Guest Post: MLC Black Box Invasion: Transparency for the “Interim Application of Accrued Royalties”

This post is a version of Chris Castle’s comment in the current Copyright Office rulemaking on the transparency of the MLC

By Chris Castle

Just when you think you understand Title I of the Music Modernization Act, another toad runs out from under a rock.  My nickname for the toad we’re going to talk about today is the “Hoffa Clause,” in honor of the Teamster leader and well-known pension fund raider (played by Al Pacino in The Irishman).

Here it is:

INTERIM APPLICATION OF ACCRUED ROYALTIES.—In the event that the administrative assessment, together with any funding from voluntary contributions as provided in subparagraphs (A) and (B), is inadequate to cover current collective total costs, the collective, with approval of its board of directors, may apply unclaimed accrued royalties on an interim basis to defray such costs, subject to future reimbursement of such royalties from future collections of the assessment.[1]

The Office has a serious public education issue about the hygienically titled “Interim Application” clause.  I have yet to meet a songwriter who is aware of this clause in Title I and it was never publicized in the run up to passing MMA. Many publishers have been so taken aback[2] that they deny the clause is there.  Despite the provision’s rather metaphysical properties, it is there and it says what it says.  How it came to be there is only known to the insiders.  But it’s very specific, so must have been placed there for a reason.

Title I gives The MLC tremendous power over affording itself the benefit of administering other people’s money.[5]  The plain language of this clause essentially says that The MLC can invade the black box and make interest free, nonrecourse loans to itself to apply against certain shortfalls in “collective total costs” when the administrative assessment approved by the Copyright Royalty Judges is “inadequate to cover total collective costs.” Under Title I as drafted, The MLC is solely in a position to control that shortfall and to invade the black box.

Anytime anointed people handle other people’s money, stringent rules apply to that duty.  Or ought to.  Strangely enough, this “Interim Application” provision is not addressed at all in the legislative history or the Conference Report.   So we can only look at the words and try to divine the intention of the lobbyists who wrote the bill.

Plain Meaning

The new rule announces itself as relating to the “application” of “accrued royalties” on an “interim” basis.  The Cambridge Dictionary tells us that “interim” means temporary, such as a temporary solution:  “temporary and intended to be used or accepted until something permanent exists”.  That “something permanent” is the “administrative assessment”–which of course will already exist at the moment of “application”.  So there is a chicken and egg issue with this entire concept from the beginning.

(Remember that the “administrative assessment” is the operating budget and startup costs paid for by the users of the Title I blanket license who may also be the beneficiaries of the Title I safe harbor.  The administrative assessment always exists once it has been set in motion by the Copyright Royalty Judges, which is now in place for the foreseeable future.  The CRJs essentially recently rubber stamped the agreement between The MLC (the biggest publishers, having single-mindedly gotten rid of the independents through legal maneuvering) and the DLC (i.e., the biggest services).)

So what money is available to be tapped through this “interim application”?  “Unclaimed accrued royalties”, which sounds like the black box.  Which is why I call it a “black box invasion.”

It is worth noting that Title I uses the terms “unmatched” and “unclaimed” somewhat interchangeably.  I would point out that it is possible for royalties to be both matched and unclaimed, matched and disputed and unilaterally held by The MLC, as well as unmatched and therefore unclaimed. And remember that just because money is unclaimed does not mean that there was any method in place for it to be claimed.

Realize that the entire Hoffa clause is based on an assumption–that there was a meaningful process in place for songwriters (1) to know that The MLC had decided that their money should be held as accrued but unclaimed and (2) to claim their money.  There is neither present today and there is unlikely to be either available any time soon based on public statements of executives of The MLC.  Without both these processes in place, it seems that it should be important, if not crucial, to preserve the status quo until they are and that the public interest would be served by doing so.

Holding Periods Maketh the Black Box

I suggest that the common interpretation of black box is that it includes a series of royalty payments that may be disputed, matched, unmatched and unclaimed and has been so for a holding period of at least a few years, in this case three years.[3]  That suggests that no invasion may occur under this clause before the passing of three years, and the holding period should run on an item-by-item contributory share basis for each rolling accrual.

But that isn’t really the whole story on the holding periods in the first black box distribution from the DLC to The MLC.  The first distribution is going to be all the black box money ever held by all the DLC members (and any other users of the blanket).  Because the security surrounding this amount is tighter than the nuclear football, it is impossible to say how much will be in the black box.  The Songwriters Guild and Society of Composers and Lyricists (the ones who were maneuvered out of the assessment hearing) have been asking this question for months and no one has responded.

The relevant holding period for the black box is not only the three years that The MLC can hold the money, but the entire holding period from when the black box first “accrued”.  That could be many years longer than the Title I holding period.  There’s a question as to the three-year rule should apply or whether the DLC should be allowed to ignore all those holding periods on top of the three years.  You can see this is a story for another post, but keep that in mind for this post.  I don’t think that sentient beings with the ability to think sequentially can just accept that the relevant holding period is three years–after the black box is transferred to The MLC as though the money had been there all the time.  I don’t think songwriters need a court to tell them that’s just wrong.

What Does Accrued but Unclaimed Even Mean?

The fact that royalties are “accrued but unclaimed” for all or part of a song does not tell the whole story, because “unclaimed” standing alone doesn’t tell the whole story.  The “Interim Application” clause applies to “unclaimed accrued royalties” which could be royalties payable for unmatched contributory shares of songs that The MLC doesn’t know who to pay (therefore unclaimed) as well as matched royalties that have yet to be claimed but for which a payee might be identified with subsequent research.

Which contributory shares of a song that are or are not claimed is a fact determined by a snapshot in a moment of time that could easily change in the next moment.  In fact, accrued royalties being held on disputed songs may also find their way into the black box.[4]  Unfortunately, Title I has yet another drafting glitch because it does not identify that moment in time for purposes of the black box invasion.

Borrowing from Frankie to Pay Big Paulie

There could easily be a situation where the black box is invaded but the future assessment is not made for a year or more, or the future assessment is insufficient to repay Peter for the loan to Paul.  Because an expenditure may be an item of “collective total cost” but may not be reimbursed by “future collections of the assessment” rather than the next collection of the assessment occurring after the interest-free nonrecourse black box invasion, the statutory drafting is glitchy.

Plus, while the CRJs approve the administrative assessments, they have no direct approval right over a black box invasion—although approval over one does imply approval over both to the extent the invasion takes money from an assessment in a proceeding before the CRJs (which would be all assessments).  I’ve almost talked myself into believing that the CRJs actually were intended to approve any black box invasions, at least to the extent the sums are to be included in future assessments or offset prior assessments.  I think we all would be grateful if the Copyright Office could clarify this point.

