I am pleased to see that there is a consensus against more happy talk among commenters in The MLC, Inc.’s five year review of its operations at the Copyright Office. The consensus is an effort to actually fix the MLC’s data defects, rogue lawmaking and failure to pay “hundreds of millions of dollars” in black box royalties. But realize this is not just the songwriter groups you would expect to see raising objections (discussed in excellent Complete Music Update post). It’s also coming from some commenters who you would not expect to see criticizing The MLC who may not come right out and say it, but are essentially proposing a conditional redesignation.
When did Noah Build the Ark? The Two Arguments for Conditional Approval
There is a significant group, and sometimes from unexpected corners, who fall into two broad camps: One camp is “approve The MLC, Inc. with post-approval conditions” that may lead to being disapproved if not accomplished until the next five year review rolls around.
The other camp, which is the one I’m in if you’re interested, is to spend some time now getting very specific. The specifics are about crucial improvements The MLC, Inc. needs to put into effect and payments they need to make. This would be accomplished by bringing in advisory groups of publishing experts, especially from the independent community, roundtables, other customary tools for public consultations. But–the redesignation approval would occur only after The MLC, Inc. accomplished these goals.
Either way, the consensus is for conditions if not the timing. I’m not going to argue for one or the other today, but I have some thoughts about why delayed approval is more likely to accomplish the goals to make things better in the least disruptive way.
Remember, once The MLC, Inc. is approved, or “redsignated,” then all leverage to force change is lost. Why? Because if the last five years is any guide, exactly zero people will enforce the government’s oversight role and everyone knows it.
Putting operations-based obligations on The MLC, Inc. to be responsive to their members before they get the valuable approval preserves leverage and will force change one way or another, The reward for successfully accomplishing these goals is getting approved for another term (or the balance of their five year review). Noah built the Ark before the rain.
What if we fired them?
I’m actually pleased to see the consensus for conditional approval. Simply firing The MLC, Inc. would be disruptive (and they know it), mostly because the Copyright Office hasn’t gotten around to requiring that a succession plan be in place so that firing the MLC would not be disruptive. That’s a failure of oversight. You can’t expect the MLC to make it easy to fire themselves.
The simple solution to this pickle is for the Copyright Office to make any redesignation conditioned upon certain fixes being accomplished on an aggressive time frame. I say aggressive because they’ve had five years to think about this; it shoudln’t take long to at least implement some fixes. But if we don’t make it conditional the MLC will lack the incentive to actually fix the problems.
A conditional approval would simply say that if the MLC cleans up its act, say in the next 24 months, then they will be officially redesignated. If they don’t, it’s on to the next after that 24 month deadline.
Conditional Approval
I have to say I was encouraged by the number of commenters who said that The MLC, Inc. needs some very definite performance goals. Many commenters said that those goals needed to be met in order for The MLC, Inc. to get approved for another five years until the next review. I’m not quite sure how you approve them for another five years with performance goals unless you are really saying what some commenters came right out and said: Any approval should be conditional.
I think that means that the Copyright Office needs a plan with two broad elements: One, the plan identifies specific performance goals, and then two, establishes a performance timeline that The MLC, Inc. must meet in order for this current “redesignation” to become final.
That “conditional redesignation” would incentivize The MLC, Inc. to actually accomplish specific tasks like everyone else with a job. The timeline will likely vary based on the particular task concerned, but impliedly would be less than five years. There’s a very good reason to make the approval conditional; there’s just too much money involved. Other people’s money.
The Black Box
Every comment I read brings up the black box. Commenters raised different complaints about how The MLC, Inc. is managing or not managing the matching that is required for the black box distribution contemplated by Congress. They all were pretty freaked out about how big it is, how little we know about it, and the fact that the board of The MLC, Inc. is deeply conflicted because the lobbyists drafted an eventual market share distribution. Strangely enough, there’s every possibility that the market share distribution will happen, or could happen, right after the redesignation. Also known as losing on purpose in a fixed fight.
There’s an easy correction for that one–don’t do the market share distribution, maybe ever.
The harsh but near certain fact is if there is an announced market share distribution of the black box, the MLC (and everyone involved) will be sued before the actual distribution. It almost doesn’t matter how clean it is. So why do it at all? The MLC is supposed to set an example to the world, right? (And we know how much the world loves it when Americans say that kind of thing.) What if we said that the market share distribution was just bloodlust by the lobbyists salivating over a really big poker pot? On reflection, it should be put aside particularly because Congress may not have been told how big the black box really was if anyone knew at the time. Ahem….what did they know and when did they know it?
