Category: MLC Meltdown

Should the Compulsory License be Re-Upped?

By Chris Castle

[This post first appeared on MusicTechPolicy]

The wisest of those among you learn to read your portents well
There’s no need to hurry, it’s all downhill to Hell…

Don’t Stand Still, written by The Original Snakeboy, performed by Guy Forsyth

Congress is considering whether to renew The MLC, Inc.‘s designation as the mechanical licensing collective. If that sentence seems contradictory, remember those are two different things: the mechanical licensing collective is the statutory body that administers the compulsory license under Section 115. The MLC, Inc. is the private company that was “designated” by Congress through its Copyright Office to do the work of the mechanical licensing collective. This is like the form of a body that performs a function (the mechanical licensing collective) and having to animate that form with actual humans (The MLC, Inc.), kind of like Plato’s allegory of the cave, shadows on the wall being what they are.

Congress reviews the work product of The MLC, Inc. every five years (17 USC §115(d)(3)(B)(ii)) to decide if The MLC, Inc. should be allowed to continue another five years. In its recent guidance to The MLC, Inc. about artificial intelligence, the Copyright Office correctly took pains to make that distinction in a footnote (footnote 2 to be precise. Remember–always read the footnotes, it’s often where the action is.). This is why it is important that we be clear that The MLC, Inc. does not “own” the data it collects (and that HFA as its vendor doesn’t own it either, a point I raised to Spotify’s lobbyist several years ago). Although it may be a blessing if Congress fired The MLC, Inc. and the new collective had to start from scratch.

But Congress likely would only re-up The MLC, Inc. if it had already decided to extend the statutory license and all its cumbersome and byzantine procedures, proceedings and prohibitions on the freedom of songwriters to collectively bargain. Not to mention an extraordinarily huge thumbs down on the scales in favor of the music user and against the interest of the songwriters. The compulsory license is so labyrinthine and Kafka-esque it is actually an insult to Byzantium, but that’s another story.

Rather than just deciding about who is going to get the job of administering the revenues for every songwriter in the world, maybe there should be a vote. Particularly because songwriters cannot be members of the mechanical licensing collective as currently operated. Congress did not ask songwriters what they thought when the whole mechanical licensing scheme was established, so how about now?

Before the Congress decides to continue The MLC, Inc. many believe strongly that the body should reconsider the compulsory license itself. It is the compulsory license that is the real issue that plagues songwriters and blocks a free market. The compulsory license really has passed its sell by date and it’s pretty easy to understand why its gone so sour. Eliminating the Section 115 license will have many implications and we should tread carefully, but purposefully.

Party Like it’s 1909

First of all, consider the actual history of the compulsory license. It’s over 100 years old, and it was established at a time, believe it or not, when the goal of Congress was to even the playing field between, music users and copyright owners. They were worried about music users being hard done by because of the anticompetitive efforts of songwriters and copyright owners. As the late Register Marybeth Peters told Congress, when Congress created the exclusive right to control reproduction and distribution in 1909, “…due to concerns about potential monopolistic behavior [by the copyright owners], Congress also created a compulsory license to allow anyone to make and distribute a mechanical reproduction of a nondramatic musical work without the consent of the copyright owner provided that the person adhered to the provisions of the license, most notably paying a statutorily established royalty to the copyright owner.”

Well, that ship has sailed, don’t you think? 

This is kind of incredible when you think about it today because the biggest users of the compulsory license are those who torture the bejesus out of songwriters by conducting lawfare at the Copyright Royalty Board–the richest corporations in commercial history that dominate practically every moment of American life. In fact, the statutory license was hardly used at all before these fictional persons arrived on the scene and have been on a decades-long crusade to hack the Copyright Act through lawfare ever since. This is particularly true since about 2007 when Big Tech discovered Section 115. (And they’re about to do it again with AI–first they send the missionaries.)

If the purpose of the statutory scheme was to create a win-win situation that floats all boats, you would have expected to see songwriters profiting like never before, right? If the compulsory was so great, what we really needed was for everyone to use Section 115, right? Actually, the opposite has happened, even with decades of price fixing at 2¢ by the federal government. When hardly anyone used the compulsory license, songwriters prospered. When its use became widespread, songwriters suffered, and suffered badly.

Songwriters have been relegated to the bottom of the pile in compensation, a sure sign of no leverage because whatever leverage songwriters may have is taken–there’s that word again–by the compulsory license. I don’t think Google, a revanchist Microsoft, Apple, Amazon or Spotify need any protection from the anticompetitive efforts of songwriters. Google, Amazon, Apple, Microsoft, Spotify are only worried about “monopolistic behavior” when one of them does it to one of the others. The Five Families would tell you its nothing personal, it’s just business. 

Yet these corporate neo-colonialists would have you believe that the first thing that happens when the writing room door closes is that songwriters collude against them. (Sounding very much like the Radio Music Licensing Committee–so similar it makes you wonder, speaking of collusion.) 

The Five Year Plan

Merck Mercuriadis makes the good point that there is no time like the present to evolve: “In the United States, we have a position of stability for the next five years – at the highest rates paid to songwriters to date – in the evolution of the streaming economy. We are now working towards improving the songwriters’ share of the streaming revenue ‘pie’ yet further and, eventually, getting to a free market.” The clock is ticking on the next five years, a reference to the rate period set by the Copyright Royalty Board in the Phonorecords IV proceeding. (And that five years is a different clock than the five years clock on the MLC which is itself an example of the unnecessary confusion in the compulsory license.)

What would happen if the compulsory license vanished? Very likely the industry would continue its easily documented history of voluntary catalog licenses. The evidence is readily apparent for how the industry and music users handled services that did not qualify for a compulsory license like YouTube or TikTok. However stupid the deals were doesn’t change the fact that they happened in the absence of a compulsory license. That Invisible Hand thing, dunno could be good. Seems to work out fine for other people.

Let’s also understand that there is a cottage industry complete with very nice offices, pensions and rich salaries that has grown up around the compulsory license (or consent decrees for that matter). A cottage industry where collecting the songwriters’ money results in dozens of jobs paying more in a year than probably 95% of songwriters will make, maybe ever. (The Trichordist published an excerpt from a recent MLC tax return showing the highest compensated MLC employees.) Generations of lawyers and lobbyists have put generations of children through college and law school from legal fees charged in the pursuit of something that has never existed in the contemporary music business–a willing buyer and a willing seller. Those people will not want to abandon the very government policy that puts food on their tables, but both sides are very, very good at manufacturing excuses why the compulsory license really must be continued to further humanity.