In any event, it is clear that The MLC is allowed to write itself what amount to limitless[6] interest-free nonrecourse loans against the black box that can only be repaid from the assessment if the DLC approves (or perhaps the CRJs could be persuaded to approve).

The DLC would then be put in a position of declining to approve an increase to cover a black box invasion in the assessment that the DLC had nothing to do with incurring and will not have been informed of based on the plain language of Title I.  Since the current assessment seems to be on a fixed trajectory based on the last assessment settlement, it is likely that any invasion amount might exceed the stipulated assessment.  What happens if the assessment is not available to repay the invasion amount is unclear, even though The MLC is allowed to make the decision before knowing how the loan will be treated?

Required Transparency

The first issue in this cluster must be transparency on the board vote at a minimum.  Because the statute refers to approval by The MLC’s  “board of directors” and because the nonvoting members are part of the board, I have always assumed that such a board vote requires both voting board members and at least the assent of nonvoting members.  Neither does the glitchy language require any particular majority, so the new regulations may be an opportunity for the Copyright Office to require a majority, supermajority or unanimous board vote in regulations.

My preference would be for unanimous because I think taking other people’s money is a controversial act and they should lock arms and all go together.  Unanimity would also require both publishers and songwriters to vote for the loan (as publishers already have a supermajority representation written into the law).  As far as I can tell, we can only go by the plain language of the statute as I have found no legislative history on this provision.

Notice to Songwriters

I also think that regulations should provide that there be some written public statement by The MLC’s chief financial officer to the Copyright Office (or the CRJs) that these funds are being approved by the board for disbursement before the taking.  The CFO should also provide a justification statement.  The MLC board should have to sign up to that statement with full transparency of (1) why there is this compelling need and (2) why that need can only be met this way.  Frankly, it would be best if the funds could not be disbursed until the Register or the Librarian approved the disbursement in all respects.  One would think that the board members would want this sharing of responsibility.

Another option, if possible, would be to require The MLC and the DLC to return to the CRJs and request an increase in the applicable assessment or amendment to The MLC’s budget to cover the black box invasion.

What’s in Your Wallet?  Explain Why There is a Shortfall

There yet another drafting glitch in this section.  The statute fails to ask why a quango like The MLC is in a position that the millions in the Administrative Assessment doesn’t cover the relevant costs in the first place.  The assumption seems to be that there was a spike in the defined “collective total costs”.  As The MLC is in control of how the Administrative Assessment is spent, there may need to be some true up between the authorized budget approved by the CRJs and what was actual spent on a line item basis.

This raises, of course, the question of what kind of items should never be covered by the Administrative Assessment (which, if violated, could cause a shortfall requiring the black box invasion).  Such items might include loans to executives, performance bonuses, excessive travel reimbursements (such as first-class travel or reimbursement for tips in transit), expensive restaurant tabs and alcohol bills, but also items like settlements of harassment claims or related court costs.  Since harassment claims often are subject to nondisclosure agreements, it does not seem appropriate for The MLC to be able to recover such payments from black box invasion.  None of those items should be deductible from the Administrative Assessment and should never be the cause of a black box invasion.

It must also be said that “collective total costs” includes “bad debt.”  This caught my eye.  “Bad debt” is generally defined as a contingency or credit extended (such as to a customer) that is determined to be uncollectable.  Why would a pass-through quango like The MLC which has all of its costs covered by a third party need to be extending credit or loaning money to anyone, certainly not to any employee, board member, or vendor?  Under these circumstances, how would the bad debt be matched according to GAAP?  What controls are there within The MLC to disclose bad debt?  And why should bad debt be able to cause a black box invasion?

A corollary to bad debt is the indebtedness of The MLC itself as a borrower.  Again, given that the collective total costs are underwritten by a third party, why would The MLC need to borrow any money at all?  One could imagine that The MLC might properly have a modest bank credit line for cash flow purposes, but servicing any credit line should not result in a black box invasion, nor should the black box be used as collateral for any loan.

Paying Songwriters Who Claim or Are Matched After the Loan

The other drafting glitch I spotted that I would recommend needs closing up has to do with subsequent matching and paymenting.  What happens if there is a call on the black box invasion funds loaned to The MLC after the loan is made but before it is repaid.  These black box invasion loans should not delay matching and should also not delay payment of royalties matched after the loan is disbursed.

The easiest solution for a call on these loaned funds is to require the board members (or their companies) to cover the required funds, but I really think the Copyright Office needs to address the potential to abuse this tempting power.  Abuse of this power is exactly the kind of thing that could give rise to the very “waste, fraud and abuse” Congress wants the Copyright Office to take into account in the quinquennial review and potential redesignation (discussed above).

Yield Not Unto Temptation:  Detection Leads to Correction

This comment is not intended to be a knock on The MLC.  I am simply noting that any MLC may face the temptations that have certainly been irresistible for many smart people similarly situated in other contexts.  This kind of loan might well be a breach of a fiduciary duty by board members, and certainly would be in other similar situations.

It also must be said anecdotally that there are many songwriters who, perhaps unfairly, think that publishers use black box payments as a slush fund to run their operations with interest-free loans as the hygienically named “interim applications” would be.

The problem is that without the disinfectant of sunlight, there may be no detection to lead to correction.  Who would not prefer to avoid that problem who was able to avoid it?

* * * * * * * * * * * * *

[1] 17 U.S.C. § 115 (d)(7)(C).

[2] I have also discussed this clause off the record in the context of the Dispute Resolution Committee and Unmatched liability safe harbor for The MLC with friends at CMOs outside of the U.S.  When the laughter subsided, they all said that if they did anything like this they’d be fired long before they hit the gross negligence threshold.  “Heads on pikes” was the description.  We must then wonder what the CMOs think of this clause and what in the world they think the Americans are up to.  The Office might want to ask them.

[3] 17 U.S.C. §115 (d)(3)(H)(i).

[4] It appears that royalties held by the Dispute Resolution Committee for disputed works will also be kept in the black box account and presumably would be subject to invasion.  “The dispute resolution committee established under subparagraph (D)(vi) shall establish policies and procedures…that shall include a mechanism to hold disputed funds in accordance with the requirements described in subparagraph (H)(ii) pending resolution of the dispute.”  17 U.S.C. § 115 (d)(3)(K)(ii).  Subparagraph (H)(ii) provides for an “Interest-bearing account.—Accrued royalties for unmatched works (and shares thereof) shall be maintained by the mechanical licensing collective in an interest-bearing account that earns monthly interest….”

