Guest Post: Honesty In Our Favor: HFA Loses Attempt To Exit Eight Mile Style Case–What Implications For MLC?

Guest post by Chris Castle

The Uniform Commercial Code defines “good faith” as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”

Spotify was sued by Eight Mile Style and Martin Affiliated, two publishers that control rights in some of the early Eminem repertoire, including Lose Yourself. Remember that earlier this year, Spotify announced with great fanfare that Lose Yourself was streamed over 1 billion times on the platform. That’s just one measurement of Eminem’s dominance on Spotify. Turns out that Spotify had failed to license a good chunk of Eminem’s catalog.

The publishers eventually joined the Harry Fox Agency to the lawsuit as participating in the situation, adding claims of vicarious and contributory copyright infringement against the long-time publishing administrator to the industry. In fact, the Harry Fox Agency gave some people the impression that when it came to Section 115 of the Copyright Act, HFA thought they were the government. What ever is this venerable organization doing getting sued for copyright infringement instead of leading the charge against the infringer?

At one point a few years ago, quite a few years ago now, HFA decided to jump up on top of the wall. They started working for tech companies like Spotify and also administering publishing rights. That’s right–both sides. What could possibly go wrong?

Let me illustrate with an anecdote (one that does not involve HFA, or MRI for that matter). A highly ethical licensing administrator interviewed for a job handling music licensing for a big tech company. After several rounds of interviews, the administrator was told they weren’t getting the job. Asking for a reason, the tech company told the administrator that the company thought the administrator were likely going to flag and at least try to fix any problems they found in the tech company’s reporting. The administrator didn’t find this remarkable as this was the honest thing to do. The company said, we don’t want honesty when it’s not in our favor. The company hired someone else because they did not want “honesty in fact”.

There are serious allegations against the Harry Fox Agency in the Eight Mile Case. Remember, this is a defense motion to dismiss, so the plaintiff largely gets the benefit of the doubt in their favor. You may ask yourself what possible motivation could Spotify have for engaging in such risky behavior. In her order denying in part and granting in part HFA’s motion to dismiss, Judge Trauger puts her finger right on the most plausible explanation:

[I]t is undisputed that [Eminem, aka Marshall] Mathers is an artist who has enjoyed extraordinary commercial success and has built a large, dedicated fanbase, such that his omission from a major streaming platform might discourage some meaningful number of potential users from subscribing

In other words, they did it for the subscribers, they did it for the growth and they did it for the money.

While Eight Mile alleged both vicarious and contributory infringement, Judge Trauger dismissed the claim for vicarious infringement on technical grounds (with leave to amend). Not so with the claim for contributory infringement, however:

HFA objects that it was under no obligation to police Spotify’s in-house decisions regarding infringement. Whether that is true or not, the plaintiffs have not merely alleged that HFA failed to affirmatively police Spotify’s conduct; they have alleged both that HFA knew and, through the ordinary fulfillment of its duties, should have known that the infringement was occurring and that HFA was helping to conceal it.…There is little doubt, moreover, that those allegations of knowledge were pleaded sufficiently. Even when a claim is governed by the heightened pleading requirements of Rule 9(b), “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). The Supreme Court, moreover, has recognized a party’s “aiming to satisfy a known source of demand for copyright infringement” as evidence of an improper purpose in the contributory infringement analysis. Grokster, 545 U.S. at 939. That circumstantial evidence is only heightened when the defendant, knowing of the capacity for infringement, fails to take steps to avoid it. See id. (citing Groskter’s lack of “attempt[s] to develop filtering tools or other mechanisms to diminish the infringing activity using their software”).

The plaintiffs have plausibly alleged that HFA became aware of Spotify’s licensing predicament and offered services that directly filled its need to maintain an illusion of lawfulness while continuing to infringe. 

If these allegations turn out to be proven true, songwriters (and the Copyright Office for that matter) may well ask themselves if there are implications for HFA’s continued role as a vendor for The MLC, if not why they were selected in the first place.

This post first appeared in MusicTechPolicy

Chris Castle’s Copyright Office Comments on the Black Box Controversy

Here’s some more MLC news you’ll never read about in the trade press.

Yesterday we posted a shocking revelation from the MediaNet/SOCAN ex parte letter to the Copyright Office: It appears that the digital music services have no intention of complying with the much ballyhooed benefit to the Music Modernization Act–in return for the “reach back” safe harbor that somebody decided to grant the services retroactively, the services would pay over (or you could say “disgorge”) all the unmatched and unpaid mechanical royalties that they were holding, sometimes for years, and always secretly. (Adding insult to injury, MediaNet seems to think that referring to SOCAN’s ownership of MediaNet somehow makes screwing us over into a songwriter-friendly act of good fellowship and felicity. More likely, SOCAN itself knows nothing about it.)

