The Artist Rights Institute takes on the pressing public policy issue of The MLC, Inc.’s investment of “hundreds of millions of dollars” of the black box and asks the Copyright Office to decide the legality of the MLC’s “Investment Policy.”
Category: Copyright Policy
Copyright Policy Discussions
Who Will Get to the Bottom of The Hundreds of Millions of Black Box Money at MLC?
By Chris Castle
One of the most common questions we get from songwriters about the MLC concerns the gigantic level of “unmatched funds” that have been sitting in the MLC’s accounts since February 2021. Are they really just waiting until The MLC, Inc. gets redesignated and then distributes hundreds of millions on a market share basis like the lobbyists drafted into the MMA?
Not My Monkey
Nobody can believe that the MLC can’t manage to pay out several hundred million dollars of streaming mechanical royalties for over three years so far. (Resulting in the MLC holding $804,555,579 in stocks as of the end of 2022 on its tax return, Part X, line 11.) The proverbial monkey with a dart board could have paid more songwriters in three years. Face it—doesn’t it just sound illegal? In my experience, when something sounds or feels illegal, it probably is.
What’s lacking here is a champion to extract the songwriters’ money. Clearly the largely unelected smart people in charge could have done something about it by now if they wanted to, but they haven’t. It’s looking more and more like nobody cares or at least nobody wants to do anything about it. There is profit in delay.
Or maybe nobody is taking responsibility because there’s nobody to complain to. Or is there? What if such a champion exists? What if there were no more waiting? What if there were someone who could bring the real heat to the situation?
Let’s explore one potentially overlooked angle—a federal agency called the Office of the Inspector General. Who can bring in the OIG? Who has jurisdiction? I think someone does and this is the primary reason why the MLC is different from HFA.
Does The Inspector General Have MLC Jurisdiction?
Who has jurisdiction over the MLC (aside from its severely conflicted board of directors which is not setting the world on fire to pump the hundreds of millions of black box money back into the songwriter economy). The Music Modernization Act says that the mechanical licensing collective operates at the pleasure of the Congress under the oversight of the U.S. Copyright Office and the OIG has oversight of the Copyright Office through its oversight of the Library of Congress.
But, hold on, you say. The MLC, Inc. is a private company and the government typically does not have direct oversight over the operations of a private company.
The key concept there is “operates” and that’s the difference between the statutory concept of a mechanical licensing collective and the actual operational collective which is a real company with real employees and real board members. Kind of like shadows on the wall of a cave for you Plato fans. Or the magic 8 ball.
The MLC, Inc. is all caught up with the government. It exists because the government allows it to, it collects money under the government’s blanket mechanical license, its operating costs are set by the government, and its board members are “inferior officers” of the United States. Even though The MLC, Inc. is technically a private organization, it is at best a quasi-governmental organization, almost like the Tennessee Valley Authority or the Corporation for Public Broadcasting. So it seems to me that The MLC, Inc. is a stand-in for the federal government.
But The MLC, Inc. is not the federal government. When Congress passed the MMA and it charged the Copyright Office with oversight of the MLC. Unfortunately, Congress does not appear to have appropriated funds for the additional oversight work it imposed on the Office.
Neither did Congress empower the Office to charge the customary reasonable fees to cover the oversight work Congress mandated. The Copyright Office has an entire fee schedule for its many services, but not MLC oversight.
Even though the MLC’s operating costs are controlled by the Copyright Royalty Board and paid by the users of the blanket license through an assessment, this assessment money does not cover the transaction cost of having the Copyright Office fulfill an oversight role.
An oversight role may be ill suited to the historical role of the Copyright Office, a pre-New Deal agency with no direct enforcement powers—and no culture of cracking heads about wasteful spending like sending a contingent to Grammy Week.
In fact, there’s an argument that The MLC, Inc. should write a check to the taxpayer to offset the additional costs of MLC oversight. If that hasn’t happened in five years, it’s probably not going to happen.
Where Does the Inspector General Fit In?
Fortunately, the Copyright Office has a deep bench to draw on at the Office of the Inspector General for the Library of Congress, currently Dr. Glenda B. Arrington. That kind of necessary detailed oversight is provided through the OIG’s subpoena power, mutual aid relationships with law enforcement partners as well as its own law enforcement powers as an independent agency of the Department of Homeland Security. Obviously, all of these functions are desirable but none of them are a cultural fit in the Copyright Office or are a realistic resource allocation.
