Uber driving which is exactly where frozen mechanicals take you, particularly after the structural unemployment in the music business caused by the COVID lockdowns.

Here is a summary of who is for and who is against frozen mechanicals.

Against Frozen MechanicalsProposing Frozen Mechanicals
Songwriters Guild of AmericaNational Music Publishers Association
Society of Composers and LyricistsNashville Songwriters Association International
Alliance for Women Film Composers 
Songwriters Association of Canada 
Screen Composers Guild of Canada 
Music Creators North America 
Music Answers 
Alliance of Latin American Composers & Authors 
Asia-Pacific Music Creators Alliance 
European Composers and Songwriters Alliance 
Pan African Composers and Songwriters Alliance 

Which side are you on? If you want to write your own comment to the Copyright Royalty Board about frozen mechanicals, send your comment to crb@loc.gov

Coalition of Songwriter Groups Call on Copyright Royalty Board for Fairness and Transparency on Frozen Mechanicals

[Editor T says this is a letter from a coalition of US and international songwriter groups to the Copyright Royalty Board about the frozen mechanical issue. If you want to write your own comment to the Copyright Royalty Board about frozen mechanicals, send your comment to crb@loc.gov]

MUSIC CREATORS
NORTH AMERICA

May 17, 2021

Via Electronic Delivery

Chief Copyright Royalty Judge Jesse M. Feder
Copyright Royalty Judge David R. Strickler
Copyright Royalty Judge Steve Ruwe
US Copyright Royalty Board
101 Independence Ave SE / P.O. Box 70977
Washington, DC 20024-0977

To Your Honors:

As a US-led coalition representing hundreds of thousands of songwriters and composers from across the United States and around the world, we are writing today to express our deep concerns over the “Notice of Settlement in Principle” recently filed by parties to the proceedings before the Copyright Royalty Board concerning its Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV) (Docket No. 21–CRB–0001–PR<(2023–2027)). For reasons explained below, several highly conflicted parties to this proceeding have apparently agreed to propose a rolling forward to the year 2027 of the current US statutory mechanical royalty rate for the use of musical compositions in the manufacture and sale of physical phonorecords (such as CDs and vinyl records). This proposal (and related industry agreements yet to be disclosed by the parties— see, https://app.crb.gov/document/download/23825) should neither be acted upon nor accepted by the CRB without the opportunity for public comment, especially by members of the broad community of music creators for whom it is financially unfeasible to participate in these proceedings as interested parties. It is our livelihoods that are at stake, and we respectfully ask to be heard even though we lack the economic means to appear formally as parties. If procedures are already in place to accommodate this request, we look forward receiving the CRB’s instructions as to how to proceed.

The current U.S statutory mechanical rate for physical phonorecords is 9.1 cents per musical composition for each copy manufactured and distributed. That rate has been in effect since January 1, 2006. It represents the high-water mark for US mechanical royalty rates applicable to physical products, a rate first established in 1909 at 2 cents. That 2-cent royalty rate, in one of the most damaging and egregious acts in music industry history, remained unchanged for an astonishing period of sixty-nine years, until 1978. Nevertheless, the recording industry now seeks  to repeat that history by freezing the 9.1 cent rate for an era that will have exceeded twenty years by the end of the Phonorecords IV statutory rate setting period.

Inflation has already devalued the 9.1 cent rate by approximately one third. By 2027, 9.1 cents may be worth less than half of what it was in 2006. How can the US music publishing industry’s trade association, and a single music creator organization (which represents at most only a tiny sliver of the music creator community) have agreed to such a proposal?

The answer to that question is an easy one to surmise. The three major record companies who negotiated the deal on one side of the table have the same corporate parents as the most powerful members of the music publishing community ostensibly sitting on the other side of the table. Songwriter, composer and independent music publisher interests in these “negotiations” were given little if any consideration, and the proposed settlement was clearly framed without any meaningful consultation with the wider independent music creator and music publishing communities, both domestically and internationally.

How on earth can these parties be relied upon to present a carefully reasoned, arms-length “Settlement in Principle” proposal to the CRB under such circumstances, fraught as they are with conflicts of interest, without at least an opportunity for public comment? Further, how can these parties be relied upon in the future to argue persuasively that mechanical royalty rates applicable to on-demand digital distribution need to be increased as a matter of economic fairness (which they most certainly should be), when they refuse to seriously conduct negotiations on rates applicable to the physical product the distribution of which is still controlled by record companies (who not so incidentally also receive the lion’s share of music industry revenue generated by digital distribution of music)?

The ugly precedent of frozen mechanical royalty rates on physical product has, in fact, already served as the basis for freezing permanent digital download royalty rates since 2006. Is this the transparency and level playing field the community of songwriters and composers have been promised by Congress through legislation enacted pursuant to Article I, Section 8 of the Constitution?

The trade association for the US music publishing industry is supported by the dues of its music publisher members, the costs of which are often in large part passed along to the music creators affiliated with such publishers. It is thus mainly the songwriter and composer community that pays for the activities of that publisher trade association, a reality that has existed since that organization’s inception. Still, the genuine voice of those songwriters and composers is neither being sought nor heard. Further in that regard, we wish to make it emphatically clear that regardless of how the music publishing industry and its affiliated trade associations may present themselves, they do not speak for the interests of music creators, and regularly adopt positions that are in conflict with the welfare of songwriters and composers. Their voice is not synonymous with ours.

Unfortunately, the music creator community lacks the independent financial resources –in the age of continuing undervaluation of rights, rampant digital piracy and pandemic-related losses–to rectify these inequities by expending millions more dollars to achieve full participation in CRB legal and rate-setting proceedings. Clearly, such an inequitable situation is antithetical to sound Governmental oversight in pursuit of honest and equitable policies and results.

