Copyright Office Comments of the Alliance for Recorded Music: Confirm the public owns the public database

[We’re continuing to post selections from the comments filed at the Copyright Office about implementation of the Music Modernization Act. There are a host of new regulations on the operation of the Mechanical Licensing Collective. It’s important to read up on these comments as they cover topics that simply are not covered by the mainstream music press. It’s the kind of thing that if you don’t make the effort to find out what is being said, the Copyright Office will make the new rules without you. Nothing sinister, it’s just how it works. You’ll wake up one day and find out your mechanical royalties haven’t been paid or the statutory mechanical royalty rate has been frozen for 14 years. A day like today.

There are a number of organizations and individuals–other than the usual suspects and conflicted parties–who are taking the time to comment extensively on the proposed new rules and you should know who they are and why they are concerned. We will select a few excerpts and link to the full filings so you can decide for yourselves. Because we believe that artists and songwriters should be told the truth.

The first issue is who owns the public’s musical works database. This is a vital question that has become strangely nuanced. We start with a great comment from the Alliance for Recorded Music represented here by Richard James Burgess of A2IM and Susan Chertkoff of RIAA.]

The Alliance for Recorded Music asks the Copyright Office to confirm who owns the public database in the temporary stewardship of the MLC, among other things in the full comment.

The Alliance for Recorded Music (“ARM”) is pleased to provide these Comments in response to the Notice of Proposed Rulemaking (“NPRM”) published by the Copyright Office (the “Office”) on September 17, 2020 regarding the public musical works database and transparency of the Mechanical Licensing Collective (“MLC”). See 85 Fed. Reg. 58170.

ARM is a nonprofit coalition that represents the recorded music industry in the United States, including the major record companies and more than 700 independently owned U.S. music labels. RIAA and A2IM are both members of ARM. The companies that ARM represents collectively create, manufacture, and/or distribute nearly all of the sound recordings commercially produced and distributed in the United States. As the creators, distributors, and copyright owners of most of the commercially valuable sound recordings available through the digital music providers (“DMPs”) intending to use the new blanket mechanical license, as payors of mechanical royalties and as potential users of the MLC’s musical work database, ARM’s members have a vested interest in the regulations that govern the MLC and its public database.

Database Ownership.

The NPRM makes clear that “the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘owned’ by the collective itself.” 85 Fed. Reg. at 58172. It also notes that the MLC “agrees that the data in the public MLC musical works database is not owned by the MLC or its vendor.” Id. We agree with this view and were disappointed to find no corresponding clarification of this important concept in the proposed regulations. To avoid any future misunderstandings, and in the interest of consistency with the statute itself, we encourage the Office to make this point explicit in the regulations.

Read the full comment here

by thetrichordist

Guest Post: The Supreme Court Should See Through Google’s Industrial-Strength Fair Use Charade

[This post first appeared on Morning Consult. The US Supreme Court will hear oral argument in the Google v. Oracle case on October 7]

Google’s appeal to the U.S. Supreme Court of two Federal Circuit decisions in Oracle’s favor is turning into the most consequential copyright case of the court’s term — if not the decade. The appeal turns in part on whether the Supreme Court will uphold the Federal Circuit’s definition of fair use for creators and reject Google’s dubious assertion of “industrial strength” fair use.

I co-wrote an amicus brief on the fair use question on behalf of independent songwriters supporting Oracle in the appeal. Our conclusion was that the Supreme Court should affirm the Federal Circuit’s extensive analysis and hold for Oracle because Google masks its monopoly commercial interest in industrial-strength fair use that actually violates fair use principles.

The story begins 15 years ago. Google had a strategic problem. The company had focused on dominating the desktop search market. Google needed an industrial-strength booster for its business because smartphones, especially the iPhone, were relentlessly eating its corporate lunch. Google bought Android Inc. in 2005 to extend its dominance over search — some might say its monopoly — to these mobile platforms. It worked — Android’s market share has hovered around 85 percent for many years, with well over 2 billion Android devices.

But how Google acquired that industrial boost for Android is the core issue in the Oracle case. After acquiring Android, Google tried to make a license deal for Sun Microsystems’ Java operating system (later acquired by Oracle). Google didn’t like Sun’s deal. So Google simply took a verbatim chunk of the Java declaring code, and walled off Android from Java. That’s why Google got sued and that’s why the case is before the court. Google has been making excuses for that industrial-strength taking ever since.

