The Copyright Office has asked for comments from the public on important issues for rulemakings under the Music Modernization Act. This will potentially affect the operations of The MLC and related rights especially because the Copyright Office recently extended the scope of that rulemaking. The proposal drew a mixed response.

We will be posting selected comments that we think might be interesting to Trichordist readers. The project is a bit wonky, but important to stay informed on.

This comment to the Copyright Office from Abby North of North Music Group raises important issues including whether the MLC should have the ability to create disputes on its own, what happens to samples, interpolations and medleys, and the need for substantial consultations by the Copyright Office with rights holders large and small.

Abby’s thesis is:

The Supplemental Proposed rule is simply too broad.  Without customary Copyright Office consultations with industry working groups and roundtables to allow stakeholders to participate in the decision-making, the Office runs the risk of creating rules that are contrary to music publishing industry practices and costly to implement administratively. Further, without extensive consultation and revisions, it is nearly impossible to avoid unintended consequences as we are currently experiencing with the unreimbursed transaction costs imposed on publishers and songwriters of verifying and correcting data at The MLC.

Neither the first proposed rule, nor the supplemental rule addresses termination in the context of interpolations and medleys. If a work that has been terminated was included as an interpolation into another work prior to termination, the songwriter’s post-termination publisher or administrator should be able to terminate related to the interpolated work as well. 

There must be a mechanism for the songwriter and/or his/her post-termination publisher or administrator to notify The MLC of derivative interpolations/samples and medleys and become the royalty recipient for the applicable share of mechanicals generated by those works.

This proceeding raises the question of whether The MLC itself should have standing to initiate a dispute when no stakeholder has done so.  Due to the absence of rules and due process applicable to The MLC, it seems that The MLC should be prohibited from creating disputes on its own motion.  Alternatively, if The MLC is the party initiating a dispute, there should be some process and constraints applicable to its actions.  This might include limiting any review by The MLC to a fixed time to complete a review. The Office should define what that review entails; notice requirements so that copyright owners are made aware that The MLC is initiating a dispute on its own; under what circumstances The MLC is permitted to hold the funds of a copyright owner; where those funds are to be held (such as a segregated bank account); and how the MLC’s decision must be communicated to copyright owners and how copyright owners can appeal.  The MLC should not be allowed to interrupt the payment of royalties based on mere suspicion.  

Following is Abby’s entire comment.

Hon. Suzanne V. Wilson
General Counsel and Associate Register of Copyrights
U.S. Copyright Office
101 Independence Avenue, S.E.
Washington D.C. 20559-6000

Re: Termination Rights And The Music Modernization Act’s Blanket License: Response to Request For Public Comments Regarding Supplemental Notice of Proposed Rulemaking – The Applicability of the Derivative Works Exception To Termination Rights Under the Copyright Act To the New Statutory Mechanical Blanket License Established by the Music Modernization Act (“MMA”).

FR  Doc. 2023-20922
Docket No. 2022-5

Dear Associate Register Wilson:

I appreciate the opportunity to submit comments in response to the Supplemental Notice of Proposed Rulemaking regarding the applicability of the derivative works exception to termination rights under the Copyright Act.

I am a music rights manager who represents many estates and legacy songwriters and composers who have exercised, and plan to exercise their right to recapture their copyrights.

As interactive streaming has clearly become one of the biggest sources of royalty income for music publishers and songwriters, it is imperative that not only the derivative work exception be clarified related to the Section 115 Blanket Mechanical License, but further, the rules and processes The MLC follows in navigating distribution of royalties and dispute resolution after a termination has been perfected must also be defined.

ORIGINAL PROPOSED RULE VS. SUPPLEMENTAL PROPOSED RULE

The original proposed rule specifically addressed the issue of the Section 115 statutory blanket license not having a derivative work exception. Clarification is/was required, which the proposed rule provides.

The Supplemental Proposed rule is simply too broad.  Without customary Copyright Office consultations with industry working groups and roundtables to allow stakeholders to participate in the decision-making, the Office runs the risk of creating rules that are contrary to music publishing industry practices and costly to implement administratively. Further, without extensive consultation and revisions, it is nearly impossible to avoid unintended consequences as we are currently experiencing with the unreimbursed transaction costs imposed on publishers and songwriters of verifying and correcting data at The MLC.

RECIPIENT OF ROYALTIES POST-TERMINATION

For example, the Proposed Rule states that royalties under the blanket license should be distributed to the owner at the time of usage, rather than to the owner at the time of royalty distribution.  If the work has been claimed and matched to recordings by copyright owners, and there is a post-term collection period and the usage occurred during the term of that post-term collection period, the original grantee should receive the royalties. If the post-term collection period has ended, or there was no post-term collection period, the post-termination publisher should be the royalty recipient.