[5] Presumably this issue will be addressed in the Copyright Office Unclaimed Royalties Study of best practices on both matched but unclaimed and unmatched royalties.  Even so, this may be a good place to insert a true escrow account for the mandated interest-bearing account for the black box so that the account is held by a third-party bank unrelated to The MLC, the DLC, their board members or their vendors.  There should be specific withdrawal instructions to that third-party bank.  I find it difficult to understand why anyone would oppose such an ethical separation.

[6] The loans are limitless because there is no limitation on the amount in Title I.  The loan could theoretically even exceed the amount of the then-existing black box and be taken from a future accrual.

Copyright Office Regulates @MLC_US: Selected Public Comments on MLC Transparency: @MusicReportsInc

This post first appeared on Artist Rights Watch.

[Editor Charlie sez: The U.S. Copyright Office is proposing many different ways to regulate The MLC, which is the government approved mechanical licensing collective under MMA authorized to collect and pay out “all streaming mechanicals for every song ever written or that ever may be written by any songwriter in the world that is exploited in the United States under the blanket license.”  The Copyright Office is submitting these regulations to the public to comment on.  The way it works is that the Copyright Office publishes a notice on the copyright.gov website that describes the rule they propose making and then they ask for public comments on that proposed rule.  They then redraft that proposed rule into a final rule and tell you if they took your comments into account. They do read them all!

The Copyright Office has a boatload of new rules to make in order to regulate The MLC.  (That’s not a typo by the way, the MLC styles itself as The MLC.)  The comments are starting to be posted by the Copyright Office on the Regulations.gov website.  “Comments” in this world are just your suggestions to the Copyright Office about how to make the rule better.  We’re going to post a selection of the more interesting comments.

There is still an opportunity to comment on how the Copyright Office is to regulate The MLC’s handling of the “black box” or the “unclaimed” revenue.  You can read about it here and also the description of the Copyright Office Unclaimed Royalties Study here.  It’s a great thing that the Copyright Office is doing about the black box, but they need your participation!

This comment from Music Reports gives some interesting insights into how The MLC is favoring the NMPA’s formerly wholly-owned Harry Fox Agency (HFA) which has been on the wrong side of most of the licensing debacles.  Chris posted some analysis on MediaNet’s comment about criticisms of the HFA-The MLC contract as well as its rather odd timeline as revealed at The Copyright Office roundtables on the next cluster jam, the unclaimed royalties.  At least that has the entertainment value of watching them steal in plain site with the Copyright Office drinking game of who will make the excuses for them this time like we don’t notice.  We’re not big MRI fans (or MediaNet fans for that matter), but when they’re right, they’re right.

The sad truth is that this entire MLC exercise has become about the rich getting richer from a data land grab for independent songwriters and publishers who have been duped into thinking it’s all for their benefit.  It was all so predictable, but nobody listened.  This is what they wanted, and now they’ve got it.  How about a rule that says if you had your fingerprints on any part of the debacle of the last 20 years, you are immediately disqualified?  Bye bye HFA, NMPA, MRI, MediaNet.  Unfortunately that is not and never will be the rule because these are the same people who make the rules and are the same people who gave songwriters frozen mechanicals from 1909-1978 and are still freezing the 9.1¢ statutory royalty for fourteen years.

MRI could have done with some editing, but stick with it, they make a lot of sense.]

Read Music Reports entire comment here.

Music Reports generally agrees with, endorses, and echoes the views of MediaNet as stated in the response to the NOI it filed today.

Music Reports also takes note of the MLC’s selection of HFA as a major provider of the capabilities required for its core operations. While the MLC is narrowly limited by the MMA to the principal purpose of administering the blanket license for Section 115-compliant audio-only streaming music services in the United States, and specifically prohibited from storing data about or administering public performance licenses, HFA/SESAC is not so constrained.

On the contrary, HFA/SESAC is free, as a non-regulated, for profit commercial music rights administration service, to administer any type of mechanical licenses. Moreover, SESAC, administers performance rights on a for-profit basis in competition with other PROs. Being hired by the MLC does not change the fact that HFA/SESAC is in competition with other commercial music rights administration services that are not the beneficiaries of a long term, highly-paid contract with the MLC. This is fair enough, so far is it goes.

snakeoil-cover-700x400-1

But as noted above, the boundaries between HFA/SESAC’s database and that which the MLC must build and make publicly available are completely unknown [want to bet that’s because they don’t exist?], as is the timeframe during which the former will substitute for the latter, and whether a proprietary MLC database built independently of HFA’s data will ever be the basis on which the MLC renders royalty distributions.

What is known, however, is that the MLC will enjoy publicity generated by its own statutory mandates (subsidized by the DLC), by the DLC itself, and by the Office, all of whom are authorized and required to devote budgetary allocations to direct publishers’ attention to registering their rights data with the MLC (the database of which is, for the foreseeable future, that of HFA/SESAC). Notwithstanding that the primary purpose of these provisions may be to publicize the existence of the database and of available unclaimed royalties, the consequence will be the direction of resources toward the focus of copyright owners’ attention on just one of several important, pre-existing music rights registries. This is in effect a set of reinforcing government subsidies of which one private enterprise, in competition with other marketplace actors, is the beneficiary.

To the extent HFA/SESAC directly benefits unfairly from a privileged place in the data ecosystem by virtue of this arrangement, the goal of the MMA to create a healthier music rights administration ecosystem will be perversely harmed by the creation of an uneven playing field that penalizes the investments in data made by other services. To be sure, other commercial services are free to compete with HFA to offer services to the MLC and others in the marketplace. But over time, a privileged place in the market’s information flow may distort competition to the determent of copyright owners and their administrators, DMPs, and the public.

Luckily, the Office can prevent this result quite simply by requiring that the MLC provide access to its public database on a competition-neutral basis.

As was noted above, there is an important temporal aspect to the management of music rights data. In order for two administrators to efficiently interoperate, they must be able to have a more or less shared contemporary view of the data about the works they are administering, even if they don’t always agree on every detail.

Therefore, the specific prescription called for here is a combination of the points made in the previous sections above: (a) the Office should use its authority under the MMA to adopt such regulations as it deems necessary to clarify that the public database which the MLC must establish and maintain will be identical to or at least contain the same data as the database on which the MLC will distribute royalties; (b) the MLC should make its public database available contemporaneously with the commencement of its royalty distribution efforts; and (c) the MLC must offer eligible parties bulk, machine-readable access to such data “on a basis that is both comprehensive and as frequent as necessary to efficiently manage the licensing and royalty distribution activities of the mechanical licensing collective itself, and not less than daily access to changed information within a day of any change to such information.”

