Guest Post: What is the Intention of Justice? Notice and Stay Down is the Government’s Responsibility

By Chris Castle

ARTHUR

Let’s get back to justice…what is justice? What is the intention of justice? The intention of justice is to see that the guilty people are proven guilty and that the innocent are freed. Simple isn’t it? Only it’s not that simple.

From …And Justice for All, written by Valerie Curtin and Barry Levinson.

Law out of balance is no law at all.  I suggest that the DMCA is just this imbalance and the unbalanced DMCA has created other imbalances that in turn transferred wealth from the many to the few.  One of the biggest dangers to our society currently and in the future is erosion of the third estate (or the “musician’s middle class”) into the concentration of wealth in fewer and fewer hands.  This erosion is accompanied by its inevitable trend toward authoritarianism enforced by the mandarin class of Silicon Valley.  Not to mention the policy laundering operations funded by transferred wealth like the Chan Zuckerberg Initiative (that’s the Chan Zuckerberg who asked Xi Jinping to name her then-unborn child).  

Serfing in the Apocalypse 

This kind of neo-feudal concentration of wealth is most obvious in the tech oligarchy, especially in companies like Facebook, Google and Spotify with their dual class supervoting stock that concentrates the corporate decision making and wealth not in the shareholders but in the hands of Mark Zuckerberg, Sergey Brin, Larry Page, Eric Schmidt, Daniel Ek and Martin Lorentzen.  And then there’s Amazon with the world’s richest man, Jeff Bezos—the future space mogul.  (Bezos’ Blue Origin and Google’s adventures in biometrics and AI in China are examples of the second order knock-on effects of the Internet oligarchy become defense contractors.) 

I also suggest that one of the driving forces that has accelerated this concentration of wealth and power over the last twenty years has been the 1998 Digital Millennium Copyright Act.  Unless substantially reversed, the DMCA will continue to accelerate the wealth transfer from creators to oligarchs.  It must also be said that state actors or near state actors like TikTok either profit from, promote or protect massive online piracy based in DMCA-type alibis.  This topic is another conversation, but anyone who has dealt with the huge pirate sites has felt the cold hand of truly bad guys with top cover.  In addition to the tech oligarchs, Russian oligarchs think the DMCA idea is really pretty groovy.

The DMCA Alibi

You’ve probably heard the expression “notice and takedown” applied to copyright online.  It was the DMCA that created the “notice and takedown” alibi regime for piracy and near-piracy.   These notices have come to be called “DMCA notices” and the Congressional plan that implemented that call and response has unambiguously failed.  You may have also heard the expression “value gap.”   The “value gap” is shorthand for illicit profits made from exploiting the DMCA loophole which itself is a prima facie case of law out of balance.  The “value gap” is the predictable consequence of “notice and takedown.”

Google alone has received nearly five billion DMCA notices just in the current reporting period.  That’s 5,000,000,000.  I’m still waiting to see the conga line of Members of Congress and Senators who say that was exactly what they intended (and many who were involved in drafting the DMCA are still serving).  I’m also waiting to hear lawmakers acknowledge that when something happens 5,000,000,000 times, it’s a feature not a bug just like the Ford Pinto’s exploding gas tank.  No one ever asked them until Senator Thom Tillis began a series of hearings before the Senate Judiciary Committee’s Subcommittee on Intellectual Property earlier this year.

If we’re lucky, in coming days Senator Tillis will be introducing a legislative overhaul of this gaping wound reflecting the many hearings he’s chaired this year to investigate the DMCA imbalance that created one of the biggest wealth transfers in history.  That wealth transfer is not only caused by the perpetual state of piracy or near piracy created by the DMCA, it is also caused by the cost of enforcing copyright that has fallen on all creators in all copyright categories.  Not to mention the sheer scale of the burden imposed by lawmakers on creators.  Hopefully Senator Tillis’s investigation will bear fruit and will right the imbalance.

And as we have exhaustively endured for over 20 years, law out of balance is no law at all.   In the music business, performers—like all creators—have been effectively powerless to stop this latest great imbalance in justice created by the copyright infringement safe harbor disaster and piracy force multiplier.  That value gap has hollowed out the performer community (as well as record companies) after 20 years of wealth transfer to the Big Tech oligarchs from commoditizing the recordings that performers created.  And Big Tech have used their DMCA-driven profits to hire even more lobbyists around the world to create even more loopholes in the human rights of artists in the endless maelstrom of Malthusian decline.  That decline manifests itself in the ennui of learned helplessness of creators around the world as companies like Google seek to impose Google’s version of notice and takedown around the world.

Notice and Staydown

But—there is a new term in our lexicon that hopefully will appear in new legislation from Senator Thom Tillis: Notice and stay down. What does it mean?  It’s a mid point between a pure negligence standard and the intent of the DMCA to provide a responsible alternative dispute resolution system.  Instead of the endless whack a mole iterations of catch me if you can posting and reposting of infringing works, online service providers would be required to actually do the right thing and keep the infringing work off of their service.  It’s really just a properly enforced repeat infringer policy.  It’s hard to believe that adults persist in this whack a mole but they do.  There’s big money in those moles that don’t actually stay whacked.

How in the world did we arrive at the status quo?  A page of history is worth a volume of logic to fully understand this leading edge of the Great Reset.  