Why would a public company engage in an overt taking of Oracle’s code? The same reason Willie Sutton robbed banks. Because that’s where the money is. There are untold riches in running the Internet of Other People’s Things.

Google chose to take rather than innovate. Google’s supporters released a study of the self-described “fair use industries” — an Orwellian oxymoron, but one that Google firmly embraces. Google’s taking is not transformative but it is industrial strength.

We have seen this movie before. It’s called the value gap. It’s called a YouTube class-action brought by an independent composer. It’s called Google Books. It’s called 4 billion takedown notices for copyright infringement. It’s called selling advertising on pirate sites like Megaupload (as alleged in the Megaupload indictment). It’s called business as usual for Google by distorting exceptions to the rights of authors for Google’s enormous commercial benefit. Google now positions itself to the Supreme Court as a champion of innovation, but creators standing with Oracle know that for Google, “innovation” has become an empty vessel that it fills with whatever shibboleth it can carelessly manipulate to excuse its latest outrage.

Let’s remember that the core public policy justification for the fair use defense is to advance the public interest. As the leading fair use commentator Judge Pierre Leval teaches, that’s why fair use analysis is devoted to determining “whether, and how powerfully, a finding of fair use would serve or disserve the objectives of the copyright.” You can support robust fair use without supporting Google’s position.

Google would have the court believe that its fair use defense absolves it from liability for the industrial-strength taking of Oracle’s copyright — because somehow the public interest was furthered by “promoting software innovation,” often called “permissionless innovation” (a phrase straight out of Orwell’s Newspeak). Google would have the court conflate Google’s vast commercial private interest with the public objectives of copyright. Because the internet.

How the Supreme Court rules on Google’s fair use issue will have wide-ranging implications across all works of authorship if for no other reason than Google will dine out for years to come on a ruling in its favor. Photographers, authors, illustrators, documentarians — all will be on the menu.

Despite Google’s protestations that it is really just protecting innovation, what is good for Google is not synonymous with what is good for the public interest — any more than “what’s good for General Motors is good for America,” or more appropriately, “what’s good for General Bullmoose is good for the USA.”

by Trichordist Editor

Bob Goodlatte: Supreme Court Could Take Intellectual Property Protections Back 50 Years in Google v. Oracle

[Really important opinion post by former House Judiciary Chairman Bob Goodlatte on Google’s attack on copyright in the vitally important Oracle case before the U.S. Supreme Court on Oct 7. Nice to see the Chairman back in the fight!]

Once or twice a generation, the Supreme Court agrees to hear a case so monumental, so groundbreaking in its potential to change the law, that it shapes Americans’ rights for years to come. These occasions are nothing short of paradigm-shifting, and the upcoming Supreme Court case Google v. Oracle is one of them.

On October 7, the Justices will hear oral arguments in this case, which many lawyers have referred to as the copyright case of the century. It will mark the first time the High Court rules on the copyrightability of software since Congress passed the Copyright Act of 1976—the law that governs the country’s entire copyright system. As such, it will set a crucial precedent for the future of copyright law and the United States’ economy in the digital age by either protecting IP from systematic domestic and foreign copying or offering these cases legal protection.

Google v. Oracle was initially filed nearly a decade ago after Google inquired about licensing portions of Oracle’s popular computer platform, Java, but elected to copy it instead. It then used the replicated code to build software for its mobile operating system, Android.

Read the post on Newsweek.

by theinvisiblestagehand

Notes and Materials on TikTok from MusicBiz Conference

By Chris Castle

I was pleased to moderate a panel on TikTok’s situation for the Music Business Association with an all-star panel of experts on September 25. You can access our voluminous panel materials here including the panelists biographies.

The following is my opening statement followed by the panel outline with some page number cross references to the panel materials.

Opening Statement

TikTok has become a major marketing tool for artists in the music business.  It has also been accused of some pretty serious consumer issues as well as massive copyright infringement.  We care what happens to TikTok for many of the same reasons we cared about what happened to Napster—ideally we would bring TikTok into a professional business reality that is safe for fans and where artists and songwriters can be paid.  In other words, we come here to save TikTok, not to bury it.

It appears that a potential deal with TikTok could be unraveling.  See your materials at p. 92 for a summary of deal points.  It’s a bit cloudy to decipher the positions of the parties without pre and post money cap tables, but we try.  

