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Score One for the Serfs: Copyright Royalty Judges Mandate MLC/DLC “Settlement”…With a “But”

December 14, 2019 Comments off

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Always read the footnotes.

Remember how we all were told that the services were going to pay for the administrative costs of operating the Mechanical Licensing Collective under the Music Modernization Act.  And that songwriters would benefit because there would be no administrative costs for the mechanical royalties collected and paid by the MLC.  (This implies, although importantly does not say, that publishers could not charge an administration fee for mechanicals they receive through the MLC but not surprisingly the MMA is silent on this not so nuanced nuance.  And why might that be?)

The drafters of Title I of the MMA (which is where the MLC-DLC rule reside) put it on the Copyright Royalty Judges to decide if the “administrative assessment” was fair and reasonable.  In case you missed it, the MLC and the DLC have reached a voluntary settlement that is several million dollars short of what the MLC asked for.  The CRJs have now issued an order making the settlement the law of the land.  With a twist.  (Order Granting Participants’Joint Motion To Adopt Proposed Regulations,  In Re Determination And Allocation Of Initial Administrative Assessment To Fund Mechanical Licensing Collective, Docket No. 19-CRB-0009-AA, (Dec. 12, 2019).)

Here’s some relevant language from the CRJs’ order:

Section 115(d)(7)(D)(v) of the Copyright Act authorizes the Judges to approve and adopt a negotiated agreement that has been agreed to by the Mechanical Licensing Collective and the Digital Licensee Coordinator in lieu of a determination of the administrative assessment. An administrative assessment adopted under section 115(d)(7)(D)(v) “shall apply to all digital music providers and significant nonblanket licensees engaged in covered activities during the period the administrative assessment is in effect.”

Sounds good, right?  But the CRJs go on:

However, the Judges, in their discretion, may reject a proposed settlement for good cause shown. Id. Section 355.4(c)(4) of the Judges’ rules establishes a process for non-settling participants to comment on a proposed settlement and for the settling participants to respond. Because there were no non-settling participants in the instant proceeding, the proposed settlement was unopposed.1

Notice two things:  First, the CRJs’ adopt the position of the MLC and the DLC that the only people who could object to the settlement were “participants”.  Who might that be?  Why the DLC and the MLC, of course.  There were other participants, most prominently the Songwriters Guild of America.  SGA was hounded out of the proceeding because the MLC apparently did not want to include SGA in the negotiation of a settlement.

I can understand the complexity of a three-way negotiation with those pesky songwriters about a matter that affects all the songwriters in the world who have ever written a song or that may ever write a song.  Those songwriters might really get in the way.  What I do not understand, however, is why the songwriters would not be afforded the opportunity to at least comment on the settlement that carries the awesome power of the Leviathan behind it.  I do understand how the rules came to be written the way they are, however.

And this leads to the other thing to observe about this ruling.  “Because there were no non-settling participants…the proposed settlement was unopposed.”  Rather tautological, right?  How can the settlement be opposed if those who might oppose it are not allowed to do so?

Let’s be clear what “opposition” means in this context.  You could just as easily say “improve” or “make fair”.  And lest you think that this is yet another example of sloppy legislative drafting in the mistake-prone Title I, this time I don’t think it’s a mistake.  I think it is exactly what the drafters intended.

But notice something else.  After the world “unopposed” the CRJs drop a footnote.  And it is this footnote that is probably the most important point to the unrepresented songwriters and startups who either couldn’t afford to participate or who were afraid of back alley retaliation if they did.

The Judges have been advised by their staff that some members of the public sent emails to the Copyright Royalty Board seeking to comment on the proposed settlement agreement. Neither the Copyright Act, nor the regulations adopted thereunder, provide for submission or consideration of comments on a proposed settlement by non-participants in an administrative assessment proceeding. Consequently, as a matter of law, the Judges could not, and did not, consider these ex parte communications in deciding whether to approve the proposed settlement. Additionally, the Judges’ non-consideration of these ex parte communications does not: (i) imply any opinion by the Judges as to the substantive merits of any statements contained in such communications; or (ii) reflect any inability of the Judges to question, [on their own motion without a filing from a participant] whether good cause exists to adopt a settlement and to then utilize all express or reasonably implied statutory authority granted to them to make a determination as to the existence…of good cause [to reject the settlement now or in the future].

This footnote is very, very important.  I would interpret it to mean that the CRJs may anticipate that they are directly or indirectly appealed or their decision is examined by the Congress that has ultimate oversight.  (Remember, the CRJs are not truly “judges” under the powers of the judiciary in Article III of the Constitution, but are more like administrative law judges under the powers of the Congress in Article I as the CRJs are part of the Library of Congress
The Copyright Royalty and Distribution Reform Act of 2004 (CRDRA) established the Copyright Royalty Judges program in the Library of Congress.”)