Copyright Office Regulates @MLC_US: Selected Public Comments on MLC Transparency: @KerryMuzzey

[Editor Charlie sez: The U.S. Copyright Office is proposing many different ways to regulate The MLC, which is the government approved mechanical licensing collective under MMA authorized to collect and pay out “all streaming mechanicals for every song ever written or that ever may be written by any songwriter in the world that is exploited in the United States under the blanket license.”  The Copyright Office is submitting these regulations to the public to comment on.  The way it works is that the Copyright Office publishes a notice on the copyright.gov website that describes the rule they propose making and then they ask for public comments on that proposed rule.  They then redraft that proposed rule into a final rule and tell you if they took your comments into account. They do read them all!

The Copyright Office has a boatload of new rules to make in order to regulate The MLC.  (That’s not a typo by the way, the MLC styles itself as The MLC.)  The comments are starting to be posted by the Copyright Office on the Regulations.gov website.  “Comments” in this world are just your suggestions to the Copyright Office about how to make the rule better.  We’re going to post a selection of the more interesting comments.

There is still an opportunity to comment on how the Copyright Office is to regulate The MLC’s handling of the “black box” or the “unclaimed” revenue.  You can read about it here and also the description of the Copyright Office Unclaimed Royalties Study here.  It’s a great thing that the Copyright Office is doing about the black box, but they need your participation!]

Read the comment by Kerry Muzzey

The launch of iTunes in 2001 began the democratization of music distribution: suddenly independent artists had a way to reach their fans without having to go through the traditional major label gatekeepers. Unfortunately most of those independent artists didn’t have a music business background to inform them about all of the various (and very arcane) royalty types and registrations that were required: and even if they did, Harry Fox didn’t let individual artists register for mechanicals until only recently.

The result? 19 years’ worth of unclaimed royalties by so many independent artists who have no idea how to access them.

We had hoped that the MMA would fix this, but the “black box” of unclaimed royalties is going to be distributed to the major publishers based on market share. We independent artists don’t have “market share” – but we do have sales and streams that are significant enough to make a difference to our own personal economies. A $500 unclaimed royalty check is to an independent musician what a $100,000 unclaimed royalty check is to a major publisher: it matters. Those smaller unclaimed royalty amounts are pocket change or just an inconsequential math error to the majors but they’re the world to an independent writer/publisher. And that aside, these royalties don’t belong to the majors: they belong to the creators whose work generated them.

Please, please, please: you have to make that database publicly accessible and searchable like Soundexchange does. There needs to be a destination where all of us can point our friends and social media followers to, to say “you may have unclaimed royalties here: go search your name.” They can’t remain in the black box and they can’t go to the major publishers. These royalties must remain in escrow and all means necessary should be used to contact the writers and publishers whose royalties are in that black box: absolute transparency is required here, as is a concentrated press push by the MLC to all of the music trades and music blogs (Digital Music News, Hypebot, et al) and social media platforms encouraging independent artists to go to the public-facing database and search their name, their publisher name, their band name, and by song title, for possible unclaimed royalties.

Please: the NMPA can’t be allowed to hijack royalties that do not belong to them. Publishers are fully aware of how complex royalty types and royalty collections are: they and the NMPA must make every effort here to ensure that unclaimed royalties reach their rightful legal and moral recipients.

Copyright Office Regulates @MLC_US: Selected Public Comments on MLC Transparency: @JonathanCoulton

[Editor Charlie sez: The U.S. Copyright Office is proposing many different ways to regulate The MLC, which is the government approved mechanical licensing collective under MMA authorized to collect and pay out “all streaming mechanicals for every song ever written or that ever may be written by any songwriter in the world that is exploited in the United States under the blanket license.”  The Copyright Office is submitting these regulations to the public to comment on.  The way it works is that the Copyright Office publishes a notice on the copyright.gov website that describes the rule they propose making and then they ask for public comments on that proposed rule.  They then redraft that proposed rule into a final rule and tell you if they took your comments into account. They do read them all!

The Copyright Office has a boatload of new rules to make in order to regulate The MLC.  (That’s not a typo by the way, the MLC styles itself as The MLC.)  The comments are starting to be posted by the Copyright Office on the Regulations.gov website.  “Comments” in this world are just your suggestions to the Copyright Office about how to make the rule better.  We’re going to post a selection of the more interesting comments.

There is still an opportunity to comment on how the Copyright Office is to regulate The MLC’s handling of the “black box” or the “unclaimed” revenue.  You can read about it here and also the description of the Copyright Office Unclaimed Royalties Study here.  It’s a great thing that the Copyright Office is doing about the black box, but they need your participation!]

Read the comment by Jonathan Coulton

I am an independent musician, and I make my living full time as such. I have spent years dealing with the wide array of entities who collect royalties on my behalf. Errors happen all the time – songs are misattributed, missing, publisher information is wrong, royalty splits are wrong. This is to be expected when the dataset is this vast and complicated, and coming from many disparate sources. This is why for me, absolute transparency is essential. I need to be able to search for my name and my song titles so that I can look for errors like these and make sure I am getting paid all the royalties I am due. As an independent, my slice of the pie is very small on the scale of the entire industry, but it is essential to me and my ability to make a living. I have nobody but myself representing me in this process. Even with the best intentions, an entity like the MLC cannot possibly look out for all of us, so I hope that this structure provides us the tools with which we can look out for ourselves.

I very strongly encourage maximum transparency, granularity, and searchability be provided to rightsholder with regards to this data.

Copyright Office Regulates @MLC_US: Selected Public Comments on MLC Transparency: @zoecello — Artist Rights Watch

[Editor Charlie sez: The U.S. Copyright Office is proposing many different ways to regulate The MLC, which is the government approved mechanical licensing collective under MMA authorized to collect and pay out “all streaming mechanicals for every song ever written or that ever may be written by any songwriter in the world that is exploited in the United States under the blanket license.”  The Copyright Office is submitting these regulations to the public to comment on.  The way it works is that the Copyright Office publishes a notice on the copyright.gov website that describes the rule they propose making and then they ask for public comments on that proposed rule.  They then redraft that proposed rule into a final rule and tell you if they took your comments into account. They do read them all!

The Copyright Office has a boatload of new rules to make in order to regulate The MLC.  (That’s not a typo by the way, the MLC styles itself as The MLC.)  The comments are starting to be posted by the Copyright Office on the Regulations.gov website.  “Comments” in this world are just your suggestions to the Copyright Office about how to make the rule better.  We’re going to post a selection of the more interesting comments.

There is still an opportunity to comment on how the Copyright Office is to regulate The MLC’s handling of the “black box” or the “unclaimed” revenue.  You can read about it here and also the description of the Copyright Office Unclaimed Royalties Study here.  It’s a great thing that the Copyright Office is doing about the black box, but they need your participation!]