The Interest Penalty
This actually goes hand in hand with another interpretation of the black box provisions of Title I of the MMA which requires the payment of compound interest for black box money to be paid by The MLC, Inc. to the true copyright owner. That compound interest accrues at the “federal short term rate” in effect from time to time (that rate is adjusted monthly and is currently 5.01%). MLC’s interest obligation accrues in an account set up for the true copyright owner’s benefit, not for the recipients of the market share distribution.
Interest runs from the time the unmatched money is received by the MLC until it is matched and paid. There could easily be several different interest rates in effect if the unmatched royalties stay in the black box for months or particularly years. This concept is elaborated in a comment by the Artist Rights Institute. (And of course, why doesn’t the interest run from the time the black box is first held rather than the much later date that the unmatched is paid to the MLC?)
Title I requires this “penalty” the same way that it requires the statutory late fee which itself has been the subject of much negotiation. It is important to note that the word “penalty” does not appear in Section 115, but both the interest rate and the late fee are obviously “penalties” in plain English and in plain site. You don’t have to call it a thing a penalty in order for it to be a penalty. It doesn’t stop being a penalty just because the statute doesn’t define it as one, just like a large furry animal with big teeth, big claws, a loud roar and really bad breath who wants to eat you stops being a bear just because it doesn’t have a sign around its neck saying “BEAR”. Particularly when the furry animal has you by throat.
Align the Incentives
I have to imagine that a penalty of compound interest would incentivize both the MLC and the licensees who pay its bills to match that black box right quick. If a third party is paying the statutory interest penalty which is how it is now according to MLC CEO Kris Ahrend’s testimony to Congress (under oath), then there’s really no incentive for the MLC to pick up the pace on matching and there’s even less incentive for the licensees to make them do it.
It makes sense that the MLC is to maintain an account for each copyright owner (or maybe for each unmatched song since the copyright owner is not matched), so it only makes sense that these accounts and compound interest would be maintained on the ledger of the MLC rather than in a third party bank account, much less a mutual fund. It would be pretty dumb to just lump all the money into one account and run compound interest on the whole thing that would have to be disaggregated and paid out every time a song is matched. Assuming matching was the object of the exercise.
Plus, there’s nothing in Title I that says that black box money has to be put in a bank account that accrues interest so that the MLC doesn’t have to pay this penalty for being slow. Again, the word “bank” does not appear in Section 115. It definitely doesn’t say a federally insured bank account, a bank in the Federal Reserve system, or the like–because the statute does not require a bank. I would argue that if Congress meant for the money to be kept in a bank they would have said so.
Even so, I have to believe that if you want to an insurance company and said I will bring you the “hundreds of millions of dollars” if you write me a policy that will cover my interest expense and insure the corpus, somebody would take that business. If they can write derivatives contracts for fluctuations in natural gas futures in global energy markets, I bet they could write that policy or my name’s not Jeffrey Skilling.
William of Ockham Gets Into the Act
What makes a lot more sense and is a whole lot simpler is that Congress wanted to incentivize the MLC to match and pay black box royalties quickly. Congress established the compound interest penalty to add jet fuel to that call and response cycle following the jurisprudential theory of subsidiarity.
That penalty is part of the normal costs of operating the MLC therefore should be paid as part of the administrative assessment, i.e., by the services themselves. If the MLC sits on the money too long, the services can refuse to cover the interest costs beyond that point and the MLC can then pass the hat to the board members who allowed that to happen. Again, subsidiarity principles suggest that it is good government to create the incentive to fix a problem in the pocketbook of the one who is best positioned to actually get it fixed.
So everyone has a good incentive to clean out the black box. Brilliant lawmaking. I don’t think that’s such a bad deal for the services since they are the ones who sat on the money in the first place that produced the initial hundreds of millions of dollars for the black box. They got everything else they wanted in the MMA, why object to this little detail? Let’s try to hold down the hypocrisy, shall we?
There may be some arguments about that interpretation, but here’s what Congress definitely did not do and about which there should definitely not be an argument. Congress did not authorize the MLC to use the black box money as an investment portfolio. Nowhere in Title I is the MLC authorized to start an investment policy or to become a “control person” of mutual funds. Which they have done.
That investment policy also raises the question of who gets the upside and who bears the downside risk. If there’s a downturn, who makes the corpus whole? And, of course, when the ultimate market share distribution occurs, who gets the trading profits? Who gets the compound interest? Surely the smart people thought of this as part of their investment policy.