The fact is that the entire process is deeply flawed and fraught with moral hazard if not outright conflicts of interest.  And even if the rule makers manage to exclude the rule takers from the rule making, those pesky songwriters and the public will still comment and criticize.  The insiders can’t threaten to sue everyone.  While the CRJs cannot officially acknowledge the criticisms of the Leviathan by the governed for well-founded fear of the back alley tactics, this footnote is about as close to a “message received” as the governed is going to get.

For now.

Score one for the serfs.

 

The Copyright Office Should Set Conflict of Interest Policy for the MMA Musical Works Database

December 11, 2019 1 comment

[This post originally appeared in the MusicTechPolicy Monthly Newsletter before the announcement of the MLC vendors.]

Title I of the Music Modernization Act is clear about a few things, one of which is the creation of the “musical works database.” That database is for a specific purpose-it is to be used by the mechanical licensing collective in fulfilling its statutory mandate to “collect and distribute royalties from digital music providers for covered activities” under the new blanket license.   Among other things, the MLC is also mandated to “[a]dminister a process by which copyright owners can claim ownership of musical works (and shares of musical works)”.

But the MMA also establishes a cohort of “special” people who can get <em>copies of the entire database</em>, a “bulk copy.”  And there’s the conflict of interest rub.  Not to mention the data integrity rub because as you’ll see, the last thing the Congress wants is to have inconsistent “official” databases floating around the ether, each claiming to be authoritative and more authoritative than the next.  (Without, of course, undermining competition for accuracy or efficiency with the “official” database.)

Authority of the Copyright Office to Create Database Conflict of Interest Rules

As the legislative history teaches us, the Congress is taking a critical look at how the musical works database is in fact utilized.  Congress is also onto the old database arbitrage rope a dope: “Music metadata has more often been seen as a competitive advantage for the party that controls the database, rather than as a resource for building an industry on.” (H.R. Rep. No. 115-651 and S. Rep. No. 115-339, at 8.)

Unsurprisingly, Congress also empowered the Copyright Office with the authority to establish regulations regarding “usage restrictions of the musical works database.”  The Copyright Office could take up that issue in the current rulemaking.  As the Copyright Office noted in the notification of inquiry for MMA regulations, “[t]he Office seeks public input on any issues that should be considered relating to the oversight of the MLC, including but not limited to conflicts of interest….” 84 Fed. Reg. 49966 (No. 185 Sept. 24, 2019).

The musical works database is to be used for a specific purpose to further the permitted work of the MLC and to be a national asset that is the definitive resource for copyright ownership of songs.  Congress did not intend for the database to be a leveraged byproduct of Title I that would allow special people special privileges.  The integrity of both the data and the database is of great importance to Congress and to the Copyright Office.

It is also clear that nothing in the MMA grants to anyone any ownership right to the musical works database or any data acquired in its establishment, not MLC, DLC or anyone receiving a copy.  Neither does MMA grant any right to sell or resell that data.  The Copyright Office clearly has an oversight role for any sales, a role the Congress takes seriously based on the legislative history as well as a host of public statements by Members and Senators.

So it will be entirely within the brief of the Copyright Office to establish rules to protect the public against both threats to database integrity and efforts at database arbitrage.  (In the eminently readable MMA, you will find this at 17 USC Sec. 115(d)(ii)(D)(bb)(E)(v) “Accessibility of Database” for those reading along.)

Who Can Get a Copy of the Entire Musical Works Database?

Title I requires that when established, the musical works database “shall be made available to members of the public in a searchable, online format, free of charge.”  Users of the blanket license, among others, are to get a free copy of the database in a “bulk, machine-readable format”.  This language appears to draw a distinction between members of the public looking things up onesey and twosey compared to getting a copy of the entire musical works database.

Congress clearly was drawing a distinction between casual users in the public and those whose needs relate to the operation of the blanket licensing system-users who are already paying for the creation of the database through the administrative assessment and don’t want to pay twice.

Fine so far, although given the siloed nature of reporting and accounting systems at the music services it remains to be seen just how much any of them would actually use a copy of the musical works database unless that “machine-readable format” was highly customized.  The cost of that customization would seem a cost more appropriately borne by the entity requesting the copy rather than socialized across all licensees.

The Vendor Conflict

But-Title I goes further.  And here is where the need for the Copyright Office to develop conflict of interest rules becomes acute.

“Authorized vendors” of users of the blanket license are also entitled to a copy of the database free of charge, but anyone not a user or a vendor of a user can pay for a copy of the database.  That’s consistent as far as it goes because vendors of users are working for someone who pays for the MLC under the administrative assessment (and indirectly pays for the establishment and maintenance of the database) and others do not.  Again, given that those vendors run existing systems that already talk to the systems of the licensees, the jury is out on just how many will want or be able to use this “free” copy as a practical matter.  Even so, what should not happen is that the data standard sinks to the lowest common denominator to accommodate a vendor’s legacy systems (#nofoxpro #nodos).

However, Congress drew a sensible distinction between (1) those who pay the administrative assessment or their vendors and (2) those who do not.  Congress is clearly making that distinction to fairly match benefits with burdens.