The Great Copyright Reset

In the late 1990s, the large ISPs had a legitimate concern about this Internet thing. If ISPs (like Verizon or AT&T) are providing ways for the many to connect with each other over the Internet, they were inevitably empowering essentially anonymous users to send digitized property to each other by means of that same technology.  That property might take the form of an email file attachment (or link to a file) that contained a copy of a sound recording, movie or an image.  ISPs wanted to be protected from responsibility for things like copyright infringement they had nothing to do with.  (This knowledge predicate is where the games begin.)

The ISPs needed a zone in which they could operate, a zone that came to be called the “safe harbor.” The deal essentially was that if you didn’t know or have a reason to know there was bad behavior going on with your users, or didn’t have knowledge waiving like a red flag, then the government would provide a little latitude to reasonable people acting reasonably.

This safe harbor idea was a great privilege conferred upon online service providers and balanced the democratizing nature of the Internet with the need to enforce the law against bad actors.  Lawmakers were caught up with the idea of bringing people together.  What they didn’t realize sufficiently was some of those people previously only met on Death Row.

Artists’ rights to protect themselves were not entirely extinguished by this new safe harbor for big companies but were severely burdened. Record labels and film studios had to devote substantial resources to whack a mole that could have been spent on their core businesses–making records and movies.  If a copyright owner thought there was infringement going on that didn’t qualify for the safe harbor, then the intention was that individual artists shouldn’t have to file a lawsuit, they could just send a simple notice to the service provider. If it turned out that there was a bona fide dispute over the particular use of the work, then the parties could go to court and hash it out if necessary. The notice part of “notice and takedown” was perceived as an inexpensive remedy that would be available to artists who did not want to take on a lawsuit as well as ISPs with litigation budgets.  The Congress did not factor in the charlatans who would come later like Google and Facebook, neither of which existed in 1998.

This is documented in the legislative history from 1998, i.e., both before Google and and Facebook and before the Electronic Frontier Foundation discovered Morpheus or Mrs. Lenz:

This ‘‘notice and takedown’’ procedure is a formalization and refinement of a cooperative process that has been employed to deal efficiently with network-based copyright infringement.

Section 512 does not require use of the notice and take-down procedure. A service provider wishing to benefit from the limitation on liability under subsection (c) must ‘‘take down’’ or disable access to infringing material residing on its system or network of which it has actual knowledge or that meets the ‘‘red flag’’ test, even if the copyright owner or its agent does not notify it of a claimed infringement. 

Sounds very civilized, don’t it? Sounds like something that could be considered to be just. How could something that sounded so right go so wrong so fast?  Notice and takedown has become notice and shakedown after the charlatans arrived.

The Inevitable Notice and Shakedown

The one thing that nobody thought was that it was the intention of Congress that there would be ad networks, multinational corporations and international piracy rings whose business model is in large part built on exploiting the “notice and takedown” loophole in that safe harbor.  

These organizations ignored the DMCA’s knowledge predicate and repeat infringer requirements and adopted what is essentially a “catch me if you can” version that allows them to infringe until they get caught by the copyright owner and then continue to infringe if they are not sued–the exact opposite of what the DMCA intended.  What once was a reasonable exception was almost immediately tainted as a massive loophole that the government has done little to nothing to correct much less enforce.

The “safe harbor” is no longer a loophole, it has graduated to a full blown design defect as indiscriminately harmful as any exploding gas tank.  So now when artists ask that some common sense be applied to this grotesque distortion of the law-supposedly passed in part for the benefit of artists-some would tell artists that it’s not up to government to tell them what the law means. As Kafka-esque as that sounds.

Will You Believe Me or Your Lying Eyes?

Isn’t it obvious that having to send a notice for the same work on the same service hundreds of thousands of times an absurd burden? In other words — is the government actually defending whack a mole with a straight face? Did the government actually intend that 5,000,000,000 take down notices in a year are a new normal?  If they did, evidence of that intent is not in the statute or the legislative history.  Would Congress offer protection to an exploding gas tank after they already knew it was a threat because it was designed that way?

Whack a mole is not automatic-it requires human intervention. As we saw in BMG’s precedent setting and victorious lawsuit against the ISP Cox Communications over Cox’s grotesque failure to enforce its repeat infringer policy, a person has to decide to repost the infringing file even while knowing the file is or is very likely an infringement. Whack a mole actually defies the entire purpose of the safe harbor-whack a mole is not a little latitude for reasonable people acting reasonably.

Whack a mole is a design defect.  Is it just that Congress should protect any design defect?

Let’s get back to justice. Not only does the status quo require creators to tell lawmakers (including courts) what their law means, the U.S. Government has utterly failed artists with the fundamental justification for the Sovereign common to our jurisprudence and political theory. 

Crucially, it must be acknowledged that the government has failed to protect artists.  The government has failed to enforce the laws, essentially overseeing and giving legitimacy to one of the largest wealth transfers of all time from the hands of the many into the overflowing pockets of the few.  All based on an extreme interpretation by Google and its ilk of the government’s laws.  Direct challenges to these interpretations involve costly and protracted litigation — with the inescapable whack a mole continuing all the while.

It would not be unreasonable for artists to think that the whole thing smacks of crony capitalism, particularly when one of the biggest beneficiaries of the loophole is a major lobbying influence like Google. While some ISPs have at least tried to address the issue, the Googles of this world are noticeably absent.

So I would beg pardon here-I do not feel that it should be necessary for artists to tell the Congress what would be acceptable in the way of parameters for “notice and stay down”, at least not initially. I think artists have the undisputed right to ask-actually to demand-of the Congress, what was their intention?