The OIG is better suited to overseeing waste, fraud and abuse at the MLC given that the traditional role of the Copyright Office does not involve confronting the executives of quasi-governmental organizations like the MLC about their operations, nor does it involve parsing through voluminous accounting statements, tracing financial transactions, demanding answers that the MLC does not want to give, and perhaps even making referrals to the Department of Justice to open investigations into potential malfeasance.
Or demanding that the MLC set a payment schedule to pry loose the damn black box money.
One of the key roles of the OIG is to conduct audits. A baseline audit of the MLC, its closely held investment policy and open market trading in hundreds of millions in black box funds might be a good place to start.
It must be said that the first task of the OIG might be to determine whether Congress ever authorized MLC to “invest” the black box funds in the first place. Congress is usually very specific about authorizing an agency to “invest” other people’s money, particularly when the people doing the investing are also tasked with finding the proper owners and returning that money to them, with interest.
None of that customary specificity is present with the MLC.
For example, MLC CEO Kris Ahrens told Congress that the simple requirement that the MLC pay interest on “unmatched” funds in its possession (commonly called “black box”) was the basis on which the MLC was investing hundreds of millions in the open market. This because he assumed the MLC would have to earn enough from trading securities or other investment income to cover their payment obligations. That obligation is mostly to cover the federal short term interest rate that the MLC is required to pay on black box.
The Ghost of Grammy Week
The MLC has taken the requirement that the MLC pay interest on black box and bootstrapped that mandate to justify investment of the black box in the open market. That is quite a bootstrap.
An equally plausible explanation would be that the requirement to pay interest on black box is that the interest is a reasonable cost of the collective to be covered by the administrative assessment. The plain meaning of the statute reflects the intent of the drafters—the interest payment is a penalty to be paid by the MLC for failing to find the owners of the money in the first place, not an excuse to create a relatively secret $800 million hedge fund for the MLC.
I say relatively secret because The MLC, Inc. has been given the opportunity to inform Congress of how much money they made or lost in the black box quasi-hedge fund, who bears the risk of loss and who profits from trading. They have not answered these questions. Perhaps they could answer them to the OIG getting to the bottom of the coverup.
We do not really know the extent of the MLC’s black box holdings, but it presumably would include the hundreds of millions invested under its stewardship in the $1.9 billion Payton Limited Maturity Fund SI (PYLSX). Based on public SEC filings brought to my attention, The MLC, Inc.’s investment in this fund is sufficient to require disclosure by PYLSX as a “Control Person” that owns 25% or more of PYLSX’s $1.9 billion net asset value. PYLSX is required to disclose the MLC as a Control Person in its fundraising materials to the Securities and Exchange Commission (Form N-1A Registration Statement filed February 28, 2023). This might be a good place to start.
Otherwise, the MLC’s investment policy makes no sense. The interest payment is a penalty, and the black box is not a profit center.
But you don’t even have to rely on The MLC, Inc.’s quasi governmental status in order for OIG to exert jurisdiction over the MLC. It is also good to remember that the Presidential Signing Statement for the Music Modernization Act specifically addresses the role of the MLC’s board of directors as “inferior officers” of the United States:
Because the directors [likely both voting and nonvoting] are inferior officers under the Appointments Clause of the Constitution, the Librarian [of Congress] must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.
The term “inferior officers” refers to those individuals who occupy positions that wield significant authority, but whose work is directed and supervised at some level by others who were appointed by presidential nomination with the advice and consent of the Senate. Therefore, the OIG could likely review the actions of the MLC’s board (voting and nonvoting members) as they would any other inferior offices of the United States in the normal course of the OIG’s activities.
Next Steps for OIG Investigation
How would the OIG at the Library of Congress actually get involved? In theory, no additional legislation is necessary and in fact the public might be able to use the OIG whistleblower hotline to persuade the IG to get involved without any other inputs. The process goes something like this:
- Receipt of Allegations: The first step in the OIG investigation process is the receipt of allegations. Allegations of fraud, waste, abuse, and other irregularities concerning LOC programs and operations like the MLC are received from hotline complaints or other communications.
- Preliminary Review: Once an allegation is received, it undergoes a preliminary review to determine if OIG investigative attention is warranted. This involves determining whether the allegation is credible and reasonably detailed (such as providing a copy of the MLC Congressional testimony including Questions for the Record). If the Office is actually bringing the OIG into the matter, this step would likely be collapsed into investigative action.