Remember, MediaNet straight up threatened to decline the reach back safe harbor and not pay over the black box. As it turns out, MediaNet’s position is not unique–as Chris Castle identified in his reply comment on the Copyright Office’s black box study, all of the services represented by the DLC made that exact threat to the Copyright Office. As Chris observes, these are not idle threats. They are made by the biggest corporations in commercial history, one of which may be broken up due to antitrust investigations on two continents.

Something must be done and done quickly before the DLC decides to take the blanket license without the limitation on liability for past infringements having successfully scared off anyone who could have sued but didn’t thinking that there was a fixed reach back safe harbor. That seems like it will result in the big guys having paid off the big guys in the NMPA’s secret settlement that was being negotiated simultaneously with the MMA (the NMPA’s umbrella December 17, 2017 Pending and Unmatched Usage Agreement referenced in the MediaNet ex parte letter and talked around in other filings. Remember–the MMA was introduced a few days after the secret NMPA agreement on December 21, 2017 and Wixen Music Publishing felt they had to sue Spotify by December 31, 2017 because of the reach back safe harbor. So everyone except the songwriters–and perhaps most Members of Congress–seems to have known that the fix was in on black box.)

Another fine mess they got us into. Here’s the except from Chris Castle’s reply comment:

The DLC’s Quid Pro Quo Revelation

The concept of a “black box” distribution is a pale mimic of a simple
fact: It is not their money. The fundamental step that Title I excuses
is basic and would solve much of the unmatched problem if Title I did
not exist: Don’t use a work unless you have the rights.

It is a fundamental aspect of copyright licensing and it is not metaphysical.
Yet the message from all negotiators concerned in this process seems
to shelter legitimacy in a complication of dangers to the black box that
come down to another simple fact: Obey and be quick about it or the
law will take your money and give it to someone else.

How much is in the black box? They won’t tell you. From where? Not
your business. From when? Confidential. Is it yours? Already paid it
to someone else before you even knew it was there. And Lord knows
that money once taken incorrectly in the dark is unlikely to be paid
correctly in the light.

Comments by the DLC demonstrate conclusively that addressing the
black box has taken on even greater urgency. The DLC’s Initial
Comment in a related docket is unusually revelatory for a group with a
multitrillion dollar market capitalization that loves them some
protective orders. This passage is particularly breathtaking:

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.

If that were “the deal” it is news to me, and I like to think that I’ve
been reading along at home pretty attentively. If I wasn’t aware of
“the deal”, I’m sure I wasn’t alone in my ignorance, but I’m far more
understanding of why the negotiators would have been motivated to
keep “the deal” under wraps if that’s really what it was.

If “the deal” wasn’t kept quiet, someone might have asked why there
was a “deal” when the services were simply agreeing to pay money
they already owed and that they were already obligated to pay for infringements that already occurred. Yet, services still got the new
safe harbor trophy to put on the wall in the copyright hunting lodge
next to the DMCA and Section 230.

The gall doesn’t end there, however. The DLC goes on to make this
threat of imminent harm:

[The “deal”] is a crucial point for the Office to keep in mind as it
crafts rules in this space. If the regulations make it less likely
that a DMP will be able to rely on that liability protection when
it needs it—i.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.

It is a bit odd that the DLC seems to think of Title I as their private
contract, but there it is. The DLC members’ anticipatory repudiation
of the purported deal that the world now knows underpins Title I was
both refreshingly brazen and starkly shocking. Given that the Eight
Mile Style
case against DLC member Spotify (and both Spotify and
The MLC’s vendor the Harry Fox Agency) is a live action, the DLC is
not making an idle threat. The DLC tells us that if its market cap isn’t quite high enough to suit, Spotify could immediately dip into the black
box for “money to use in defending itself.”

The relationship with the services apparently has settled into the
customary laying about with threats and blackguarding both
songwriters and the Copyright Office. That’s reassuring in confirming
that human nature hasn’t actually changed and these companies really
were the Data Lords we had always known our betters to be after all,
sure as boots.17 Maybe one day the scorpion really won’t sting the frog.
Maybe another “unity dinner” is in order. But not today.

Regardless, it is clear that the Copyright Office is almost the only place
that songwriters can go for relief and an explanation of how the MMA
is to be implemented whatever secret deal the DLC now purports to
have made. Given the DLC’s unequivocal threat on behalf of its
members, there is no doubt of the imminent danger that the black
box currently being held is about to vanish into thin air if something
isn’t done immediately to preserve the status quo. The balance of
hardships pretty clearly tilts in favor of the songwriters as the safe
harbor services control the money and always have.