Enter the Foxes

Don’t underestimate the knock-on effects of the DMCA wealth transfer that funds self-preservation for the DMCA beneficiaries.  Who can forget Google’s dominance of the Obama Administration?  It’s clear that like Google learned from Microsoft, Facebook has learned from Google (and both joined forces to try to defeat the European Copyright Directive, so expect more of the same foxes coming for the henhouse when Senator Tillis introduces his bill).  

We note the irony that the ethics czar for the Biden transition team is from Facebook, as is the director of legislative affairs a former Facebook lobbyist.  A former Facebook board member co-chairs the transition team and there is a sprinkling of other former Facebook board members in other roles.  Three transition team members are former Chan Zuckerberg Initiative employees.  And Google’s Eric “Uncle Sugar” Schmidt will have a leading role.  

Once they get into power, you can expect that DMCA reform will get exponentially harder, but the Tech Transparency Project will have even more work to do.

Senator Tillis Could Make Real Progress Toward Reversing the DMCA Cronyism

The safe harbor is the government’s law. They wrote it. They voted for it. They represented voters—including creators—when they did so. They presumably have some idea what it is supposed to mean. Many who voted for it are still in the Congress. The Congress needs to come clean on what they intended. Isn’t that the better place to start? Why should artists have to tell the Congress what the Congress’s intention was?

If it was the intention of the Congress (and President Clinton who signed the law) that the current state of whack a mole was the plan all along, then let them say that — and perhaps more importantly, point to where they told the electorate that was their intention at the time the DMCA was passed in the Congress and signed into law.  If it is not their intention, then it should be reversed with no daylight.

Google alone is on track to receive over five billion take down notices this year alone. If this was the Congressional intention, then let them say that. If their intention was there should be no upper limit on the number of takedown notices any one company could receive in a year, then let them say that. And explain themselves.

And let’s be clear-Google does not appear to view these billions of notices as a design defect, although that would be a perfectly reasonable conclusion. And neither do Facebook or Twitter. One has to believe that if a company the size of Google viewed billions of notices as a problem, they could fix that problem. They haven’t. In fact the number of notices grows exponentially every year. Perhaps they view billions of DMCA notices as a feature set.  Because along with the billions of notices comes a fortune for Google just like Facebook, Twitter and the rest.  Big Tech’s defenders would say of Pirate Bay and Megavideo, they’re just like Google.  Yes, that’s right.  Google is just like them and they are just like Google.  Serfing on the DMCA apocalypse.

What is the intention of justice? That the guilty are proven guilty. But if lawmakers won’t tell us what it means to be guilty much less prosecute the politically connected wrongdoers, then what justice is that?

Notice and stay down is a reasonable reaction to whack a mole, and one that is entirely consistent with the original intent of the DMCA notice and takedown regime that has gone so far wrong. Hopefully Senator Tillis will be leading the charge.

It might actually be that simple.  Notice and stay down.

As Arthur told the jury, “If he’s allowed to go free, then something really wrong is going on here.”

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

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

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

Apple Termination

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

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

MLC Apple Answer

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

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

And remember that the notice from Apple includes this language:

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

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

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

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

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

Curiouser and curiouser.

What is Apple Music Up to with the MLC?

You may have received this notice from HFA Client Services with the subject line “APPLE LEGAL NOTICE OF TERMINATION OF AGREEMENT” which a vigilant reader sent to us:

What is interesting about this is the opening paragraph:Dear Publisher, Reference is hereby made to that certain Subscription, Lyrics, and Cloud Services License Agreement or Subscription and Cloud Services License Agreement (the “Agreement”) between Apple Inc. (“Apple” or “we”) and the publishing entity with which you are affiliated (“Publisher” or “you”)In support of the Orrin G. Hatch-Bob Goodlatte Music Modernization Act and the significant benefits this new legislation is expected to deliver to music publishers and songwriters, we intend to move our licensing and royalty administration for Apple Music to the MLC starting from January 1, 2021.Accordingly, we hereby notify you that Apple has elected, pursuant to the Agreement, to terminate the Agreement, effective December 31, 2020. If you have never entered into such an agreement with Apple you may disregard this notice.

Focus on that “lyrics” and “cloud services” part.  The MMA blanket license does not cover lyrics or cloud services.  That means that Apple is out of contract with the publisher concerned because they terminated the agreement.  They cannot get those rights under the blanket.

Then notice that Apple says, “we intend to move our licensing and royalty administration for Apple Music to the MLC”.  The MLC cannot license outside the blanket to my knowledge.

But also realize that Apple are not stupid, so this must mean something.  We’re looking into it.

“MILLION A MONTH” TIM IS BACK WITH NEW IMPROVED PROFITEERING–BUT #IRESPECTMUSIC @THEBLAKEMORGAN FIGHTS BACK–AGAIN

[This post first appeared on MusicTechPolicy]

Sessions Cody Snow

You may have received an email from something called “Sessions” like this one above received by our friend Blake Morgan, and Blake wanted us to alert MTP readers. Here’s Blake’s reply:

Sessions Blake Reply copy

Who can forget the epic confrontation between Blake and “Million a Month” Tim Westergren during what Billboard called “World War P”, which shows what can happen when artist relations are grossly mismanaged.

pandora_500_billboard_cover

Why do we say “Million a Month” Tim?  Because that’s what he made from selling Pandora stock while poor mouthing about paying royalties from Pandora’s loss-making revenues.  It may not seem logical, but in Silicon Valley, they care far less about profit than they do about valuation because valuation is, as bank robber Willie Sutton said, where the money is. So “Million a Month” Tim was engaged in the gaslighting of all time.