- Investigative Activity: If the preliminary review warrants further investigation, the OIG conducts the investigation through a variety of activities. These include record reviews and document analysis, witness and subject interviews, IG and grand jury subpoenas, search warrants, special techniques such as consensual monitoring and undercover operations, and coordination with other law enforcement agencies, such as the FBI, as appropriate. That monitoring might include detailed investigation into the $500,000,000 or more in black box funds, much of which is traded on open market transactions like PYLSX.
- Investigative Outputs: Upon completing an investigation, reports and other documents may be written for use by the public, senior decision makers and other stakeholders, including U.S. Attorneys and Copyright Office management. Results of OIG’s administrative investigations, such as employee and program integrity cases, are transmitted to officials for appropriate action.
- Monitoring of Results: The OIG monitors the results of those investigations conducted based on OIG referrals to ensure allegations are sufficiently addressed.
So it seems that the Office of the Inspector General is well suited to assisting the Copyright Office by investigating how the MLC is complying with its statutory financial obligations. In particular, the OIG is ideally positioned to investigate how the MLC is handling the black box and its open market investments that it so far has refused to disclose to Members of Congress at a Congressional hearing as well as in answers to Questions for the Record from Chairman Issa.
This post previously appeared on MusicTech.Solutions
On the Internet, “Partners” Don’t Hear You Scream: Spotify CEO Makes a $350M “Bundle” While Sticking Songwriters with an ESG “Bundle” of Crap
Here’s a quote for the ages:
MICHAEL BURRY
One of the hallmarks of mania is the rapid rise and complexity
of the rates of fraud. And did you know they’re going up?
The Big Short, screenplay by Charles Randolph and Adam McKay,
based on the book by Michael Lewis
We have often said that if screwups were Easter eggs, Spotify CEO Daniel Ek would be the Easter bunny, hop hop hopping from one to the next. That’s is not consistent with his press agent’s pagan iconography, but it sure seems true to many people.
This week was no different. Mr. Ek cashed out hundreds of millions in Spotify stock while screwing songwriters hard with a lawless interpretation of the songwriter compulsory license. That interpretation is so far off the mark that he surely must know exactly what he is doing. It’s yet another manifestation of Spotify’s sudden obsession with finding profits after a decade of “get big fast.”
The Bunny’s Bundle
Let’s look under the hood at the part they don’t tell you much about. Mr. Ek evidently has what’s called a “10b5-1 agreement” in place with Spotify allowing staggered sales of incremental tranches of the common stock. Those sales have to be announced publicly which Spotify complied with (we think). And we’ll say it again for the hundredth time, stock is where the real money is at this stage of Spotify’s evolution, not revenue.
As a founder of Spotify, Mr. Ek holds founders shares plus whatever stock awards he has been granted by the board he controls through his supervoting stock that we’ve discussed with you many times. These 10b5-1 agreements are a common technique for insiders, especially founders, who hold at least 10% of the company’s shares, to cash out and get the real money through selling their stock.
A 10b5-1 agreement establishes predetermined trading instructions for company stock (usually a sale so not trading the shares) consistent with SEC rules under Section 10b5 of the Securities and Exchange Act of 1934 covering when the insider can sell. Why does this exist? The rule was established in 2000 to protect Silicon Valley insiders from insider trading lawsuits. Yep, you caught it–it’s yet another safe harbor for the special people. Presumably Mr. Ek’s personal agreement is similar if not identical to the safe harbor terms because that’s why the terms are there.
As MusicBusinessWorldWide reported, Mr. Ek recently sold $118.8 million in shares of Spotify at roughly the same time that he likely knew Spotify was planning to change the way his company paid songwriters on streaming mechanicals, or as it’s also known “material nonpublic information”.
As Tim Ingham notes in MusicBusinessWorldwide, Mr. Ek has had a few recent sales under his 10b5-1 agreement: “Across these four transactions (today’s included), Ek has cashed out approximately $340.5 million in Spotify shares since last summer.” Rough justice, but I would place a small wager that Ek has cashed out in personal wealth all or close to all of the money that Spotify has paid to songwriters (through their publishers) for the same period. In this sense, he is no different than the usual disproportionately compensated CEOs at say Google or Raytheon.
