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

By Chris Castle

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

The Dog Who Didn’t Bark On the Mirror

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

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

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

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

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

But it’s not.

Betting and Strangers

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

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

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

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

Betting Secrecy

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

To keep the strangers to the bet in the dark.

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

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

Who’s At Fault?

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

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

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

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

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

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

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

Letter of Misdirection

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

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

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

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

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

Tolling the Statute of Limitations

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

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

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

Songwriter Black Box Payments

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

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

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

By Editor Charlie

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

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

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

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

DLC Members

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

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

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

As Dylan writes in DMN:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here’s the ray of sunshine:

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

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

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

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

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

Copyright Office Regulates The MLC: Selected Public Comments on the Copyright Office Black Box Study: The DLC Spills the Beans, Part 3

[Read Part 2 here.  This is the last of 3 parts]

The services tell us in their Copyright Office comment that the whole point of the Music Modernization Act was this (largely secret) deal to get them a new retroactive safe harbor so their massive infringement couldn’t be stopped by songwriters.  (That’s their third statutory safe harbor counting DMCA and Section 230.)  What do you think that MMA safe harbor is worth to them to avoid what they call “ruinous litigation”?

Let’s use Spotify’s market cap as a proxy for the value of the safe harbor–imperfect, yes, but at least it is transparent unlike anything else having to do with Title I of the MMA.

SPOT Safe Harbor Value

Around October of 2018 when the MMA was signed into law, Spotify traded at $189.  A recent closing price for SPOT is $268.  Is it fair to say that the MMA was the rocket fuel that made Daniel Ek a billionaire?  Not entirely.  You can see from the graph that Spotify actually broke through a $190 per share support level to the downside right after the MMA was signed and bounced around below that price for a year or more.

The clear driver of Spotify CEO for Life Daniel Ek’s wealth and profiteering is the COVID virus.  Make no mistake, human misery–not the MMA safe harbor–is what provided the rocket fuel for Spotify’s 2020 growth.  In fact, the same rocket fuel of misery seems to have benefited each of the exploitative cohort as this graph shows using Live Nation as a proxy for the collapse of touring:

COVID MISERY INDEX 8-22-20

So it could be said that the entire “ruinous litigation” argument from the DLC is simply so much bullshit that these companies fed to the MMA negotiators by the plateful.  What is not bullshit, however, is that the one thing the negotiators could have scored that they didn’t is a waiver of the services appeal rights in the Phonorecords III rate setting decision.  This is the appeal that the services recently won when the appeals court handed the negotiators heads to them.  There could also have been a settlement since they seem to like those so much.  The negotiators didn’t do either.  We’ll see how the do-over turns out, but one thing we know is that there will be millions in legal fees that songwriters will have to eat one way or another that could easily have been avoided.

What is also not bullshit is the other side of the MMA transaction:  The loss to songwriters of this heretofore secret deal.

You will note that none of the music services appear to have paid out jack in the way of newly matching the previously “unmatched” in the years since the signing of the MMA. Why?  Because the MMA negotiators did not require any interim payments of matched funds or any public reconciliation of black box to matching efforts.  No, no, the first time the black box gets disclosed publicly is when those funds are paid to the MLC, not to the songwriters who earned the money.  Round and round and round it goes, and where it stops, nobody knows.

If you believe as we do that the services have not lifted a finger to increase their matching efforts (and based on the DLC’s disclosures seem to have already paid out pre-MMA black box on a market share basis), you will better understand why we think this was a colossally terrible deal for songwriters.  You will also understand why this part of it was largely kept secret or downplayed.

The Eight Mile Style complaint against Spotify and the Harry Fox Agency (which is the same Harry Fox Agency that is now going to be handing your royalties for The MLC, how curious) has an informative passage about the timing of this retroactive safe harbor:

In addition, the retroactive elimination of the right to profits attributable to infringement, statutory damages, and attorneys’ fees under the MMA is an unconstitutional denial of substantive and procedural due process, and an unconstitutional taking of Eight Mile’s vested property right, and this Court should so declare.

It is settled law that an infringement claim is a property right that vests in a plaintiff the moment the infringement occurs. The Bill that ultimately became the MMA, written by the NMPA, with input from Spotify, became law in October 2018, but provides retroactively that a plaintiff who did not file an action by December 31, 2017, could lose any right to profits attributable to infringement, statutory damages, and attorneys’ fees if successful in a case against Spotify or other DMPs of interactive streams. On information and belief, the MMA, according to the NMPA’s own announcements, lobbyist spending, and congressional testimony on Capitol Hill, was jointly crafted by members of the NMPA (whose three top markets shares and dues-paying affiliated companies own equity in Spotify) and Spotify, DiMA, and other interactive streaming companies.

They knew what they were doing….