What we know is that the Commerce Department has delayed the ban on downloading new versions of TikTok until midnight Sunday.  TikTok has asked a federal court to block the download ban, and DC District Court Judge Carl Nichols told the US Government yesterday that it has until 2:30 pm ET to show cause why they need the ban or the Court will hold a hearing Sunday morning.  TikTok’s official statement is a p. 91 in your materials. UPDATE: After the MusicBiz panel, Judge Nichols granted a preliminary injunction allowing TikTok to be downloaded and holding that TikTok’s operations fit in a loophole. Read the order here.

In China, the Chinese government recently changed its technology export controls to cover TikTok.  TikTok is required to obtain government approval of the deal by the Beijing Municipal Bureau of Commerce which it has not yet granted.  The Chinese Communist Party has “slammed the deal as ‘dirty and unfair’” and “modern piracy” according to the Wall Street Journal.   

So there’s that.

TikTok is the subject of a review by the Committee on Foreign Investment in the US (or “CFIUS”) which is a cabinet level group that reviews M&A activity from a national security perspective.  CFIUS was established by Congress in 1988 as an amendment to the Defense Production Act of 1950. (See p. 83 of the panel materials)

As a matter of process, CFIUS conducts a review of a covered transaction and makes a recommendation to the President about whether the transaction should be approved or unwound based on national security concerns, including data security.  

CFIUS review can be also be done before an acquisition, but Bytedance elected not to request a pre-acquisition review by CFIUS which created substantial investment risk for Bytedance shareholders as we have seen play out with TikTok.

CFIUS has required divestment of various acquisitions in the past decades, such as Aixtron, Ralls, Mamco, StayInTouch, Qualcomm, PatientsLikeMe, Grindr, and Moneygram.  

CFIUS review of Bytedance is based on the company’s 2017 acquisition of Musical.ly.  CFIUS concluded that the acquisition “threatens to impair the national security of the United States” and recommended divestiture.  The CFIUS review began November 1, 2019, which resulted in two executive orders requiring the divestiture of Musical.ly or substantial mitigation to satisfy CFIUS requirements (extensively covered in Sec. 2 of the August 14 Executive Order.  (p. 76 of materials).  

There has been some negotiation of a potential sale of TikTok which is premised on two opposing views:  The US will not permit TikTok to operate in the US unless it is controlled by 

Americans, all data is hosted in the U.S. meeting CFIUS inspections, and US companies have access to all TikTok’s technology.  The position of the government of the Chinese Communist Party is essentially the opposite of the U.S. view.

If a resolution cannot be reached, the President has the power to stop Americans from engaging in transactions of any kind with TikTok under the International Emergency Economic Powers Act which would apply to employees, vendors, advertisers and users.  (Cited in 8/14 Executive Order and discussed at p. 65)

And even if TikTok can get past the CFIUS problems, it still has to deal with its failure to license substantial numbers of copyrights, and that implicates a foreign infringer’s ability to use various safe harbors to copyright.  The copyright infringement issues will extend outside of the U.S. and we will discuss implications for Canadian artists and potential class actions against TikTok.

It must also be noted that there is currently a class action against TikTok in Illinois for child endangerment and violations of child privacy protections through TikTok’s biometric data collection.  Of course, TikTok already paid the largest fine in FTC history for violations of Children’s Online Privacy Protection Act.  We won’t discuss this topic today, but relevant documents are included in your materials at p. 177.

There’s also the potential for a TikTok IPO to be blocked because China refuses to comply with US public company accounting standards based on national security concerns (which essentially means any government contract).  This makes it impossible to compare Chinese and all other public companies, and opens the door to financial fraud such as with Luckin Coffee.  The Senate has passed the “Holding Foreign Companies Accountable Act” and the bill is sponsored in the House by Rep. Brad Sherman.  (At p 105 in the materials).  It is doubtful that the Chinese government would allow TikTok to comply with that US law either.

Closer to home, commenters have asked whether TikTok should be permitted to operate without implementing infringement controls at least as strong as YouTube’s Content ID and a transparent repeat infringer policy.  But first, we will discuss the functionality of TikTok and how we got to this place.

Panel Topics

1.  TikTok Data Functionality:  Trent Teyema and Chris (10 mins) (p. 83)

–What about TikTok creates a national security problem for a CFIUS review?

—What is the connection between Bytedance, TikTok and the Chinese government?

—How does China’s National Intelligence Law create requirements of TikTok executives to disclose user data?

—What is involved in a CFIUS pre-clearance?

2.  The TikTok Executive Orders:  Rick Lane and Chris (10 mins) (p. 75) (TikTok statement p. 91)

—What is the legal authority for the EO?

