Home > artist rights > “Successful” Licensing Models and the Opt Out: Music Licensing Study Comments

“Successful” Licensing Models and the Opt Out: Music Licensing Study Comments

June 14, 2014

The U.S. Copyright Office is conducting a “Music Licensing Study” as part of the government’s overall review of the U.S. copyright law with an eye to potentially overhauling the entire copyright system.  (See “The Next Great Copyright Act” by Maria Pallante, the head of the U.S. Copyright Office and the nominal go-to person for the U.S. Congress on copyright issues.)  The Copyright Office has received written public comments on questions posed in its Notice of Inquiry and is also holding public Roundtables in Nashville, Los Angeles and New York  (in that order).

The speakers at the Roundtables are by invitation only although the roundtables themselves are open to the public.  We understand that the Roundtable participants will be invited to submit written reply comments at some point after the conclusion of the last Roundtable.  The Nashville Roundtable is over and the Los Angeles Roundtable begins on Monday.

I filed comments with the Copyright Office and this post is the second of a three part post focusing on each of the three points I made in my comments (see Songwriter Liberty and Audit Rights Under Section 115).  This post proposes allowing songwriters to “opt out” of the compulsory mechanical license required under Section 115 of the Copyright Act.  While many are advocating abandoning the compulsory license altogether, I not only don’t think that goal is politically achievable without a consensus among songwriters as well as a very clear understanding of what comes after it, I also don’t think it’s necessary to go that far.

A middle ground is the “opt out,” so that those who wish to take advantage of some or all of the provisions of the compulsory license may do so, while those who want to negotiate a direct deal can reserve those rights to themselves.

One of the questions on the Copyright Office Roundtable Agenda is a discussion of successful licensing models.  I don’t see how anyone can defend the compulsory license in Section 115 as a “successful” model (particularly compared to the very successful compulsory license for sound recordings).  First, I can’t imagine how a licensing process could be “successful” if it does not result in transparency and robust record keeping. As I discussed in the post on creating an audit right, not only does the government not require transparency, the government actually mandates opacity.  I guess the only thing worse than piracy is accuracy.

In current practice, the compulsory license in Section 115 allows users of the license to blast out a paper trail of hundreds of thousands of notices of intent to use.  The practice of of “carpet bombing” NOIs simply results in an argument to insulate users from claims for at least intentional infringement–unless a songwriter can successfully argue the the entire exercise was just a ruse.  That would require a very well-funded songwriter plaintiff.  And no right to audit is just the cherry on top.

As David Lowery noted in his comment to the Copyright Office, the government forces songwriters to continue to license to users who don’t comply with the requirements of the license, may not pay on time, and may not pay correctly, even if the songwriter sends a termination notice and even sues the user.  The government has no feedback loop to determine if users of the license deserve to be able to keep using the government mandated compulsory.  (See Credit Check: Serial Bad Actors Should Lose Access to Compulsory Licenses.)  As David said:

In  an arm’s  length  direct  license,  I  certainly  would  not  choose  to  make a  new  license  for  my  songs  with someone  who  didn’t  respect  my  rights  or  honor  the  terms  of  my  agreement  in  the  past — particularly someone  who  owed  me  money.    Why  should  a  compulsory  license  be any  different?

These problems affect the big guys and the little guys alike–this is why I think it is necessary to allow songwriters (and if songwriters assign the opt out right, their publishers) to opt out of the entire charade.  Some may object to the opt out as making it more complicated for users to operate, but as we have seen with the Amazon service in the last week, it is not necessary for even a major service like Amazon to have deals in place with all publishers, particularly when the service offers onerous and subpar terms.

Here is part 2 of my filing:

2. Opting Out of the Compulsory License Under Section 115

A Nashville hit songwriter and session musician told me long ago that he was mystified. “Why can I get double scale when I play on the hits, but I can’t get double stat when I write the hits?” An excellent question.

Nearly 10 years ago, former Register of Copyright Marybeth Peters told the Congress that abandoning the compulsory may be an idea whose time has come:

[T]oday all…countries, except for the United States and Australia, have eliminated such compulsory licenses from their copyright laws. A fundamental principle of copyright is that the author should have the exclusive right to exploit the market for his work, except where this would conflict with the public interest. A compulsory license limits an author’s bargaining power. It deprives the author of determining with whom and on what terms he wishes to do business. In fact, the Register of Copyrights’ 1961 Report on the General Revision of the U.S. Copyright Law favored elimination of this compulsory license.  I believe that the time has come to again consider whether there is really a need for such a compulsory license. Since most of the world functions without such a license, why should one be needed in the United States?

