Songwriter Liberty and Audit Rights Under Section 115: Music Licensing Study Filing

…there was lunch in the larger, first floor cafeteria where, in the corner, on a small stage there was a man, playing a guitar, who looked like an aging singer-songwriter Mae’s parents listened to.

“Is that….?”

“It is,” Annie said, not breaking her stride.  “There’s someone every day.   Musicians, comedians, writers….We book them a year ahead.  We have to fight them off.”

The singer-songwriter was signing passionately…but the vast majority of the cafeteria was paying little to no attention.

“I can’t imagine the budget for that, ” Mae said.

“Oh god, we don’t pay them.”

The Circle, by Dave Eggers

The Copyright Office is conducting a “Music Licensing Study” for which the office solicited public comment.  The Copyright Office received many comments (85 at last count) and strangely the comments showed a philosophical role reversal:  The music folks, especially the songwriters, are leading the charge for free markets.

The Digital Media Association, home of some-time libertarians like Google, Amazon and Apple, are leading the charge for more government regulation–for everyone except themselves.  (3 of Eric Schmidt’s Gang of Four.)  Yes, the Silicon Valley libertarian tax dodgers with combined market caps over $1 trillion are pushing for MORE government regulation against songwriters.

Let’s keep a good eye on that, because what’s good for the goose….

And the Digital Media Association’s cartel members are most interested in making sure they can use the compulsory license for the use of songs on their music services (under Section 115 for those reading along), force songwriters to participate in rate proceedings that no songwriter can afford, and then tell songwriters that they can’t audit.

There’s also a major push to completely abandon the compulsory license under Section 115.  I personally think that’s not going to fly with independents and individual songwriters and I think it will produce a huge shock to the system.  I also think that it’s not going to fix the main problem:  Nobody knows whether they have gotten a straight count ever in the history of the compulsory license.  So if the compulsory license is to be abandoned altogether, songwriters should at least have the right to audit retroactively for the last 3 years–individually, collectively, through their publishers or administrators, or how ever they want to do it.

Because at the end this is about extending simple rights of liberty to songwriters that the cyber libertarians would deny.

I’m going to post my Copyright Office comment in three parts, here’s Part 1 on songwriter audit rights.

Jacqueline C. Charlesworth
General Counsel and Associate Register of Copyrights
United States Copyright Office
101 Independence Ave. S.E.
Washington, D.C. 20559-6000

Re: Music Licensing Study Notice and Request for Public Comment
Docket No. 2014–03]

Dear General Counsel Charlesworth:

These comments are respectfully submitted in response to the Copyright Office’s Notice of Request for Public Comment dated March 17, 2014 relating to music licensing as enumerated in the Notice….

1. Audit Right under Section 115 Compulsory Licenses

The statutory license under Section 115 has no audit right. This means that the government compels songwriters to license their works, sets the rate at which they must license, but does not provide an opportunity for the songwriter to determine if they got a straight count from the compulsory licensee.

There are three other comparable licenses in the Copyright Act—all give the copyright owner an audit right.

I fail to understand why songwriters are not allowed to “trust, but verify.” Developing an audit provision for Section 115 need not be an onerous task as Section 114 already has a very serviceable audit right for sound recordings complete with regulations that could nearly be incorporated whole into Section 115 with suitable changes for the nature of the works concerned.

In the absence of an audit right, songwriters are expected to believe that the certified public accountant certifying their royalty statement using the required language in 37 C.F.R. 201.19 has actually examined the preparation of the royalty statement concerned. Given that there are potentially millions of transactions to be certified in the statements for a service of any size, it should come as no surprise that I have yet to meet anyone who actually believes the certification.

This disbelief does not necessarily mean that the licensee’s C.P.A. is misrepresenting their work. However, it does suggest that there may be some liability avoidance shortcut being used by the C.P.A. and their employer in the background that may satisfy the C.P.A.’s ethical obligations and insurance requirements but that is not disclosed to the songwriter by means of the required certification language.

This could all be avoided if in addition to the certifications, a songwriter could demand a royalty examination in line with the rights granted to sound recording owners under applicable parts of Section 114.

Some might argue that there could be a multiplicity of audits under Section 115 that might inconvenience the compulsory licensee. I would suggest that there is no greater likelihood of audits against digital services than there is against record companies. Being audited is a cost of doing business long borne by record companies and seems a fair requirement given the great benefits conferred on licensees by the compulsory license. Respectfully, I do not view this as a quid pro quo requiring the songwriter to give up something else in order to get a straight count. Rather, I would respectfully suggest that the exclusion of an audit right in Section 115 is an oversight that needs correcting.

Some might say that while there is no express audit right in the statute, there is nothing that prohibits an audit and therefor an audit is permissible. Experience suggests that this argument will fall on deaf ears and will be summarily rejected by licensees. Respectfully, silence is not golden in this case.

While it is important that an audit right under Section 115 be granted to the individual owner of the work in question, songwriters could assign their audit rights to their publisher or to a collective administrator including an ad hoc collective formed for the purpose of the audit.

Having been compelled by the government to license their songs to strangers, it seems only fair that the songwriter at least be able to confirm to their reasonable satisfaction that they are getting a straight count.

[Continued in Part 2]