In the interests of justice and fairness, we respectfully implore the CRB to adopt and publicize a period and opportunity for public comment on the record in these and other proceedings,especially in regard to so-called proposed “industry settlements” in which creators and other interested parties have had no opportunity to meaningfully participate prior to their presentation to the CRB for consideration, modification or rejection. In the present case, hundreds of millions of dollars of our future royalties remain at stake, even in a diminished market for traditional, mechanical uses of music. To preclude our ability to comment on proposals that ultimately impact our incomes, our careers, and our families, simply isn’t fair.

Finally, we request that this letter be made a part of the public record of the Phonorecords IV
proceedings. We extend our sincere thanks for your attention to this very difficult conundrum
for music creators, and further note that your consideration is very much appreciated.

Respectfully submitted,

Rick Carnes
President, Songwriters Guild of America

Ashley Irwin
President, Society of Composers and Lyricists
Officer, Music Creators North America Co-Chair, Music Creators North America

List of Supporting Organizations
Songwriters Guild of America (SGA), https://www.songwritersguild.com/site/index.php
Society of Composers & Lyricists (SCL), https://thescl.com
Alliance for Women Film Composers (AWFC). https://theawfc.com
Songwriters Association of Canada (SAC), http://www.songwriters.ca
Screen Composers Guild of Canada (SCGC), https://screencomposers.ca
Music Creators North America (MCNA), https://www.musiccreatorsna.org
Music Answers (M.A.), https://www.musicanswers.org
Alliance of Latin American Composers & Authors (ALCAMusica), https://www.alcamusica.org
Asia-Pacific Music Creators Alliance (APMA), https://apmaciam.wixsite.com/home/news
European Composers and Songwriters Alliance (ECSA), https://composeralliance.org
Pan-African Composers and Songwriters Alliance (PACSA), http://www.pacsa.org

cc: Ms. Carla Hayden, US Librarian of Congress
Ms. Shira Perlmutter, US Register of Copyrights
Mr. Alfons Karabuda, President, International Music Council
Mr. Eddie Schwartz, President, MCNA and International Council of Music Creators (CIAM)
The MCNA Board of Directors
The Members of the US Senate and House Sub-Committees on Intellectual Property
Charles J. Sanders, Esq.

Guest Post: What Would @TaylorSwift13 and Eddie @cue Do? One solution to the frozen mechanical problem

By Chris Castle [this post first appeared on the MusicTechSolutions blog]

Who can forget how Taylor Swift stood up for songwriters, producers and artists against Apple’s bizarre decision to impose a royalty-free three month trial period on the launch of Apple Music. (Of course, songwriters, producers and artists weren’t the only ones involved, but that’s a story for another day.)

What is equally memorable is how fast Apple changed course and all the goodwill that came to Apple as a result. Faster than you can say “Arsenal”, Eddie Cue announced that Apple would scale it back. Lemonade out of lemons. Of course, the issue should have been obvious, but sometimes smart people miss the point like everyone does sometimes. (Rolling Stone has a good short post on the backstory.)

The point of the story is that when you make a mistake, it’s better to fix it quickly than let it fester. So it is with the “frozen mechanical” problem that has become all the rage in recent days. The good news is the problem can be solved with the payment of money. It won’t be easy, but as a great man once said, this is the business we’ve chosen.

The Copyright Royalty Board decides on the statutory rate that’s paid under compulsory content licenses in the United States. For mechanical royalties, the CRB makes that decision every five years which means that if there isn’t a CRB hearing going on at any given moment, wait a little while and there will be one. (Needless to say, the volume of CRB hearings varies directly with full employment for lawyers and lobbyists in Washington, DC.) The “frozen mechanical” issue dates back to 2006 (or 2009 depending on how you count it) when the CRB allowed the end of rising mechanical royalty rates on physical and permanent downloads (and a couple others). However, the sour memories of frozen mechanicals date to 1909–also a story for another day.

Instead, the CRB has allowed a private agreement among the biggest players to become the law. This has happened at least one other time and it appears that it is about to happen again according to public documents filed with the CRB on March 2, 2021 (read it here). Contrast that private agreement to the bitter struggle against the streaming services over streaming mechanicals that is still in the appeal process. Different people paying, same songwriters getting paid.

If you haven’t heard about the tentative settlement by private agreement at the CRB, it admittedly was not well socialized.

The inescapable problem is that any fixed or “frozen” rate determined at one point in time but paid over relatively long periods of time is at the mercy of inflation in the economy that may rise in that intervening time period. The Congress and the industry recognized this harsh truth in the 1976 revision to the Copyright Act and eventually indexed mechanical rates, meaning that they floated upward with the Consumer Price Index. (CPI has its own problems, but it’s a bogey that lots of people use so it’s easier than reinventing the wheel with a bespoke factor.)

Given what has been happening in the economy, it was inevitable that inflation was about to come back strong in the U.S. and global economy. Sure enough, the Department of Labor announced yesterday:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.

Yes, the CPI ignored the Fed and increased like the pesky little devil it is. There’s no reason to think that this is going to stop any time soon. (If you were born after 1960 or so, you may not remember that inflation and stagflation resulted in the prime interest rate peaking at 21.5% in December of 1980. That drove mortgage rates to 13.41% in 1981 (often plus points). And then there were the credit cards. That’s where inflation can lead. Personally, my money is on stagflation in the form of high inflation and high unemployment due to what Secretary Yellen called the scarring effects of the pandemic which the music business is experiencing in spades.)

April 2021 DOL Inflation

It just wouldn’t be prudent to enter into a long term contract at a fixed rate that does not take into account inflation. Yet that is exactly what the tentative settlement wants to do with the mechanical rate for physical, downloads, and a couple other categories. Yet, we must acknowledge that it is very difficult to herd the cats to get them to agree to anything. But having gotten everyone to agree to freezing mechanicals and having gotten the CRB to agree to adopt that agreement in the past, it may be the case that the parties can get the CRB to let them increase mechanicals going forward.