What Congress did not intend was for vendors of users to acquire a free copy of the musical works database that they then could use for their own purposes unrelated to the work these vendors performed for users under the blanket license that justified their free copy in the first place.

Neither did Congress intend to require songwriters and music publishers to be forced–as a condition of receiving payment of statutory royalties–to allow their song data to be transferred or licensed by the MLC to a vendor for the vendor’s own purposes as a quid pro quo.  An example could be inadvertently requiring overly broad terms of service or terms of use inserted in a click-through agreement as a condition for registration for the MLC’s claiming platform.

It also seems clear that if vendors of the MLC are to obtain their own copy of the database they would be treated like anyone else.  They would be included in the group that must pay a fee  for a copy of the musical works database “not to exceed the marginal cost to the mechanical licensing collective of providing the database to such person or entity”.  Congress could easily have given those vendors a free copy as they did with the vendors of users but didn’t.  (It seems that the situation may actually be going the other way–vendors are selling their data to the MLC.)

Extracting Data from Indie Labels

It is important to note that Title I also empowers users of the blanket license to obtain from indie labels all their song information, or use “[g]ood-faith, commercially reasonable efforts” to do so.  Do such efforts include suing to get the data?  Must the label bear the cost of providing the data?  Does this include updates?  Does the label warrant the accuracy of their data when used for a purpose for which it was not collected?  If the licensee must use “commercial reasonable efforts” to do so, does that imply that the label need not provide the data if it is not commercially reasonable to do so?  Is charging a market price reflective of the cost of the data to the label as well as updates commercially reasonable?  Is this another “taking,” this time from labels?

Congress clearly states that anyone purchasing a bulk copy of the musical works database must pay the marginal cost to the MLC.  But who pays the labels for the cost of the label data that is to be included in the musical works database and then sold by the MLC?  Do the labels get compensated?  At what price?

Clearly the Congress did not intend to set up a free rider issue here, so this is another area that is ripe for regulation.

Reselling the Musical Works Database

There is nothing in the statute that allows those obtaining a copy of the musical works database to resell that database or services derived from that database, including when those services do not relate to the purpose for which the database copy was obtained.  Neither does MMA permit the subsequent distribution, alteration, sale or reproduction of a permitted copy, i.e., all such copies must originate with the MLC as required by the statute.  In fact, Congress addresses the issue by allowing the Copyright Office to restrict such arbitrage.

Neither does the MMA restrict how a copy of the musical works database once purchased is to be valued on the books of the buyer, or whether it can be transferred to a new owner in the sale of that business or pledged as collateral.  Again, important issues for the Copyright Office.

Issue Spotting the Conflicts

The transfer back and forth of all of this data seems to create exactly the kind of moral hazard that cries out for conflict of interest rules of the road to accomplish the proper goals of Title I. This would, of course, have to prohibit co-mingling of existing data of a vendor with data acquired during the normal course of that vendor’s services.  This is easy to accomplish through the use of a clean room and is a best practice and common procedure in the tech industry (e.g., former employees with knowledge of competitor IP or business practices).

Clear conflict of interest rules would assure Congress that their mandate is not creating unintended enrichment of any particular vendor capturing data while working for either the MLC or users of the blanket license.

One might say that song data acquired by the MLC is just information that was essentially public anyway (we’ve heard that kind of argument before) so why restrict it.  I would suggest that argument is a bit of a dodge because even if true, the vendors didn’t in fact get the data through public means as available to anyone else as it was to them.  They got it because the statute required the information be given up in order to enjoy rights of a copyright owner-not to create an arbitrage opportunity.  All the more reason why conflict of interest rules are essential.

And of course such regulations would give the public comfort that the entire supply chain had proper oversight and transparency as well as a corrective remedy should anything go astray.

Therefore, it is entirely within the mandate of the Copyright Office to establish conflict of interest and data integrity rules of the road for all concerned.

Conflict of interest rules would address and require:

-Prior approval by the Copyright Office of any terms of service or terms of use that rights owners are required to click through in order to obtain their statutory royalties or other benefits, including registering with the MLC, claiming black box monies, or purchasing a bulk copy

-Notification of the Copyright Office of each copy of the musical works database distributed.

-The Copyright Office could easily publish that notification in the Federal Register for transparency.  Any transfer documents should be recorded with the Copyright Office and made available to the public for search

-“Flow down” language from the Copyright Office that must be included preemptively in any click through-agreements to insulate users

-Disclosure of pre-existing data held by vendors rendering services

-Disclosure of data submitted by rights owners (including labels) to the MLC that is made available by the MLC to its vendors

-Establishing a fee schedule of sums to be paid to rights owners (including labels) providing data

-Prohibitions on pledging the musical works database as collateral

-A mechanism for copyright owners (including labels) to opt out of being included in any copies of the musical works database transferred to vendors or sold to others

-Establish restrictions on ownership of the musical works database (which might come in handy if it is necessary for the Copyright Office to designate a new MLC)

-Clarifying the Copyright Office FOIA policy as it relates to the database

-Prohibiting co-mingling pre-existing data with copies received

-Prohibiting modification of permitted copies of the database (for the obvious reason of maintaining the integrity of the MLC as the authoritative source)

-Requiring all copies of the database be watermarked with origination and destination

All these guideposts are compassed by the Copyright Office mandate and should not require any amendments to the MMA.  If these issues remain unaddressed, I fear a real mess consistent with that old legal principle snafu fugazi fubar.