Comment by Zoë Keating:

Some version of the usage data that the DSPs report to the MLC should be easily accessible to the public so that songwriters do not need to hire a legal team in order to independently verify if their statements from the MLC are correct. Major publishers can and will continue to get usage reports directly from music services. Self-published songwriters must rely on the MLC to collect and administer royalties on their behalf. Given that the major publishers of the NMPA are directing the design of the MLC, transparency of the reported data from DSPs will help eliminate any conflicts of interest.

Related to this, given the past occurrence of and future likelihood of metadata reporting errors*, usage data for compositions that are unmatched to any owner should be publicly searchable. Songwriters and other entities should be able to search for likely misspellings and errors, thereby offering crowd-sourced assistance to the persistent problem of unmatched royalties. (*Anecdotally I have heard of metadata errors preventing the collection of mechanicals and it happened to me. The mechanical royalties for my songs went unclaimed for 10 years until 2019 until I was able to raise an employee of HFA via twitter who then “found” $5000 that had been unmatched due to an unspecified metadata error.)

via Copyright Office Regulates the MLC: Selected Public Comments on MLC Transparency: @zoecello — Artist Rights Watch–News for the Artist Rights Advocacy Community

Monica Corton Consulting Suggestions to the Copyright Office for MMA Regulations

Monica Corton’s comment in the Copyright Office’s request for comments makes some excellent points (you can read the entire comment here), particularly about educating songwriters about the necessity of complying with the formalities of registering with the Mechanical Licensing Collective in order to get paid.  This question is important and again raises the question of who bears the direct transaction cost on songwriters for that registration which was not addressed in the Music Modernization Act.

Ms. Corton comes to a similar issue also raised by others regarding the black box, but has a great point that a helpful way to reduce the black box would be by requiring the copyright owners to pay for third party services to assist MLC in cleaning up the data.  That’s a great idea, although it does seem that the cost of MLC registration should be paid by the services  as part of the assessment (which would be more consistent with what was promised).  It would be simple to require the MLC to pay the third party vendors on an ongoing basis (and of course would not be able to write itself a loan from the black box to pay for those costs as David has pointed out).

We have bolded some of the language in Ms. Corton’s post to help connect the dots:

The [Music Modernization Act] does not require publishers to provide data to the MLC. This is a problem because it could mean that smaller independent publishers or self-published songwriters may not know that they have to submit their data to the MLC in order to get paid from the digital services. They may not understand that they will not get paid without submitting data and that their money will go into an unallocated account that gets liquidated by to publishers based on their market share.

This is why there was so much time devoted to the education piece of the MMA during the recent symposium at the Copyright Office on December 6, 2019. I attended the symposium and in the following week, I had conversations with John Raso of HFA and Bill Colitre at MRI. I spoke to them both about my concern for the education piece and told them I thought the MLC was missing an education committee which I would be happy to help put together. It should include music publishers, digital representatives and educators.

We need a year to promote and educate people about the MMA, the MLC, why it’s important to register, how to obtain all their necessary data (i.e. ISWCs, ISRCs, publisher splits etc.) and the steps required to submit an accurate registration. John Raso urged me to write to Alisa Coleman making this suggestion regarding adding an education committee to the MLC. I emailed Alisa Coleman on Monday, December 9, but I have not heard back from her.

It is the feeling among many independent publishers, songwriters and even some DSP representatives that there is no real will to educate the masses about the MLC and registration. The reason is a majority of the members of the MLC board stand to gain millions of dollars from unallocated royalties if the MLC does not locate the publishers/songwriters of these unclaimed works.

There is evidence for this. When the NMPA negotiated a $30 million dollar settlement with Spotify, Spotify offered up their unclaimed works files to the settlement group. Every publisher that participated in the NMPA Spotify Settlement was given the chance to claim those works. When David Israelite visited the AIMP in NYC to discuss the matter after the process was well underway, he informed the AIMP membership that something like 15-20% of the unclaimed works were eventually claimed. However, this means that 80-85% of those works still need to be matched to their rightful owners. These works are also most probably part of the NOIs that have been sitting at the Copyright Office and were filed by the DSPs to avoid liability. It is a massive undertaking to try to match these unclaimed works, however, a well thought out education initiative that is strategically based could probably solve at least 50-60% of the unclaimed works identification. I’m suggesting an “edutainment” approach where we utilize celebrity songwriter/artists to get our message out over YouTube and other social media sites. We raise awareness about the reasons why registration to the MLC is so important. We give great tutoring videos on how to locate your appropriate registration information and we assist in getting them to submit spread sheets with all of their data laid out in the best way that the MLC can ingest it.

Without the education piece fully in place, I fear that a majority of the unclaimed works are going to be put in this unallocated fund and distributed by market share to the biggest publishers in the business. This has been the practice of every single NMPA settlement since the distribution of the NMPA Late Fee Settlement, and the major publishers, as well as the large independent publishers have benefited greatly from this practice.

In order to avoid this happening, I would like to support MRI’s suggestion that “the MLC make the raw data from the DSPs available to qualified, third party data processors, hired by such copyright owners, in order that they may verify the completeness and accuracy of such records and potentially claim ownership of musical works associated with the sound recordings listed in such records. Such efforts, to take place no less than six months prior to any liquidation event, would be meant to supplement, not replace, the MLC’s own efforts to identify the copyright owners of “unclaimed” musical works. In addition to promoting greater transparency in such matching efforts, these supplemental efforts will give music publishers-the parties best placed to identify their own works-a seat at the table as the MLC prepares for this critical initial distribution of unclaimed royalty funds. They will also reduce the burden on the MLC’s nascent claiming system and assist the MLC in bringing greater accuracy to the musical works database it will have established by such time.”

In light of the suggestions…for a third party representative to assist in claiming works, there needs to be an approved list of such “qualified third-party data processors” available on the MLC website. Many DIY songwriters will not know who these companies are and could get taken in by people who are not qualified. The Copyright Office should be the arbiter of providing the list of qualified third-party data processors. Certainly, MRI should be on this list.

 

Future of Music Coalition Suggestions to US Copyright Office on MLC Oversight Regulations

In our continuing review of comments on the Mechanical Licensing Collective, the Future of Music Coalition’s filing is an instructive read.  FOMC has put its finger on two core issues for Copyright Office regulations–the importance of trust in the MLC and the cost to independent publishers and songwriters of handing over all their data to the MLC for the celestial database.