In other words, take a lesson from Taylor Swift and Eddie Cue and do a quick course correction before the final settlement gets announced on May 18.

So what would that look like? Precedent suggests that the CRB (and its predecessors) have accepted two principal methods of increasing the rate, which is phased in over time: fixed penny-rate increases and CPI indexing. My suggestion would be to employ both methods in a greater of formula (so popular with streaming).

If phased in over 5 years like other rates, it seems that there could be an immediate step up to compensate songwriters for a rate was frozen starting at the time that physical was still a very significant percentage of sales back in 2006. That stepped up rate could then gradually increase with a greater of a fixed penny increase or CPI. I wouldn’t presume to tell anyone what that step up should be, but if you apply the CPI index, it should probably be about 4¢, bringing the minimum rate to 13¢ from 9.1¢. Given that big–albeit entirely justified–jump, increases over the out years might be more modest.

Now that we know that there’s a strong possibility that inflation will be in our lives for the foreseeable future, the good news is there’s still time to do something about it. The CRB has shown us that they are willing to accept radical changes in the mechanical royalty rate by adopting private settlements, so there seems to be no impediment. I’m not aware of a rule that says the CRB only adopts rules that freeze songwriters in place, so it should work to the songwriters betterment and not just to their detriment.

We should ask, what would Taylor and Eddie do?

Curiouser and Curiouser: Strange Loose Ends with Apple Music and The MLC

[Guest post by Chris Castle. This post first appeared on MusicTechPolicy. This is interesting because songwriters don’t often see shenanigans from Apple Music but it is probably due to the overpowering litigation magnet of the MMA. Put this in The MLC redesignation file]

Here’s an update on the bizarre saga of Apple Music and The MLC. Remember that HFA sent to its publishers this termination notice from Apple Music on Apple’s lyric and cloud services licenses (and assume for the moment it was also sent to other non-HFA publishers):

Apple Termination

This is remarkable because the Music Modernization Act limits the kind of licenses that the MLC can administer because the blanket license only applies to a limited number of activities (on demand streaming, limited downloads and permanent downloads). It does not apply to lyric licenses or cloud services because the blanket license is not available for those rights. Those rights would still need to be licensed under the very type of agreements that Apple is terminating.

This question came up during a recent MLC webinar moderated by MLC executives Kris Ahrend (CEO) and Serona Elton (Head of Educational Partnerships). These two executives were asked the obvious question, how can The MLC do lyric licensing for Apple. An eagle eyed MTP reader sent this screen capture from the chat:

MLC Apple Answer

So you have to ask, if The MLC can’t license lyrics, why did Apple terminate their lyric licenses and transfer to The MLC?  And what does “separately from us” mean?  The answer is not really responsive to the question.

Separately from us could easily mean that while The MLC is not licensing lyrics, some other entity is. (Presumably the lyrics are from songs that are subject to the blanket license so the MLC would play a role.)   Remember that the termination notice came from HFA.  Could it be that “separately from us” means HFA would be issuing a side by side lyric license on behalf of its publishers?

And remember that the notice from Apple includes this language:

[W]e intend to move our licensing and royalty administration for Apple Music to the MLC starting from January 1, 2021.

Congress did not intend that The MLC offer licensing and royalty administration for DMPs like Apple.  That would mean that The MLC would be paying itself for Apple’s blanket activities.  That is what HFA does through a rather porous ethical wall (and for which they have been at the center of two class actions and numerous copyright infringement lawsuits and are currently a co-defendant with Spotify in another post-MMA lawsuit).

It has long been assumed that somehow some way The MLC intends to offer bundled licensing which is currently prohibited.  Bundled licensing could take the form of performances, ex-US rights, sync, even general licensing.

It seems like that effort is quietly underway.  What is an alternative explanation for Apple terminating a large number of agreements and transferring its licensing and royalty administration functions to The MLC?  Is the plan that The MLC gets the business and HFA does the work that The MLC is prohibited by statute from performing (at least until they move the goalposts again)?

This does help to explain why there is no MLC database and all The MLC’s “data quality initiative” corrections and improvements are being performed on the HFA database (which HFA owns and will use for work not limited to the blanket license).

Curiouser and curiouser.

Black Box Hunting: The Songwriters Guild/Society of Composers & Lyricists/Music Creators North America’s Ex Parte Letter Stands Up for Transparency

[Editor T says: Remember when songwriters were promised that the Music Modernization Act was going to solve all your problems—AND give you a set of steak knives? Remember? Never needs ironing? And doubles on sax? One big feature was digital music services paying up to the Mechanical Licensing Collective for matching the entire black box from “inception” meaning all the money a service ever held that their data vendors couldn’t match and weren’t paid to try very hard, especially Spotify aka “defendant”. Who was that data vendor who couldn’t match? HFA. And who is the MLC’s data vendor? HFA. So the last couple weeks the insiders have been back-tracking behind closed doors at the Copyright Office on how–or if–that black box will be paid to songwriters. The only way you’d ever know this was happening is if you were paying very close attention to the Copyright Office “ex parte” letters. (sign up for email alerts there.) The Songwriters Guild/SCL/MCNA group is the songwriter’s junkyard dog with their teeth sunk in the tuchus of the insiders. We’ll be posting a selection of these recent “ex parte” letters which publicly document private conferences held by the Copyright Office with “stakeholders”. “Everyone’s a winner, bargains galore….the large print giveth and the small print taketh away” as Tom Waits said.]