[W]ith the removal of these remedies, it cleared the last hurdle for Spotify to go public, thereby reaping tens of billions of dollars for its equity owners, including the major music companies as mentioned above. The unconstitutional taking of Eight Mile’s and others’ vested property right was not for public use but instead for the private gain of private companies.

The reference to timing on Spotify “going public” means Spotify filing their “DPO” to sell stock on the public markets–the really big money.  That’s relevant to the MMA negotiation because the MMA bill was introduced on December 21, 2017.  Spotify filed a confidential paper with the Securities and Exhange Commission on January 3, 2018 and Spotify’s stock started trading on April 3, 2018.  The MMA allowed them to show the markets that they were doing something about their systemic copyright infringement problem and gave fuel to the specious argument that lawsuits against them were merely opportunistic gotcha lawsuits and not a bellweather for their utter incompetence and cavalier treatment of songwriters.

Why is this timing important?  Because the MMA was filed on December 21.  What happened on December 22?  Congress closed for the holidays and would not reopen until after January 1, 2018.  That meant there would not be an official version of the bill until after January 1, 2018, the deadline to sue before the retroactive safe harbor would eventually take effect.  Various copies leaked, but since the entire music industry was also shut down for the holidays, it was unlikely that any songwriters would see it, particularly because we can’t find that their so-called “representatives” ever brought it up in any public messaging before the January 1 deadline had passed.

Do you think that timing is a coincidence?

As Eight Mile Style tells us:

The proof is in the pudding: Spotify was sued many times prior to December 31, 2017, for similar acts of copyright infringement as alleged herein, but not once since December 31, 2017. This is because the Bill that ultimately became the MMA first publicly leaked shortly before December, 2017, leaving music publishers with little or no time to investigate or file a lawsuit for infringement, even if they somehow became aware of the Bill at that time.

It just happened that Wixen Music Publishing was already on a war footing from opposing the various Spotify settlements and was able to easily pivot to filing its own lawsuit against Spotify before the December 31, 2017 deadline in a move worthy of General Patton at Bastogne.  But Wixen was alone.  No one else probably even knew the deadline was passing or what it meant.

The value of what the “negotiators” gave away cannot realistically be measured for the reason that Eight Mile Style clearly states, which is also the same reason that the retroactive safe harbor is unconstitutional:

The only practical or realistic remedies in these cases is the statutory damage remedy, and profits attributable, together with the ability to receive attorneys’ fees, and the drafters of the MMA knew it. The elimination of these remedies takes away from Eight Mile and others who may be similarly situated any practical or realistic remedy, immunizes complying DMP’s from suit, and should be declared an unconstitutional deprivation of due process and a taking of a vested property right.

So what’s the value that songwriters gave up in the MMA?  Wixen sued for $1.6 billion.  You figure it out.

Copyright Office Regulates The MLC: Selected Public Comments on the Copyright Office Black Box Study: The DLC Spills the Beans, Part I

We once had a mechanical licensing system in the U.S. that worked well enough for songwriters for 100 years.  The problem with the mechanical licensing system wasn’t so much the licensing function it was the royalty rate.  The government held down songwriters for 70 years to a 1909-based royalty rate that for some reason was frozen in time (more on frozen mechanicals here).  But if users failed to license, songwriters could at least sue for statutory damages.

After the Music Modernization Act passed in 2018, they managed to even give away songwriters’ rights to sue.  The songwriter part of the three-part MMA is called “Title I” and that’s the part that gave away the one hammer that songwriters had to be heard when their rights were infringed.  They called it the “limitation on liability” and it was retroactive to January 1, 2018—before the bill was actually passed by Congress and signed into law.

It’s entirely possible that even if you knew about the MMA, you didn’t know about this new safe harbor created by the same uber-rich companies that wrote themselves the DMCA safe harbor that has created the value gap and plagued artists for years and the “Section 230” safe harbor in the “Communications Decency Act” that services use to profit from human trafficking and revenge porn stalkers.  And now there’s the MMA safe harbor.

Only a handful of insiders got to be at the table when they gave away your rights in Title I without your even knowing what they were up to.  Don’t get us wrong, there are great things in the other parts of MMA dealing with closing the pre-72 loophole, some important changes to the rules for ASCAP and BMI with rate courts, and the fix for producers getting a fair share of SoundExchange royalties.  These are all good things.

The part that sucks is Title I that created this new safe harbor give away that will bedevil songwriters for generations to come.

So you may be asking how do we know this?  Since the so-called “negotiations” for the Title I give away happened behind closed doors, how do we even know what happened?  The answer is that we didn’t have the proof because anyone who tried to offer constructive criticism to the “negotiators” for songwriters was menaced, threatened and stabbed in the back.  Nobody was talking about the safe harbor give away.

But now we do have the proof courtesy of the music services representative at the “Digital Licensee Coordinator” who opened the kimono in their recent comments to the Copyright Office about the black box.  (Read the entire DLC comment here.)  Their comments make for quite a read, not only about the so-called “negotiations” by the unrepresentatives of songwriters but also about the run-up to the MMA in the private settlements that nobody sees.