The Return of 100% Licensing and the Expansion of the Blanket License

November 21, 2019 Comments off

Who can forget the nightmare of the Justice Department’s counterproductive flirtation with 100% licensing the last time the DOJ reviewed the consent decrees.  (We covered the 100% licensing head fake in a podcast and a guide to 100% licensing.)

Since then, the Congress passed the Music Modernization Act, which includes a massive overhaul of the mechanical licensing system which is currently the subject of an implementing rule making.  What does the MMA have to do with the PRO consent decrees?

More than you might think.  If you recall, one of the big justifications for supporting the MMA legislation that did not include a terrestrial performance right for sound recordings was due to the lobbying firepower opposing the terrestrial right.  We were told that artists were never going to win the terrestrial right (which is what the #irespectmusic campaign is all about) so we should just give up and think of England, so to speak.  Or more precisely, support the MMA.

If you drill down on Title I of the MMA (which creates the Mechanical Licensing Collective, etc.), what it does at a high level is create a compulsory license for certain activities, a global rights database, and a regulatory authority for all of the above.

Note–“certain activities.”  At the moment, those activities are limited to digital phonorecord deliveries, including on demand streaming, limited and permanent downloads.

But–guess what?  Those activities could be expanded to include compulsory blanket licenses for other exploitation rights of songs, like general licensing (bars, hotels, restaurants), broadcasting and anything else the lobbyists can jam through.  All administered by the Mechanical Licensing Collective, which if such an amendment comes to pass probably would have to change its name to something catchier like, you know, Skynet.

And remember, we don’t stand a chance against these lobbyists, right?  Remember?  Now whoever saw that coming?  And how might the lobbyists get involved with a DOJ consent decree review?  Well, because of what I call “Title IV,” which is the provisions of Title I that relate to Congressional approval of any consent decree reform for the PROs and a couple other things the PROs wanted.  (Congressional review because you have to keep an eye on the anticompetitive leanings of those pesky songwriters against MIC Coalition members with a $5 trillion market cap.)  So who are these masterminds and lobbyists?  (There is no actual Title IV by the way, that’s just a teaching tool.)

MIC Coaltion Members 2019

The MIC Coalition

Billboard reports that we’re not the only ones worrying about this angle:

Sources further say the PROs and some songwriter groups both fear that if the issue goes to Congress [under Title IV], the music business will face several industries with more lobbying power than themselves, all intent on getting legislation for a compulsory license. Even worse, music licensees would also likely push for the law to include 100% licensing — meaning only one songwriter’s consent would be needed for a song to be used— an outcome which publishers, songwriters and PROs have described in the past as a disaster.

But don’t worry, the smart people will figure this out.  Don’t bogart the popcorn.

@musictechsolve: Defiance or Collaboration? The Role of the Presidential Signing Statement in MLC Board Appointments

November 20, 2019 Comments off

[This post first appeared on MusicTech.Solutions]

Even though they have a long history, Presidential Signing Statements are not exactly front and center in every civics class or constitutional public law class in America.  You may be hearing about them for the first time now.  But that doesn’t mean they have not been an important part of Constitutional law-making and jurisprudence.

Presidential Signing Statements were first used by President James Monroe in 1822 in the form of a “special message” to the Senate. Presidents Andrew Jackson, John Tyler and Ulysses Grant also issued signing statements, but they were used infrequently until the 20th Century.  Then their use picked up quite a bit starting with President Theodore Roosevelt and continuing to the present day.  So the use of Signing Statements is quite bipartisan.  While Signing Statements may not themselves have any actionable legal effect, they should not be ignored, either.  As the MMA’s Signing Statement relates directly to corporate governance and accountability (one of our pet topics on MTP as applied to what SEC Commissioner Robert Jackson called “corporate royalty” at Spotify, Google, WeWork, Facebook and others), this post may be of interest on an issue that has not been covered by the music press.

The MMA Presidential Signing Statement

Not surprisingly, there is a Presidential Signing Statement accompanying the Music Modernization Act (“MMA”) specifically relating to Title I and at that specifically relating to the MLC board appointments.  The relevant language is:

One provision, section 102, authorizes the board of directors of the designated mechanical licensing collective to adopt bylaws for the selection of new directors subsequent to the initial designation of the collective and its directors by the Register of Copyrights and with the approval of the Librarian of Congress (Librarian). Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.

Let’s explore why we should care about this guidance.