EX PARTE MEETING SUMMARY WITH

THE UNITED STATES COPYIGHT OFFICE

Docket Number 2020-12

November 18, 2020

Re: Summary of the November 13, 2020 Ex-Parte Meeting Between the United States Copyright Office on behalf of the following independent, US-based music creator organizations: the Songwriters Guild of America, Inc. (SGA), the Society of Composers & Lyricists (SCL), and Music Creators North America, Inc. (MCNA)

On Friday, November 13, 2020, an ex-parte video-conference meeting was conducted by the United States Copyright Office (USCO) with multiple interested parties concerning rulemakings in connection with Doc. No. 2020-12. This summary is submitted on behalf of SGA, SCL and MCNA (together, the “Independent Music Creator Organizations” or “IMCOs”), all of which were represented at the meeting. Attending for SGA were President Rick Carnes, outside counsel Charles Sanders, and outside legislative consultant Marla Grossman of the American Continental Group (ACG). Attending for SCL was President Ashley Irwin. Attending for MCNA was President Eddie Schwartz. The meeting was chaired on behalf of the USCO delegation by its General Counsel, Regan Smith.

Individuals representing the IMCOs began by respectfully stressing, as they had in their ex parte tele-conference with the USCO on September 11, 2020, the bedrock principle that independent music creators speak for themselves on all issues related to their rights and interests, and that no other music community groups have the right or authority to claim otherwise. Specifically, the IMCOs rejected the assertion by some music publisher representatives (backed by at least one of their affiliated songwriter groups) that the USCO’s oversight and rulemaking authority concerning matters related to 2020-12 should be viewed as being narrowly limited.

The IMCOs have stressed on multiple occasions through their USCO Comments a strong belief that Congress, by its very construction of the Music Modernization Act (MMA), intends the Office to have broad and expansive authority to oversee and guide the implementation of the MMA by the Mechanical Licensing Collective (MLC). That is especially so in regard to ensuring transparency, reliability and fairness regarding the safeguarding of music creator rights, the class of persons for whom the MMA was most clearly enacted to protect pursuant to Article I Section 8 of the US Constitution.

The main issue of concern addressed at the November 13, 2020 meeting was the oversight and disposition of accrued, unmatched royalties collected and held by Digital Music Providers and subsequently distributed pursuant to private negotiated agreements with music publishers. It is believed by the IMCOs that as regards those agreements and royalties, some or all of the parties thereto were very likely aware at the time of negotiation and execution, that (i) such confidential agreements and payments concerned royalties accrued from the unauthorized reproduction or distribution of musical works owned by unrelated third parties; (ii) little to no effort had been made to properly identify rightful ownership, and (iii) such accruals might soon be subject to payment rules under the MMA that would require strictly delineated sharing of such “permanently” unmatched royalties with music creators by music publishers (including a minimum floor of 50%) after the conducting by the MLC of bona fide searches for rightful owners.

Further assertions were made by the IMCOs at the meeting that after three years of discussions, still no informed estimate had yet been made by Digital Music Providers of the aggregate amounts of unmatched royalties both still being held and already distributed. Thereafter, one knowledgeable representative of Digital Music Providers estimated that while there remain hundreds of millions of dollars in accrued, unmatched royalties in the possession of the Digital Music Providers, tens of millions of dollars in accrued unmatched royalties were indeed turned over directly to music publishers pursuant to the terms of the confidential, private negotiated agreements.

As was also made clear during the meeting, the IMCOs have no direct information as to the content of such private negotiated agreements, and no direct information as to what became of the unmatched royalties such music publishers received.

Several music publishers have claimed in ex parte letters to the USCO that they indeed shared such unmatched royalties with their affiliated music creators, but no specific information has been provided as to the methodology and details of such sharing, including whether the principles and and guarantees eventually set forth in the MMA as enacted were applied.1 Moreover as the IMCOs reported at the meeting, an informal and ongoing process of canvassing creators currently being conducted by each MCNA member organization have yet to confirm a single instance in which a songwriter or composer received a royalty statement indicating that portions of such accrued, unmatched royalties were included (though they may have been) and on what basis.

As the IMCOs asserted at the meeting, were such unmatched royalties paid to songwriters and composers by music publishers on terms resembling the MMA rules concerning music creator protections (as either drafted or eventually enacted), it seems counter-intuitive that that no line item would appear anywhere in accounting statements indicating the source of such payments, not only as a matter of sound accounting practice, but of earned good will. No other music creator groups present at the meeting challenged or contradicted these ongoing findings or assertions. In any event, as noted, it seems that the burden of demonstrating the details of such payments is more properly placed on the music publishers who claim to have made them, which could be as simple as each publisher disclosing a properly predicated and binding assertion that the payments were made, how many were made, what was the aggregate payment, and how was each songwriter’s share determined.2

Under such circumstances as they currently exist, as SGA President Rick Carnes pointed out at the meeting, asking interested parties to render opinions on the minutiae of proposed rules concerning the disposition of accrued unmatched royalties –with only some parties having an understanding of how the private agreements operated, who got paid, who didn’t, and why– is a difficult position in which to place the IMCOs and other parties with important, related interests.

As Mr. Carnes pointed out, the issues of (i) how to protect the rights of those music creators and copyright owners who did not participate in the privately negotiated agreements by ensuring that there is an opportunity to actually match those already-distributed royalties to their proper owners and to effect the prompt payment of such sums, (ii) how to balance accounts once such proper identifications have been made, while also ensuring that affiliated music creators have been properly paid by their music publishers concerning royalties collected under the private negotiated agreements that otherwise would have flowed through the MLC and been explicitly subject to MMA distribution requirements, (iii) how to address demands of Digital Music Providers that they not be made to pay twice for the same unmatched uses, and (iv) how to ensure that such private negotiated agreements are not utilized in the future in attempts to override the provisions of the MMA, all need to be addressed prior to a proper analysis of how most effectively to move forward.3

Thus, as was stated at the meeting, while the IMCOs agree the MMA makes clear that ALL accrued unmatched royalties for unauthorized reproductions and distributions dating back to inception must be turned over to the MLC by Digital Music Providers, and that the term “generally accepted accounting principles” used in the Act in no way provides an exception to that unambiguous provision, the crucial questions enumerated above also need to be immediately addressed as matters of fairness and transparency mandated by the Act.