The even sadder reality is that as much as we would like to simply terminate the compulsory license, there is a certain legitimacy to being clear-eyed about a transition. (An example is the proposals for transitioning from PRO consent decrees–ASCAP’s consent decree has been around a long time, too.) There would likely need to be a certain grandfathering in of services that were pre or post the elimination of the compulsory, but that’s easily done, albeit not without a last hurrah of legal fees and lobbyist invoices. Register Pallante noted in the well-received 2015 Copyright Office study (Copyright and the Music Marketplace at 5) “The Office thus believes that, rather than eliminating section 115 altogether, section 115 should instead become the basis of a more flexible collective licensing system that will presumptively cover all mechanical uses except to the extent individual music publishers choose to opt out.”  An opt out is another acceptable stop along the way to liberation, or even perhaps a destination itself. David Lowery had a very well thought-out idea along these lines in the pre-MLC era that should be revisited.

X Day

However, while there is a certain attractiveness to having a plan that the dreaded “stakeholders” and their legions of lobbyists and lawyers agree with, it is crucially important for Congress to fix a date certain by which the compulsory license will expire. Rain or shine, plan or no plan, it goes away on the X Day, say five years from now as Merck suggests. So wakey, wakey. 

That transparency drives a wedge into the process because otherwise millions will be spent in fees for profiting from moral hazard and surely the praetorians protecting the cottage industry wouldn’t want that. If you doubt that asking for a plan before establishing X Day would fail as a plan, just look at the Copyright Royalty Board and in particular the Phonorecords III remand. Years and years, multiple court rulings, and the rates still are not in effect.  Perseveration is not perseverance, it’s compulsive repetition when you know the same unacceptable result will occur.

But don’t let people tell you that the sky will fall if Congress liberates songwriters from the government mandate. The sky will not fall and songwriters will have a generational opportunity to organize a collective bargaining unit with the right to say no to a deal. 

Who can forget Sally Fields in Norma Rae?

The closest that Congress has come to a meaningful “vote” in the songwriting world is inviting public comments through interventions, rule makings, roundtables and the like–information gathering that is not controlled by the lobbyists. Indeed, it was this very process at the Copyright Royalty Board that resulted in many articulate comments by songwriters and publishers themselves that were clearly quite at odds with what the CRB was being fed by the lobbyists and lawyers. So much so that the Copyright Royalty Judges rejected not only the “Subpart B” settlement reached by the insiders but the very premise of that settlement. Imagine what might happen if the issue of the compulsory license itself was placed upon the table?

Now that songwriters have had a taste of how The MLC, Inc. has been handling their money, maybe this would be a good time to ask them what they think about how things are going. And whether they want to be liberated from the entire sinking ship that is designed to help Big Tech. And you can start by asking how they feel about the $500 million in black box money that is still sitting in the bank account of The MLC, Inc. and has not been paid–with an infuriating lack of transparency. Yet is being “invested” by The MLC, Inc. with less transparency than many banks with smaller net assets.

This “investment” is another result of the compulsory license which has no transparency requirements for such “investments” of other peoples’ money, perhaps “invested” in the very Big Tech companies that fund the The MLC, Inc. That wasn’t a question that was on the minds of Congress in 1909 but it should be today.

Attention Must Be Paid

Let’s face facts. The compulsory license has coexisted in the decimation of songwriting as a profession. That destruction has increased at an increasing rate roughly coincident with the time the Big Tech discovered Section 115 and sent their legions of lawyers to the Copyright Royalty Board to grind down publishers, and very successfully. That success is in large part due to the very mismatch that the compulsory license was designed to prevent back in 1909 except stood on its head waiting for loophole seekers to notice the potential arbitrage opportunity. 

The Phonorecords III and IV proceedings at the Copyright Royalty Board tell Congress all they need to know about how the game is played today and how it has changed since 1909, or the 1976 revision of the Copyright Act for that matter. The compulsory license is no longer fit for purpose and songwriters should have a say in whether it is to be continued or abandoned.

We see the Writers Guild striking and SAG-AFTRA taking a strike authorization vote. When was the last time any songwriters voted on their compensation? Maybe never? Voting, hmm. There’s a concept. Now where have I heard that before?

by thetrichordist

When Will the MLC Disclose How they Invest the Black Box Money?

[this post originally appeared in MusicTech.Solutions as “Unrealized Losses and the Black Box Investment Policy” by Chris Castle. We asked him to update it a bit to repost.]

Well, another quarter is rolling around and the MLC is still sitting on 100s of millions of dollars of songwriter money as far as I can tell. Billboard says the MLC has “matched”–maybe different than “paid”–$200 million of the $427 million in black box that it was paid by the services in 2021. This doesn’t count the unmatched that the MLC has itself added to that sum. And Congress still haven’t required them to disclose their investment policy, returns on investment or much of anything else.

Compare the MLC to community banks. There are approximately 1,000 community banks with net assets between $250,00,000 to $500,000,000. There are approximately another 1,200 community banks with net assets between $100,000,000 to $250,000,000. It’s admittedly rough justice, but why should one entity holding hundreds of millions of other peoples’ money have virtually no disclosure requirements and be essentially unregulated while another is the opposite?

Remember that the MLC is supposed to pay interest “at the Federal, short-term rate” “for the benefit of copyright owners entitled to payment of such accrued royalties.” Note that the Federal short-term rate is today a lot higher than it was when the lobbyists wrote the Music Modernization Act, currently 4.21% or thereabouts. And through the power of compound interest, that’s a bunch of cash the MLC is supposed to come up with. I wonder where they’ll get it from. Wouldn’t you like to know?

Anyway, let’s talk about interest rates. The “risk free rate” is often thought of as the rate of interest paid on US government bonds. That interest rate is thought of as risk free because it is backed by the full faith and credit of the United States that you hear so much about these days. Want to know where you can find that full faith and credit? Look in the mirror. 

When you ask around about what collective management organizations do with their “black box” monies while they are waiting to match money with songwriters or at least copyright owners, you often hear that the money is invested in very safe instruments, like U.S. treasury bonds. This might be particularly true of CMOs that are required to pay interest on black box because that interest has to come from somewhere.

But–and here it is–but, as we have learned from the Silicon Valley Bank collapse and the number of federal government officials in the mumble tank about why these banks are failing and why they are getting bailed out by, you know, the full faith and credit of the United States, “risk free” seems to be a relative concept. When you buy US government bonds, there are a number of different maturity dates available to you, kind of like buying a certificate of deposit. A common maturity date is the 10-year bond and the two-year bond, both of which were recently down sharply.

But–there is a connection between the interest rate that the bond pays, the price of the bond, and the maturity date of that bond. When bond interest rates increase, the face price tends to decrease. So if you paid $100 for a bond with a interest rate of say .08% and that rate then increased to say 4.5%, the face price of that bond will no longer be $100, it will be less. If that increase happens fairly quickly, you can have difficulty finding a buyer. The good news is that when the Federal Reserve raises the interest rate, there is about as much news coverage of the event as it is theoretically possible to have, both before during and after the rate increase, not to mention the Federal Reserve chair testifying to Congress. It’s very public. Closely watched doesn’t really capture that level of attention.