—Does the Oracle and Walmart investment solve TikTok’s data security problem?

—Has TikTok already engaged in or promoted election interference?

—What safe harbors does TikTok benefit from under US law?  Section 230 and DMCA

3.  Copyright Infringement on TikTok: Chris and Gwen Seale (10 mins) (p. 130)

—What is the functionality that creates copyright infringement on TikTok?

—Is TikTok eligible for the new blanket mechanical?

—Is TikTok eligible for DMCA protection?

—How does TikTok’s DMCA takedown process work?  

—How extensive are TikTok’s licenses?

—Should TikTok be allowed to continue operations without implementing a system at least as effective as YouTube’s Content ID and CMS?

—How does TikTok’s infringement problem compare to Napster? To Spotify class action?

4.  Copyright Infringement Class Actions in the US and Canada: Chris and David Sterns (10 mins) (p. 138)

—Compare US copyright infringement class action in Lowery v. Spotify to TikTok

—Discuss Canada’s UGC exception, non-commercial and moral rights issues

—Compare US vs. Canadian class actions for copyright infringement

5. Discussion:

—Impact of allowing foreign companies using safe harbors like 230 and DMCA in US.  US/UK bilateral US/EU bilateral.

—Can a US TikTok IPO be blocked based on accounting standards, see Public Company Accounting Oversight Board, SOX, and Holding Foreign Companies Accountable Act

by Trichordist Editor

Today: Music Biz Association Panel: Buyer Beware: What Does the Legal Future Hold for TikTok?

Chris Castle will moderate a panel entitled “Buyer Beware: What Does the Legal Future Hold for TikTok?” as part of the Music Business Association’s Entertainment & Technology Law Conference today at 1:35 pm ET.  Sign up here, registration fee is required.

The all-star panel has experts from inside and outside the music business:

  • Rick Lane, CEO, Iggy Ventures, LLC
  • Gwendolyn Seale, Attorney, Mike Tolleson & Associates
  • David Sterns, Partner, Sotos Class Actions
  • Trent Teyema, Principal, Global Threat Management

The panel will discuss the legal basis for the TikTok sale and potential ban as well as TikTok’s massive infringement problems.  The focus will be on understanding how we got here and what exposure TikTok will have even after a sale.

If you can’t make the panel, Chris has promised to make the panel materials available next week.

by Trichordist Editor

Press Release: @SGAWrites Welcomes Appointment of Shira Perlmutter as New Head of the Copyright Office

 

[The Trichordist sez this is really great news!]

The Songwriters Guild of America applauds the selection of
Shira Perlmutter as the next Register of Copyrights.  Ms. Perlmutter has dedicated her entire professional career to serious study of the importance of strong copyright protections to maintaining a healthy democracy and a vibrant economy, and to acting on her knowledge to ensure that the voice of the creator is always heard.  Her love and respect for the creative arts is well known throughout the community of songwriters and composers, and there will likely be unanimous music creator approval of this excellent choice by the Librarian of Congress Dr. Carla Hayden. 

Thanks are due to her staff, and the entire staff of the US Copyright Office, including general counsel Regan Smith and especially acting Register Maria Strong, who is to be thanked and congratulated for an interim job superbly done.  Congratulations to Ms. Perlmutter, with whom we look forward to working for many years to come in the advancement and protection of the rights of authors and creators.

 –SGA President Rick Carnes

by thetrichordist

Crouching Tiger, Hidden Dragon: Broad and Antiquated CDA 230 Immunity for TikTok Could Aid China’s Secret Efforts to Undermine U.S. Cyber-Security: Guest Post by Rick Lane

I believe there are only two public policy issues that President Trump and Vice President Biden agree upon: The status quo of Section 230 of the 1996 Telecommunication Act is no longer acceptable; TikTok is a threat to our cyber and national security.

Interesting enough, these two issues are interlinked. Section 230 of the Communications Decency Act (CDA 230) gives free reign to Internet platforms operating in the United States to act with impunity as it relates to user generated content. Predictably, this has led to unintended and destructive consequences. But, left unsaid is what Big Tech doesn’t want anybody to realize – CDA 230 also unwittingly shields China as America’s top geopolitical adversary challenges U.S. national and economic security right here at home.

According to Bloomberg, Chinese-controlled “ByteDance/TikTok, led by Zhang Yiming, is becoming a viable rival to the dominant American online behemoths, Facebook Inc. and Alphabet Inc..” Last year, TikTok’s net profit was approximately $3 billion and the company estimates that it has about 80 million monthly active users in the United States, 60% of whom are female and 80% fall between the ages of 16 and 34. Of particular concern is that 60% of TikTok users are Gen Z, which is the largest generational cohort in American history and will include 74 million people next year.