 I guess Blake hasn’t forgotten.

westergren 5-5-14

Of course in fairness, Daniel Ek and Spotify are running the same play on a much grander scale of international gaslighting as demonstrated by the COVID Misery Index. Big thanks to Blake for calling out another one and speaking truth to power.

COVID Misery Index 12-5-20
Comparison of post-pandemic stock trading of Spotify, Google, Facebook, Amazon, Apple and Live Nation

The DLC Finally Confirms (Sort Of) How Much is in the MMA Black Box–Bigger than a breadbox

By Chris Castle

[This post first appeared on MusicTechPolicy]

We’ve all heard rumors about how much is in the “inception to date” black box at the digital music services. The main reason that nobody knows is another example of the dismal drafting of the Music Modernization Act.

Limitation on Liability

Wouldn’t you think that if the class actions against Spotify gave the insiders the leverage to negotiate the MMA giveaway that they could at least have gotten an immediate accounting from the services for how much of the songwriters’ money they’ve been holding all these years? But no, it’s sleepy time in Washington yet again. From the Land of Frozen Mechanicals they bring you more Brinksmanship 101. The retroactive black box payment is due to be made by the services to the MLC and its data vendor, HFA–remembering that HFA was also the data vendor for at least some of the services that created the black box in the first place.

limitation on liability 2

However, there is some activity at the Copyright Office now about how to get this money paid. It’s at the Copyright Office because while drafting the aircraft carrier revision to the Copyright Act (aka Title I of the Music Modernization Act), the hard parts were never drafted and were left to the Copyright Office to handle through regulations. Musicians–you’ve seen this before. This is the Washington version of “we’ll fix it in the mix.” So you do have feel sympathy for the Copyright Office in the situation when all the smart people leave them twisting in the breeze.

Not that I necessarily believe this number, but for the first time the services have given a bigger than a breadbox idea of how much is in the black box. The DLC’s lawyers filed an “ex parte” letter in which they made that revelation (along with the known universe: Artist Rights Alliance Ex Parte Letter (Nov. 17, 2020)Digital Licensee Coordinator Ex Parte Letter (Nov. 17, 2020)Mechanical Licensing Collective Ex Parte Letter (Nov. 17, 2020)Music Artists Coalition Ex Parte Letter (Nov. 17, 2020)Nashville Songwriters Association International Ex Parte Letter (Nov. 17, 2020)National Music Publishers’ Association Ex Parte Letter (Nov. 17, 2020)Recording Academy & Songwriters of North America Ex Parte Letter (Nov. 17, 2020)Songwriters Guild of America et al. Ex Parte Letter (Nov. 18, 2020).)

The DLC itself is at the mercy of its members in terms of revealing this number but they claim the following in the Digital Licensee Coordinator Ex Parte Letter (Nov. 17, 2020):

DLC also provided a rough estimate of accrued royalties that are available to be transferred to the MLC, based on a limited survey of a subset of DLC members at a particular point in time, and with the crucial caveat that the precise amounts are in flux as digital music providers continue to engage in robust matching efforts. Specifically, DLC estimated that several hundred million dollars were available to be transferred to the MLC as accrued royalties, even after accounting for the derecognition of accruals based on preexisting agreements containing releases to claims for accrued royalties.

DLC also explained that the accruals that were derecognized because copyright owners were paid and provided releases were a fraction of that amount—on the order of tens of millions of dollars.

So now we know at least that much. We know there are “several hundred million” dollars at issue in the black box and we generally know where the money is. We may know that DLC members hold the money. We also know that this money has not been identified, but we at least know enough to get the nose of the camel in the tent.

As COVID Decimates State Revenues Tennessee Franchise Tax Comes for out of State Performers

Most people do not realize this, touring bands end up paying income taxes in multiple states. It tends to be the high population states in the West and Northeast. Think California and New York. This makes sense in some ways as the income tax is based on revenue you make in these states. Big states big revenue. It’s a pain to file multiple state returns but at least there is a reasonable rationale.

A franchise tax is different and is not usually based on a businesses income. It is essentially a flat fee tax on the corporate or LLC entity doing business in that state. The idea is that a business based in that state should pay for the services the state provides. These franchise taxes generally have minimum fees between $150-$800. Bands that use a corporate or LLC structure pay these taxes in their home state because they have a “nexus” in that state. A nexus generally means you have some regular place of business in that state. However some states try to apply the franchise tax even when an out of state business or band has no nexus in that state. However it is exceedingly rare. At least until recently…

Over the last couple months I’ve been hearing anecdotal stories about bands suddenly getting tax bills from the State of Tennessee. Odd. The music state? Aggressively taxing musicians? I didn’t think much of this as, it’s pretty common for bands to not realize they owe sales or income tax in states in which they perform frequently.

But last week I received a surprising notice from the State of Tennessee. A retroactive assessment for 7 years of Tennessee franchise tax. As far as I can tell we have no nexus in that state. I have not heard back from the Tennessee Department of Revenue, but apparently the State of Tennessee considers us to be subject to their franchise tax (now?) because we played a single show in the state in each of these years. Wow. This is ridiculous. Imagine if every state you played in required you to file taxes and pay $150-500 in franchise taxes for the privilege of playing a single show in the state?