The Key Takeaway
You may disagree with the Institute’s analysis about what is and isn’t a penalty, and you may disagree about putting conditions on redesignation, but I think that there is broad agreement that there needs to be a discussion about forcing The MLC, Inc. to do a better job. I bet if you asked, the Congress clearly did not see the Copyright Office’s role as handing out participation trophies or pats on the head. And that should not be the community’s goal, either. This whole thing was cooked up by the lobbyists and they were not interested in any help. That obviously crashed and burned and now we need to help each other to save songwriters today and in future generations. If not us, then who; if not now, then when; if not here, then where?
The Artist Rights Institute takes on the pressing public policy issue of The MLC, Inc.’s investment of “hundreds of millions of dollars” of the black box and asks the Copyright Office to decide the legality of the MLC’s “Investment Policy.”
In this comment to the Copyright Office, Abby North (independent publisher and Artist Rights Symposium III Moderator) calls on the Copyright Office to stop the MLC quango from unilaterally establishing “business rules” that hurt songwriters and their heirs and protect working families from these arbitrary actions of The MLC. The passing of Jeff Beck reminds us once again that we must take care to protect the heirs of creators.
Re: Termination Rights and the Music Modernization Act’s Blanket License
To the United States Copyright Office:
My name is Abby North. I am a music publishing administrator based in Los Angeles. My views expressed in this letter are solely my own.
With my husband, I am a copyright owner of the classic song “Unchained Melody,” among other copyrights. I also administer musical works and sound recordings on behalf of songwriters, their families and heirs. In many instances, I assist my clients in identifying their termination windows, assist in the research required, and interface with the attorneys who process termination filings.
Abby North, Helienne Lindvall, Erin McAnaly, Melanie Santa Rosa speaking at UGA Artist Rights Symposium III (Nov. 15, 2022 in Athens, GA)
I’m thankful for the opportunity to submit comments in support of the Copyright Office’s proposed rule.
The ability to recapture rights via the United States copyright termination system truly provides composers, songwriters and recording artists and their heirs, a “second bite of the apple.” Many of my clients exercise this right, and in doing so grow their family’s revenue, which, given today’s inflation and very high interest rates, coupled with a depleted stock market, is absolutely necessary.
Allyn Ferguson was a successful composer of film/television scores including “Little Lord Fauntleroy,” “Les Miserables,” “Charlie’s Angels,” and “Barney Miller.” According to Variety in its June 27, 2010 obituary, Ferguson was “among the most prolific composers of TV in the past 40 years.” My company North Music Group administers works controlled by Ferguson’s family.
In addition to his scores, Ferguson wrote songs performed by artists including Johnny Mathis, Count Basie Band and Freddie Hubbard. While the bulk of his film and television scores were created on a work for hire basis, and therefore are not eligible for termination under US copyright law, Ferguson’s commercial compositions and songs were not created as works for hire. Ferguson’s family has been able to exercise its termination rights in various musical works,
thereby increasing its earnings as it now collects the publisher share of United States royalties generated by the terminated works. Individual songwriters and composers and their heirs are not copyright aggregators. Every musical work, and every penny generated is very necessary to these families.
The Music Modernization Act created the blanket digital mechanical license. This move from one-off copyright licenses to a blanket license was a dramatic improvement in US mechanical licensing. However, the suggestion that rights held at the inception of this blanket license might remain, in perpetuity, with the original copyright grantee was frightening. I concur with the Office’s proposed rule and legal analysis of the relevant statutes and authorities.
I appreciate the Office requesting comments on the mechanics of solving the payment issues, because for the independent publishers I speak with and for me personally, many operational questions arise regularly regarding The MLC’s uncharted territories.
As one of The MLC’s statutory goals is to provide transparency to songwriters and copyrightowners, I would ask that the Office require The MLC to notify copyright owners (1) if The MLC’s unilateral termination policy has already been imposed on payments previously paid or that are being held in the historical or current black box, and (2) when the adjusting payment required by the proposed rule had been made.
To be clear, this rule must absolutely be retroactive to inception date of The MLC. Beyond the simple, clarifying amendment to the MMA, I believe there are additional, related issues that must be resolved:
1) What is The MLC’s “business rule” regarding the MLC/HFA Song Code for the terminated work? Prior to the inception of The MLC, the Harry Fox Agency would assign one HFA Song Code fr the work and its pre-termination parties, and a different HFA Song Code for the work with the post-termination parties.
What happens now? Do these multiple HFA Song Codes remain in The MLC’s database? Will there continue to be two separate MLC/HFA Song Codes, particularly given the Harry Fox Agency continues to license physical and download mechanicals on behalf of many publishers? Is it reasonable for the HFA Song Code to be the same as The MLC Song Code, when there is no derivative works exception in Section 115?