The question of who will pay for these data costs is one of the issues that’s most confusing about the MLC’s messaging as well as the messaging from many groups who encouraged songwriters to support both the blanket compulsory and the “industry consensus” MLC now in control.  Originally, we were all told that “the services will pay for it,” and indeed the services are paying millions for something.  So far, however, we have not seen any budget allocated to compensating the songwriters who will be contributing data at their own expense to MLC’s core asset.

Although FOMC didn’t bring this up directly, they certainly got that thought process going.  If a publisher already has invested substantial resources in cleaning and normalizing their data, participating in MLC may not be a high cost of admission.  But if a publisher has invested in data that is sufficient for them to operate before MMA (say Excel spreadsheets), but is not reasonably exportable to MLC, then the publisher’s choice is find the money to cover these transaction costs or don’t participate. And not participating leads to the black box.

In a streaming economy where per-stream royalties start three or four decimal places to the right if  you’re lucky, the cost of the ticket may well exceed the revenue.  That will weaken the system, so those who benefit from the millions invested in MLC should arguably pay for those transaction costs.

We should also all be mindful of the CISAC and BIEM comment and remember that non-US songwriters could be in a similar position or may simply not be aware that they have to comply with the formalities of registering with the MLC (possibly separately from their own home country collecting society) or even separate from registering for copyright in the US (which will be some but not all non-US songwriters by any stretch).  Even if songwriters don’t register for copyright with the Copyright Office they will still have to register their works with the MLC unless there’s some reliable work around that presents itself in the future.

With that in mind, this passage from the FOMC comment is particularly illuminating:

The success of the new mechanical royalty system created by MMA is dependent on broad participation, and participation is dependent on trust. Unfortunately, cultivating trust can be challenging in the music industries, where old stories of exploitation and bureaucratic failure are plentiful. Different stakeholders may have vastly different levels of legal sophistication, technical skill, and access to resources.  The Copyright Office’s task in its rulemakings is to optimize for trust and accountability for all parties, and should give special consideration to the needs of creators who might otherwise lack leverage. This outcome would not be to the sole benefit of creators, but would benefit all stakeholders. The more accountability, detailed guidance, and ongoing oversight the Office empowers itself to offer the MLC, the more successful the entire endeavor will be.

You should really spend a little time reading the FOMC submission.  It’s not that long but filled with nuggets.

What comes from the Copyright Office in the regulations governing the MLC may be the most important part of this entire process given the flawed parts and omissions from MMA.

David Lowery’s Suggestions to the Copyright Office for Regulation of the Mechanical Licensing Collective Part 4

The US Copyright Office solicited comments from the public about the operations of the Mechanical Licensing Collective.  The first round of those comments (called “initial comments”) were due in November and the second round of those comments (which are called “reply comments” because they essentially comment on the initial comments) were due December 20.

All the comments focus on some central themes that seem to be on everyone’s mind which can be boiled down to oversight, oversight and more oversight.  While the DLC controls the MLC’s purse strings, the MLC has been given largely uncontrolled power over songwriters that needs to be checked by the government on behalf of the governed.

David Lowery did not file initial comments but as he notes, developments made him feel compelled to speak up in the reply comments.  We’re going to post his reply comments in four parts, and then we’ll post other commenters who we think made really good points (like CISAC and BIEM among others).  (If you want to skip ahead and read the entire comment, you can download it here.)  This is Part 4 of four parts.

Comments of David C. Lowery, Notice of Inquiry for Blanket License Implementation Regulations Issued by the United States Copyright Office Concerning the Orrin G. Hatch-Bob Goodlatte Music Modernization Act of 2018

Additional MLC Oversight: Transparency and Financial Disclosure

There is little financial disclosure required of the MLC or the DLC. As far as DLC is concerned, I expect they will represent the interests of the services. They are also paying the money for MLC which in a way is itself an inherent conflict but is under the oversight of the Copyright Royalty Judges. For the moment, DLC does not appear to be involved in the MLC operations or decision-making. Time may reveal a need to examine this relationship more closely for financial disclosures.

However, the MLC is mandated to engage in many operations fraught with moral hazard, not the least of which is matching and the black box distributions. The MLC has already demonstrated that it has the ability to pick the least appropriate vendors for inexplicable reasons other than the past ownership of HFA by the National Music Publishers Association.

This past ownership creates a special disclosure situation regarding the selection of HFA as a vendor given how long Title I had been in the works (the rumored “SIRA II”). Was the sale of HFA conditioned on HFA becoming the principle vendor of the MLC (like HFA was to be the “General Designated Agent” in SIRA I)? Was Blackstone’s withdrawal of opposition to MMA in the Senate conditioned upon some benefit flowing to HFA? Has the vendor selection process been the kabuki dance it appears to be? As my friend and co-amici Guy Forsyth wrote, “Americans are freedom loving people and nothing says freedom like getting away with it.” Did they get away with it? If the Copyright Office doesn’t force disclosure, we’ll never know unless the issue gets litigated in one of the pending lawsuits against Spotify—and isn’t redacted.

It only seems reasonable that the MLC should disclose any incentives, payments or other benefits received by its board members, non-voting members (DiMA, NMPA, NSAI or SONA for example), officers and other key employees from any person or entity MLC does business with. These benefits should include payments of the administrative assessment, real estate transactions paid for by the assessment, or shares of stock or units of Ether granted to anyone in the supply chain. This kind of anti-payola affidavit is required of various consultants in the music business already so there seems to be no reason why it should not be required for persons of influence at the MLC. And, of course, all such affidavits or disclosures should be part of the public record so that everyone from songwriters to Members of Congress should be able to have a clear picture of who is involved with MLC.

This will be particularly applicable to any payments from the black box which is truly other people’s money. Any proposed payments of the black box should be itemized, published online in an easy to read format prior to being distributed and certified by an independent CPA that is not related to MLC or any board member or vendor. This disclosure may help reduce the inevitable lawsuits. In fact, it would be best if any CPA undertaking certification work for MLC should agree in advance that they would do no other work for the MLC related parties for a significant period of time, say five years.

The “interim application of accrued royalties” is another clause that is fraught with conflicts of interest. Respectfully, the Copyright Office should clarify that MLC board members act as fiduciaries in their decisions to take money from the black box to meet the MLC’s expenses in the case of a shortfall from the administrative assessment. If they’re not fiduciaries, an explanation would be helpful.

In fact, the entire clause relating to the “interim application of accrued royalties” is itself vague and ambiguous. Consider the language:

In the event that the administrative assessment, together with any funding from voluntary contributions as provided in subparagraphs (A) and (B), is inadequate to cover current collective total costs, the collective, with approval of its board of directors, may apply unclaimed accrued royalties on an interim basis to defray such costs, subject to future reimbursement of such royalties from future collections of the assessment.