Spotify Shoves a “Bundled” Rate on Songwriters
Spotify’s argument (that may have caused a jump in share price) claims that its recent audiobook offering made Spotify subscriptions into a “bundle” for purposes of the statutory mechanical rate. (While likely paying an undiscounted royalty to the books.)
That would be the same bundled rate that was heavily negotiated in the 2021-22 “Phonorecords IV” proceeding at the Copyright Royalty Board at great expense to all concerned, not to mention torturing the Copyright Royalty Judges. These Phonorecords IV rates are in effect for five years, but the next negotiation for new rates is coming soon (called Phonorecords V or PR V for short). We’ll get to the royalty bundle but let’s talk about the cash bundle first.
You Didn’t Build That
Don’t get it wrong, we don’t begrudge Mr. Ek the opportunity to be a billionaire. We don’t at all. But we do begrudge him the opportunity to do it when the government is his “partner” so they can together put a boot on the necks of songwriters. This is how it is with statutory mechanical royalties; he benefits from various other safe harbors, has had his lobbyists rewrite Section 115 to avoid litigation in a potentially unconstitutional reach back safe harbor, and he hired the lawyer at the Copyright Office who largely wrote the rules that he’s currently bending. Yes, we do begrudge him that stuff.
And here’s the other effrontery. When Daniel Ek pulls down $340.5 million as a routine matter, we really don’t want to hear any poor mouthing about how Spotify cannot make a profit because of the royalty payments it makes to artists and songwriters. (Or these days, doesn’t make to some artists.) This is, again, why revenue share calculations are just the wrong way to look at the value conferred by featured and nonfeatured artists and songwriters on the Spotify juggernaut. That’s also the point Chris made in some detail in the paper he co-wrote with Professor Claudio Feijoo for WIPO that came up in Spain, Hungary, France, Uruguay and other countries.
Spotify pays a percentage of revenue on what is essentially a market share basis. Market share royalties allows the population of recordings to increase faster than the artificially suppressed revenue, while excluding songwriters from participating in the increases in market value reflected in the share price. That guarantees royalties will decline over time. Nothing new here, see the economist Thomas Malthus, workhouses and Charles Dickens‘ Oliver Twist.
The market share method forces songwriters to take a share of revenue from someone who purposely suppressed (and effectively subsidized) their subscription pricing for years and years and years. (See Robert Spencer’s Get Big Fast.). It would be a safe bet that the reason they subsidized the subscription price was to boost the share price by telling a growth story to Wall Street bankers (looking at you, Goldman Sachs) and retail traders because the subsidized subscription price increased subscribers.
Just a guess.
The Royalty Bundle
Now about this bundled subscription issue. One of the fundamental points that gets missed in the statutory mechanical licensing scheme is the compulsory license itself. The fact that songwriters have a compulsory license forced on them for one of their primary sources of income is a HUGE concession. We think the music services like Spotify have lost perspective on just how good they’ve got it and how big a concession it is.
The government has forced songwriters to make this concession since 1909. That’s right–for over 100 years. A century.
A decision that seemed reasonable 100 years ago really doesn’t seem reasonable at all today in a networked world. So start there as opposed to the trope that streaming platforms are doing us a favor by paying us at all, Daniel Ek saved the music business, and all the other iconographic claptrap.
The problem with the Spotify move to bundled subscriptions is that it can happen in the middle of a rate period and at least on the surface has the look of a colorable argument to reduce royalty payments. If you asked songwriters what they thought the rule was, to the extent they had focused on it at all after being bombarded with self-congratulatory hoorah, they probably thought that the deal wasn’t “change rates without renegotiating or at least coming back and asking.”
And they wouldn’t be wrong about that, because it is reasonable to ask that any changes get run by your, you know, “partner.” Maybe that’s where it all goes wrong. Because it is probably a big mistake to think of these people as your “partner” if by “partner” you mean someone who treats you ethically and politely, reasonably and in good faith like a true fiduciary.
They are not your partner. Don’t normalize that word.
A Compulsory License is a Rent Seeker’s Presidential Suite
But let’s also point out that what is happening with the bundle pricing is a prime example of the brittleness of the compulsory licensing system which is itself like a motel in the desolate and frozen Cyber Pass with a light blinking “Vacancy: Rent Seekers Wanted” surrounded by the bones of empires lost. Unlike the physical mechanical rate which is a fixed penny rate per transaction, the streaming mechanical is a cross between a Rube Goldberg machine and a self-licking ice cream cone.