When bond prices decline, holders only “realize” the loss or gain if they sell the bond unless the bond is marked to market so the firm has to disclose the amount of what the loss would be if they sold the bond. Hence the concept of “unrealized losses,” “maturity risk,” or “interest rate risk.”  Some think that US banks currently have $620 billion in unrealized losses due to interest rate risk. And don’t forget, these are your betters. These are the smart people. These are the city fellers.

This interest rate risk issue is not limited to banks, however. It is also present anytime that an entity tasked with caring for other people’s money invests that money in treasury bonds, crypto, or whatever. Like the MLC. You don’t have to be Wall Street Bets to end up losing your shirt or something in this environment.

So the point is that the same problem of interest rate risk and unrealized losses could apply to CMOs, such as The MLC, Inc. because of their undisclosed “investment policy” of investing the $424 million of black box they were paid by the services. They don’t disclose what the investment policy is and they don’t disclose their holdings so we don’t really know what has happened, if anything. The money could be perfectly safe.

Or not.

by Trichordist

Copyright Office Authorized a Star Chamber at the MLC to Hold Your Money

We knew this would happen. The Copyright Office has empowered the Mechanical Licensing Collective to decide whether a song (or a sound recording) can be copyrighted all under the guise of AI. If the MLC–not the Copyright Office–decides that your song is not capable of being registered for copyright, the MLC can hold your money essentially forever.

Where’s the regulation on this important subject? Did you get a chance to comment on these crucial regulations and precedent?

Ah…no. You didn’t miss any notices in the Federal Register. No, we know this because of this cozy “guidance letter” to MLC CEO Kris Ahrend from the general counsel of the Copyright Office. That’s right, a letter that we just happened to run across. That letter states:

More specifically, the Office advises that a work that appears to lack sufficient human authorship is appropriately treated by The MLC as an “anomal[y],” consistent with its Guidelines for Adjustments, and The MLC should “place [associated] Royalties in Suspense while it researches and analyzes the issue.” Such research could include corresponding with the individual or entity claiming ownership of the work or [could include] inquiring whether the Office has registered the work and whether there are any disclaimers or notes in the registration record.

If The MLC subsequently concludes that the work qualifies for copyright protection and the section 115 license, it should distribute any royalties and interest in suspense to the copyright owner. Alternatively, if The MLC believes that the work does not qualify for copyright protection following its research and analysis, it should notify the individual or entity claiming ownership of the work of its determination and that associated royalties will be subject to an adjustment. This conclusion and adjustment may be challenged by initiating an “Adjustment Dispute” consistent with The MLC’s policies. If legal proceedings are initiated to challenge The MLC’s actions, the disputed royalties and interest should remain suspended until those proceedings are resolved.

So just in one paragraph, the Copyright Office has effectively delegated its role in the U.S. government to a private corporation controlled by the largest music publishers and financed by the largest tech companies in the world (actually the largest corporations in the history of commerce). If the MLC decides that your song “appears to lack sufficient human authorship” The MLC can hold your money while they research the issue.

Note this doesn’t say who makes that decision, it doesn’t say when they have to notify you, it doesn’t say they have to give you an opportunity to be heard, it places no timeline on how long all this may take. “The MLC” (whoever that is) could sit on your money for years without ever telling you they are doing it and also keep invoicing the DSPs for your royalties while they “research and analyze the issue”.

The only time they have to give you notice if they “believe” (whatever that means) “that the work does not qualify for copyright protection” then “it should” (not the mandatory “shall”, but the permissive “should”) notify you of that determination. You can then file an “adjustment dispute” based on the MLC’s own guidelines which you will not be surprised to learn places no disclosure obligations on them, imposes no timeline and cannot be appealed.

Note that this guidance from the Copyright Office pretty expressly contemplates that the MLC may dispute a work that has already been registered for copyright without qualification–which raises the question of what a copyright registration actually means, and where is it written that the MLC has the authority to challenge a conformed Copyright Office registration.

It also places the MLC in a superior position to the Copyright Office because it allows the MLC to initiate a dispute resolution system outside of the Copyright Office channels. Is this written somewhere besides a burning bush on Mount Horeb?

The letter does seem to suggest that you can always sue the MLC or that the MLC could be prosecuted for state law crimes, perhaps, like conversion, but it would help to know who at the MLC is actually responsible.

This also raises the question of why the MLC is invoicing the DSPs in the first place and what happens to the money every step along the path. Because of the idiotic streaming mechanical royalty calculation, it seems inevitable that the royalty pool will be overstated or understated if the MLC is claiming works that are not subject to copyright (like it would for public domain works it invoiced).

Ever wonder what prompts letters like this to get written?

Play your part, dude. Go back to sleep.

by Trichordist Editor

Know Your MLC: “Highest Compensated” Employees

The Mechanical Licensing Collective, Inc. published its tax return for 2021 so you could have a look at the salaries of all those people who can’t manage to pay out the hundreds of millions in black box money to songwriters. Did the Copyright Office approve these nauseatingly rich salaries? We’re not going to point out the disparities in this little list but…. We can’t help but wonder how many songwriters make anything like these salaries?

by thetrichordist

Comment to Copyright Office on Termination, the Black Box and Lawlessness at MLC

MLC 2021 US Federal Tax Return 990 https://www.themlc.com/hubfs/Marketing/Website/MLC-Finance_Form990-2021_CEOSigned.pdf


January 5, 2023

By Regulations.gov

Suzanne Wilson
General Counsel and Associate Register of Copyrights
U.S. Copyright Office
101 Independence Avenue S.E.
Washington D.C. 20559

Re:   Notice of Proposed Rulemaking: Termination Rights and the Music Modernization Act’s Blanket License 
         Docket No. 2022-5 Comment

Dear General Counsel Wilson:

Thank you for the opportunity to make this comment on the docket referenced above.[i]    

I am a music lawyer in Austin, Texas and write this comment on my own behalf only and not on behalf of anyone else.  

Others will address the substantive termination issues that are well-described and assayed in the Notice, so I will focus on the procedural tension between The Mechanical Licensing Collective, Inc. (“The MLC, Inc.”) currently designated as the mechanical licensing collective (“MLC”), its officers and directors, and the law as described in the Notice.  

I argue that the need for this Notice is symptomatic of a larger problem in the relationship between Congress and The MLC, Inc. I hope the Office will consider resolving this tension as it has been authorized to do under the Music Modernization Act[ii] such as through regulations establishing the type of code of conduct that is common for other federal contractors.  

This tension is alarming.  The Notice states the MLC “does not follow the Office’s rulemaking guidance”[iii] regarding terminations, and that The MLC, Inc. “declin[es] to heed the Office’s warning….”[iv]  These disclosures are diametrically at odds with the clear intent of Congress in crafting the MLC’s role.[v]

The disclosures confirm clearly that there are governance and oversight controversies at The MLC, Inc. that in my view need to be conclusively disposed of, and quickly.[vi]  These governance issues are symptomatic of what may be much greater problems with the administrative capabilities of The MLC, Inc. that may be metastasizing but have not yet risen to the level of a public inquiry.