This paragraph is, in my judgment, one of the most important yet least discussed clauses in the entirety of Title I. Absent implementing rules to the contrary, the clause allows MLC to effectively write itself interest free and nonrecourse loans from other people’s money to cover the costs of a budget that MLC itself determines at a burn rate solely in the control of MLC—currently with no oversight by anyone.

The clause raises a number of questions about the meaning of the statutory language which the Congress likely intended to be clarified in regulations regarding the spending of other people’s money by the MLC. In particular. terms in the statutory language that must be known in order to determine what sums are the “costs” concerned, when are they determined, and what happens if the loan once taken is never repaid. (Which raises income tax issues if nothing else.)

The statutory language also leaves to regulations what happens if the songwriters whose monies are taken from the black box and spent by MLC are later identified because they come forward or due to matching efforts of the DLC or the MLC.

Are those songwriters supposed to wait to be paid from “future collections of the assessment,” if ever? Which future collections? The next assessment after those songwriters are identified? Or another one some time in the future?

Are they to be paid in the normal course at the next accounting period after becoming identified? Immediately upon being identified?

And most importantly perhaps, how will anyone outside of the MLC know this loan is occurring? The mere fact that a board of directors thinks it’s a good idea to avoid themselves having to make voluntary contributions to the MLC’s operations by writing themselves an interest free non-recourse loan from monies they hold in trust (or should hold in trust) is a terrible position to put on board members voting against the loan.

I would respectfully suggest that this entire clause has no place in legislation that was sold as a great boon for songwriters. If it must be in the law, then the Copyright Office has a golden opportunity to shed sunlight on another mysterious operation of the MLC.
I suggest several areas of mandatory disclosure. First, the balance of the black box should be public and prominently posted on a monthly basis to the MLC’s website. Songwriters should be able to search for their titles and determine how much is being held. SoundExchange currently has this feature for the public as do other societies around the world.

The black box should be held in a true escrow account by an escrow agent (such as an unrelated bank) that has clear instructions in regulations as to how and when such funds are to be disbursed, either as a loan or royalty payment.

If the board of MLC decides to write itself a loan from these funds, they should not be able to use the black box as a piggy bank, but rather should borrow against identified funds based on available metadata so that repayment can be accomplished efficiently.
For example, if Songwriter X can look up on the MLC’s website that the MLC board borrowed money for songs A, B and C that were unmatched at the time of the loan, then if Songwriter X is later identified, she can demand payment of her royalties from MLC which the MLC should be required to pay from its current accounts and not take from future black box payments.

Failing to require payment from fresh cash will create an endlessly iterative process by which MLC borrows from Peter to pay Paul, using old money to pay new obligations.
Finally, all these transactions should be well documented and those documents should be published on the MLC website. For example, the statute requires board “approval” to initiate the loan. That approval should take the form of a recorded board vote with minutes to be published on the MLC website, or better yet in the Federal Register. The loan should be documented in the form of a promissory note to the escrow agent. It should also be clear that the MLC board has a fiduciary duty to the songwriters and publishers whose money it is borrowing that is separate from the board’s safe harbor elsewhere in Title I.

Having just gone through the PledgeMusic debacle, I am sensitized more than ever to companies that go insolvent while handling the money of artists with the result that the artists never get paid. If the MLC cannot meet its obligations and requires “interim” loans from the black box, how is that not the case of a company operating while insolvent? Why should the officers and directors of MLC enjoy any lower standard of care or responsibility than they would if they were operating any other company while insolvent?

Surely this was not the intent of Congress.

Finally, I note that the budget proposed by the MLC to the DLC was less than the administrative assessment agreed to in the CRB settlement. Respectfully, the Copyright Office ought to make clear that this shortfall does not trigger the MLC’s ability to take an “interim” loan in the amount of the shortfall. This issue highlights another point requiring clarification—at what point is a shortfall determined? It seems that it should be at a time the shortfall occurs following investigation into why it occurred by an inspector general-type person (such as the Inspector General of the Library of Congress).

The MLC knows how much it’s got in its rather rich kitty to spend on all its various activities. If it also knows that if it goes over budget it can write itself interest free loans from the black box based on its own internal decision and authority, what incentive is there to stay on budget?

Additional MLC Oversight: Transparency and Songwriter Ombudsman

While Congress and the Copyright Office theoretically retain oversight over the MLC, this is of cold comfort to songwriters who are run over by MLC, its policies and its vendors. The vast unmatched problem is the most obvious foreseeable outcome where songwriters need a safety valve, but there are other possibilities.

For example, if the MLC continues HFA’s sad history of simply failing to pay songwriters, it’s just not adequate to say that songwriters can audit MLC or sue. Songwriters should not have to incur even more costs or engage in the labyrinthine process of individual or class action lawsuits against an entity funded by the largest corporations in the world.

The only real leverage that songwriters have over MLC is to persuade the Copyright Office not to re-designate the incumbent. In order for that to be a realistic threat, the Copyright Office regulations should provide for a feedback loop that songwriters can avail themselves of that the Copyright Office must take into account when determining its re-designation. Such complaints must be included in the Copyright Office’s oversight report to Congress. As such a practice is essentially the Copyright Office setting a policy or regulating itself, I see no reason why that practice cannot be set forth in regulations.

However, the Copyright Office is in an ideal position to create an ombudsman-type position with oversight of the entire MLC/DLC process. Such a role would allow the world’s songwriters an immediate outlet for surfacing negligence by MLC. By preserving anonymity of those complaining, any songwriter—whether or not affiliated with MLC—could have an outlet to report any objectionable behavior while being protected along the lines of the Whistleblower Protection Act.

The ombudsman should be completely unrelated to the incestuous practices of MLC and HFA, should be a paid position deducted from the millions in MLC’s rich operating budget, and should be meaningfully consulted in any re-designation.

Creating an ombudsman role would benefit the entire system by maintaining a watchdog and whistleblower role that would help keep the system honest.

Additional MLC Oversight: MLC and DLC Database Conflict of Interest Policy

I would also respectfully call the Copyright Office’s attention to the inherent conflicts between MLC and its vendor HFA in terms of reselling data HFA acquires by virtue of its role as MLCvendor. If the Copyright Office does not prohibit HFA from selling for other commercial purposes the data it acquires through its engagement by MLC to facilitate the compulsory blanket license, the Congress will have just handed HFA a near insurmountable advantage over its competitors. Remember there are other licenses like “micro sync” licenses that are outside of the compulsory mechanical license. Currently there is robust competition and innovation in this market segment, but without this prohibition HFA would crush its young competitors.

The same could be said of ConsenSys, which seems to be desperately seeking use cases for its Ether cryptocurrency. This creates an odd set of incentives for an MLC vendor, not to mention a need for disclosure by the MLC of any stock grants or Ether transfers.