Further, this retroactive assessment (including penalties and interest) comes at a time when most states are facing tax revenue shortfalls. When states and local governments face revenue shortfalls they have a bad habit of enacting dubious “revenue enhancement” schemes. Often these amount to badgering businesses and taxpayers into paying taxes and fees they would not normally be assessed. I have no evidence this is what is happening here, but something has changed with way my band is being treated by Tennessee tax authorities. And it is apparently happening to other bands.

WTF? I won’t be rushing back to Tennessee to play shows, record albums or even co-write songs until I have some clarity on the tax situation. I suggest other bands also exercise caution.

One last thought: The federal Music Licensing Collective will come online next year. The MLC is based in Tennessee. Does this mean every songwriter and publisher will now have to pay the Tennessee Franchise Tax? Hardly seems fair but it’s possible.

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

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

EX PARTE MEETING SUMMARY WITH

THE UNITED STATES COPYIGHT OFFICE

Docket Number 2020-12

November 18, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Respectfully submitted,

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

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

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

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

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

Guest Post: The False Double Payment Bottom of the MMA Black Box

By Chris Castle

[T-Editor says: This post first appeared on MusicTechPolicy]

The Dog Who Didn’t Bark On the Mirror

There seems to be some concern about pre-Music Modernization Act confidential lump sum payments of accrued black box monies under direct licenses or settlement agreements.  Services are promoting the idea that these payments must be deducted from the cumulative black box payments required for services to get the benefit of the limitation on liability and reach back safe harbor. 

That limitation on liability, of course, comes with a condition that the services use “good faith, commercially reasonable efforts” to match works to copyright owners.  Uses that remain unmatched are then turned over to the Mechanical Licensing Collective for matching and distribution.

The Digital Music Providers [“DMPs”] are now promoting the payment of black box as an option for which they can elect to take the limitation on liability.   The Digital Licensee Coordinator [representing the DMPs] tells us “If the regulations make it less likely that a DMP will be able to rely on that liability protection when it needs iti.e., if it increases the risk that a court would deem a DMP to not have complied with the requirements in section 115(d)(10)—a DMP could make the rational choice to forego the payment of accrued royalties entirely, and save that money to use in defending itself against any infringement suits.”

The SOCAN company MediaNet tells us that absent some aggressive concessions by the Congress to essentially re-write the Copyright Act in their favor, “MediaNet may decline to take advantage of the limitation on liability, which may deprive copyright owners of additional accrued royalties.”  

The DMPs have somehow managed to convince themselves that payments of unallocated sums under settlement agreements (which they weren’t required to match before the MMA) and payments of unallocated sums under the MMA’s black box (which they are required to match under the MMA) are a “double payment.”  While easy to say, “double payment” makes it sound like someone paid twice for the same thing.  That would be bad if it were true.  

But it’s not.

Betting and Strangers

Certain DMPs and certain publishers made settlement agreements of prior unpaid royalties.  We don’t know exactly what gave rise to those agreements but we do know that they covered unmatched (and therefore unallocated) black box payments.  Because the payments were unmatched, they were necessarily a lump sum payment to the participating publisher (although the amounts may have been reduced by commissions for administering the lump sum distributions under so-far confidential settlements).  

At the time of the settlement, nobody did the work to match the unallocated.  This is important for at least two reasons:  Because the works were not matched, the lump sum couldn’t have been allocated to specific works owned by strangers to the settlement.   Therefore there was no initial payment to those strangers, the strangers were not represented in the transaction, the strangers did not authorize the settlement of their claims, and there was no legal basis for the parties to settle ripe but inchoate claims the strangers could have made had they been asked.

The lump sum settlement was evidently based on market share of the then-unallocated black box.  Market share payments would be a typical way to avoid doing the work of matching.  It’s like a DMP saying to a publisher “I’ll make you a bet—if you have 10% market share of the known knowns, I’ll bet that the most I owe you for then known unknowns is 10% of the cash value of the unallocated black box.  Particularly if you are the first payment.”

Why not do the matching at the time?  We’ll come back to that.  

Betting Secrecy

The settling publisher feels they made a good bet and accepts the terms.  The DSP adds one additional post closing condition—the bet must be secret.  The settling publisher will likely voluntarily distribute the monies to their own songwriters on a ratio of earnings (similar to market share), so it can’t be entirely secret.  And there are no secrets in the music business.  But given these realities, why must the bet be secret?  

To keep the strangers to the bet in the dark.

If the bet is announced, strangers to the bet may decide they need to look into how much they are owed.  They may not be willing to take a bet.  They may want what the statute contemplates—good faith commercially reasonable efforts to actually match.

After the DMPs negotiated their safe harbor in the MMA—remembering that the black box payment was never sold to songwriters as optional—it became apparent that all the strangers were now going to be paid for all the uses that were never matched as a part of the lump sum bet.  All the DMPs efforts to keep the strangers in the dark were going to be exposed.  And exposed all at once.  To what end is this secrecy?  Probably for the same reason the DMPs have never posted the unmatched (unlike Royalties Reunited or the AFM-SAG/AFTRA Trust Funds.

Who’s At Fault?

The settling publishers have done absolutely nothing wrong here.  They could have pressed for matching but chose to take the bet.  Could be high, could be low, but seemed like a good bet at the time.  

Plus, by making the bet, they did not take anything away from strangers.  The DMPs still owed an obligation to the strangers.  The settling publishers did not owe the strangers anything.  

