The Great Black Hole

What should be the goal of the Copyright Royalty Board in the Phonorecords proceedings? One important goal is to continue to help songwriters dig out of the financial hole that the government put them in back in 1909. Congress set the statutory mechanical rate at 2¢ during the Great Freeze from 1909 to 1978, one of the most neglectful financial blunders that Washington ever dreamed up before the MLC’s investment policy. A variety of government and commercial forces have kept mechanical royalties under water ever since while songwriters gradually clawed their way back from this great injustice.

Of course the streaming mechanical royalty suffers from the Great Freeze, too, because all government rates are relative. That doesn’t mean that the effects of the Great Freeze have vanished–even if you just adjusted the 2¢ rate for inflation the minimum statutory rate should have been 13¢ in 1978. Forty four years later, the current physical mechanical rate is 12¢ after the frozen mechanicals adjustment in Phonorecords IV. Fortunately, the labels offered a cost of living adjustment in Phonorecords IV so songwriters have downside protection for the first time in a very long time. (Remember, record companies pay the physical mechanical and streaming services like Amazon, Apple, Google and Spotify pay the streaming mechanical.)

It should surprise no one that the biggest corporations in commercial history who pay the streaming mechanical refused songwriters a cost of living adjustment on their mechanical rate which starts several decimal places to the right. So there is more work to be done to correct the wrong inflicted on songwriters due to the government’s compulsory license and obscene neglect.

And we haven’t even started discussing the true value of songs yet.

One of the key features of the structure of the Copyright Royalty Board is the emphasis that Congress placed on voluntary negotiations among the “participants”. The role of the CRB is designed to put the force of law behind whatever the lobbyists and lawyers for the “participants” come up with–unless it’s so egregious that it doesn’t pass the smell test. (I’m summarizing but you get the idea.).

Sounds good, right? The lobbyists write all the other laws, why should copyright be immune from regulatory capture?

Maybe not so much. We discovered through the “frozen mechanicals” saga in the Phonorecords IV proceeding that the negotiations are limited to the “participants” who want to negotiate with each other. There’s nothing that requires them to negotiate with all participants (wonder how that rule came to be). Fine, but being a participant requires millions for legal fees—dozens of the most expensive lawyers on earth feed at this trough. But don’t blame them, they’re just doing their jobs–and that’s the problem.

The Gift of Participation

Obviously, the overwhelming majority of songwriters and publishers cannot afford those millions. If you can’t afford life-saving surgery, it doesn’t really matter how effective it is. As you can see from the statutory language describing a “participant,” there is a lot of context left out. After all, anyone can be a participant, right? Anatole France might say, “The law, in its majestic equality, allows both rich and poor alike to participate at the CRB, to beg for fairness, and to have their royalty frozen.” Thus the songwriters who cannot afford the lawyers are at the mercy of the publishers who can. Only a fool would fail to see on which side the bread is buttered; the publishers who can afford to participate are not much interested in what anyone else has to say unless they are forced to listen so they appoint themselves as the bargaining group without an election.

Thus limiting negotiations to the “negotiating participants” only works if those participants are bona fide representatives of the songwriters affected by the results of the voluntary negotiation but who could not afford the millions in legal fees it takes to be a participant. Neither the Copyright Act nor the regulations require participants to back up their authority to speak for others with something like a watchamacallit–you know, the thing. A vote.

There is an exception to this lopsided situation. Random history has produced George Johnson, a songwriter who is representing himself in the Phonorecords proceedings. George is the only songwriter appearing before the CRB as a “pro per” individual and does not always share the position of the powers that be. However, George will not always stand in the breach like Horatius. George has the tenacity or what is called “cussedness” in some circles to hang in there and argue his points, many of which resonate with the little guy. Songwriters need to understand what both his presence and absence will mean.

But George’s presence raises another problem with the rules on settlement negotiations. Just because you are a participant does not mean that you will be included in the negotiations. In fact, George tells me that he has never been included in the settlement negotiations despite being a participant.