Songwriters are compelled to do business with MLC despite bitter complaints about the imbalance in favor of major publishers in its governance. Songwriters are also compelled to do business with MLC despite bitter complaints about HFA due to what can be described as a bait and switch where the MLC pushed out a lot of hope only to go back to business as usual with long-time cronies.

This cannot be what Congress had in mind, and is even greater evidence for why the Copyright Office should require MLC candidates to fully disclose their vendors and their relationship with their vendors before designation.

Respectfully, any data vendor of the MLC should not be allowed to leverage their privileged role to private benefit after being paid absurd amounts of money to fail upwards.

As Madison said, we’re not angels. But songwriters rely on the Copyright Office to be our better angels.

Thank you for providing this opportunity to discuss these important issues.

Sincerely,
David C. Lowery

David Lowery’s Suggestions to the Copyright Office for Regulation of the Mechanical Licensing Collective Part 3

The US Copyright Office solicited comments from the public about the operations of the Mechanical Licensing Collective.  The first round of those comments (called “initial comments”) were due in November and the second round of those comments (which are called “reply comments” because they essentially comment on the initial comments) were due December 20.

All the comments focus on some central themes that seem to be on everyone’s mind which can be boiled down to oversight, oversight and more oversight.  While the DLC controls the MLC’s purse strings, the MLC has been given largely uncontrolled power over songwriters that needs to be checked by the government on behalf of the governed.

David Lowery did not file initial comments but as he notes, developments made him feel compelled to speak up in the reply comments.  We’re going to post his reply comments in four parts, and then we’ll post other commenters who we think made really good points (like CISAC and BIEM among others).  (If you want to skip ahead and read the entire comment, you can download it here.)  This is Part 3 of four parts.

Comments of David C. Lowery, Notice of Inquiry for Blanket License Implementation Regulations Issued by the United States Copyright Office Concerning the Orrin G. Hatch-Bob Goodlatte Music Modernization Act of 2018

MLC’s Reporting and Failure to Account

This section responds to the Office’s question regarding MLC’s Payments and Statements of Account.

As an overall comment, the MLC should be required to publicly post at least an aggregated version of all information it receives from DMPs supporting the calculation of royalties (transactions, TCC, deductions from gross, etc.). It will be impossible for songwriters to conduct a desktop audit of their statements with their accountants if key elements of the calculations are missing. Respectfully, the Copyright Office really needs to understand how many times we have seen this movie and how we definitely know how it ends.

This is the old hide the ball trick where royalty statements include everything except the one key piece of information needed to duplicate the reported calculations. Again, let’s not have meet the new boss, worse than the old boss. The Copyright Office has a golden opportunity to get this right—so please, please take heed. It will save a lot of time and litigation.

For example, the MLC is already saying things like this:

Accordingly, the MLC believes that any regulations obligating the MLC to distribute royalty reports and payments to copyright owners on a monthly basis should not require that such reports and payments be for a particular royalty period, which is at least in part outside of the MLC’s control.

Actually, this is wrong. If the MLC reports do not designate which period the payment corresponds to, there will be no way for songwriters to know what they are being paid for. This boils down to receiving a statement that says, here’s some money, or worse, no money for you. If there is no explanation of when the royalties were earned or last paid on a service-by-service basis, there is no way for songwriters to know if any service is current.

Plus, the Congress gave the MLC fearsome powers over DMPs and songwriters. If services are late, we expect MLC to chase them and chase them hard. They wanted this job, and now they have it. If songwriters have to wait until MLC get around to auditing trillions of transactions to know a service is late paying, unpaid money is as good as gone even for matched works.

As drafted, Title I places great emphasis on the user of the blanket license’s obligations to account and pay royalties but there is no corollary obligation for MLC. Indeed, it seems that the MLC is already backtracking on timely payments by lowering expectations of timely DMP payments. The DMP has a lot to lose if they are not timely with payments and statements.

There is virtually no downside for the MLC. I respectfully suggest that there be some teeth put into the MLC’s failure to account, for both the “known knowns” and the “known unknowns,” that tracks the penalties on the license user.

It does not appear that sufficient attention has been paid to the MMA’s major change in the compulsory licensing structure—the insertion of another gatekeeper into the stream of payments, a gatekeeper that has selected the former affiliate of one of its principal promoters with a known and well litigated history of failures for the very functions it is to take on with a Congressional mandate.

Incredibly, no one has included language addressing what happens if the MLC defaults. Auditing years after the fact is not going to get it done. In fact, the audit language in Title I is so antiquated that it could easily have come from a 1980s record deal. (Not to mention the meaningless and expensive requirement of a CPA to conduct royalty audits.) The audit language is simply not fit for purpose in a world of trillions of individual transactions rather than hundreds of millions of CDs. Songwriters forced to use the compulsory license need a much more immediate and much toothier remedy against the government’s MLC monopoly. In other words, the Music Modernization Act already needs to be modernized and the Copyright Office has a chance to do it—but the clock is ticking.

Language could be adopted in regulations that mirrors the statutory language for default by users of the blanket license, substituting the copyright owner for the MLC and the MLC for the digital music provider. For example:

“If the copyright owner does not receive the monthly payment and the monthly and annual statements of account from the MLC when due for reasons within the control of the MLC, the owner may give written notice to the MLC, unless the default is remedied not later than 30 days after the date on which the notice is sent, the MLC’s ability to administer the compulsory license for such copyright owner will be automatically terminated. “

Because the Copyright Office is charged with implementing regulations under a broad statutory grant, it seems that this loose end could be remedied in regulations without need of an amendment to Title I, particularly because the failure to include such a provision benefits those who controlled the pen for the drafting of Title I.

The Copyright Office should also take into account any failures to account when reviewing the re-designation of MLCI at the five year review mark.

Additional MLC Oversight: FOIA

Continuing the theme of sunlight as the best remedy, please consider the relationship of the Freedom of Information Act and the MLC. The Copyright Office complies with Freedom of Information Act requests (FOIA). The public interest would be served in having access to all correspondence and internal materials not subject to a FOIA exemption that relate to Title I of the Music Modernization Act as well as the “address unknown” NOI process that preceded and contributed to it.

Availability of these materials is particularly relevant given the lack of transparency required of MLC and the DLC (odd redactions in CRB filings for the administrative assessment is but one example) and the general mystery of why HFA was selected by MLC given the history of HFA with NMPA and the legislative process.

Rather than wait for a FOIA request for these materials, the Copyright Office should voluntarily make these materials available on Copyright.gov. I would recommend this process be repeated annually if not more frequently.

To be continued in Part 4