This is why the bet is not a double payment so long as the settling publishers are not claiming any uses that were released and settled, which they are not as far as we can tell.  

If the DMPs made a bad bet, that’s on them.  

The DMPs cannot now reduce a cumulative unmatched black box by the prior bets they made.  And of course, as transactions are matched, the unknown knowns become known knowns and are paid out.  In order to accomplish the purpose of the statute, all the transactions must be reported. 

The MMA “deal” was for cumulative payment of the black box.  If settling publishers end up having matched works in the black box—when the unknown become known—those per-transaction payments can be offset to the extent they were covered by a prior release agreed to by a bettor.

But what they cannot do is simply say I made a bet with these guys, so I’m going to claw that back from what I owe to other people who are strangers to the bet.  That’s not a double payment either to the bettor or the stranger to the bet.

Letter of Misdirection

I also do not understand a conversation about letters of direction in this context.  As known unknowns get matched, the DMP should render a statement.  

If the known unknown becomes a known known, that statement will reflect at a minimum the title, copyright owner and the usage as well as whatever other metadata the regulations require.  The now known knowns will either be payable as matched works or have already been covered by a settlement and release for the corresponding period.

In the former case, the payable royalty will be available.  In the latter case, the royalty will have already been paid as part of the settlement.  If that settlement royalty is included in the corresponding black box, that settled usage would be deducted as already paid, which would have a corresponding reduction in the total amount of accrued but unpaid royalties.  That’s not a letter of direction, that’s an offset against otherwise payable royalties due to matching.  

Alternatively, the settling publisher would not be allowed to make a claim for the periods subject to the release because they have no live claims, assuming a total settlement and release for the corresponding accounting period.

Said another way, whatever transactions are in the pending file stay in the pending file with accrued royalties until claimed.  Prior settlements can only be deducted from the transaction lines in the pending file that are for songs owned or controlled by publishers that fall under a prior settlement.  

Tolling the Statute of Limitations

The way the DMPs have actually harmed the strangers is by keeping quiet on this idea that the reach back safe harbor is optional.  They could have raised this issue during the drafting of MMA and after.  But they waited until they had scared away anyone except Eight Mile Style from suing while in theory statutes of limitations ran out starting on 1/1/18 at a minimum.  They used the MMA as a kind of in terrorem stick.

That is grossly unfair.  This has to be changed so that strangers who didn’t make the bet, who didn’t get the payment, and who were silent with their ripe claims since 1/1/18 are not harmed.  

It’s all fine for the DLC to say they do a cost benefit analysis and elect not to take the safe harbor while allowing strangers to be duped.  They should not be able to fool both Congress and the strangers.  Any statute of limitations running since 1/1/18 should be tolled, perhaps under the Copyright Office emergency powers.

Songwriter Black Box Payments

It is rare for a songwriter to have a royalty claim on unallocated catalog-wide payments such as black box monies absent a specific negotiated deal point.  This is a point of some contention with songwriters, so the Copyright Office should look into it as part of the black box study if nothing else.

This black box issue that keeps coming up may be many things, but a double payment it’s not.  

Thank You @irvingazoff!

“These people, when they start out — whether it’s Facebook, Snapchat, TikTok, whatever — they resist paying for music until you go beat the f— out of them. And then of course, none of them pay fair market value and they get away with it. Your company’s worth $30 billion and you can’t spend 20 grand for a song that becomes a phenomenon on your channel? Even when they pay, artists don’t get enough. Writers don’t get enough

Thank God for Irving Azoff! (Although how about $1 trillion?) In a must-read profile interview with the LA Times, The Great One lays down the only strategy that works with Big Tech–not unity dinners, not lobbyist sell-outs, not sucking up to monopolists like Daniel Ek. And you know why he’s right? Because they do it to us and weakness in the face of bullies is not an option.

Yes, Dr. Azoff has identified the Tech Gene that turns entrepreneurship into a kleptocracy faster than you can say disrupt. But what should we expect in the coming years given the Tech Gene pandemic? The Big Tech kleptocracy goes way beyond stealing from creators.

Moonalice band member and venture capital investor Roger McNamee recently wrote a good description of policy expectations in Wired:

One of the policy areas that demands a new approach is technology. New technologies like facial recognition and artificial intelligence have been plagued by racial and gender bias, with particular harm in areas like law enforcement, job hiring, and mortgage applications. Internet platforms like Facebook, YouTube, Instagram, and Twitter have amplified hate speech, disinformation, and conspiracy theories, undermining our politics, our pandemic response, and the safety of our citizens. More than 1,000 marketers have joined the #StopHateForProfit campaign, agreeing to pause their advertising on Facebook for a month or more to protest the amplification of hate. In addition, many companies in Silicon Valley have been accused of racial and gender bias relative to employees, most recently Facebook, where an employee and two applicants filed a complaint of alleged racial bias. For all its past contributions to our nation, Silicon Valley now has issues with culture, business models, and business practices that require government intervention.

Imagine my disappointment last week when The New York Times reported that President Obama had suggested that you work with two members of the Silicon Valley establishment, former Google CEO Eric Schmidt and LinkedIn founder Reid Hoffman. I know both men well. They are brilliant and very successful. Their money and expertise may be valuable to your campaign, but I hope you will not turn to them for policy guidance. They were architects of the culture and values that produced the problems I described above.

I hope you will take to heart the words of Albert Einstein, who said, “We cannot solve our problems with the same thinking we used when we created them.” This is particularly true in tech.