As a champion of free markets, I would normally be among the first to applaud an upstart bringing a competitive “A” game to challenge dominant incumbent players no matter where they are based. But we have learned from experience that homegrown social networking companies like Facebook/Instagram, Google, and Twitter exert dominant and controversial influence in U.S. public policy debates – what sort of foreign influence should we expect TikTok to exert on this year’s election.

Lately, I’ve found myself asking should I really be concerned?

A recent article by Larry Magid was the tipping point for me in this debate. The headline of the article was, “How A 51-Year-Old Grandmother and Thousands of Teens Used TikTok to Derail A Trump Rally & Maybe Save Lives.” Magid lays out the series of events illustrating how attendance at a Trump rally was manipulated by a viral video of a grandmother from Iowa. It sounds innocent enough until you realize that the inflated numbers of expected attendees started when fans of K-pop, the popular Korean music genre, ordered free rally tickets from the Trump campaign with no intention of actually attending. Next, according to the article, the “grandmother from Iowa” posted a video on TikTok urging her mostly young viewers to “Google two phrases, ‘Juneteenth’ and ‘Black Wall Street,’” before also suggesting that they register for two free tickets to the Trump rally. Her video post went viral and motivated young TikTok users to request hundreds of thousands of tickets.

After reading this, I was left with a simple question: Whether Trump or Biden, doesn’t it bother anyone else that a Chinese-controlled social network was used to interfere with an American presidential campaign event at the same time that tensions between our two countries are escalating? Even Vice President Biden has banned TikTok from campaign phones and computers. As Mr. Magid’s article acknowledges, “(i)t’s long been known that social media can have a huge impact on politics. That’s why Russia tasked a state-run agency to flood social media with posts and ads to get Donald Trump elected.”

Two additional facts build on the story told by Magid. Another recent article, titled “Anonymous Hackers Target TikTok: ‘Delete This Chinese Spyware Now,” states that TikTok is “a data collection service that is thinly veiled as a social network. If there is an API to get information on you, your contacts, or your device, they’re using it.” The other fact to connect is that the key driver for algorithms and artificial intelligence, especially when dealing with human behavior, is vast data on human interaction. It is one of the main reasons that Microsoft is so interested in buying TikTok.

So now we are confronted with a Chinese based “social networking” site growing more rapidly than any homegrown US competitor and collecting more data on our youngest and most easily influenced demographic at the same time that China, Russia, and Iran are using social networks to undermine our democracy. Let’s not forget that this social networking site has been proven not to be secure and agreed to pay $5.7 million to settle Federal Trade Commission (FTC) allegations that it illegally collected personal information from children, the largest civil penalty ever obtained by the FTC in a children’s privacy case.

But most alarming is that TikTok is protected by CDA 230 and cannot be held accountable for the actions of its “users” even if those “users” happen to be foreign governments. For example, if the Chinese government is leveraging TikTok for its own strategic advantage, the US government has no recourse against TikTok for these activities. The impunity provided by CDA 230 to TikTok, as well as Chinese and other hostile governments, directly threatens our democratic process. Even more troubling is the fact that TikTok, along with Facebook and other social networking sites, cannot be held responsible for illegal conduct occurring on their platforms – even when they know about it.

Besides the potential of interfering with our elections, TikTok also continues to facilitate the sale of illegal drugs. Below are three screenshots of illicit activity being perpetrated on TikTok. The first two images show illegal drug sales of opioids and the other shows illegal drug sales of steroids. Remember, TikTok’s core demographic and the intended audience for these posts consists primarily of members of Gen Z, those born between 1995 and 2012 –our children.  [Similar to Google’s near-indictment and $500,000,000 fine for violating the Controlled Substances Act.]

(Screenshots Provided by Eric Feinberg)

I will leave you with a quote from a recent speech at the Hudson Institute by FBI Director Christopher Wray. He stated:

“The Chinese government is engaged in a broad, diverse campaign of theft and malign influence, and it can execute that campaign with authoritarian efficiency. They’re calculating. They’re persistent. They’re patient. And they’re not subject to the righteous constraints of an open, democratic society or the rule of law… China, as led by the Chinese Communist Party, is going to continue to try to misappropriate our ideas, influence our policymakers, manipulate our public opinion, and steal our data. They will use an all-tools and all-sectors approach—and that demands our own all-tools and all-sectors approach in response.”