The Spotify debacle is just the kind of IED that was bound to explode eventually when you have this level of complexity camouflaging traps for the unwary written into law. And the “written into law” part is what makes the compulsory license process so insidious. When the roadside bomb goes off, it doesn’t just hit the uparmored people before the Copyright Royalty Board–it creams everyone.
David and friends tried to make this point to the Copyright Royalty Judges in Phonorecords IV. They were not confused by the royalty calculations–they understood them all too well. They were worried about fraud hiding in the calculations the same way Michael Burry was worried about fraud in The Big Short. Except there’s no default swaps for songwriters like Burry used to deal with fraud in subprime mortgage bonds.
Here’s how the Judges responded to David, you decide if they are condescending or if the songwriters were prescient knowing what we know now:
While some songwriters or copyright owners may be confused by the royalties or statements of account, the price discriminatory structure and the associated levels of rates in settlement do not appear gratuitous, but rather designed, after negotiations, to establish a structure that may expand the revenues and royalties to the benefit of copyright owners and music services alike, while also protecting copyright owners from potential revenue diminution. This approach and the resulting rate setting formula is not unreasonable. Indeed, when the market itself is complex, it is unsurprising that the regulatory provisions would resemble the complex terms in a commercial agreement negotiated in such a setting.
PR IV Final Rule at 80452 https://app.crb.gov/document/download/27410
It must be said that there never has been a “commercial agreement negotiated in such a setting” that wasn’t constrained by the compulsory license. It’s unclear what the Judges even mean. But if what the Judges mean is that the compulsory license approximates what would happen in a free market where the songwriters ran free and good men didn’t die like dogs, the compulsory license is nothing like a free market deal.
If the Judges are going to allow services to change their business model in midstream but essentially keep their music offering the same while offloading the cost of their audiobook royalties onto songwriters through a discount in the statutory rate, then there should be some downside protection. Better yet, they should have to come back and renegotiate or songwriters should get another bite at the apple.
Unfortunately, there are neither, which almost guarantees another acrimonious, scorched earth lawyer fest in PR V coming soon to a charnel house near you.
Eject, Eject!
This is really disappointing because it was so avoidable if for no other reason. It’s a great time for someone…ahem…to step forward and head off the foreseeable collision on the billable time highway. The Judges surely know that the rate calculation is a farce
But the Judges are dealing with people negotiating the statutory license who have made too much money negotiating it to ever give it up willingly although a donnybrook is brewing. This inevitable dust up means other work will suffer at the CRB. It must be said in fairness that the Judges seem to find it hard enough to get to the work they’ve committed to according to a recent SoundExchange filing in a different case (SDARS III remand from 2020).
That’s not uncharitable–I’m merely noting that when dozens of lawyers in the mechanical royalty proceedings engage in what many of us feel are absurd discovery excesses. When there are stupid lawyer tricks at the CRB, they are–frankly–distracting the Judges from doing their job by making them focus on, well, bollocks. We’ll come back to this issue in future. The dozens and hundreds of lawyers putting children through college at the CRB–need to take a breath and realize that judicial resources at the CRB are a zero sum game. This behavior isn’t fair to the Judges and it’s definitely not fair to the real parties in interest–the songwriters.
Tell the Horse to Open Wider
A compulsory license in stagflationary times is an incredibly valuable gift, and when you not only look the gift horse in the mouth but ask that it open wide so you can check the molars, don’t be surprised if one day it kicks you.
A version of this post first appeared on MusicTech.Solutions
@CadeMetz @ceciliakang @sheeraf @stuartathompson @nicogrant: How Tech Giants Cut Corners to Harvest Data for A.I.
[This is a must-read, deeply researched, long form article about how Big Tech–mostly OpenAI, Google and Microsoft–are abrogating consumers trust and their promises to creators in a mad, greedy, frothing rush to some unknown payoff with AI. The Dot Bomb boom is dwarfed by the AI gold rush, but this article is a road map to just how bad it really is and how debased these people really are. Thanks to the destruction of the newsroom, only a handful of news outlets can deliver work of this quality, but thankfully the New York Times is still standing. How long is another story.]
OpenAI, Google and Meta ignored corporate policies, altered their own rules and discussed skirting copyright law as they sought online information to train their newest artificial intelligence systems….
OpenAI researchers created a speech recognition tool called Whisper. It could transcribe the audio from YouTube videos, yielding new conversational text that would make an A.I. system smarter.