Guest Post: Copyright Office Regulates the MLC: Selected Public Comments on MLC Transparency: MediaNet

By Chris Castle

The wisest among us learn to use their portents well
There’s no need to hurry, it’s all downhill to hell.

From “Don’t Stand Still“, written by Original Snake Boy, performed by Guy Forsyth

The Copyright Office has solicited comments on the transparency of The MLC and received quite a few well-thought out comments (if I say so myself).  MediaNet

has raised some very interesting questions about the NMPA’s relationship with HFA and The MLC that many have questioned both in prior comments and in the many lawsuits against HFA clients like Spotify for its various licensing failures.  (Note that I don’t really fault HFA all that much because I think it really boils down to choices made by Spotify, another Internet company that is in a rush to enrich themselves at the expense  of songwriters and artists.  If you can fault HFA for one clear choice in that cluster, it’s that they didn’t resign from the job both during and after their ownership by NMPA and SESAC.  Maybe they got stock, too.)

MediaNet raises this interesting point:

In passing the MMA, Congress recognized that the party who controls the database may enjoy an economic advantage over others.9 Although not applicable to the MLC-HFA contract, The Federal Acquisition Regulation System, codified at 48 C.F.R. § 1.000 et seq., provides guidance regarding the principle cited by Congress under the MMA. For example, under FAR 9.505 a contracting officer cannot award a federal contract to a contractor where an organizational conflict of interest (or “OCI”) cannot be avoided or mitigated.

But here’s the clincher:

Applying the principles from the FAR, the arrangement between MLC and HFA raises a number of questions regarding the potential for unfair economic advantage to HFA as a consequence of its control over the operation and administration of the MLC database, including the following:

· Who owns the database, MLC or HFA? [The answer is neither]

· If HFA is terminated by MLC, does HFA own or have a claim to any proprietary or intellectual property rights in the database?

· Will HFA have access to “Confidential” or “Highly Confidential Information” (e.g., contract terms, payments and financial information) of music publishers or other similarly situated organizations such as PROs and administration service providers?

· Will HFA have access to the reporting of usage and required payments of the administrative assessment by significant nonblanket licensees (“SNBLs”) in the notices of nonblanket activity (“NNBAs”) required under the MMA?

· Sources suggest HFA may offer [an “ethical wall”] between its work on the MLC database and other work for third parties not using the blanket digital license, and an audit right to ensure HFA complies with this separation. Can HFA effectively separate such third party work from the database it administers for the MLC?

What are the remedies for non-compliance with such measures?

MediaNet respectfully requests that the Copyright Office, as part of its regulatory and oversight authority to ensure transparency, require that the agreements between MLC and all of its vendors be made publicly available, and with respect to the MLC agreement with HFA, if the information requested above is not disclosed in such agreement, require MLC and HFA to submit answers to the forgoing questions.

It should be obvious to everyone that there is an inherent conflict of interest between NMPA and HFA.  Insufficient care was taken at the Copyright Office and at The MLC to create systems to reduce the fact of this conflict negatively affecting the operations of The MLC which presents an opportunity to leave the bad days behind.  But that didn’t happen and here we are again.

But let’s not forget that The MLC is essentially a quasi-governmental organization and must comply with the Copyright Office’s oversight role despite the intimidation tactics.  And the Copyright Office is already looking a bit ragged around the edges from even the little connection to corrosion they’ve had to date.

For example, the Copyright Office announced that “the Butler Report” was commissioned by the Copyright Office to poll ex-US CMOs about their black box practices, knowledge which likely was common to everyone on The MLC’s board.  I must have missed where this work product was put out for bid, which leads me to think it was a single source consulting contract which is what they use to pave the road to hell when good intentions have supply chain disruptions.  Nothing against Susan Butler who is very competent and engaging, but I can think of several academics who would be better suited and would have been peer reviewed.  We can disagree about that, but why not have them submit proposals?  And also deliver all the work product that the taxpayer financed?

MediaNet raises many more excellent points about the inherent conflicts in the NMPA-The MLC-The HFA relationship and The Copyright Office’s designation process that are well worth reading.  You can find the full comment here.

And keep this in mind:

MLC executive Richard Thompson said at the Copyright Office panel on unclaimed royalties last December,[1] “[A] lot of the time since July has been spent working very closely with the staff at HFA and ConsenSys, really starting to nail down how all of this is going to work at the, you know, lowest operational level, all of the things that we need to work out.”  (Referencing the July 8, 2019 designation of The MLC as the MLC.)  Of course, The MLC didn’t announce the selection of HFA and ConsenSys until November 26, 2019. [2]

If The MLC was already working with HFA in July as Mr. Thompson says, why did they give the world the impression that they had not picked a vendor until November?

 

 

 

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

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