For addressing this clear and present danger, the United States must modify CDA 230 and ensure that we have all the tools necessary to hold TikTok accountable for criminal activity that occurs by “others” on their platform. Importantly, this includes illegal actions taken by the Chinese government to misappropriate the site, and the massive amounts of data it collects, in order to inflict harm on the US and its allies. Finally, we must avoid inadvertently making this problem worse by spreading the excessively broad and antiquated immunity of CDA 230 through trade agreements with other countries.

Rick Lane is the founder and CEO of IGGY Ventures. IGGY advises and invests in technology startups and public policy initiatives that can have a positive societal impact. Rick served for 15 years as the Senior Vice President of Government Affairs of 21st Century Fox. Before joining Fox, Rick was the Director of Congressional Affairs focusing on e-Commerce and Internet public policy issues for the United States Chamber of Commerce.

by Trichordist Editor

The MLC Posts its By Laws

The MLC finally posted its “by-laws” that gives some insight into its operations. For a non-profit like The MLC, Inc., the by laws are essentially the operating rules of the corporation.

Typically, a non profit’s by laws cover issues like the purpose of the organization, the location of offices, the general governing structure, the number of governing members (like the board of directors) and the process for the selection, election and removal of members, terms of service for governing members, qualifications for those serving to govern the organization, methods of conducting business and organizational policy statements, meeting times and dates (usually a minimum of annually), limitations of the organization and its governing body and its fiscal year (for accounting and reporting this has to be a twelve month period).

The MLC’s by laws have all these typical components, but also have an acknowledgement of the oversight role of the Copyright Office and the Librarian of Congress as required by Title I of the Music Modernization Act.

One thing is a bit unusual about The MLC’s by laws given that it was sold to songwriters by the NMPA on the basis that “the services pay for everything” is the broad indemnification clause in Article VIII of the by laws. What this means is that The MLC is going to cover the costs if any “Person” gets sued or criminally prosecuted:

Neither the Members nor any Director of the Collective shall be personally responsible for monetary damages for any action taken, or any failure to take any action, provided however, that this provision shall not eliminate or limit the liability of any Member or Director to the extent that such elimination or limitation of liability is expressly prohibited by applicable law, as in effect at the time of the alleged action or failure to take action by such Member or Director.

The Collective shall indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such Person is or was a Director or Officer of the Collective, or is or was serving any other corporation or any partnership, joint venture, trust or other enterprise, in any capacity at the request of the Collective, [that means HFA] to the fullest extent and in the manner set forth in and permitted by the DGCL, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such Director or Officer may be entitled apart from the foregoing provisions.

(b) The Collective shall pay expenses (including attorneys’ fees) incurred by a Director or Officer of the Collective referred to in Section 8.4(a) of this Article VIII in defending or appearing as a witness in any civil or criminal action, suit or proceeding described in Section 8.4(a) of this Article VIII in advance of the final disposition of such action, suit or proceeding. The expenses incurred by such Director or Officer shall be paid by the Collective in advance of the final disposition of such action, suit or proceeding only upon receipt of an undertaking by or on behalf of such Director or Officer to repay all amounts advanced if it shall ultimately be determined that the Director or Officer is not entitled to be indemnified by the Collective (which undertaking need not be further secured).

Wonder where that money is going to come from?

by thetrichordist

#ShowUsTheMoney: Guest Post: @CopyrightOffice Regulates the @MLC_US: Selected Public Comments on MLC Transparency: Chris Castle

[This is an except from Chris Castle‘s June 7 comment to the Copyright Office regarding the transparency of The MLC. You can read the entire comment here. Although The MLC has launched its “Data Quality Initiative” to great fanfare, that DQI process merely confirms how bad the HFA database is since there still is no MLC database as required by law. Since there’s no indication of when The MLC is going to launch and there is a strong indication that nobody in power is doing anything about it (looking at you, Copyright Office), this is a particularly timely excerpt. Remember you heard it here first if your mechanical royalty statements drop to zero once The MLC takes over on January 1. That is 113 days from today and we have yet to seen a thing from The MLC and we have no promise of when we will see anything. Given that there has been zero investigative journalism on this topic from industry outlets aside from “how does The MLC withstand its own awesomeness” the comments that we are serializing are about all you’re going to get in the way of transparency.]