Some OpenAI employees discussed how such a move might go against YouTube’s rules, three people with knowledge of the conversations said. YouTube, which is owned by Google, prohibits use of its videos for applications that are “independent” of the video platform.
Ultimately, an OpenAI team transcribed more than one million hours of YouTube videos, the people said….
Like OpenAI, Google transcribed YouTube videos to harvest text for its A.I. models, five people with knowledge of the company’s practices said. That potentially violated the copyrights to the videos, which belong to their creators.
Last year, Google also broadened its terms of service. One motivation for the change, according to members of the company’s privacy team and an internal message viewed by The Times, was to allow Google to be able to tap publicly available Google Docs, restaurant reviews on Google Maps and other online material for more of its A.I. products.
The companies’ actions illustrate how online information — news stories, fictional works, message board posts, Wikipedia articles, computer programs, photos, podcasts and movie clips — has increasingly become the lifeblood of the booming A.I. industry.
MLC “ReUp” Proceeding Highlights Ownership Issues for Your Musical Works Database When You Correct To Collect?
Guest post By Chris Castle
Ever wonder who owns the registration data you have slaved to correct and recorrect at your own cost when you “Play Your Part” to “Correct to Collect” at the MLC?
Remember the sainted Music Modernization Act allowed the lobbyists a vehicle to create their mechanical licensing collective in the US that was going to solve all of Big Tech’s problems. The MMA, unsurprisingly, also gave Big Tech a brand new copyright infringement safe harbor arising out of the Spotify class actions. Generations of the children of lawyers and lobbyists will be put through college–thank you songwriters!
One of the few things Congress got right in Title I of the Music Modernization Act is the five-year review of the mechanical licensing collective. Or more precisely, whether the private company previously designated by the Copyright Office to conduct the functions of the Mechanical Licensing Collective (The MLC, Inc.) should have another five years to continue doing whatever it is they do.
Impliedly, and I think a bit unfairly, Congress told the Copyright Office to approve its own decision to appoint the current MLC or admit they made a mistake. This is yet another one of the growing list of oversights in the oversight. Wouldn’t it make more sense for someone not involved in the initial decision to be evaluating the performance of the MLC? Particularly when there are at least tens of millions of dollars changing hands as well as some highly compensated MLC employees, any one of whom makes more than the Copyright Royalty Judges. The MLC’s budget (paid by the services they oversee) was $32,900,000 in 2023 and will be $39,050,000 this year because, you know, the budget is indexed to inflation, just like streaming mechanicals…oh sorry. Not like streaming mechanicals.
Who Owns the Database?
What happens if the Register of Copyright actually fires The MLC, Inc. and designates a new MLC operator? The first question probably should be what is The MLC, Inc.’s plan for a hand off to a successor. But since that doesn’t exist, it instead should be what happens to the vaunted MLC musical works database and the attendant software and accounting systems which seem to be maintained out of the UK for some reason.
I actually raised this ownership question in a comment to the Copyright Office back in 2020. In short, my question was probably more of a statement: ‘‘The musical works database does not belong to the MLC or The MLC and if there is any confusion about that, it should be cleared up right away.”
The Copyright Office had a very clear response:
While 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….Any use by the Office referring to the public database as ‘‘the MLC’s database’’ or ‘‘its database’’ was meant to refer to the creation and maintenance of the database, not ownership. [85 FR at 58172, text accompanying notes 30 and 31.]
So if the current operator of the MLC is fired, we know from the MMA and the Copyright Office guidance that one thing The MLC, Inc. cannot do is hold the database and its attendant systems hostage, or demand payment, or any other shadiness. These items do not belong to them so they must not assert control over that which they do not own. Neither does the database belong to any contractor if for no other reason than the MLC, Inc. cannot transfer to a contractor something that the MLC, Inc. doesn’t own in the first place.
Another thing that doesn’t belong to The MLC, Inc. is the hundreds of millions of black box money that the MLC, Inc. has failed to distribute in going on four years. I’ve even heard cynics suggest that the market share distribution of black box will occur immediately following The MLC, Inc.’s redesignation and the corresponding renewal of HFA’s back office contract which seems to be worth about $10 million a year all by itself.