If the Congress were to abandon the compulsory license, this would potentially derail over 100 years of commerce that relies on that structure. I think that ultimately this is the direction that the Congress should steer. However, short of abandoning the compulsory license altogether there is a middle ground and potential fix that would be relatively easy (emphasis on “relatively”).

Why keep Section 115? Just as we have uniform statutes like the Uniform Partnership Act or Uniform Commercial Code, there is a value to having certain terms of a mechanical license set in the Copyright Act. The standard negotiated mechanical license is a private contract that typically starts with “this license incorporates by reference the mechanical license in the Copyright Act except as set forth herein” or words of similar import.

The problem is not that there is a uniform set of mechanical license terms that copyright licensees and licensors can easily reference. The problem is that the terms are compulsory and essentially deny songwriters the ability to bargain—as my Nashville friend bemoaned. This is especially true of the so-called “minimum” statutory rate. I respectfully suggest that in practice the “minimum” rate is essentially a maximum primarily because the songwriter lacks the ability to opt out and withhold their song from the market. Why would any licensee ever pay more than the “minimum” if they are not compelled to accept a higher rate?

This is yet another problem plaguing songwriters. One fix would be to establish a decision point that would allow songwriters either to opt in to the existing statutory license terms or to opt out of it. My view is that the better route might be to phase in an “opt out” so the newly free market could develop more gradually, and implement the “opt in” a few years after the market got used to the idea of the “opt out.”

Either way, the change would probably best be implemented prospectively–there are a host of statutory licenses in use, either stand alone or private agreements granted by artist-songwriters in record deals that rely on the statutory license. Simply eliminating these existing licenses entirely would likely be extraordinarily disruptive and maintaining an optional “uniform mechanical license” in the Copyright Act seems to make good commercial sense.

How would this “opt out” procedure work as a practical matter? A songwriter could communicate her decision to opt out of the statutory license in the document repository of the Copyright Office.

As you know, the U.S. Copyright Office has a well-developed document repository that has been in place for decades. For a modest fee, anyone can register a document and “to encourage document recordation, the law confers certain legal advantages, including priority between conflicting transfers and “constructive notice”…if certain requirements are met.”

So an “opt out” notice could easily be recorded in the Copyright Office and take advantage of the existing jurisprudence around document recording. The services that often “carpet bomb” notifications of intention to use under Section 115 could just as easily look up the songwriter or work in the Copyright Office recordation database to determine if the particular work is available for compulsory licensing and act accordingly.

The “opt out” notice could be very simple in language and structure and its format could be established by equally simple statutory language. Songwriters could assign these rights to their publishers or administrators.

While the U.S. may eventually abandon compulsory licensing altogether as Register Peters suggested a decade ago, a serviceable repair to the system may be an “opt out” structure. This would allow songwriters who were satisfied with the status quo to continue with the compulsory and those who were not could recover their bargaining rights. In the absence of a recorded “opt out” notice, a service or record company could rely on the compulsory license and rate.

If the goal of the statutory license is to approximate a market rate, an “opt out” system will provide many good data points for a rate setting proceeding.

I respectfully suggest that under this structure, there would not be a gap in rights, songwriters and publishers would be able to bargain freely and the market would produce sufficient information for licensees to know what rights were available and who to pay.

  1. June 16, 2014 at 06:01

    The right to audit would be vital for creators, if First Sale Doctrine were extended to digital works, and would be vigorously opposed by the “Freedom” crowd.

    According to a recent Consumers’ Reports article, people pay approximately $30 a year for online privacy. How much would a person make in online sales of “used” digital content in a competitive market? Would it be worth the trade-off in loss of privacy?

    If First Sale Doctrine were extended to music, movies, games, ebooks etc, it would be reasonable to extend the right to audit to copyright owners… that is the right to audit every computer and other device capable of storing or transmitting digital content in the home, every flash drive in the home, every cloud storage account in the home, every other backup measure in the home, every email account in the home to be sure that the person reselling “used” digital content were indeed selling the one and only lawful copy, and that they had destroyed the six lawful backup copies.

    Would one want to give the NSA and the IRS increased surveillance powers to keep everyone honest? Would every digital resale be theoretically subject to city, state and federal taxes?

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