The first issue is that the Copyright Office has proposed some well-meaning regulations to increase the likelihood that the black box will actually get paid to the songwriters who earned the money.  The services seem to be all in a huff about rules applying retroactively when they’ve been using old rules to organize their data.  You know, they don’t like this retroactive thing unless it’s a retroactive expansion of their safe harbor.  Then they like it just fine.

“The DLC emphatically opposes the Office’s proposal to retroactively expand the required reporting of sound recording and musical work information beyond that which is required by the existing regulations in 37 C.F.R. § 210.20. Those regulations were issued in interim form in December 2018, and finalized in March 2019, and unambiguously required collection of reporting information under the existing monthly statement of account regulations in 37 C.F.R. § 210.16. The Office has now proposed, in paragraph (e) of the proposed rule, to change the required reporting elements for the individual tracks, nearly two years after the MMA’s enactment and months before cumulative statements of account are due to be served.”

Sorry, but we think that the richest companies in commercial history, with trillions and trillions of dollars in market capitalization and the most advanced data mining capability in the known universe, can manage to figure out how to pay songwriters in a way that will actually result in songwriters getting paid. The truth is that they are so used to screwing songwriters that they are not going to lift a finger to help beyond the absolute minimum they have to do.

They got their retroactive safe harbor to give away, so don’t come whinging about retroactivity if it makes the distributions more likely to get to the right person, something the services have uniformly failed to do from their founding.

But now it gets interesting.

“It is well-known that—prior to enactment of the MMA—a number of DMPs entered into industry-wide royalty distribution agreements under the auspices of the NMPA, structured to allow all unmatched works to be claimed by their owners and all accrued royalties to be paid out, in what became the model for the MMA. These agreements were designed to, and did, put tens of millions of dollars in statutory royalties in the hands of copyright owners—money that they had been unable to access due to the broken pre-MMA statutory royalty system.”

First of all—“money that they had been unable to access due to the broken pre-MMA statutory royalty system” is utter crap.  The reason that services didn’t pay out is because they didn’t clear the songs but exploited them anyway.  For example, that’s also why Spotify got sued so many times and is still getting sued.  It’s not that the system was broken, it’s that the services didn’t care and handled licensing in an incompetent manner. In case you missed it, that’s what they want to keep doing by extending into the future the same sloppy practices they got sued for in the past.  The only thing new and improved about it is their absurd and undeserved safe harbor.

We don’t know what these “industry-wide royalty distribution agreements” were all about, but one thing we know for sure is that they weren’t “industry-wide” and the NMPA wouldn’t have had the authority to make those deals “industry-wide” in the first place.  “Industry-wide” seems to mean “with the major publishers” or with NMPA members or just plain insiders.  The implication is that “industry-wide” means everyone, which it clearly does not and cannot if you think about it for 30 seconds.

And if the copyright owners were owed a payment with their own money, the only reason that they couldn’t “access” the funds is that the services wouldn’t let them.  When you owe somebody money, you should pay them because you owe them, not act like you’re doing them a favor.

But here it comes:

Congress in the MMA’s limitation on liability provision enacted a compromise among stakeholders’ interests: elimination of the uncertainty of litigation facing DMPs in exchange for the transfer of accrued royalties to the MLC.

In other words, the services sat on the money and refused to pay until they got the MMA safe harbor.  That was the “trade”—do something the services were already required to do in return for something the songwriters were never obligated to do.  The songwriters paid for the safe harbor with their own money.

“As set forth in the relevant statutory provision, in exchange for payment of accrued royalties from “unmatched” usage prior to license availability date (and related reporting), DMPs are protected from the full brunt of copyright damages in any infringement lawsuits based on alleged failures to comply with the requirements of the prior mechanical licensing regime. The provision provides a clean slate for any past failures under the prior licensing regime for those DMPs who pay those back royalties and provide associated reporting. It provides requirements for DMPs that seek to take advantage of the limitation on liability, ensuring that DMPs that pay accrued royalties to the MLC can do so without having to second-guess whether the payment was worth it—that is, whether they qualify for the limitation.

This was the heart of the deal struck by the stakeholders in crafting the MMA: to provide legal certainty for DMPs, through a limitation on liability, in exchange for the transfer of accrued royalties.

Which “stakeholders” were these?  Did they include any of the plaintiffs who were then suing the services?  No.  Did they include anyone who didn’t drink the Kool-Aid?  No.

So let’s be clear—the reason that the services deigned to actually pay money they owed for failing to license properly is because they didn’t want to be sued for screwing up.  They wanted a vig of a new safe harbor, and as the DLC tells us very, very clearly this issue was at the core of the deal you didn’t make for Title I.

More in Part II