As to the very important issue of retroactive effect of the MMA provisions concerning guaranteed music creator participation in the distribution of permanently unmatched royalties at or above the fifty percent level, the IMCOs adamantly believe, as stated at the meeting, that it is wholly illogical for any interested party to argue that Congress intended as it did to require that all accrued, unmatched royalties be rendered to the MLC by Digital Music Providers back to each service’s date of inception, but that the songwriter, composer, transparency and good faith protections guaranteed by the Act would not otherwise be applicable in the event of premature disgorgement of unmatched royalties by Digital Music Providers to music publishers pursuant to prior agreements. This is an issue that certainly requires further attention, and calls for more comprehensive discussion than for which there was time at the meeting.

As was noted several times by various speakers, the Chair of the Senate Judiciary has warned that absent a fair and transparent resolution of these complex issues, the MMA may become a magnet for litigation, the very opposite effect that it was intended to achieve. The IMCOs wholeheartedly agree, and stand ready to assist the USCO in taking all reasonable measures to achieve the transparency, fairness and robust oversight that the legislation demands in order to avoid that undesirable result.

To reiterate in closing, as the IMCOs tried to make clear at the meeting, voluntary disclosure of the specific details of the privately negotiated agreements, redacted to protect legitimate privacy and antitrust concerns, is an important prerequisite to achieving those goals. The IMCOs further repeat their stated beliefs that the USCO has the singular ability if not to compel, at least to facilitate such disclosures in a timely manner, and respectfully urge it to do so.

Further comments of SGA, SCL and MCNA will be forthcoming in regard to the proposed rulemaking by next week’s deadline. As stated at the conclusion of the meeting, however, the IMCOs believe that all parties would benefit by a brief extension for the submissions of such comments until the Monday after the Thanksgiving holiday in order to allow for further discussions among the parties. The IMCOs acknowledge a certain lack of unified support for this suggestion at the meeting, and active opposition by at least one music publisher representative, but continue to believe it to be an advisable accommodation. Those parties wishing to abide by the original deadline would always be free to do so, as was explicitly pointed out.

The IMCOs thank the USCO for scheduling the ex parte discussion, and look forward to continuing this constructive dialog.

Respectfully submitted,

Charles J. Sanders
Outside Counsel
Songwriters Guild of America, Inc.

cc: Regan Smith, General Counsel, The United States Copyright Office
Rick Carnes, SGA President
Ashley Irwin, SCL President
Eddie Schwartz, MCNA President

  1. At least one publisher has indicated an alleged willingness to share details of such payments with any writer who makes inquiry as to his or her own works, an unlikely scenario considering that a huge percentage of writers have no knowledge of the private negotiated agreements in the first place, and –to the knowledge of the IMCOs based on informal canvassing– have not been directly informed about them by their publishers. See, e.g., Ex Parte letter from Sony/ATV dated October 28, 2020: “It has been SATV’s practice to explain to our writers who inquire how these royalties are distributed and reflected on their statements.”

2. Likewise, it seems that the burden of demonstrating how much each Digital Music Provider paid to music publishers is more properly placed on the services who claim to have made the payments, which in turn could be as simple as disclosing a properly predicated and binding assertion that the payments were made, how many were made, what was the aggregate payment, and how was each publisher’s share determined. It is anticipated that such details may be forthcoming from Digital Music Providers in their reporting under the MMA, but that remains uncertain.

3 That is especially so in light of the apparent assertions of one or more Digital Music Providers that they may forego the limited safe harbor provisions provided by the MMA by not turning over to the MLC the full amount of accrued, unmatched royalties dating back to inception of use, probably under the assumption that the potential running of applicable statutes of limitations will provide the same protections as the safe harbor without payment of the royalties due. The IMCO raised this statute of limitations issue at the meeting, and was gratified that at least one Digital Music Provider representative felt that this was an issue worthy of further discussion, hopefully with the important input of the USCO. See also, related comment of DLC that “…a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.” Comments Of Digital Licensee Coordinator, Inc. In Response To Notice Of Proposed Rulemaking , Docket 2020-12, Document COLC 2020-0011-0008 (Aug. 17, 2020) at 4.

Chris Castle’s Copyright Office Comments on the Black Box Controversy

Here’s some more MLC news you’ll never read about in the trade press.

Yesterday we posted a shocking revelation from the MediaNet/SOCAN ex parte letter to the Copyright Office: It appears that the digital music services have no intention of complying with the much ballyhooed benefit to the Music Modernization Act–in return for the “reach back” safe harbor that somebody decided to grant the services retroactively, the services would pay over (or you could say “disgorge”) all the unmatched and unpaid mechanical royalties that they were holding, sometimes for years, and always secretly. (Adding insult to injury, MediaNet seems to think that referring to SOCAN’s ownership of MediaNet somehow makes screwing us over into a songwriter-friendly act of good fellowship and felicity. More likely, SOCAN itself knows nothing about it.)

Remember, MediaNet straight up threatened to decline the reach back safe harbor and not pay over the black box. As it turns out, MediaNet’s position is not unique–as Chris Castle identified in his reply comment on the Copyright Office’s black box study, all of the services represented by the DLC made that exact threat to the Copyright Office. As Chris observes, these are not idle threats. They are made by the biggest corporations in commercial history, one of which may be broken up due to antitrust investigations on two continents.