According to Digital Music News, there have been changes at the Mechanical Licensing Collective, Inc. (“MLCI”) the private non-profit permitted under Title I of the MMA:

[I]t appears that two separate MLC board members are jumping ship.  The details are just emerging and remain unconfirmed, though it appears that two members — one representing indie songwriters and the other on the publishing side — are out of the organization.

Because the board composition of MLCI is preemptively set by the U.S. Copyright Act along with many other aspects of MLCI’s operating mandate, the question of replacing board members may be arising sooner than anyone expected.  As MLCI is a creature of statute, it should not be controversial that law-makers play an ongoing role in its governance.

The Copyright Office Weighs In

The Copyright Office addressed board appointments for MLCI in its first request for information for the designation of the Mechanical Licensing Collective (83 CFR 65747, 65750 (December 21, 2018) available at https://www.govinfo.gov/content/pkg/FR-2018-12-21/pdf/2018-27743.pdf):

The MLC board is authorized to adopt bylaws for the selection of new directors subsequent to the initial designation of the MLC. The Presidential Signing Statement accompanying enactment of the MMA states that directors of the MLC are inferior officers under the Appointments Clause of the Constitution, and that the Librarian of Congress must approve each subsequent selection of a new director. It also suggests that the Register work with the MLC, once designated, to address issues related to board succession.

When you consider that MLCI is, for all practical purposes, a kind of hybrid quasi-governmental organization (or what the Brits might call a “quango”), the stated position of the President, the Librarian of Congress and the Copyright Office should not be surprising.

Why the Controversy?

As the Songwriters Guild of America notes in comments to the Copyright Office in part relating to the Presidential Signing Statement (my emphasis):

Further, it seems of particular importance that the Executive Branch also regards the careful, post-designation oversight of the Mechanical Collective board and committee members by the Librarian of Congress and the Register as a crucial prerequisite to ensuring that conflicts of interest and bias among such members not poison the ability of the Collective to fulfill its statutory obligations for fairness, transparency and accountability.

The Presidential Signing Statement, in fact, asserts unequivocally that “I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.”

SGA regards it as a significant red flag that the NMPA-MLC submission to the Copyright Office devotes the equivalent of ten full pages of text principally in attempting to refute this governmental oversight authority, and regards the expression of such a position by NMPA/MLC as arguably indicative of an organization more inclined towards opaque, insider management control than one devoted to fairness, transparency and accountability.

So the Presidential Signing Statement to the MMA is obviously of great import given the amount of ink that has been spilled on the subject.  Let’s spill some more.

How might this oversight be given effect and will it be in the public record or an informal process behind closed doors?  Presumably it should be done in the normal course by a cooperative and voluntary collaboration between the MLC and ultimately the Librarian.  Minutes of such collaboration could easily be placed in the Federal Register or some other public record on the Copyright Office website.  Failing that collaboration, it could be done by either the Department of Justice (unlikely) or by individuals (more likely) asking an Article III court to rule on the issue.

Of course, the issue should not delay the Copyright Royalty Judges from proceeding with their assessment determination to fund the MLC pursuant to the controversial voluntary settlement or otherwise.  One could imagine an oversight role for the CRJs given that Congress charged them with watching the purse strings and the quantitative implies the qualitative.  The CRJs have until until July 2020 to rule on the initial administrative assessment and appeal seems less likely today given the voluntary settlement and the elimination of any potential objectors.

Since the Title I proponents drafted the bill to require a certain number of board seats to be filled by certain categories of persons approved by Congress in a Madisonian balance of power, the Presidential Signing Statement seems well grounded and furthers the Congressional mandate.

Yet there is this conflict over the Presidential Signing Statement.  What are the implications?

A Page of History is Worth A Volume of Logic

The President’s relationship to legislation is binary—sign it or veto it.  Presidential Signing Statements are historically used as an alternative to the exercise of the President’s veto power and there’s the rub.

Signing Statements effectively give the President the last word on legislation as the President signs a bill into law.   Two competing policies are at work in Presidential Signing Statements—the veto power (set forth in the presentment clause, Article I, Sec. 7, clause 2), and the separation of powers. 

Unlike some governors, the President does not enjoy the “line item veto” which permits an executive to blue pencil the bits she doesn’t like in legislation presented for signature.  (But they tried–Line Item Veto Act ruled unconstitutional violation of presentment clause in Clinton v. City of New York, 524 U.S. 417 (1998).) The President can’t rewrite the laws passed by Congress, but must veto the bill altogether.  Attempting to both reject a provision of a new law as unconstitutional, announce the President’s intention not to enforce that provision AND sign the bill without vetoing it is where presidents typically run into trouble.

Broadly speaking, Presidential Signing Statements can either be a President’s controversial objection to a bill or prospective interpretive guidance.  Signing Statements that create controversy are usually a refusal by the President to enforce the law the President just signed because the President doesn’t like it but doesn’t want to veto it.  Or to declare that the President thinks the law is unconstitutional and will not enforce it for that reason—but signed it anyway.