Quality Control of The MLC’s Operations and Platforms

There is an immediate need for The MLC to demonstrate that its systems actually work.  That need will be ongoing, so it would be well for the Office to promulgate regulations requiring a periodic public demonstration of the operability of The MLCs systems, a frequent public disclosure of bugs and bug fixes, and a frequent public disclosure of any missed payments or other glitches.  These matters are appropriate for the transparency of The MLC because if either The MLC or another MLC are not required to disclose these items, no one may ever know there was a problem (but see the discussion of whistleblowers below).

In considering the timing, I would caution the Office against thinking in years rather than weeks.  There is a tendency to think about these things in annual or more time periods.  This will prove to be a mistake given the scale and volume of transactions.  Would you tell Visa it only need to confirm the integrity of its fraud detection systems once every three years?  Or should it be more frequently?  Financial services is a good corollary for streaming mechanicals, with the exception that the royalty payable for each stream starts several decimal places to the right unlike credit card transactions.

There is an immediate need for this transparency.  Recall that MLC executive Richard Thompson said at the Copyright Office panel on unclaimed royalties last December, “[A] lot of the time since July has been spent working very closely with the staff at HFA and ConsenSys, really starting to nail down how all of this is going to work at the, you know, lowest operational level, all of the things that we need to work out.”  (Referencing the July 8, 2019 designation of The MLC as the MLC.) [1]   

Of course, The MLC didn’t announce the selection of HFA and ConsenSys until November 26, 2019[2] and was evidently still interviewing vendors up to that date.  Even so, I’m sure The MLC has been hard at work on developing their platform.

Mr. Thompson also stated at the December 2019 panel:

So our current timeline has the first version of the portal going live late Q2, early Q3, of next year [i.e., 2020]. I emphasize again that is the first version. That will not be functionally complete. It will have the, you know, the first set of functionality that we want to make available to the rightsholder community. So in particular, sort of, being able to look at your catalog, manage your catalog.[3]

Late Q2 to early Q3 is now.  [As of this post, it is the end of Q3 and we still have nothing but Mr. Thompson still has a job.] To my knowledge, The MLC has made nothing available for songwriters to know what is going on at The MLC or how to start registering works. 

Mr. Thompson also stated:

“You know, the first version of the portal doesn’t have statementing on it, because we won’t need statementing until 2021, you know, the first quarter of 2021.”[4]

I would respectfully ask the Office to determine what happens if The MLC is not able to render statements on time.  Presumably the income from streaming mechanicals that had been paid by the services directly to songwriters or music publishers would be transferred over to The MLC as of the License Availability Date (currently January 1, 2021).  If that transfer occurs and The MLC is not then ready for “statementing” (or, presumably, its corollary, “paymenting”) for the billions if not trillions of streaming transactions for all the world’s music in less than a year’s time from today, then streaming mechanical royalties could drop to zero until The MLC could handle both statementing and paymenting.[5]

While Mr. Thompson seems to be focused on the Q1 2021 distribution date for royalties payable in the normal course, the other significant statementing and paymenting date is July 1, 2021 when the first unmatched distribution is to be paid under Title I.  There are also the obvious and expressly stated “public notice of unclaimed royalties” reporting requirements for The MLC’s public facing website listing all unmatched songs (or shares of songs) and publicity efforts for the unmatched.[6]  This provision, too, is glitchy, but  presumably will come into effect soon.  I realize there may be some side deals cut regarding extending that statutory payment date, but it would at least be a confidence building exercise to know that The MLC could make the unmatched payment as of the statutory date if called upon to do so. 

Songwriters have very little visibility into The MLC’s operations except what came out at the Copyright Office panels, for which I am grateful, and also various interviews.  There is little substantive information in the press, and even less on The MLC’s website.  Therefore, it would be very helpful if the Office could require The MLC to demonstrate to the public how its platform is to function.  Such a demonstration might bring helpful suggestions from their peers or the ex-US CMOs that have been operating for decades.

It would also be helpful if the Office promulgated a bright line regulation that told songwriters around the world if the July 1, 2021 goal posts have moved and if so where they have been moved to.  I must say I have somewhat lost the page on this, given former Register Temple’s last testimony to the House Judiciary Committee about who has agreed what on delaying distribution.  This rulemaking would be a great opportunity to tell the world if and how the insiders have decided to change the law.

