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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.]

Guest Post by @poedavid: “Dance Like Nobody’s Paying?” Spotify isn’t

July 15, 2019 1 comment

[We’re thrilled to welcome David Poe to MTP!]

by David Poe

Spotify’s disastrous “dance like nobody’s paying” ad campaign has now been demolished in the national press, garnering negative coverage in Newsweek, Billboard, NME, Hypebot, and more. Sometimes big corporations slip up and show us what they really think of us, and this was one of those times.  

But what’s Spotify’s plan?  Here, Variety’s Patrick McGuire suggests Spotify’s intent is to divide listeners and musicmakers:

Similar to the way many people bite into a cheeseburger with no consideration for the cow and farm of its origin, campaigns like Spotify’s widens the growing divide between listeners and creators. Audiences intellectually understand that music doesn’t magically materialize out of nothingness for the exclusive purpose of entertaining them, but as music continues its irreversible transition to all things digital, listeners are becoming less aware and interested in how artists create, record, produce, and share music. With a 2017 Nielsen Music report showing that, on average, Americans now spend over 32 hours a week listening to music, it’s clear that music is hugely important in the lives of listeners — just not in ways that provide meaningful visibility and support to musicians.

Ever heard that song “Put another nickel in / In the Nickelodeon”? It’s from 1950 (written by Stephen Weiss & Bernie Baum.)

Everyone loves streaming. But more than half a century later, most streaming services contend that a song isn’t worth a penny. I respectfully disagree.

Because a song isn’t really a song until someone listens to it, no  musicmaker should be faulted for utilizing all available platforms. But streaming in 2019 forces music makers and fans into the middle of a moral hazard. Music enthusiasts should be able to listen to streaming music without having to compromise their scruples, or that of their favorite bands.

Despite the lack of transparency in the music industry, The Trichordist has managed to cobble together an annual Streaming Price Bible.  It is the most credible summary I’ve found on what each streaming service pays, which may impact where Spotify listeners choose to put their dough-re-mi:

2018_streamingbible

How Bad Is it for Music Makers?

You can easily see from the chart what each service pays for recordings.  At about $0.003 per stream, Spotify pays little but has the greatest market share.  At about $0.0002 per stream, Google/YouTube is even worse. 

Very different companies. Their commonality: free music, which has made them rich from ad revenue and data scraping, but mostly from their stock price increasing at the expense of musicmakers. 

Let’s put this in context.  To earn a monthly US minimum wage, an artist on Spotify would need 380,000 streams by some estimates.

To make the same monthly salary as the average Spotify employee, a songwriter would need 288,000,000 streams.

Frozen Mechanicals

For reference, the statutory rate for a song on a CD or download is 9.1 cents — 4.1 cents more than ye olde Nickelodeon of the 1950s. 

FROZEN MECHANICALS 1909-1977

You might say that’s better than the old days—but it isn’t as good as it looks, because the song rate was frozen for 68 years before it began gradually increasing … only to be frozen again in 2009, where it will stay until 2022.

FROZEN MECHANICALS 2009-2022

Clearly, streaming has all but replaced CDs and downloads, but without replacing revenue from songs to musicmakers. 

Money is being made from streaming if you look at it on an industry-wide basis.  But—due to the hyper efficient market share distribution of the “big pool” revenue share accounting instead of a user-centric model (or the “ethical pool,”) individual music makers are far worse off.  More than ever, streaming revenue is not paid to music makers who don’t share in the big advances or Spotify stock. 

You Can’t Compete With Free

The vast majority of Spotify users are in the “free tier”. By offering free access, Spotify artificially distorts the streaming market and disallows competition amongst streaming companies. As musicians have learned the hard way, you can’t compete with free.

Spotify likes to say it’s artist-friendly, a tool for music discovery. 

Guilty of chronic copyright infringement, Spotify was founded by a former pirate.  It’s a corporate ethos built on theft.  The Music Modernization Act essentially gave Spotify a new safe harbor, but its tactics haven’t changed.

There’s additional shadiness here: allegations of gender discrimination and equal pay violation, expensive, state-subsidized offices, executive  bonuses, corporate lobbyists, a dicey DPO and of course, the “fake artist” scandal.

Spotify’s ongoing lobbying campaign against artist rights continues despite the unanimous passage of the Music Modernization Act in Congress last year (and the jury is out on the MMA and Spotify’s safe harbor).  Shocker—Spotify apparently reneged on agreements it made to accept the Copyright Royalty Board’s mandated increase in songwriter pay.  Another bonehead move that was publicly rebuked by songwriters from Spotify’s “secret geniuses” charm offensive, including Nile Rodgers and Babyface.