The President can also use the Signing Statement to define or interpret a key term in legislation in a particular way that benefits the President’s policy goals or political allies.  President Truman, for example, interpreted a statutory definition in a way that benefited organized labor which was later enforced by courts in line with the Signing Statement.  President Carter used funds for the benefit of Vietnam resisters in defiance of Congress, but courts later upheld the practice—in cases defended by the Carter Justice Department.  The practice of using Presidential Signing Statements is now routine and has been criticized to no avail for every administration in the 21st Century including Bush II, Obama and now Trump.

Since the 1980s, it has become common for Presidents to issue dozens if not hundreds of Presidential Signing Statements during their Administration.  So it should come as no surprise if the Department of Justice drafted up the statement for the MMA prior to it being presented to the President to be signed into law.  (See the American Presidency Project archives https://www.presidency.ucsb.edu/documents/presidential-documents-archive-guidebook/presidential-signing-statements-hoover-1929-obama)

Defiance or Collaboration?

What does this mean for the MMA?  The President certainly did not call out the statutorily required board membership of the MLC as an unconstitutional overreach that he would not enforce.  To the contrary, the MMA Signing Statement expresses the President’s desire that the legislation comply with the requirements of the Constitution.

Moreover,  the MMA Presidential Signing Statement is not a declaration about what the President will or won’t enforce but rather interprets a particular section of a long and winding piece of legislation.  (Title I principally amended Section 115 of the Copyright Act—now longer than the entire 1909 Copyright Act.)  This kind of interpretation seems to be consistent with the practices of prior Presidents of both parties, not an end-run around either the veto power or separation of powers.

Failing to acknowledge the admonition of the signing statement would seem an unnecessary collision both with long-standing jurisprudence and with a sensible recommendation from the President of how the Librarian, the Copyright Office and the Justice Department expect to approach the issue in collaboration with the MLCI.  That’s possibly why the Copyright Office restated the Signing Statement in the RFP.

Title I of the MMA is a highly technical amendment to a highly technical statute.  A little interpretive guidance is probably a good thing.  Collaboration certainly makes more sense than defiance.

Should the Copyright Office’s Best Practices Shine Sunlight on the Unmatched?

November 5, 2019 Comments off

[This post first appeared in the MusicTechPolicy Monthly newsletter.  Become an email follower of this blog to get your copy.]

The Music Modernization Act is a litigation magnet because of its failure to mandate a wholistic solution to the controversial black box. There are two commercially available systems that can address the problem.

We’ve all heard that the digital music services are sitting on a pile of cash in unmatched statutory mechanical royalties also known as the “black box”.  No one knows how much because Title I of the Music Modernization Act does not require them to disclose the unmatched sums being held as of the enactment date (October 11, 2018–a year ago), much less a bring down of the current amount.  And unsurprisingly, no service has voluntarily disclosed how much they are holding.

One may ask, why can’t you just look up on the financial statements of at least the public companies how much they are accruing for their share of the black box?  Good luck with that.

The monies owed to the unmatched “known unknowns” is probably the number one question the services don’t ask their third party reporting agents.  And because of the well known agency principle that “notice of a fact that an agent knows or has reason to know is imputed to the principal if knowledge of the fact is material to the agent’s duties to the principal,” these services likely know as a matter of law how much is in their principals’ respective black boxes or at least what they couldn’t match.  (Restatement (Third) of Agency Sec. 5.03.)

Fortunately, the Copyright Office is tasked with establishing best practices for distributing these unmatched black box monies through regulations to implement these and other provisions of the Music Modernization Act, such as the late fee for non-compliant services.

The Copyright Office has also announced the “kick off” of its study of unclaimed royalties study to be held in Washington, DC on December 6.  This will be great for Washington area songwriters, as well as convenient for the lobbyists and lawyers, but everyone else will have to wait for the transcript and video which unfortunately (and perhaps incredibly) will not be live streamed.  Even so, these pending regulations and the upcoming mandated study on matching are the best chance songwriters have had for a generation to get a straight count on unmatched mechanicals.

There are two currently existing standards that the Copyright Office can reference for examples of industry best practices-the SoundExchange unclaimed royalty search for new members and the Lowery-Ferrick Spotify class action Songclaims portal powered by Crunch Digital.  It seems inescapable that these claiming standards should be guideposts for both the Copyright Office and the Copyright Royalty Judges.

Having such clear cut standards–already operational so not theoretical–is fortunate because it seems obvious that the Congress is both concerned with the black box distributions not being gamed and also intends to exercise its statutory authority to retain oversight over the Mechanical Licensing Collective’s operations.  In fact, Senator Grassley specifically stated in his questions for the record following the Copyright Office oversight hearing that:

The success of the Music Modernization Act (MMA) will depend, to a large extent, on the effective and efficient operation of the Mechanical Licensing Collective (MLC). The MMA included provisions to ensure that there was robust ongoing oversight of the MLC by both the Copyright Office and Congress, and that the new MLC would be accountable to the stakeholders.”