Once a songwriter/composer terminates his/her agreement with a publisher, that publisher no longer is the assignee of that songwriter’s copyrights, and consequently should not be the recipient of the songwriter’s mechanicals. While most publishers continue to distribute applicable post-term royalties they receive to songwriters whose agreements have terminated, they do so as a courtesy, but they may decide to stop doing so. If a songwriter ends a relationship with a publisher because the publisher exhibits weak administration skills or the business relationship was unfavorable, it is simply unfair to the songwriters to require them to continue a relationship with that publisher.

If the original grantee neglected to claim works and match to recordings during its term, but the post-termination publisher administers comprehensively and does claim and match, that post-termination publisher should be the recipient of the royalties once the post-term collection period has ended. Currently, the burden and cost to “play our part” is placed on the publishing administrators. However, because of the amount of time and resources (both human and tech) required to efficiently, accurately and comprehensively claim and register musical works and then match those works to all the recordings of the works, some publishers cannot afford to do the work. Often, larger publishers prioritize the highest earning works, simply because resources are limited even for them. If the post-termination publisher, who faces the same limitations in resources does put in the work, does register and claim the works that were not comprehensively and accurately registered or claimed, and does perform the very time-consuming process of manually matching recordings to those works to “play our part,” certainly that publisher should be compensated for its time and efforts.

SAMPLES/INTERPOLATIONS AND MEDLEYS

Neither the first proposed rule, nor the supplemental rule addresses termination in the context of interpolations and medleys. If a work that has been terminated was included as an interpolation into another work prior to termination, the songwriter’s post-termination publisher or administrator should be able to terminate related to the interpolated work as well. 

This language in 17 USC §304(c)(5) suggests that a voluntary agreement (such as an interpolation agreement) does not trump the right of termination:

 Termination of the grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.

There must be a mechanism for the songwriter and/or his/her post-termination publisher or administrator to notify The MLC of derivative interpolations/samples and medleys and become the royalty recipient for the applicable share of mechanicals generated by those works.

DISPUTE RESOLUTION

The Proposed Supplemental Rule sets forth three Dispute Resolution scenarios. Each of these attempts to facilitate resolution when the dispute is between or among rightsholders. The third scenario attempts to prevent disputed funds from being held indefinitely. If the parties to a dispute do not voluntarily agree on a resolution, the Proposed Supplemental Rule requires that the party initiating the dispute must commence a legal proceeding to maintain the hold. In my experience, copyright litigation will always arbitrarily favor the better funded party and should not be the default dispute resolution tool.

There needs to be a timeline imposed for the scenario in which the party collecting royalties does not respond to the dispute. If there is no response within a fixed period of time, such as 90 days, I recommend The MLC begin distributing these royalties to the party initiating the dispute, both retroactively and prospectively. This approach will help to incentivize parties to participate in the dispute resolution.

Further, this proceeding raises the question of whether The MLC itself should have standing to initiate a dispute when no stakeholder has done so.  Due to the absence of rules and due process applicable to The MLC, it seems that The MLC should be prohibited from creating disputes on its own motion.  Alternatively, if The MLC is the party initiating a dispute, there should be some process and constraints applicable to its actions.  This might include limiting any review by The MLC to a fixed time to complete a review. The Office should define what that review entails; notice requirements so that copyright owners are made aware that The MLC is initiating a dispute on its own; under what circumstances The MLC is permitted to hold the funds of a copyright owner; where those funds are to be held (such as a segregated bank account); and how the MLC’s decision must be communicated to copyright owners and how copyright owners can appeal.  The MLC should not be allowed to interrupt the payment of royalties based on mere suspicion.  

If the MLC fails to comply with these rules or cannot demonstrate good cause to continue to hold funds, or if the copyright owner appeals, The MLC should then release funds to the copyright owner or The MLC member with which it initiated the dispute and pay applicable royalties prospectively.

In conclusion, I acknowledge that some stakeholders in the music industry are anxious for resolution and would prefer not to have a protracted process. To that end, I recommend the Copyright Office finalizes the original proposed rule that specifically clarified the derivative works exception. However, The Copyright Office should pause the process related to the Supplemental Rule and its many very complex and nuanced elements that go beyond clarifying the derivative works exception. The industry must be given time and a process to evaluate and report on the impact of the Proposed Supplemental Rule. 

It is essential that the Copyright Office conducts a consultation on the Rule with a very substantial table with seats for many more voices that have experience in royalty distribution and dispute resolution. Experts and songwriter advocates must be given the opportunity to assist in the creation of the royalty distribution and dispute resolution processes and systems. It is crucial to take the necessary time to evaluate and prevent unnecessary or unintended consequences. To prevent complications, errors, and the need for even more clarifying Rules, we absolutely must get this right from the start.

I am thankful for the opportunity to express my views and concerns.

Best,

Abby North, North Music Group