The recklessness that gives rise to the Notice also highlights The MLC, Inc.’s general lack of accountability and suggests a conscious disregard for the Copyright Office’s oversight role on a significant matter of law that is not capable of proper resolution through any “business rules.”[vii]  

I also note this troubling statement in the Notice:

But, having reviewed the MLC’s policy, the Office is concerned that it conflicts with the MMA, which requires that the MLC’s dispute policies ‘‘shall not affect any legal or equitable rights or remedies available to any copyright owner or songwriter concerning ownership of, and entitlement to royalties for, a musical work.’’[viii]

It seems clear that The MLC, Inc.’s conscious failure to comply with Congressional intent as well as the Office’s guidance is, or ought to be, a decision of some import that surely must have been taken by someone—that is, one or more persons—employed or appointed by the MLC.  It seems likely to be a subject that would have been reviewed both by its General Counsel and as part of the millions in outside counsel fees[ix] spent by The MLC, Inc.  

The fact that the decision-making process is not readily known is itself of concern and leads one to further consider developing a code of conduct for The MLC, Inc. to assure the Office, the Congress and the public of its administrative capabilities.

Respectfully, I request that you determine how this decision was arrived at and what internal controls The MLC, Inc. has put in place to assure the Congress, the Office and interested parties that these mistakes will not happen again.  This should not be an “oh well” moment and should be taken seriously by The MLC, Inc.

If The MLC, Inc. fails to disclose what it is doing by establishing opaque “business rules”, it is essentially creating de facto regulations that have the practical effect of law or regulations made behind closed doors unless the Office or other oversight agency happens to catch them out.  The public will never know that the business rule was established, how the “business rule” was arrived at, or have a meaningful opportunity to comment such as in response to this Notice.

For example, do the minutes of The MLC, Inc.’s board of directors or statutory committees reflect a discussion or vote on the adoption of the MLC’s policies on termination treatment? Did such a vote implicate any conflicts of interest?  Who determined that there was or was not a conflict of interest in the MLC’s decision to adopt the termination policy, however it was taken?  Were there any dissenting votes recorded?  Did an officer or director of The MLC, Inc. certify the completeness of the record in these findings in the corporate minute book?

This leads to other concerns under public discussion regarding the hundreds of millions of “black box” monies being held by The MLC, Inc. Given that the public has very little information available to it regarding the results and implications of the MLC’s operational decisions, I respectfully request that you determine what, if any, financial implications have arisen as a result of The MLC, Inc.’s reckless failure to comply with the law and the guidance of the Office in implementing its termination policy.  Such determination should likely include any funds[x] that The MLC, Inc. is apparently trading in the market for its own account.[xi]  Any curative action required by the Office should, of course, be retroactive in scope which will require considerable before-and-after accounting disclosures.

It must be asked whether the “business rule” established for terminations increases or decreases the enormous black box which was of considerable interest to Chairman Leahy at the recent Copyright Office oversight hearing at which the Register testified.[xii]  This is particularly true if the implementation of the business rule results in financial harm to interested parties who rely on The MLC, Inc. to get it right.  

The subject of black box came up in the Questions for the Record from Chairman Leahy.  The Copyright Office’s response to Chairman Leahy’s inquiry about the hundreds of millions in black box held by the MLC directed the Chairman to the MLC’s annual report for answers.  

Respectfully, I find this odd.  Chairman Leahy did not ask what the MLC told the world in its annual report; rather he asked, “What can the Copyright Office do to help ensure that the MLC is working to make sure that rightful owners of music works are identified and paid?”[xiii]The question is transitive:  We have oversight of you, you have oversight of The MLC, Inc., therefore we have oversight of the MLC.  

Surely no one is surprised by this.  The question many have is why The MLC, Inc. itself—a quasigovernmental organization operated by inferior officers[xiv] of the United States–is not the subject of an oversight hearing at Senate Judiciary regarding the hundreds of millions it is sitting on.  Maybe next time.

It must also be said that the answer to Chairman Leahy goes on:

Notably, the MLC plans to wait to process historical unmatched royalties from the Phonorecords III rate period [2018-2022] until the Copyright Royalty Judges finalize those rates in the ongoing remand proceeding and digital music providers provide adjusted reports of usage and royalty payments. It is the Office’s understanding that the bulk of historical unmatched royalties come from that period.[xv]

Without getting into the timeline of what came when, how is it exactly that The MLC, Inc. took the decision in February 2021—nearly two years ago–to sit on top of hundreds of millions of other peoples’ money that they were somehow investing under their undisclosed “Investment Policy”?  Was anyone asked?  Who gave the MLC the permission to do this?  Do they not hold the black box corpus in trust for songwriters and copyright owners yet to be identified?  Does this not compound the already painful series of failures that resulted in the black box in the first place, the delay in accounting to songwriters (or their families) under Phonorecords III remand, and still more delay while legions of lobbyists and lawyers argue over the post-remand true up accountings?

The MLC reported $2,529,910 investment income on its 2021 US Federal tax return 990

Respectfully, there is also, of course, a larger question that the Office may consider answering:  If The MLC, Inc. adopts a policy or takes some action outside of the law or its remit, is that policy binding on any future entities designated by the Office as the MLC?  

These are all questions that I would expect to have answers that are readily available to the public given that The MLC, Inc. is in a position of public trust administering a compulsory license on behalf of the United States and has been given great privileges under the MMA.[xvi]

Thank you again for the opportunity to comment.

Very truly yours,

Christian L. Castle

CLC/ko

[i] U.S. Copyright Office, Notice of Proposed Rulemaking, Termination Rights and the Music Modernization Act’s Blanket License 87 FR 64405 (Oct. 25, 2022) (Doc. No. 2022-5) (hereafter “Notice”).

[ii] Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Public Law 115–264, 132 Stat. 3676 (2018) (“MMA”) and specifically Title I thereof.

[iii] Notice at 64407.

[iv] Id.

[v] See S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 7 (“Senate Report”).  (“The collective is expected to operate in a transparent and accountable manner.”) 

[vi] I would hope that this failure will be weighed and measured by the Copyright Office as part of The MLC, Inc.’s quinquennial review as is required under the legislative history.  See, e.g., Senate Report at 5 (“[E]vidence of fraud, waste, or abuse, including the failure to follow the relevant regulations adopted by the Copyright Office, over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective.”)(emphasis added).

[vii] It must be said that the MLC’s disregard for this particular matter may present a moral hazard (at best) for the publishers represented by at least some of its board members.

[viii] Notice at 64407 (emphasis added).

[ix] Annual Report at 16.