2) Which party is entitled to the Unmatched (Black Box) royalties, the related interest fees and to The MLC’s investment proceeds for a terminated work?
Finally, it should be noted that the initial concept proposed by The MLC Board (that the server fixation date should impact termination dates) most likely would have served large publishers, not songwriters.
It is crucial that the Copyright Office exercise vigilant oversight and governance of The MLC’s reporting regarding any payment obligations to copyright owners. Specifically, composers, songwriters and their heirs must have as significant a voice as the largest publishers and copyright aggregators.
Additionally, in the spirit of full transparency, I request full disclosure of board or committee votes, minutes of meetings or other documentation of process. For me and others like me, this would tremendously enhance our understanding of The MLC.
Decisions are being made by The MLC’s board and committee members, while the general MLC member or songwriters have no mechanism to gain information regarding the discussions, the decisions and the implementations thereof. Access to minutes and notes would provide valuable insights to the general membership.
I applaud the Copyright Office for moving swiftly to create this rule and clarify and codify how The MLC must treat copyright terminations. It is important that this rule be dictated by the Office as it is absolutely not The MLC’s job todecide who controls rights and is entitled to collect royalties.
That said, a “business rule” established by The MLC could have the effect of law absent vigilance by the Copyright Office.
On behalf of my family and clients, I wholeheartedly support this proposed regulation, and I truly appreciate the Copyright Office’s consideration of my comments.
Please take a moment and complete the ArtistRightsWatch new anonymous 10 question survey regarding The MLC at this link. We’re gathering general anonymized information about how songwriters and publishers have heard about The MLC and whether you think an independent advocate (or an “ombudsman”) would be useful to you. This will help us plan future programming and input.
The survey is available to everyone and will be open until January 31, 2021.
[Guest post by Chris Castle. This post first appeared on MusicTechPolicy. This is interesting because songwriters don’t often see shenanigans from Apple Music but it is probably due to the overpowering litigation magnet of the MMA. Put this in The MLC redesignation file]
Here’s an update on the bizarre saga of Apple Music and The MLC. Remember that HFA sent to its publishers this termination notice from Apple Music on Apple’s lyric and cloud services licenses (and assume for the moment it was also sent to other non-HFA publishers):
This is remarkable because the Music Modernization Act limits the kind of licenses that the MLC can administer because the blanket license only applies to a limited number of activities (on demand streaming, limited downloads and permanent downloads). It does not apply to lyric licenses or cloud services because the blanket license is not available for those rights. Those rights would still need to be licensed under the very type of agreements that Apple is terminating.
This question came up during a recent MLC webinar moderated by MLC executives Kris Ahrend (CEO) and Serona Elton (Head of Educational Partnerships). These two executives were asked the obvious question, how can The MLC do lyric licensing for Apple. An eagle eyed MTP reader sent this screen capture from the chat:
So you have to ask, if The MLC can’t license lyrics, why did Apple terminate their lyric licenses and transfer to The MLC? And what does “separately from us” mean? The answer is not really responsive to the question.
Separately from us could easily mean that while The MLC is not licensing lyrics, some other entity is. (Presumably the lyrics are from songs that are subject to the blanket license so the MLC would play a role.) Remember that the termination notice came from HFA. Could it be that “separately from us” means HFA would be issuing a side by side lyric license on behalf of its publishers?
And remember that the notice from Apple includes this language:
[W]e intend to move our licensing and royalty administration for Apple Music to the MLC starting from January 1, 2021.
Congress did not intend that The MLC offer licensing and royalty administration for DMPs like Apple. That would mean that The MLC would be paying itself for Apple’s blanket activities. That is what HFA does through a rather porous ethical wall (and for which they have been at the center of two class actions and numerous copyright infringement lawsuits and are currently a co-defendant with Spotify in another post-MMA lawsuit).
It has long been assumed that somehow some way The MLC intends to offer bundled licensing which is currently prohibited. Bundled licensing could take the form of performances, ex-US rights, sync, even general licensing.
It seems like that effort is quietly underway. What is an alternative explanation for Apple terminating a large number of agreements and transferring its licensing and royalty administration functions to The MLC? Is the plan that The MLC gets the business and HFA does the work that The MLC is prohibited by statute from performing (at least until they move the goalposts again)?
This does help to explain why there is no MLC database and all The MLC’s “data quality initiative” corrections and improvements are being performed on the HFA database (which HFA owns and will use for work not limited to the blanket license).
The Trichordist 
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