As the House Judiciary Committee stated:

Testimony provided by Jim Griffin at the June 10, 2014 Committee hearing highlighted the need for more robust metadata to accompany the payment and distribution of music royalties….In an era in which Americans can buy millions of products via an app on their phone based upon the UPC code on the product, the failure of the music industry to develop and maintain a master database has led to significant litigation and underpaid royalties for decades. The Committee believes that this must end so that all artists are paid for their creations and that so-called ‘‘black box’’ revenue is not a drain on the success of the entire industry.[7]

Having accomplished their goal through compulsory legislation, we are all watching the database cadre get to work and looking forward to learning how it is done from their teaching.

Alternatively, as is widely suspected among some songwriters I have spoken to, The MLC might rely on HFA’s statementing and paymenting functionality to limp along by sending necessary but not sufficient statements to HFA publishers or publishers that HFA can match.  This would be, essentially, the same process that got a couple of HFA’s licensing clients sued repeatedly, and ironically led to the Title I safe harbor in the first place. 

Absent proper transparency in the runup to the License Availability Date, any sudden drop in revenue would catch songwriters by surprise.  In the time of the pandemic, such a sudden contraction of income could be even more devastating than usual.[8]

Transparency would help shine sunlight on that problem.  While The MLC may give interviews and appear on panels describing their activities, we should remember the words of the great Bruin John Wooden who cautioned that we should not mistake activity for achievement.  If you practice free throws by yourself all weekend, it doesn’t mean you’ll be a better player with the team at Monday practice—or that the team is any more likely to win when it is game time at Pauley on Saturday.

[1] Transcript, United States Copyright Office Unclaimed Royalties Study Kickoff Symposium (Dec. 6, 2019) at 28 ln 15 hereafter “Kickoff Transcript”.

[2] Tatania Cirisano, Mechanical Licensing Collective Selects Leadership, Partners for Copyright Database, Billboard (November 26, 2019).

[3] Kickoff Transcript at 40 ln 2.

[4] Kickoff Transcript at 40-41.

[5] It is well to note that such a contraction probably would not affect direct licenses or HFA’s modified compulsory licenses.

[6] 17 U.S.C. § 115 (d)(3)(J)(iii).

[7] House Report at 8.

[8] Songwriters are already expecting lower royalties in January 2021 according to BMI’s President and CEO Mike O’Neil: “[We] anticipate an impact in January 2021, when today’s performances and corresponding licensing dollars (2nd quarter 2020) will be reflected in your royalty distributions. While you may see a lower distribution that quarter than you might typically receive under ordinary circumstances, given BMI’s business model, we have the time and ability to plan for this outcome.” A Message from Mike O’Neil, BMI.com (April 7, 2020) available at https://www.bmi.com/news/entry/a-message-from-bmi-president-ceo-mike-oneill-regarding-royalty-payments

by thetrichordist

#ShowUsTheMoney: Bringing Eyesight to the Willfully Blind: @SGAWrites and Society of Composers & Lyricists @CopyrightOffice Proposal to Bring Transparency to Secret Deals — Artist Rights Watch

[Editor Charlie sez: Remember how the MLC was supposed to bring transparency to the vast black box? Remember how we were skeptical? Here’s an excerpt from the important joint comment by the Songwriters Guild and the Society of Composers & Lyricists to the Copyright Office about how to address the previously secret deals between digital music services and publishers (called the “Negotiated Agreements”. Read the full comment here.. The robbery in plain sight may have already begun.]

With potentially hundreds of millions of dollars in songwriter and composer royalties at stake now and in the future, and in light of the profound lack of transparency surrounding these issues, we believe that the following questions should be openly addressed, answered and acted upon by the USCO as expeditiously as possible: 

(i) What do these individual, Negotiated Agreements actually state? 

(ii) What efforts (global and US) were undertaken by the DSPs and/or the music publishers to identify the true owners of the musical compositions that were the source of the unclaimed/unmatched royalties purportedly being dealt with in the Negotiated Agreements? 

(iii) Were the sums received by music publishers under these Negotiated Agreements (whether purportedly associated with unclaimed/unmatched royalties or not) ever shared with music creators, and if so, how? Put another way, what efforts were made to determine how music creators should share in these revenues? and; 

(iv) How do the provisions of the MMA (such as those that require mandatory accrual and turnover by the DMPs to the MLC of ALL unclaimed/unmatched royalties so that they may be researched for matching –and failing that effort– distributed according to the statutory provisions that protect music creator rights) apply to these royalties and Negotiated Agreements. 

@SGAWrites and Society of Composers & Lyricists Proposal for Secret Deals — Artist Rights Watch–News for the Artist Rights Advocacy Community

by Trichordist Editor