Spotify was joined by Amazon, Google, and Pandora in “suing songwriters” to appeal the Copyright Royalty Board’s ruling that increased the paltry streaming mechanical rate, which Spotify lawyer Christopher Sprigman argued against in court.  

Apple Music does not have a free tier and yet was the only major streaming service that did not challenge the new royalty (44% more, which means 0.004 instead of 0.003, which is still bullshit.)  

This may be because Apple recognizes that music helped save its ass from financial ruin 20 years ago. Math is not my strong suit, but numbers indicate music (via the iPod, a now-obsolete door stop) generated nearly half of Apple’s accumulated wealth not to mention introducing a new audience to Apple’s other awesome products.

Or it could just be that Apple understands creators and may actually like us.  There’s a thought.  We were early adopters—Macs have been in every recording studio and creative department for decades.   

Apple Music’s intent to increase artist pay to a penny per side is its best yet, but now long overdue.   Which is a shame, because a trillion dollar market cap company could afford to redistribute some wealth.  If Apple offered a fair alternative, most would run screaming from the competition.

The Generational Problem

There are many who are more expert than me, some quoted in this post. I’d rather be staring into space strumming guitar and writing a song than here discussing music and money. 

But I’m concerned for the next generation of artists, especially the musical innovators. Here’s why:

There used to exist a sort of musical middle class. Artists in all mediums expected financial struggle but there was the possibility of making a living and even growing as an independent artist.  That might include a record deal or selling CDs at a gig in order to make it to the next town. 

Songwriters could get an album cut and get by or even do well if the album sold (Jody Gerson has a great explanation of this.)  Musicians of quality could see a light at the end of the tunnel.

Streaming has “disrupted” all of that.

Light’s out. 

Bands’ streaming access may—may—help build an audience that may somehow convince talent buyers to book gigs that route your tour, which is awesome. But sustaining a career is still cost-prohibitive for many. 

Thus the Top 40 is full of the children of the affluent. 

Not children of millionaires: Stevie. Dylan. John & Paul. Aretha.

Those of us who have been making music for awhile will remember the optimistic, 1990s-era “monetize the back end” argument: bands on the road can make up income lost to streaming by selling merch. 

I tour, too. I wish the best to every band who does so. 

But not every musician can travel … or got into music to sell a fuckin hat.

Another common sense rebuttal to “shut up and tour:” INCOME FROM LIVE SHOWS WAS NEVER MEANT TO REPLACE THAT OF MUSIC SALES — plus both have investment costs and overhead to produce.

Gas costs what gas costs. 

Mics cost what mics cost. 

Streaming doesn’t pay what music costs.

Sorry to yell. Just sick of this lie that to make up for streaming losses all recording artists, especially senior citizens, should tour forever. Or the assumption they are all rolling in dough! Tell that to the punk rock drummer, alto player, the cellist, the songwriter. 

Note: It’s almost impossible to buy a new car or laptop that plays a CD. Low income streaming has effectively replaced higher income physical sales. 

So if streaming is to be the primary method of music distribution — if not the only one — then pay artists fairly.  Or it really will be lights out, if not for the huge artists who regularly celebrate stupidity then for the ones whose songs you want played at your funeral.

Without musicmakers, Spotify has nothing. When Spotify says “dance like nobody’s paying,” it’s because they don’t. 

Given support from listeners and lawmakers, this era of economic injustice via streaming may one day be a footnote.  Fans should not be paying for music they don’t listen to which is what has been happening and is a hallmark of streaming gentrification.

Now, listeners must demand fair pay for musicians they claim to love, whether it is higher streaming royalties or a user-centric royalty allocation—or both.

#IRespectMusic 

The Countdown to Modernity: Copyright Royalty Board Posts Notices and Rules for MLC Assessment Proceeding — Artist Rights Watch

July 7, 2019 Comments off

Since there was no advance commitment or agreement on the budget for the Mechanical Licensing Collective (MLC) under Title I  of the Music Modernization Act, it appears that the clock is ticking on an agreement before the parties have to go before the Copyright Royalty Judges to be told what the budget (or the “assessment”) is to be.  The Copyright Royalty Board has beat the July 8 deadline for noticing the proceeding and has posted the notice and the rules for the hearing.

The “Notice announcing commencement of Initial Administrative Assessment proceeding and requesting Petitions to Participate” can be found here:

The regulations require the participation of the MLC and the Digital Licensee Coordinator (DLC) in the proceeding and permit the participation of copyright owners, digital music providers, and significant nonblanket licensees. 37 CFR 355.2(c)–(d).

The Judges hereby announce commencement of the proceeding, direct the MLC and the DLC to file Petitions to Participate, and request Petitions to Participate from any other eligible participant with a significant interest in the determination of the Initial Administrative Assessment…

Any participant that is an individual may represent herself or himself. All other participants must be represented by counsel….