This is in addition to the oversight role of the Copyright Royalty Judges with respect to the Administrative Assessment and at least budgetary aspects of the MLC’s operations that inevitably will turn the quantitative into the qualitative.

During her July 30 testimony at the Copyright Office oversight hearing of the House of Representatives Committee on the Judiciary, Register of Copyrights Karyn Temple was peppered with questions about the black box from Members of the Committee, including Representatives Ted Deutch, Sheila Jackson-Lee and Chairman Jerry Nadler.

These months after the hearing, the gravamen of the Committee’s questions were crystalized in yet another copyright infringement suit brought against Spotify, this time by Eminem’s publishers.  The key theory of the suit is that Spotify is out of compliance with the conditions for the new safe harbor for copyright infringers that is one of the central themes of the MMA.  The Copyright Office can use the complaint as another guidepost for best practices to be compassed by their new regulations.

As drafted, Title I is an invitation for litigation, so it should be no surprise that the independent publishing community stepped forward to sue as that was the only way to find out what was going on behind the curtain.  However, as Senator Grassley emphasized, Congress charged the Copyright Office to establish regulations to implement Title I and gave the Copyright Royalty Judges a defacto oversight role through their approval of the MLC’s budget.

  1. Copyright Office Regulations

The Copyright Office is in the process of drafting regulations for a number of areas in Title I.  The Copyright Office therefore is in a unique position to avoid a maelstrom of litigation by adopting regulations that shine light on the unmatched, recognize industry practices by SoundExchange and Crunch Digital, and accomplish simple goals.  This is not hard.

Regulations should require iterative public disclosure to accompany the iterative matching  required by Title I.  Remember-many of these services are the biggest, smartest and richest companies in the history of commerce.  They know something about these systems as they all have to one degree or another developed significant in-house expertise.

However, it is crucial to have the unmatched actually administered by an unrelated and trusted infomediary.  This could be done by repurposing existing searchable databases for unclaimed funds while simultaneously disclosing to the public the amounts owed for each song.

Balance the Checkbook:  Immediate Public Release of Trial Balance and Monthly Updates of Unmatched

Each service currently participating in the Initial Administrative Assessment proceeding before the Copyright Royalty Judges should disclose an aggregate trial balance of the total sums they are holding in their respective unmatched accounts.  This total number should be made public as well as the methodology used to calculate it.  Nothing should or needs to be redacted.

The services should update that initial disclosure on a monthly basis.  The monthly calculation should show the month’s starting balance of unmatched royalties, how much was paid out during the month, how much was added during the month, and the remaining balance at the end of the month.  This simple calculation would allow songwriters to know what monies were being held with no intermediaries.  It’s as simple as balancing a checkbook.

Unmatched Lookup

If the services know the total sums, they should also be able to disclose the sound recording titles at least, if not the artist names, ISRCs, other metadata for the recordings of the songs that comprise the totals.  These services should be able to provide a simple web-based look-up so that songwriters could know if their songs are included in a service’s unmatched accrual.

Cost Reimbursement

It is becoming increasingly obvious to independent publishers that there will be significant resources and costs required to deliver their data to the MLC and claim their unmatched.   Those transaction costs of delivering data to the MLC-without which the imagined global rights database would not be functional enough to distribute the black box effectively-are incremental to publishers who have been doing business prior to the MMA and the MLC.

These incremental costs are easily identifiable and should be invoiced to the MLC by rights owners to be included in the next administrative assessment and reimbursed by the services.

Future Licensees

Any future licensee (blanket or nonblanket) should also be required to comply with these obligations and disclosures.

2.  Role of the Copyright Royalty Judges

The Copyright Royalty Judges are currently conducting a proceeding to establish the initial “administrative assessment” for the MLC.  The rules of the proceeding require the MLC and the Digital Licensee Coordinator to attempt to reach a voluntary agreement on the amount of the assessment.  If they fail, the CRJs will determine it for them.  The voluntary negotiation is divided into two periods: July 8 to September 6, and then September 7 to January 28.

The parties have failed to reach an agreement in the first period already, so a very basic assessment of probabilities means there’s less than a 50% chance they will agree during the second period.  If they fail to reach an agreement by February 17th, the CRJs will commence a hearing to reach the decision for them.  (One could argue that the likelihood of a voluntary agreement increases with the passing of time, but that doesn’t seem to be the case at this point-it seems to be going the opposite direction.)

Remember-the MLC is supposed to have their imagined global rights database up and running and be fully operational and able to render statements shortly after January 1, 2021, or a little over 14 months from now.  At this point, it seems that there is a greater than 50% probability that Congress will have to amend the MMA to extend the deadline.  Presumably something has happened in the last year to advance the ball.

Crucially, there is an inextricable link between the amount of the administrative assessment and what the MLC intends to do with the money.  Two of those functions will be (1) the MLC’s own efforts at matching whatever is unmatched when the Digital Licensee Coordinator delivers the unmatched accounts (and presumably transaction logs) from the services to the MLC after January 1, 2021, and (2) ingesting data for the imagined global rights database.