Something must be done and done quickly before the DLC decides to take the blanket license without the limitation on liability for past infringements having successfully scared off anyone who could have sued but didn’t thinking that there was a fixed reach back safe harbor. That seems like it will result in the big guys having paid off the big guys in the NMPA’s secret settlement that was being negotiated simultaneously with the MMA (the NMPA’s umbrella December 17, 2017 Pending and Unmatched Usage Agreement referenced in the MediaNet ex parte letter and talked around in other filings. Remember–the MMA was introduced a few days after the secret NMPA agreement on December 21, 2017 and Wixen Music Publishing felt they had to sue Spotify by December 31, 2017 because of the reach back safe harbor. So everyone except the songwriters–and perhaps most Members of Congress–seems to have known that the fix was in on black box.)

Another fine mess they got us into. Here’s the except from Chris Castle’s reply comment:

The DLC’s Quid Pro Quo Revelation

The concept of a “black box” distribution is a pale mimic of a simple
fact: It is not their money. The fundamental step that Title I excuses
is basic and would solve much of the unmatched problem if Title I did
not exist: Don’t use a work unless you have the rights.

It is a fundamental aspect of copyright licensing and it is not metaphysical.
Yet the message from all negotiators concerned in this process seems
to shelter legitimacy in a complication of dangers to the black box that
come down to another simple fact: Obey and be quick about it or the
law will take your money and give it to someone else.

How much is in the black box? They won’t tell you. From where? Not
your business. From when? Confidential. Is it yours? Already paid it
to someone else before you even knew it was there. And Lord knows
that money once taken incorrectly in the dark is unlikely to be paid
correctly in the light.

Comments by the DLC demonstrate conclusively that addressing the
black box has taken on even greater urgency. The DLC’s Initial
Comment in a related docket is unusually revelatory for a group with a
multitrillion dollar market capitalization that loves them some
protective orders. This passage is particularly breathtaking:

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.

If that were “the deal” it is news to me, and I like to think that I’ve
been reading along at home pretty attentively. If I wasn’t aware of
“the deal”, I’m sure I wasn’t alone in my ignorance, but I’m far more
understanding of why the negotiators would have been motivated to
keep “the deal” under wraps if that’s really what it was.

If “the deal” wasn’t kept quiet, someone might have asked why there
was a “deal” when the services were simply agreeing to pay money
they already owed and that they were already obligated to pay for infringements that already occurred. Yet, services still got the new
safe harbor trophy to put on the wall in the copyright hunting lodge
next to the DMCA and Section 230.

The gall doesn’t end there, however. The DLC goes on to make this
threat of imminent harm:

[The “deal”] is a crucial point for the Office to keep in mind as it
crafts rules in this space. If the regulations make it less likely
that a DMP will be able to rely on that liability protection when
it needs it—i.e., if it increases the risk that a court would deem a
DMP to not have complied with the requirements in section
115(d)(10)—a DMP could make the rational choice to forego the
payment of accrued royalties entirely, and save that money to
use in defending itself against any infringement suits.

It is a bit odd that the DLC seems to think of Title I as their private
contract, but there it is. The DLC members’ anticipatory repudiation
of the purported deal that the world now knows underpins Title I was
both refreshingly brazen and starkly shocking. Given that the Eight
Mile Style
case against DLC member Spotify (and both Spotify and
The MLC’s vendor the Harry Fox Agency) is a live action, the DLC is
not making an idle threat. The DLC tells us that if its market cap isn’t quite high enough to suit, Spotify could immediately dip into the black
box for “money to use in defending itself.”

The relationship with the services apparently has settled into the
customary laying about with threats and blackguarding both
songwriters and the Copyright Office. That’s reassuring in confirming
that human nature hasn’t actually changed and these companies really
were the Data Lords we had always known our betters to be after all,
sure as boots.17 Maybe one day the scorpion really won’t sting the frog.
Maybe another “unity dinner” is in order. But not today.

Regardless, it is clear that the Copyright Office is almost the only place
that songwriters can go for relief and an explanation of how the MMA
is to be implemented whatever secret deal the DLC now purports to
have made. Given the DLC’s unequivocal threat on behalf of its
members, there is no doubt of the imminent danger that the black
box currently being held is about to vanish into thin air if something
isn’t done immediately to preserve the status quo. The balance of
hardships pretty clearly tilts in favor of the songwriters as the safe
harbor services control the money and always have.

@CISACnews and BIEM’s Copyright Office Comments on the MLC

[Songwriters outside the United States should pay close attention to the disconnect between their CMOs and the MLC. It’s becoming increasingly apparent that The MLC is very US-centric and at that very Anglo-American centric in its myopia. We haven’t done a point by point comparison, but we have posted CISAC and BIEM’s comments in the past and we can’t help noticing that their current comment has a few references to prior comments that seem to have been largely ignored. They are very polite about it (maybe too polite about it) but the consequences of ignoring the CMOs is that any ex-US songwriter whose songs are exploited in the US and who relies on their CMO to collect their US earnings may find their streaming mechanicals reduced to zero after 1/1/21 if the HFA database that The MLC is using is not properly mapped.

The MLC’s continued disregard for CMOs is puzzling unless you think perhaps that The MLC doesn’t think CMOs will continue to play a role in the international copyright system. Whatever The MLC’s long-term goals, it is clear that the Music Modernization Act was drafted from an entirely US-centric point of view and that the concerns of our international partners were never taken into account while at the same time forcing them to accept the MMA’s terms. Another example of the haphazard approach that is rapidly becoming the hallmark of the MMA.]

Read the entire comment here.

The International Confederation of Societies of Authors and Composers (“CISAC”) and the International Organisation representing Mechanical Rights Societies (“BIEM”) would like to thank the U.S. Copyright Office (“the Office”) for the opportunity to provide comments on the Proposed Rulemaking on the Public Musical Works Database (“Database”) and Transparency of the Mechanical Licensing Collective (“MLC”). This submission follows our previous comments to the Office, in particular on the Notifications of Inquiry from September 2019 and April 2020 (SG19-1116; SG19-1284; SG20-0614).