[x] See the MLC’s annual report stating that the MLC invests the black box according to its internal “Investment Policy” established by its board of directors but not made public.  MLC 2021 Annual Report at p. 4 available at https://www.themlc.com/hubfs/Marketing/23856%20The%20MLC%20AR2021%206-30%20REFRESH%20COMBINED.pdf(“Annual Report”) (“Investment Policy: This policy covers the investment of royalty and assessment funds, respectively, and sets forth The MLC’s goals and objectives in establishing policies to implement The MLC’s investment strategy. The anti-comingling policy required by 17 U.S.C. § 115(d)(3)(D)(ix)(I)(cc) is contained in [The MLC, Inc.’s] Investment Policy. The Investment Policy was approved by the Board in January 2021.”) (emphasis added).

[xi] Realize that every CMO is confronted with the decision about what to do with the royalty float and black box, but not every CMO decides to invest these funds in the market. If they do invest the funds, it is generally the case that any trading profits, dividends or interest goes to offset the CMO’s administrative costs that otherwise would be deducted from collected royalties.  However, the MLC, Inc.’s administrative costs are paid by the users of the blanket license (making the United States, I believe, the only country in history or the world that charges for the use of a statutory license). Therefore, the return on the MLC’s investment of the songwriters’ money would not be used for the same purpose as all the world’s CMOs that follow a similar practice.  The continuity in ownership for profits derived from The MLC, Inc.’s trading is also unclear;  if The MLC, Inc.’s existing designation is not continued but securities are being held or profits generated, what happens? 

[xii] Senate Judiciary Committee, Subcommittee on Intellectual Property, Oversight of the U.S. Copyright Office, Responses to Questions for the Record by Shira Perlmutter, Register of Copyrights and Director of the Copyright Office (Sept. 7, 2022), available at https://artistrightswatchdotcom.files.wordpress.com/2022/10/qfr-responses-perlmutter-2022-09-07.pdf. (“Questions for the Record”) (“With respect to the historical, pre-2021, unmatched royalties, which were reported to be about $426 million, the annual report says that the MLC recently started distributing those that it has been able to match. It also says that the MLC has begun making associated usage data for historical unmatched royalties available to copyright owners, which will facilitate further claiming and matching.”) 

[xiii] Id. at 4.

[xiv] President Donald J. Trump, Statement on Signing the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (October 11, 2018) available athttps://www.govinfo.gov/content/pkg/DCPD-201800692/pdf/DCPD-201800692.pdf (“Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director.”)

[xv] Questions for the Record at 4.

[xvi] See, e.g., Senate Report at 5 (emphasis added).  “For the responsibilities described in subparagraphs (J) [distribution of unclaimed royalties] and (K) [dispute resolution] of paragraph (3), the collective is only liable to a party for its actions if the collective is grossly negligent in carrying out the policies and procedures adopted by the Board of Directors pursuant to section 115(d)(11)(D). Since the Register has broad regulatory authority under paragraph (12) of subsection (d), it is expected that such policies and procedures will be thoroughly reviewed by the Register to ensure the fair treatment of interested parties in such proceedings given the high bar in seeking redress.” 

by Trichordist

Clowns to the Left of Me, Jokers To the Right: When Will the MLC Show Us the Money?

If you’ve received one of these emails from the MLC about having to recast their monthly statement inside of a single month, when you’re eying that $500,000,000 of supposedly unmatched money that’s sitting in the MLC, Inc.’s bank account (maybe?), or if you’re trying to figure out when they are launching the vastly overdue claiming portal, you’re probably wondering–who’s in the clown car today? Bozo or Pennywise?

But maybe they’re smarter than they look. Because all they have to do to distribute that $500,000,000 on a market share basis is keep you looking at the bright and shiny object while they run out the clock.

And if you’re waiting for the Copyright Office to save you because they have “oversight”, you’re going to be waiting for a long time. Here’s the reality–nobody is minding the store. There’s a difference between “oversight” and “overwatch.” In Washington, “oversight” means finding someone else to blame and from the very beginning it has been clear who the MLC intends to blame–you. Because you didn’t “play your part” or sufficiently “connect to collect”.

The Copyright Office has done a couple things while under the supervision of the current head lobbyist for Spotify. They’re good at studies, terrible at oversight, so let’s give credit where it’s due. But also realize that’s where it stops because they have about as much moxie as a starfish. (And if you think the NMPA is going to save you, take a look at the frozen mechanicals debacle and ask yourself if a rational person could really take that seriously.)

At the core of the MLC’s business model is the ability to match. Matching is kind of a “See Spot run” building block. If you can’t match, it’s very close to saying you can’t count. Because it depends on what the definition of “match” is.

So what is a match? Or as the Bard might say, how can I screw thee? Let me count the ways. The Copyright Office produced the Unclaimed Royalties Best Practices study partly on this very topic. Notice the difference between “best practices” and “rules.” “Best practices” is not the same as “rule”. If you violate a best practice, nothing happens to you, so therefore perfect for Washington. If you violate a rule, bad things happen to you. The connective tissue is enforcement. If you violate a rule at the Securities and Exchange Commission, you wear stripes. If you violate a rule at the Environmental Protection Agency, you will pay a fine, for sure. If you violate a rule at the MLC? There really aren’t any so it can’t happen. In other words, it’s just like the Harry Fox Agency.

But that’s what we have so let’s look at one passage in particular from the Best Practice Study because that’s the closest we have to a rule book.

The Office recommends that the MLC make all [matching] metrics publicly available, except to the extent it would cause confidential or business sensitive information to be improperly disclosed. [God forbid.] Specifically regarding match rates, the Office acknowledges the MLC’s point that “vendors can easily increase their claimed ‘match percentage’ by simply dropping the confidence level at which they call something a match.” For that reason, the Office recommends that the MLC provide appropriate context for its metrics, including information surrounding how it defines a match, relevant confidence levels, and how confidence levels are tuned. Additionally, so that they are clear and precise, and to avoid possible confusion, the Office recommends that all royalty figures be provided both with and without accrued interest. [How about a best practice of how they are practicing complying with best practices best?

The Office recommends that in addition to providing annual statistics in its annual report, the MLC also have a dedicated public webpage displaying all of these metrics in a clear, well-organized, user-friendly, and accessible manner. The webpage should be interactive and allow users to search, sort, and break down the data so it may be more easily reviewed and analyzed. The webpage should also have an export or download feature, including bulk exporting/downloading, to aid public consumption and dissemination. The Office recommends that the webpage be updated monthly after each batch of new reports of usage arrive and go through initial matching processes. All metrics should be retained and made available online indefinitely (though the MLC could distinguish between current and historic metrics in the future) so long-term trends can be assessed and to ensure the public and the Office have access to them in connection with the review of the MLC’s designation every five years. The MLC should also be very clear about how applicable metrics may change in response to DMP reporting adjustments and the reconciliation of any related royalty underpayments or overpayments permitted by the Office’s regulations. Relatedly, the Office also recommends that the MLC make publicly available relevant metrics about DMP reported usage that the MLC determines is not subject to blanket licenses (e.g., where it is subject to a voluntary license instead, public domain musical works, etc.), such that any related paid royalties have been credited or refunded back to the DMP.