Petitions to Participate and the filing fee are due on or before July 23, 2019.

The CRJ’s rules relating to the proceeding can be found here and have some relevant language relating to who can participate in addition to the MLC and DLC:

[T]he Judges believe that the views of other participants may be helpful, and perhaps essential, for the Judges to determine whether good cause exists to exercise their discretion to reject a settlement. The Judges, therefore, have modified [the regulations for the settlement negotiations and proceeding] to clarify that participants other than the MLC and DLC may participate in settlement negotiations and may comment on any resulting settlement.

via The Countdown to Modernity: Copyright Royalty Board Posts Notices and Rules for MLC Assessment Proceeding — Artist Rights Watch

The MTP Podcast: Revenue? What Revenue? Don’t be fooled on royalty audits vs. financial audits

February 8, 2019 Comments off

 

BLANCHE
Whoever you are…I have always depended on the kindness of strangers.
From A Streetcar Named Desire, by Tennessee Williams

From Highlights of Managing Change under the Music Modernization Act’s Mechanical Licensing Collective (footnotes omitted.  A version of this article appears as How Will the Music Modernization Act’s Mechanical Licensing Collective Work? in 34 Entertainment Law & Finance 1 (No. 9, Dec. 2018.)

Audits: Only the MLC may audit the blanket licensees.  Only copyright owners may audit the MLC. However, audits must be conducted by certified public accountants and those auditors are obligated to look for overpayments—which probably violates a CPA’s duty of loyalty. As Warner Music Group’s Ron Wilcox testified to the CRJs, “Because royalty audits require exten- sive technical and industry-specific expertise, in WMG’s experience a CPA certification is not generally a requirement for con- ducting such audits. To my knowledge, some of the most experienced and knowledgeable royalty auditors in the music industry are not CPAs.”

It is also important to note that the collective may only audit once a year for the prior three years. Given that there will be bil- lions of transactions subject to audit (and eventually trillions in a three year period), it is unlikely that CPAs will be conducting census level audits. Projections and lump sum payments are likely, and lump sum payments tend to be distributed in the old- school method of market share distributions.

Is Self Auditing Hazardous to Your Health? musictechpolicy.com/2014/06/01/is-s…to-your-health/

Songwriter Liberty and Audit Rights Under Section 115: Music Licensing Study Filing musictechpolicy.com/2014/06/10/song…g-study-filing/

Attestation Agreements AICPA

Generally Accepted Auditing Standards AICPA

Generally Accepted Accounting Principles

How to Fix The Music Modernization Act’s Flawed “Audit” Clause musictech.solutions/2018/03/12/how-…d-audit-clause/

Five Things Congress Could Do for Music Creators That Wouldn’t Cost the Taxpayer a Dime Part 3: Create an Audit Right for Songwriters artistrightswatch.com/2018/12/29/pos…r-songwriters/

Guest Post by Keith Bernstein: Holy GAAP! Publishers Not Getting the Upside musictechpolicy.com/2016/02/22/gues…ing-the-upside/

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Copyright Office Issues Interim Rule for MLC Applications Including Oversight of MLC Board by Librarian of Congress

December 21, 2018 Comments off

The U.S. Copyright Office issued an interim rule for comment that lays out an intricate and well thought out approach to the Register’s role in designating the Mechanical Licensing Collective and the Digital Licensee Coordinator under Title I of the Music Modernization Act.

Consistent with the MLC’s role as a quasi-governmental organization (or quasi-private, depending on how you look at it), the interim rule confirms that “directors of the MLC are inferior officers under the Appointments Clause of the Constitution [,] that the Librarian of Congress must approve each subsequent selection of a new director….[and] that the Register work with the MLC, once it has been designated to ensure that the Librarian retains the ultimate authority to appoint and remove all directors.”  Presumably, state corporate laws governing the formation of the MLC will give way to this requirement.

The Librarian’s ability to can directors should help assuage some of the concerns about the powers of the MLC and is, of course, entirely consistent with the powers of the MLC as a quasi-governmental organization.

Another requirement that caught my eye relates to the “Hoffa Clause” that allows the MLC to invade the black box to pay operating expenses not covered by the services in the administrative assessment.  The Copyright Office seems quite aware of the moral hazard present, and asks the prospective MLC candidates to provide:

Information regarding whether and how the proposed MLC may apply unclaimed accrued royalties on an interim basis to defray operating costs, as well as any accompanying plans for future reimbursement of such royalties from future collections of the administrative assessment, including relevant legal considerations and guidelines in the event the proposed MLC does intend to apply unclaimed accrued royalties.

All in all, the Copyright Office should be commended for putting together a comprehensive and even-handed “job description” for the MLC and the DLC in keeping with the Office’s statutory role in getting this quasi-governmental organization up and running.

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