As already explained in previous submissions, CISAC and BIEM are international organisations representing Collective Management Organisations (“CMOs”) worldwide that are entrusted with the management of creators’ rights and, as such, have a direct interest in the Regulations governing the functioning of the Database and the transparency of MLC’s operations. CISAC and BIEM would like to thank the Office for highlighting the existence and particularity of entities such as CMOs that are not referred to in the MMA (page 58175 of the Proposed Rulemaking1) and should be treated equally.

CISAC and BIEM are grateful that some of their comments were taken into account by the Office in the Proposed Rulemaking, but would like to reiterate their concerns on certain provisions which, if not adequately addressed, may affect the administration of rights of foreign rightsholders in the US, as follows…

A/ Copyright ownership information and shares

As part of the list of mandatory information for matched works, the Office lists “the copyright owner of the musical work (or share thereof), and the ownership percentage of that owner” (for unmatched works, it is the same as long as the owner has been identified but not located).

For the sake of clarity, we reiterate the need to have CMOs clearly recognized as “copyright owners” under the provisions of the Proposed Rulemaking. Indeed, as already explained in several of our previous submissions, outside the U.S., the “copyright ownership” of the work is attributed to the CMOs managing the mechanical rights of the so-called BIEM repertoire. This would mean that the “copyright owner” share as defined in the Proposed Rulemaking should refer specifically to the share controlled by the CMO as administrator of the work, as opposed to the actual composer/songwriter share.

This clarification also has direct consequences with respect to the determination of sensitive and confidential information which cannot be made publicly accessible through the Database, as further argued in CISAC and BIEM’s comments to the Proposed Rulemaking on Treatment of Confidential Information (see SG20-0562).

If, however, it is considered indispensable for the DMPs and the MLC to have creators’ information and percentage shares for identification and distribution purposes, such data should not be disclosed to third-party entities or made publicly accessible in the Database for the reasons stated in our previous submission. In particular, in the 28 May 2020 comments to the Proposed Rulemaking on Treatment of Confidential Information submitted to the Office,2 CISAC and BIEM explained that there seemed to be no business need to include the creator percentage shares in the musical works, as this information was not required to license or distribute musical works, and constitutes particularly sensitive and confidential financial and business information for creators and their representatives.

Personal identifiable information

CISAC and BIEM fully agrees with the Office with regards to the withdrawal of the date of birth from the list of mandatory public information to be included in the Database. However, CISAC and BIEM continue to be very much concerned with the general compliance of MLC’s operations, including the Database, with data protection laws. As for now, the Proposed Rulemakings are silent on this, although this is a key issue for CMOs worldwide and probably also for other rightsholders.

CISAC and BIEM thus respectfully suggest that the Regulations include clear language on the MLC’s full compliance with data protection laws, and in particular with the European General Data Protection Regulation, as the MLC will process personal data of EU creators. This means that the Database shall be construed in compliance with the GDPR requirements from the building-up of the system (i.e. privacy by design) until the processing operations, providing the requisite security guarantees.

Point of contact for inquiries and Complaints

CISAC and BIEM welcome the inclusion of the need for the MLC to provide a point of contact for inquiries or Complaints. However, as requested in our submission SG20-0614, the Proposed Rulemaking should go further and also make mandatory the publication of the rules that will be applied by the MLC’s dispute resolution committee. This will help to streamline and give more transparency to the dispute resolution process, which will benefit both copyright owners and DMPs.

Future of Music Coalition Warns Against Vendor Lock-in in Copyright Office Comments

[The Future of Music Coalition joins the chorus of concern about shenanigans at The MLC, Inc. with special access and treatment of its vendors regarding the “public” database. As others have pointed out, there’s a real question as to whether The MLC, Inc. is actually building its own database or is just building up the data muscle of its vendor the Harry Fox Agency (formerly owned by MLC promoter and nonvoting board member NMPA. The MLC is prohibited by law from licensing other than the narrow window of streaming mechanicals, but HFA is not.]

[I]t’s important that MLC’s chosen vendors not be able to leverage their
status with the MLC to advantage themselves in other business activities not covered under the MMA. If a vendor was able to leverage its status with MLC to the detriment of competitors in other kinds of licensing activity (even informally), that wouldn’t serve competition, consumers, or creators. Additionally, the Office needs to ensure that provisions about database vendors being replaceable are meaningful.

We see no reason to expect that the MLC’s chosen vendors aren’t up to the task, but songwriters and composers need assurance that if a vendor ends up having problems and a change is necessary, that change will really be possible.

The Office can require the MLC to disclose what it is doing to prevent any vendor from being too operationally enmeshed with the MLC that it either enjoys an unfair advantage through that relationship, or that it would be practically impossible for another vendor to step in.

Read the entire post here.

Songwriters Guild and Society of Composers & Lyricists Copyright Office Comments on Database Ownership and Songwriter Credit in Public Database

[The Songwriters Guild of America and the Society of Composers & Lyricists filed a joint comment with the Copyright Office on proposed rules implementing the public database that The MLC, Inc. is charged with stewarding. They raise a host of issues, but also focus on the ownership issue raised by the Alliance of Recorded Music and the songwriter credit issue raised by Kerry Muzzey.]

Ownership of the Musical Works Database

As to the issue of “ownership” of the Musical Works Database, SGA and SCL were gratified by the USCO’s clear statement quoting the MMA that:
[w]hile the mechanical licensing collective must ‘establish and maintain a database containing information relating to musical works,’ the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘owned’ by the collective itself. Under the statute, if the Copyright Office designates a new entity to be the mechanical licensing collective, the Office must ‘adopt regulations to govern the transfer of licenses, funds, records, data, and administrative responsibilities from the existing mechanical licensing collective to the public, either for free or at marginal cost, pursuant to the MMA.’