What would also be nice is to tell you how much of your money they are holding and how you get it back. Maybe they could practice the best out of that.

There’s nothing particularly insightful about any of that, right? It’s the kind of thing that any songwriter giving the subject a moment or two of thought could have figured out at any point in the last 100 years. It’s also the kind of thing that you would have expected to have been built into the MLC’s system–which is essentially the HFA system–from the beginning.

It doesn’t matter what they say they aspire to do. Naturally they have to say they aspire to get it 100% correct–because otherwise that raises some interesting questions about intent, right?

Will they ever be called to account for their failures? Doubtful. The only business in the world where you can get the government to let you hold $500,000,000 of other people’s money and then keep it because paying it out was just too hard for you.

Do you think this mess is what Congress had in mind after they were fed a bunch of crap by the know-nothing lobbyists?

So let’s ask again–Bozo or Pennywise?

by Trichordist Editor

@sealeinthedeal: Why Did Spotify Reduce Its Black Box Royalty Transfer to the MLC by Nearly $2.3 million?

By Gwendolyn Seale

Remember the $424 million in historical unmatched royalties (also referred to as black box royalties) delivered to the Mechanical Licensing Collective (MLC) by the streaming services last February that songwriters are waiting to receive?

As a refresher, the Music Modernization Act (MMA) required the streaming services to estimate these “historical” black box royalties going back years, and then pay whatever they came up with to the MLC by February 15, 2021.  Why did the services pay this “historical” black box?  Because songwriters gave them a safe harbor in the MMA to enjoy a limitation of liability from statutory damages for the services’ prior acts of copyright infringement—services like Spotify, which was being sued into oblivion.

Now here’s the jawdropper. What if I told you that Spotify inexplicably reduced its portion of these historical unmatched royalties by nearly $2.3 million?

According to the MLC, on December 20, 2021 Spotify decreased its transfer of historical unmatched royalties by $2,296,820.15. You can find this information by visiting the MLC’s website here: https://www.themlc.com/spotify-usa-inc-spotify. You may wonder why this occurred. Unfortunately, I cannot provide you with any concrete answers, but I do think it is a more than fair question to raise.

Following the February 2021 data dump and transfer of the historical unmatched royalties to the MLC, the streaming services were given until June (in accordance with the regs) to provide the MLC with their second sets of data. According to the MLC’s Interim Annual Report (https://themlc.com/sites/default/files/2021-12/The%20MLC%20Interim%20AR21%20Hi-res%20FINAL.pdf) “[t]his second set of data contained information regarding works for which DSPs had previously paid some, but not all, of the relevant rightsholders for a given work.” The streaming services then had the right over the summer to amend or adjust the royalties and data provided to the MLC.

It is interesting to compare the historical unmatched royalties transferred by each streaming service in February 2021 with the final transfer amounts reported in summer 2021 — and I invite all of you to do the same (https://www.themlc.com/historical-unmatched-royalties ). What you will quickly realize is that the final transfer amounts for every service—other than Spotify, the Harry Fox Agency’s client, either reflected the same totals from the February dump, or, resulted in a higher amount transferred (like in the cases of Amazon, Apple and Google). At least so far.

You may be thinking, how do we know if this nearly $2.3 million reduction is accurate? Frankly, we do not know, and we forced to trust that Spotify is telling the truth. Regrettably, the MMA negotiators did not get (and may not have asked for) an audit right for songwriters or for the MLC with respect to these historical unmatched royalties. (Although it must be said that publishers with direct deals very likely had the right to audit, and possibly those who licensed to Spotify through Spotify’s licensing agent, the Harry Fox Agency, which was simultaneously acting as a licensors’ publishing administrator may have had an audit right. Have a pretzel and the conflicts make more sense).

I recognize I have the benefit of hindsight here — notwithstanding, I find it unfathomable that the MMA dealmakers did not secure an audit right in connection with what was sure to be hundreds of millions of dollars in unmatched royalties.

It is theoretically possible that Spotify overpaid its amount in historical unmatched royalties back in February 2021. Notwithstanding, and feel free to call me a cynic —  how am I to believe that for once Spotify actually made an overpayment in royalties?

How can I trust a company which amassed its billions in wealth by stealing musicians’ works, and has continued to supplement its wealth by fighting for the lowest mechanical royalty rates for songwriters ever?

How can I trust a company that unveiled a payola-like feature offering further reduced nanopenny rates to artists in exchange for “promotion?” (see “Discovery Mode”: https://www.rollingstone.com/pro/music-biz-commentary/spotify-payola-artist-rights-alliance-1170544/ ).

How can I trust a company that when faced with reasonable requests about paying musicians fairly, responded with a straight up gaslighting campaign?  (see “Loud & Clear” campaign: https://loudandclear.byspotify.com/ )

Remember, this is the company whose executive literally told an independent artist the following in a public forum:

“The problem is this: Spotify was created to solve a problem. The problem was this: piracy and music distribution. The problem was to get artists’ music out there. The problem was not to pay people money.”  (See here: https://www.digitalmusicnews.com/2021/06/29/spotify-executive-entitled-pay-penny-per-stream/)

In sum, how can I trust a company that has proven time and time again from its inception that it has never cared about songwriters and artists? Ultimately, I cannot — which makes it utterly difficult for me to trust that Spotify incorrectly overpaid nearly $2.3 million in historical unmatched royalties to the MLC. Granted, if Spotify made misrepresentations here, it could lose its limitation of liability for those past infringements–after years of litigation. But, without the MLC having the right to audit the historical unmatched amounts, determining whether Spotify’s total transfer is correct is essentially futile.

Awesome.

So, if you happen to contact Spotify this week about removing your catalog or canceling your subscription, consider also asking them to provide evidence that they overpaid the MLC $2,296,820.15 in historical unmatched royalties last February. Maybe if we’re lucky, we’ll get another Loud & Clear gaslighting campaign to post about!

by thetrichordist

Frozen Mechanicals Crisis: 2nd Comment of @helienne @davidclowery @theblakemorgan Opposing Conflict of Interest in Frozen Mechanicals–‘Let the future have a vote’

SECOND REOPENING PERIOD COMMENTS OF HELIENNE LINDVALL, DAVID LOWERY AND BLAKE MORGAN 

            Helienne Lindvall, David Lowery and Blake Morgan (collectively, the “Writers”) thank the Judges for the opportunity and respectfully submit the following comments responding to the Copyright Royalty Judges’ notice (“Second Notice”) soliciting comments on additional materials (“Reply”) received by the Judges[1] from the National Music Publishers Association, Nashville Songwriters Association International, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Corp. (collectively, the “Majors”)[2] regarding the so-called [frozen] “Subpart B” statutory rates and terms[3] relating to the making and distribution of physical or digital phonorecords of nondramatic musical works in the docket referenced above (“Proceeding”). 