The goal is to be included in the negotiations; it is not to bear the risk and cost of being a participant only to be excluded from negotiation of the voluntary settlement and relegated to the kids table which is ignored. If that’s how it is, there is little difference between being a participant and being a commenter with one exception. Opposing a settlement carries more weight to the Judges if a participant also objects to a settlement; some might read the code to require an objection from a participant in addition to objections from commenters in order for the Judges to reject a settlement. (Commenters comment, participants can comment and object. 17 USC §801(b)(7)(A)(ii).

The Benefit of Public Comment

If you can’t afford to participate in the settlement negotiations, you may get a chance to comment if the Judges tentatively adopt the participants’ voluntary settlement and release it for public comment. There were many comments on the first frozen mechanicals settlement and the comments were thoughtful and passionate, pointing out many flaws in the first settlement.

The comments were so good that Is couldn’t help thinking that it would have been great for these comments to have been a part of the settlement negotiations in the first place. If the comments had been part of the settlement negotiations, it’s likely that the settlement would have been better–and maybe would not have been rejected by the Judges.

If there’s one thing that we discovered from the comments on the settlements it is that there’s a real question about who speaks for whom, particularly on the songwriter and publisher side.

The other thing we discovered from the saga is that the entire Phonorecords proceeding is poorly handled as a matter of case management. If there is a substantial delay in reaching a resolution of the rates due to silly discovery motions or unnecessarily hostile negotiations, the new rates may not come into effect until after the commencement date of the corresponding rate period. There is a relative concept of “late” decisions–fortunately the Phonorecords IV rates went into effect on January 1 when they were supposed to and will not require a costly retroactive accounting. But Phonorecords III rates still haven’t been paid properly, yet nobody seemed to view this as a problem until very recently.

There is a tremendous productivity loss resulting from having to both render, receive, review and audit retroactive statements for probably 1 trillion streams and the related restatements of revenue, adjustments to recouped balances and the like. It seems fair that any voluntary settlement case management schedule should work backward from a hard date on which new rates would apply.  This would at least place the overlawyering by the richest corporations in commercial history on a clock.   It also seems that the entire burden of retroactive accountings should not fall on the songwriters and publishers. You really do have to ask why this issue wasn’t addressed long ago.

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What is clearly needed is a longer table during the settlement negotiations. A longer table means more people at it, not fewer. It does not mean anointing the big dogs to rule, it means engaging with people who can bring their lived experience of being a songwriter or publisher to bear at a meaningful time. One simple example is the cost of blowing a deadline which seems to happen routinely. Getting input from many voices should be the objective. The objective is not to create employment for lobbyists and many, many lawyers; the objective is to make both the process and the result better than they found it.

Recall that Congress froze the mechanical royalty rate at 2¢ from 1909 to 1978. There was no CRB during that period. Do you think that would have happened if there had been a meaningful consultation between Congress and songwriters during that 69 year period? The frozen mechanical protest in Phonorecords IV resulted in a meaningful raise from 9.1¢ to 12¢ (plus COLA) on physical and downloads.

Not only was that frozen mechanical negotiation relatively painless in the end, the new rate is now in effect. This is thanks largely to the major labels doing the right thing in one of the most pro-creator acts in recent history. But it is also thanks to the existence of the CRB giving a forum to many voices. My point is that there should be a way to allow those voices to move up a step so that they are heard during the negotiation of the voluntary settlement and not after. The current law requires that the public be heard after the settlement is published by the CRB as a proposed rule, but that forces commenters to ask the Judges to reject the settlement rather than craft a better settlement.

Asking for rejection is a heavy lift. In fact, to my knowledge the only time the Judges have ever–ever–rejected a settlement was in the frozen mechanicals proceeding. That’s not a particularly efficient way to go forward if your goal is to be inclusive and get the benefit of many ideas.

If the Judges do not force the big dogs to allow other voices to be heard, the negotiation settlement will be baked before it ever gets to the public for comment and the rich will get richer. There are many ways the negotiation could be handled and you don’t need an act of Congress.