And the New York times story said:

Mr. Biden’s campaign and transition team include advisers with ties to tech companies and other industries that worry liberals. Avril Haines, a former Obama national security and intelligenceofficial who is helping to lead Mr. Biden’s transition team, was a consultant for the data-mining company Palantir and WestExec Advisors, a firm that represented a major tech company it hasn’t identified.

A WestExec co-founder and Obama State Department official, Antony J. Blinken, is running the Biden campaign’s foreign policy operation. WestExec has worked with the philanthropy started by Eric Schmidt, the former Google chairman, and with Google’s in-house incubation unit, Jigsaw. But Mr. Blinken and Ms. Haines did not participate in that work, according to the Biden campaign, which said both advisers stepped away from WestExec this month.

Cynthia C. Hogan, a former White House lawyer for Mr. Biden who is helping to lead his vice-presidential selection process, was a lobbyist and government affairs executive at Apple. She tendered her resignation from the company in April, according to the Biden campaign.

If you’ve never heard about these advisory network, don’t be surprised. As the Times tells us:

list of rules provided to members of the policy groups, a copy of which was obtained by The Times, instructs participants not to disclose their participation “on social media such as Facebook or LinkedIn or in your professional bio.” It also warns them not to discuss or distribute names of other committee members, contents of committee conversations, emails from the committee or to talk to the news media.

“Simply put, do not talk to the press,” the document reads, emphasizing “do not talk to the press” in boldface.

Biden Press

And what is Eric Schmidt doing?  According to Recode:

Google Cypress

Yes, to paraphrase former government official Susan Crawford, it looks like “Uncle Sugar” Eric is trying to “geek around the nation state.” Why? It’s very odd but it’s exactly the kind of thing that Roger McNamee warned of. As Recode tells us, it could be a COVID play to allow Uncle Sugar to travel to raves in Europe more easily (as Cyprus citizenship gets him an EU passport), but:

[I]t is still uncommon to see Americans apply to the Cyprus program, according to published data and citizenship advisers who work with the country. The program is far more popular with oligarchs from the former Soviet Union and the Middle East, and it has become mired in so many scandals that the Cypriot government announced last month that it was to be shut down.

But not for Uncle Sugar. So there goes the confirmation hearing. Why did Uncle leave Google again? We never got an answer to that or why his NY pad is soundproofed–from the inside.

Yes, they’re psycho kleptocrats just like Irving says, and it looks like they’re back. But thankfully we have Irving Azoff and we’re not waiting for the cavalry to save us–which they never have.

@digitalmusicnws Asks Is the MLC Putting Smaller Streaming Platforms Out of Business? — ArtistRightsWatch

By Editor Charlie

Dylan Smith at Digital Music News asks the question, “Is the MLC Putting Smaller Streaming Platforms out of Business?” We’ve raised this very question long, long ago, back in early 2018 when the Music Modernization Act was getting passed and the chorus of braying by MLC supporters was at a fever pitch. Everyone ignored the obvious flaws in the legislation, especially the anticompetitive nuances that Dylan has highlighted today. 

But understand–this issue is not new. We raised it in the blogs, and Chris raised it to Congressional staff directly–he said the response was a hangdog “I know, I know. It’s what the parties wanted.”

In other words, Congressional staff knew it was stupid, but were being railroaded into doing it anyway by “the parties” (plural) and there are so many hours in the day. When staff said “the parties” back in 2018 before there was an MLC, guess who they meant? One of those parties was the Digital Media Association which still runs the “Digital Licensee Coordinator” or the DLC–which is essentially the companies with trillion-dollar market caps who we think of as Big Tech. (The DLC’s membership application is here.)

And as you will see, it’s more like is the DLC putting smaller streaming platforms out of business. (See the DLC membership assessment fees “explainer” for DLC members.)

DLC Members

And since the DLC appears dominated by Google, Amazon and Spotify, maybe the real issue is that it’s Thursday, so of course Big Tech wants to keep competition weak and vulnerable to being shut down or acquired. And the MLC and its promoters did nothing to stop it because of the pact between the MLC and the DLC that they would each keep anyone out of the vicinity of the Copyright Royalty Judges who might get in their way. 

Of course the most ludicrous part of this is that these trillion-dollar companies don’t just eat the cost of running the DLC since by the time you get finished reading this post, they will have collectively grossed some sum well, well in excess of the annual operating costs.

But–as we will see, there may be some hope for brave startups to challenge the insider deal that penalizes them without giving them an opportunity to speak up for themselves.

As Dylan writes in DMN:

According to the document [establishing the insiders’ allocation of the fee structure], digital service providers have to cover the MLC’s startup fee ($33.5 million) via a “startup assessment,” or “the one-time administrative assessment for the startup phase of the Mechanical Licensing Collective.” This payment must be made alongside the first annual bill, which is due on February 15th, 2021; the second annual fee disclosure is due in November of the same year and must be paid by January of 2022, for a considerable overall obligation.

Total-wise, platforms “that have a Unique Sound Recordings Count” – or the average number of “royalty-bearing” works streamed or downloaded each month – of less than 5,000 will pay an annual minimum fee of $5,000, to a $60,000 annual minimum fee for those with over 5,000 such works. For DSPs that break the 5,000 threshold, it appears that 2021 will bring with it a low-end bill of $120,000.