The Writers previously submitted comments[4] (“Prior Comment”) responding to the Judges’ notice[5] (“First Notice”) soliciting comments on the Major’s proposed purported settlement (the “Proposed Settlement”)[6] of the Subpart B rates.  The Writers along with attorney Gwendolyn Seale[7] attempted to submit additional comments in response to the Majors’ filing but were not able to timely file that response.[8]  The Writers appreciate the Judges’ decision to reopen the comment period in order to afford the public, and those that would be bound by the rates and terms set by the Proposed Settlement,[9] an opportunity to comment on those additional materials filed by the Majors and to further participate in the rulemaking.[10]

I.  SUMMARY
            As a general comment on the record to date in Phonorecords IV, the Writers are mystified by the histrionics that have become associated with this Proceeding both on the record and in the press. A voluntary negotiation is just a deal, often made by people who are paid to always be closing. The Writers believe that Congress intended that voluntary negotiation produce a fair result on a reasonable timetable.  

 While not directly at issue in the reopened comment period, what is clearly the case is that the settlement of the Subpart B rates has unnecessarily become a major gating item for the streaming side of this Proceeding, geese and ganders being what they are.  Despite the extensive voluntary negotiation period for the Subpart B rates by the Majors, the Judges—and, frankly, songwriters around the world–are presented instead with a cornucopia of chaos across the board; the cherry on top is the frozen mechanicals crisis.  However, in this season of hope the Writers are confident that the Judges will lead us all out of this daunting situation.

The Writers are not interested in the personalities, the arm-waving or the finger-pointing.  They are interested in the results, particularly because neither they nor anyone they authorized had input into the negotiation that produced either the Proposed Settlement or the impasse.

There is at least one easy way to fix this and recognize the intrinsic value of songs:  Raise the statutory rate proposal for Subpart B configurations in at least some relation to the streaming rate increase.  A song is no less valuable because of the medium in which it is exploited.[11] 

As the Writers will argue, just like the voluntary agreement on Subpart B that led to this impasse was reached by the Majors, those same parties can go back to the drawing board to reach an appropriate conclusion with a higher Subpart B rate.  

Neither the public nor the songwriters are well served (and frankly neither are the Judges) by thrashing about and waiving arms. This may serve well the people who are paid by the hour but it hasn’t served people who are paid by the song.  At all.  “Victory” without winning may pass for success in Washington, but it does not in the writer room or at a songwriter’s kitchen table.

            The Proposed Settlement is a crystallization of everything that is wrong with the licensing and payment practices that have arisen under the compulsory license regime where no is yes, more is less and the Kool-Aid whispers “Drink Me.”  

While the Writers will focus in this comment on the frozen mechanicals issue that has become emblematic of the current crisis, it must be said that the decade-plus MOU [black box] agreements are a backward looking and inequitable insider arrangement that permits a mindset of sloppiness and a “kick the can down the road” mentality that debilitates the entire music publishing business.[12]  It’s no accident that the Mechanical Licensing Collective—run by largely the same cast of characters under a jaw-dropping Congressional governance mandate—has been sitting on $424,000,000 of other peoples’ money for nine months during a pandemic with no visible compliance with another Congressional mandate of paying songwriters correctly in Title I of the Music Modernization Act.[13]  

            The MLC and the sequence of MOUs are both descended from the same ancestors a generation ago.  Each have essentially the same business model and each are somehow inexplicably viewed as a “win” for the songwriters.  The irony of splicing the genetic code of the ancien régime MOU [black box insider settlements] to the future is not lost on anyone.  If the failure to match money and songs in the MOU process is still a problem after fifteen years as well as the much-trumpeted Title I of the Music Modernization Act, it’s not the horse’s fault.  It’s the rider’s.

            It would be a real pity for the CRB to perpetuate this unfairness by adopting the Proposed Settlement.  With respect, it is bad law, bad policy, and a failure to even try to bend the arc of the moral universe.  Conversely, rejecting the Proposed Settlement would provide the kind of steely oversight tragically lacking in the current regime.  Please let the future have a vote, just once.

            The Writers object to the Proposed Settlement for the following reasons and respectfully suggest constructive alternatives.  The gravamen of our objection is that (1) the Subpart B rates have already been frozen since 2006 and extending the freeze another five years is unjust; (2) no evidence has been publicly produced in the Proceeding that justifies or even explains extending the proposed freeze aside from the connection to the memorandum of understanding in the MOU4 late fee waiver (“MOU”), a document that the Majors only recently disclosed in their Reply; (3) very large numbers of songwriters and copyright owners of various domiciles around the world and national origins are unlikely to even know this Proceeding is happening and there still is no evidence that the unrepresented have appointed any of the participants to act on their behalf or were asked to consent to the purported settlement before the fact even if they were members of these organizations aside from the respective board of directors; (4) physical sales are still a vital part of songwriter revenue (which the Writers documented in the Prior Comment[14]); and (5) there are many just alternatives available to the Judges without applying an unjust settlement to the world’s songwriters who are strangers to the Proposed Settlement and in particular the MOU component (as the MOU will likely require membership in the NMPA to benefit consistent with prior MOUs).

[Read the full-length original filing here.]

[1] 86 FR 58626.

            [2] NMPA, NSAI, Sony Music Entertainment, UMG Recordings, Inc. and Warner Music Group Comments in Further Support of the Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV), Copyright Royalty Board (Aug. 10, 2021).

            [3] 37 C.F.R. §385.11(a).

            [4] Comments of Helienne Lindvall, David Lowery and Blake Morgan, Determination of Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV) (July 26, 2021) available at https://app.crb.gov/document/download/25533.

[5] 86 FR 33601.

            [6] Motion To Adopt Settlement of Statutory Royalty Rates and Terms for Subpart B Configurations, Docket No. 21-CRB-0001-PR (2023-2027).

            [7]  Ms. Seale does not otherwise join in this comment.  We understand she is filing a separate comment regarding the additional materials.

            [8] The Writers’ reply was posted on The Trichordist website available at https://thetrichordist.com/2021/08/16/frozenmechanicals-crisis-unfiled-supplemental-comments-of-helienne-lindvall-davidclowery-theblakemorgan-and-sealeinthedeal/.  Parts of that unfiled comment are included in this comment.

[9] See 17 USC 801(b)(7)(a)(i).

                  [10]  As with the Writers prior submission in response to the First Notice, the Writers focus in this comment almost entirely on the Subpart B rates applicable to physical carriers under 37 C.F.R. §385.11(a).  

            [11] The Judges no doubt will be told many stories about how Subpart B configurations are not meaningful sales compared to streaming so rates deserve to be frozen.  This is a novel copyright argument without a statutory basis.  The theory is also not based on accurate facts as the Writers discuss extensively in the Prior Comment at paragraph 5 and will not repeat here.