Nevertheless, we feel compelled to repeat once again the admonitions voiced by attorney Christian Castle in his recent submission to the USCO concerning practical issues, problems and anomalies that have arisen even prior to the commencement date of MLC public operations concerning the construction of the Musical Works Database:

I believe that The MLC is encouraging songwriters to correct their song data in the HFA database and that no data from HFA has been transferred to The MLC as yet, and may never be. If The MLC is having data corrected and filled out in the HFA database, then the rules applicable to vendor access to the database may not apply because the Congress’s musical works database is not actually being created at The MLC, it’s being created at HFA. Time will tell if I am correct about this, but it does seem that if I am correct, then The MLC and HFA are working together to exploit an imagined loophole in Title I that violates Congressional intent and certainly the spirit of MMA. Respectfully, the Office should find out what is going on.3

SGA and SCL believe that these are important questions of fact that require answers to ensure that data ownership issues are as clearly defined as possible in advance of any conflicts that may arise. Clarifying that (i) all data and corrections made through HFA will be mirrored in the Musical Works Database in real time, and (ii) that being compelled to provide data to HFA under color of authority from Title I does not constitute a license to HFA for any other purpose, will be important steps forward.

As we have also previously stated, the contractual role and authority of HFA (or any other vendor) should be subject to transparent scrutiny by all interested parties, includingthe music creators whose works are the subject of all information that resides in the database. That includes examination of the contractual rights of the vendor in regard to the data flowing through its own systems and/or those of the MLC, the ancillary vendor use rights (if any) of such data during both the pendency and post-expiration/termination periods of such contract(s), and the clarity of rights ownership of data by the MLC and successor iterations of the MLC (including as regards the Musical Works Database). We respectfully call on the USCO to address more robustly these important issues of transparency and data ownership, and ignore unsupported assertions that transparency and scrutiny of vendor relationships will invite inefficiencies as opposed to clarity and competition.

Songwriter and Composer Names in the Public Musical Works Database

As the USCO is aware and has recognized, SGA and SCL have been consistently outspoken concerning the fact that out of all pertinent identifiers for musical compositions, the names of the music creators of a work are among the only constant and unique data points. In all but the rarest of circumstances, such information is never subject to change, and therefore one of the most important and reliable elements necessary for accurate identification and matching of works.

Moreover, the extension of proper credit to human creators as part of this crucially important Musical Works Database –rather than simply limiting identifiers to the names of corporate assignees of rights which are frequently subject to change and termination– is both appropriate and essential to the fulfillment of the ideals and underpinnings of the MMA set forth in Article I, Section 8 of the US Constitution. As that section makes clear, copyright protections are first and foremost meant to serve the interests of the creators and the public, not the corporate entities that serve in an instrumental but secondary role as rights administrators.

We have therefore remained completely at a loss to understand why this crucial category of information was omitted from the MMA as a specifically required identifier (and why the music publishing community for some reason failed to support our efforts to correct that oversight), and are especially thankful that the USCO has put forth a proposed rule

that requires the MLC to include songwriter and composer information in the database. SGA and SCL continue to remain disquieted, however, with the additional qualifier added by the USCO concerning the standard to be applied by the MLC in seeking music creator data: “to the extent reasonably available to the collective.” Such a limited standard serves to diminish the requisite and explicit value of songwriter/composer identifying information.

We respectfully believe that music creator information should be more clearly defined as a mandatory data point required to be pursued for inclusion in the database by the MLC with vigor, and suggest once again that the rulemaking more specifically reflect the imperative nature of this duty. A more appropriate standard would be, in our view: “to the extent available to the collective through its best efforts to secure such data.” The avoidance of creating loopholes that may permit music publishers to omit music creator information from the data they voluntarily provide to the MLC is essential, and the independent community of songwriters and composers continues to seek the assistance of the USCO in this regard.

In respect to the foregoing, we desire to make clear that SGA and SCL also continue to support the rights of those music creators who may wish not to be publicly associated with certain musical works. That is and must continue to be right of any songwriter or composer. We therefore support the proposed rule put forth by the USCO that grants the MLC discretion to allow music creators the option of having songwriter/composer information listed anonymously or pseudonymously. We would, however, prefer that such a regulation be extended into a mandatory direction to the MLC to accept such direction from a music creator.

Read the whole comment here.

Copyright Office Comments by Composer @KerryMuzzey: Include Songwriter Credits in MLC Database

[Kerry Muzzey is an independent classical and film composer and artist rights advocate. In his comment to the Copyright Office on the MLC regulations he asks why songwriter names are not required to be included in the public database currently being stewarded by The MLC, Inc. Including songwriter names in the database seems like a fundamental building block of identifying a song–assuming that’s what you want to do. It would be like SoundExchange reporting not including an artist name in the transaction data. It makes no sense. Yet, it’s an issue as we will see.]

My name is Kerry Muzzey. I am an independent classical and film composer, and am self-published. It is crucial that the MLC database be searchable and completely public-facing, not only by song title but by writer’s name and publishing entity name or by ISWC or BMI/ASCAP IPI/CAE. Independent artists and music publishers must have the ability to search the “black box” of royalty collection, not only for unpaid royalties, but for accrued royalties that appear under a misspelling of an individual’s name, publishing entity, or in the event that a similar song title has resulted in the misattribution of the writer/publisher credit to another writer/publisher or artist. This transparency is essential not only for accurate accounting of royalties for an individual, but also for any works that are co-written, have multiple publishers, and/or whose performance rights are represented by multiple PROs. Any composer, songwriter or music publisher should have the ability to “disambiguate” their works from any other similar- or matching-title works or similar or identical writer names, by a simple error submission/correction process (after completing any necessary verification of identity). 

Read the entire comment here.