Unmatched Best Practices and Disclosures

The CRJs should take a very close look at both the startup and the operating budget for the MLC as well as the underlying assumptions, processes and vendors for those functions to take on the U.S. accounting burden for the entire world.  It should be obvious that the services have a great deal of experience in licensing copyrights and operating royalty systems.

The CRJs should also consider whether they have the authority to address the nexus between the best practices to be adopted by those seeking to rely on the retroactive safe harbor, payments of the newly matched prior to 1/1/21 and public reporting of both accrued unmatched royalties and claiming before and after 1/1/21.  I think they do and they probably have an obligation to do so that is at least as great as the obligation on the Copyright Office.<

Sufficiency of Funding and Sufficiency of Allocation

As Senator Grassley has asked, the CRJs need to address what happens if the process fails to hit the deadlines as part of their determination of the administrative assessment.  Each passing day makes it more likely that the entire procedure will grind to a halt before statements can be rendered.

This concerns both the DLC funding the MLC sufficiently, but it also depends on the MLC allocating those sums appropriately across its operations–and the quantitative implies the qualitative.  Moreover, the CRJs need to fashion a procedure for relief that can be taken up inexpensively by any copyright owner that has a good faith belief they have simply not been accounted to. An example would be someone who was being paid under a statutory license (NOI or modified compulsory) prior to January 1, 2021 whose statements then drop to zero thereafter or who simply receive no statements at all.

While the Register said in response to Rep. Deutch during the Copyright Office oversight hearing that both MLC and AMLC had agreed with the Copyright Office interpretation that unclaimed funds are not to be distributed before 2023, the MLC’s actual statement on the issue is more nuanced.  The judges need to take this into account and leave nothing to the imagination in their determination.

3.  Sunlight is the Best Disinfectant

As Mr. Justice Brandeis taught us in Other People’s Money-And How Bankers Use It,“sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

Songwriters are in need of both.

@musictechpolicy Podcast: Eight Mile Style Sues Spotify Under Music Modernization Act

August 30, 2019 Comments off

Chris Castle discussion of Eight Mile Style lawsuit against Spotify under Music Modernization Act (driving with dogs series)

Eight Mile Style v. Spotify Complaint

Meet the New Boss:  Tech Giants Rely on Loopholes to Avoid Paying Statutory Royalties with Mass Filings of NOIs at the Copyright Office

Irving Azoff and Other Top Managers and Artists form the Music Artists Coalition

August 2, 2019 Comments off

We have entered an era where Big Tech controls the purse strings for the Mechanical Licensing Collective.  Despite that oddity, it’s refreshing to see the leaders of the music industry come together to form the Music Artists Coalition as a counterbalance to Big Tech and its counterpart, the MIC Coalition.  The MIC Coalition included Google directly at one point, but then stopped using the Google logo in their membership after Google became a lighting rod of opposition to the group.

The MIC Coalition is the face of opposition on a terrestrial royalty for artist pay for radio play, and they make no bones about it.  Irving Azoff has demonstrated that he’s one of the only managers in the music business who is willing to take on these people in court and we applaud him for it.  Along with MusicFirst and SoundExchange CEO Mike Huppe, those willing to stand up and be counted are few and far between.

mic coalition logo

There are, unfortunately, the inside-the-beltway Cassandras who have counseled a limp reaction to the MIC Coalition in recent years.  These may find some backbone now that the artists and managers who together account for approximately  80% of global turnover (just my guess) in both publishing and recordings say not so fast.  Because what political types are really good at is finding a parade then elbowing their way to the front of the line to pretend they were there all along–and if there’s anyone who can spot such people a mile off it’s the artists who are in this new group.

I’d say that the MIC Coalition is not as strong as they might appear.  Instead of cowering before them, let’s see how they hold up after a couple really hard round-house kicks and a little asymmetrical soft shoe.  Maybe they’ll still be standing.  But you won’t know if you don’t try.

Read more about it in Bloomberg.

I’m also really, really pleased to see Susan Genco taking a leading role in the management of the new organization.  Susan had the best quote in Bloomberg:

Neither of these groups speaks for the songwriters that must be compensated, according to Susan Genco, an industry veteran and board member for the Music Artists Coalition.
“We want state and national legislatures to know that if you want a true artist’s perspective, not one that may be compromised, this is the organization you call,” Genco said. “This is for artists, by artists and from artists.”

Susan has been at this for a long time in a variety of jobs that gives her that valuable 360 degree viewpoint.  She has earned the kind of hands-on experience working with the people who actually make the business run.  I have every confidence that she will bring the kind of well-adjusted creator-centered practical knowledge and trust that has been sorely lacking.  It’s not surprising that a quiet professional like Susan has the confidence of these top managers.

This new effort deserves your support.

[A version of this post appeared in MusicTechPolicy Monthly.]

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