            [12] There is a growing backlash to decades of delaying definitive action on song metadata and songwriter payments such as Credits Due campaign of the Ivors Academy and Abba’s Björn Ulvaeus.  See generally Chris Cooke, PPL Backs Björn Ulvaeus’s Credits Due Campaign, Complete Music Update (Oct. 4, 2021) available at https://completemusicupdate.com/article/ppl-backs-bjorn-ulvaeuss-credits-due-campaign/

            [13] See, e.g., H. Rep. 115-651 (115th Cong. 2nd Sess. April 25, 2018) at 5; S. Rep. 115-339 (115th Cong. 2nd Sess. Sept. 17, 2018) at 5 (“The Committee welcomes the creation of a new musical works database that is mandated by the legislation….Music metadata has more often been seen as a competitive advantage for the party that controls the database, rather than as a resource for building an industry on.” (emphasis added)).

            [14] See Prior Comment at 16.

by Trichordist Editor

Songwriters and Publishers Ask the MLC: Where’s my money?–MusicTechPolicy

By Chris Castle

If anyone connected to The Mechanical Licensing Collective, Inc. quango brings up the $424,000,000 black box payment that the MLC received in February as part of services claiming their safe harbor under the Music Modernization Act Title I giveaway, it’s usually in the context of claiming credit for the payment as in “Aren’t we great, we got the services to pay $424,000,000 of black box money owed to songwriters.” (Followed shortly by so where’s my bonus?)

Notice what’s not mentioned in that sentence? True, some services paid some money to the MLC which was required by Title I in order for the major infringers like Spotify to enjoy yet another safe harbor. But the payment was not made to songwriters or publishers–it was made to the MLC quango, which is where it sits today, seven months later. 

How could this be, you say? Very simple. Nobody made sure that the MLC was in a position to pay the money out before they took the money in. This is the kind of thing that you would make sure is tied down in the two-plus years the MLC was operational before they got the money. You know, like when did Noah build the Ark?  Before the rain.

This is the kind of thing you might expect to be mentioned in the MLC’s annual report which was due June 30 but seems to have been delayed. What should have happened, of course, is that the Copyright Office in its supposed oversight role for the MLC quango should be closely reviewing MLC’s progress with paying out a half billion of other people’s money. This is what you would expect from a bit-in-the mouth hard-driving approach to oversight of hundreds of millions that Congress tasked to the Copyright Office. 

Ask yourself (or maybe the Library of Congress Inspector General) whether you think that a pre-New Deal federal agency that has never had enforcement powers is culturally suited to the kind of rigorous prosecution that the oversight role requires? Having created the MLC self-licking ice cream cone, does anyone seriously think that the Copyright Office will rock the boat, particularly when the lawyers seem very interested in landing a job at Spotify (regulated by the Copyright Office) or the National Association of Broadcasters both of which have an ontologically hostile relationship with songwriters? Do you think anyone at the MLC is looking over their shoulder because they’re afraid of the Copyright Office? And if they don’t fear the oversight, what incentive do they have? Nobody else will be twisting their arms.

So should it come as a surprise to anyone that people are asking “where’s my money?” Or that no one is answering?

by Trichordist Editor

Guest Post: Honesty In Our Favor: HFA Loses Attempt To Exit Eight Mile Style Case–What Implications For MLC?

Guest post by Chris Castle

The Uniform Commercial Code defines “good faith” as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”

Spotify was sued by Eight Mile Style and Martin Affiliated, two publishers that control rights in some of the early Eminem repertoire, including Lose Yourself. Remember that earlier this year, Spotify announced with great fanfare that Lose Yourself was streamed over 1 billion times on the platform. That’s just one measurement of Eminem’s dominance on Spotify. Turns out that Spotify had failed to license a good chunk of Eminem’s catalog.

The publishers eventually joined the Harry Fox Agency to the lawsuit as participating in the situation, adding claims of vicarious and contributory copyright infringement against the long-time publishing administrator to the industry. In fact, the Harry Fox Agency gave some people the impression that when it came to Section 115 of the Copyright Act, HFA thought they were the government. What ever is this venerable organization doing getting sued for copyright infringement instead of leading the charge against the infringer?

At one point a few years ago, quite a few years ago now, HFA decided to jump up on top of the wall. They started working for tech companies like Spotify and also administering publishing rights. That’s right–both sides. What could possibly go wrong?

Let me illustrate with an anecdote (one that does not involve HFA, or MRI for that matter). A highly ethical licensing administrator interviewed for a job handling music licensing for a big tech company. After several rounds of interviews, the administrator was told they weren’t getting the job. Asking for a reason, the tech company told the administrator that the company thought the administrator were likely going to flag and at least try to fix any problems they found in the tech company’s reporting. The administrator didn’t find this remarkable as this was the honest thing to do. The company said, we don’t want honesty when it’s not in our favor. The company hired someone else because they did not want “honesty in fact”.

There are serious allegations against the Harry Fox Agency in the Eight Mile Case. Remember, this is a defense motion to dismiss, so the plaintiff largely gets the benefit of the doubt in their favor. You may ask yourself what possible motivation could Spotify have for engaging in such risky behavior. In her order denying in part and granting in part HFA’s motion to dismiss, Judge Trauger puts her finger right on the most plausible explanation:

[I]t is undisputed that [Eminem, aka Marshall] Mathers is an artist who has enjoyed extraordinary commercial success and has built a large, dedicated fanbase, such that his omission from a major streaming platform might discourage some meaningful number of potential users from subscribing. 

In other words, they did it for the subscribers, they did it for the growth and they did it for the money.

While Eight Mile alleged both vicarious and contributory infringement, Judge Trauger dismissed the claim for vicarious infringement on technical grounds (with leave to amend). Not so with the claim for contributory infringement, however:

HFA objects that it was under no obligation to police Spotify’s in-house decisions regarding infringement. Whether that is true or not, the plaintiffs have not merely alleged that HFA failed to affirmatively police Spotify’s conduct; they have alleged both that HFA knew and, through the ordinary fulfillment of its duties, should have known that the infringement was occurring and that HFA was helping to conceal it.…There is little doubt, moreover, that those allegations of knowledge were pleaded sufficiently. Even when a claim is governed by the heightened pleading requirements of Rule 9(b), “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). The Supreme Court, moreover, has recognized a party’s “aiming to satisfy a known source of demand for copyright infringement” as evidence of an improper purpose in the contributory infringement analysis. Grokster, 545 U.S. at 939. That circumstantial evidence is only heightened when the defendant, knowing of the capacity for infringement, fails to take steps to avoid it. See id. (citing Groskter’s lack of “attempt[s] to develop filtering tools or other mechanisms to diminish the infringing activity using their software”).

The plaintiffs have plausibly alleged that HFA became aware of Spotify’s licensing predicament and offered services that directly filled its need to maintain an illusion of lawfulness while continuing to infringe. 

If these allegations turn out to be proven true, songwriters (and the Copyright Office for that matter) may well ask themselves if there are implications for HFA’s continued role as a vendor for The MLC, if not why they were selected in the first place.

This post first appeared in MusicTechPolicy

by Trichordist Editor