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