Significantly, our source proceeded to indicate: “That’s just the minimum – the total assessment is dependent on market share, which is basically unpredictable at this point. And that’s on top of mechanical royalties for those who use the blanket license.”

This completely out of whack cost structure was obviously a major, major flaw in the Music Modernization Act–specifically the incredibly muddled and meandering Title I which established the Mechanical Licensing Collective and the DLC. The chickens are now coming home to roost.

As Chris wrote in Newsmax Finance on August 20, 2018:

[T]he problem [with the MMA] doesn’t come from songwriters. It comes from the real rule makers—Amazon, Apple, Facebook, Google and Spotify. And startups know which side butters their bread.

Public discussion of MMA has focused on the song collective and the compulsory blanket license for songs, but the mandated digital services collective is more troubling given the size of the players involved…Rule taker startups are governed by the rule maker DLC, but have no say in the DLC’s selection.

Like Microsoft’s anonymous amici, startups know their place —especially against Google, Amazon, and Facebook, whose monopoly bear hug on startups includes hosting, advertising and driving traffic.

The MMA authorizes these aggressive incumbents to effectively decide the price to startups for the “modernized” blanket license. Why? Because the MMA requires users of the license to pay for the lion’s share of the “administrative assessment,” the licensees’ collectivized administrative cost payment that the CBO estimates will be over $222 million for eight years….

Why should the government only permit one game in town? Rather than have the DLC run by the usual suspect monopolists, why not allow competition?

This is important–if startups can’t afford to buy-in to the license, it does them no good, and their biggest competitors decide the price of that license through the DLC.

“Modernization” should make licensing easier: level the playing field for startups and protect them from famously predatory competitor incumbents, as well as copyright infringement lawsuits from the rule takers.

These are all good reasons for the private market solution. Competition at least gives startups hope for the pursuit of fair treatment.

“The parties” and everyone else ignored this warning (and of course, since it wasn’t included in a press release, the trade press did no investigation). This is exactly what Dylan is focused on in DMN. It was only a matter of time until the invoice for startups came due. 

That invoice arrived as part of the “administrative assessment” hearing mandated by Congress in Title I. This is a curious procedure before the Copyright Royalty Judges that expressly excluded anyone from participating who might get in the way of the check that would reunite the Harry Fox Agency with its former owners. That order by the CRJs is the document that Dylan links to.

In a blog post at the time on MTP, Chris drilled down on the nuances of this settlement for the administrative assessment (which is what gives teeth to the mechanism to sandbag startups:

Notice two things:  First, the CRJs’ adopt the position of the MLC and the DLC that the only people who could object to the settlement were “participants”.  Who might that be?  Why the DLC and the MLC, of course.  There were other participants, most prominently the Songwriters Guild of America.  SGA was hounded out of the proceeding because the MLC apparently did not want to include SGA in the negotiation of a settlement.

I can understand the complexity of a three-way negotiation with those pesky songwriters about a matter that affects all the songwriters in the world who have ever written a song or that may ever write a song.  Those songwriters might really get in the way.  What I do not understand, however, is why the songwriters would not be afforded the opportunity to at least comment on the settlement that carries the awesome power of the Leviathan behind it.  I do understand how the rules came to be written the way they are, however.

And this leads to the other thing to observe about this ruling.  “Because there were no non-settling participants…the proposed settlement was unopposed.”  Rather tautological, right?  How can the settlement be opposed if those who might oppose it are not allowed to do so?

Let’s be clear what “opposition” means in this context.  You could just as easily say “improve” or “make fair”.  And lest you think that this is yet another example of sloppy legislative drafting in the mistake-prone Title I, this time I don’t think it’s a mistake.  I think it is exactly what the drafters intended.

This is all pretty darkly typical swampy behavior by the insiders and their lobbyists dedicated to lawyering their way to an unfair court order masquerading as a good thing for songwriters. Of course.

Here’s the ray of sunshine:

After the world “unopposed” the CRJs drop a footnote.  And it is this footnote that is probably the most important point to the unrepresented songwriters and startups who either couldn’t afford to participate or who were afraid of back alley retaliation if they did.

“The Judges have been advised by their staff that some members of the public sent emails to the Copyright Royalty Board seeking to comment on the proposed settlement agreement.Neither the Copyright Act, nor the regulations adopted thereunder, provide for submission or consideration of comments on a proposed settlement by non-participants in an administrative assessment proceeding. Consequently, as a matter of law, the Judges could not, and did not, consider these ex parte communications in deciding whether to approve the proposed settlement. Additionally, the Judges’ non-consideration of these ex parte communications does not: (i) imply any opinion by the Judges as to the substantive merits of any statements contained in such communications; or (ii) reflect any inability of the Judges to question, [on their own motion without a filing from a participant] whether good cause exists to adopt a settlement and to then utilize all express or reasonably implied statutory authority granted to them to make a determination as to the existence…of good cause [to reject the settlement now or in the future].

This footnote is very, very important.  I would interpret it to mean that the CRJs may anticipate that they are directly or indirectly appealed or their decision is examined by the Congress that has ultimate oversight. 

Note that the Judges clearly anticipate reviewing the assessment for “good cause” without a filling from the DLC or the MLC. It’s not clear exactly how that might happen, but it might be as simple as a startup complaining to the CRJs in an email.

So it seems to us that it’s only an MLC issue in that both the MLC and the DLC are each complicit in keeping outsiders away from the decisions about the administrative assessment and how it will be tagged to startups or smaller services. You know, “the parties” decided how the little people are to make do.