What would also have been helpful would be for Congress to have required the Copyright Office to publish evaluation criteria for what they expected the MLC’s operator to actually do as well as performance benchmarks. Like I said, it’s a bit unfair of Congress to put the Copyright Office in the unprecedented position of evaluating such an important role with no usable guidance whatsoever. Surely Congress did not intend for the Copyright Office to have unfettered autonomy in deciding what standards to apply to their review of a quasi-governmental agency like the MLC? Yet Congress seems to have defaulted to the guardrail of the Administrative Procedures Act or some other backstop to sustain checks and balances on the situation.
But at least the ownership question is settled.
Better than Cats: The Copyright Office Seeks Public Comment on Periodic Review of the Designations of the Mechanical Licensing Collective and Digital Licensee Coordinator aka #TheReup
In case you missed it, the MLC, Inc. was handed a five year contract in 2019 to operate the mechanical licensing collective. This contract was worth millions and millons of dollars, but more importantly guaranteed that the Harry Fox Agency would have a job for at least another five years. The salty arrangement was the brainchild of the lobbyists, the controlled opposition and the Copyright Office–and has resulted in The MLC, Inc. sitting on hundreds of millions of other peoples money.
The Copyright Office has posted a notice letting us know that the time has come for the circular admiration society also known as the 5 year review of the MLC and the DLC as required by Title I of the oh so modern Music Modernization Act (yet we keep comeing back to these age-old problems that are not modern at all). This is all conducted by the Copyright Office which in a meaningful way is simply reviewing how well the Copyright Office did with the designation of the MLC, Inc. as much as how well the MLC met expectations.
After suffering through establishing some regulations for the MLC that largely favored the services, the head lawyer at the Copyright Office threw down the pretenses and became employed as a lobbyist for Spotify. Another went to work for the National Association of Broadcasters to screw artists our of a performance right for sound recordings. Can’t wait to congratulate current Copyright Office staff on their employment futures after we get through this important reup for the MLC, Inc. and the lobbyists. I hear the chief butterfly killers have openings for copyright lawyers trained on the public purse.
The comment period in this vitally important review is divided into at least two parts: The special people, i.e., The MLC, Inc. quango and the DLC get to go first, and then the hoi polloi (that’s you and me). You’ll find this language buried at the very bottom of the Reup notice:
Interested members of the public are encouraged to comment on the topics addressed in the designees’ [i.e., the DLC or the MLC’s] submissions or raised by the Office in this notification of inquiry. Commenters may also address any topics relevant to this periodic review of the MLC and DLC designations. Without prejudice to its review of the current designations, the Office hopes that this proceeding will serve as an opportunity for any songwriter, publisher, or DMP who wishes to express concerns, satisfaction, or priorities with respect to the administration of the MMA’s blanket licensing regime to do so, and that any designated MLC or DLC will use that feedback to continually improve its services.
Bite your tongue now.
Selected Comments on the Copyright Office Proposed Rule on Termination Rights and MLC Operations: John Barker
The Copyright Office has asked for comments from the public on important issues for rulemakings under the Music Modernization Act. This will potentially affect the operations of The MLC and related rights especially because the Copyright Office recently extended the scope of that rulemaking. The proposal drew a mixed response.
We will be posting selected comments that we think might be interesting to Trichordist readers. The project is a bit wonky, but important to stay informed on. This comment by Nashville publisher John Barker who founded ClearBox Rights, the IP rights management company is a great introduction to the termination issue and how we got to where we are today by a deep thinker on copyright.
In today’s digital streaming marketplace, there is rarely a need for a traditional re-release of a recording into a collection, best-of, or other packaging combination, since most streaming services offer single song selections, with the ability to create a custom “play list” to suit the consumer’s taste. The basic result is, once a song is recorded, licensed and utilized on a DMP, there is little need for new licenses for that recording/song combination with the DMP provider. The significant portion of compensation writers and heirs had experienced through new licenses of that recording/song in the mechanical world has been reduced to almost nothing.
What had been an accepted practice of Terminating Claimants participating in licensing and receiving royalties for older recordings with new licenses was thwarted to a considerable extent through the unintended consequences of this modern-day digital distribution method.
The combination of the negative impact through the MLC’s Notice and Dispute Policy, along with the consequences of the digital marketplace replacing recorded re-packaging, makes this issue of the Copyright Office ruling even more critical for writers and heirs.So here we are, dealing with this again.
Physical/Download Song Rate Increases, No Change for Streaming
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.
Sy Damle Strikes Again
[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.
Oh snap. It’s Tuesday.
The Trichordist 
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