Music Modernization Act: What’s In It, Why Is It In There, Is It A Good Thing?

The enactment on October 11, 2018 of the Music Modernization Act will change a lot of things about the way the music business is conducted in the United States, at least from a legal standpoint.

The rise of the internet led to the rise of the digital delivery of music, first by digital downloads, then by streaming, which has now become the dominant method of delivering music. The problem was that the streaming services wanted to deliver as much content as possible, but finding the rights holders proved too problematic, or at least more problematic in that it exceeded the expense and effort they wished to make. So, like many tech companies, they went ahead and made the songs available without a license anyway. ¹

This led to lawsuits. Two out the outset. Former Cracker frontman David Lowery and songwriter Melissa Ferrick both stuck their necks out in two class action suits against Spotify, which have since been consolidated and settled. ² In my opinion, it would be extremely doubtful that this piece of legislation would have been crafted and passed with such bi-partisan support, without their efforts. For that we should give them our thanks.

In addition, the lawsuits filed by Flo and Eddie, to recognize digital performance rights for pre-1972 sound recordings, ³ also spurred the lawmakers into action with pre-1972 sound recordings gaining the full protection of Federal law. Again, we should give them our thanks.

As to the MMA itself, the actual text of the bill is a tough read. First, it clocks in at a weighty 66 pages. Also, instead of showing new language in underline, deleted language in strike-through and unchanged text in plain text, the bill states for the changes to be understood by “striking paragraph (1) and inserting the following:,” except that what follows includes language which is unchanged from the previous version. You have to read the bill side by side with the text of the current copyright act in order to note the changes.

In sum, there are three broad stroke changes to the Copyright Act:

• Big changes to the compulsory licensing scheme for music, including how licenses are obtained, how payments are made, and safe harbors for streaming services
• Full Federal protection for pre-1972 sound recordings, including adjustments to the length of copyright term, and the pre-emption of State laws
• New rules as to payment due to the producers of sound recordings

As much as I would like to cite chapter and verse on this legislation, it proved to be far too much of a task to give a citation to everything, so you’ll have to take my word for it. So here we go.

The Big, Huge, Music Database and Compulsory Licenses for Digital Music Providers

The first section is the most complicated, and the most controversial. And right now, no one is sure it will work. The biggest is the establishment of a “Mechanical Licensing Collective,” which will apply only to digital music providers, whether the delivery is by download or by streaming. The MLC is designed to:

• Offer and administer blanket licenses
• Collect and distribute royalties payable
• Create and maintain a “musical works database”
• Co-ordinate the identification of the owners of rights in a particular musical work or sound recording
• Process claims of ownership by authors and composers
• Collect the “administrative assessment” charge from the digital music providers
• Keep track of “non-blanket license” activity

The MLC is going to be staffed by 14 voting members and three non-voting members:

• 10 voting members from music publishers
• 4 voting members from professional songwriters
• 1 non-voting member from a non-profit music publisher trade association
• 1 non-voting member from a digital licensee coordinator
• 1 non-voting member from a non-profit trade association for songwriters

The activities of the MLC are limited to delivery of music by a digital means, whether by download or streaming. It does not apply to physical product such as CDs and vinyl. It also only applies to instances where the digital music service has not obtained a license with the copyright owner, either previously or prospectively, and the digital music wishes to obtain a “compulsory License” to do so.

Under the current law, a person may make a copy of a musical composition in a recording, without the permission of the copyright owner, as long as it files the necessary paperwork, and pays the required royalties. ⁴ Yes, it may seem odd, if not downright unfair, that the Government can issue a license, without my consent, for a copyright I own, at a rate set by them, but that’s the way it is. And will continue to be.

So, now any digital music provider is going to be able to pull a compulsory license for all of the music in the United States. There is no opt-out for composers. This license will be valid provided the proper application is made and the proper royalties paid.

So, what’s the royalty going to be? Well, no one knows just yet.

A panel of Copyright Royalty Judges is going to determine that. The main change is that this determination must “clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”

Now, here’s where it starts to get complicated. The MMA itself becomes law upon its enactment by the President. This has already occurred. What follows is a two-year period ramping up to the full blown implementation of the MLC to what the statute calls the “licensing availability date.” And during this period, there are differing rules as to procedure and liability.

For the next two years, a compulsory license is initiated by serving the NOI or “Notice of Intent” on the copyright owner. It must be served on the copyright owner. It cannot be served on the Copyright Office, even if the digital music provider “cannot find” the copyright owner. So the MMA closes (one hopes) one of the most egregious loopholes in the Copyright Act, the filing of NOI’s on the Copyright Office because the streaming services “can’t find” some of the most famous musicians of our time.

Under the prior law, the only database that mattered was the Copyright Office records. If the song didn’t show up in the records, then the streaming service could claim it “couldn’t find” the author, file the NOI on the Copyright Office and pay the composer nothing.

That’s right, NOTHING.

Section 115 (c)(1)[30] of the Copyright Act addresses the payment of royalties under a NOI:

“To be entitled to receive royalties under a compulsory license, the copyright owner must be identified in the registration or other public records of the Copyright Office. The owner is entitled to royalties for phonorecords made and distributed after being so identified, but is not entitled to recover for any phonorecords previously made and distributed.”

Wow, what a loophole. There is no incentive to take active steps to find the composer.

Sooo, Google claimed it “couldn’t find” Brian Wilson, the composer of the Beach Boys hit “Surfer Girl.” ⁵

Sooo, Spotify claimed it “couldn’t find” Ed Sheeran, ⁶ who was the most streamed artist on Spotify in 2017. ⁷

Between April 2016 and January 2017, over 25 million NOI’s were filed with the Copyright Office. ⁸ The top three filers were:

• Amazon Digital Services LLC: 19,421,902
• Google, Inc.: 4,625,521
• Pandora Media, Inc: 1,193,346

Also on the “we can’t find them” list? Drake and Bruno Mars. ⁹

Exacerbating the problem was that the Copyright Act does not require registration as prerequisite to copyright protection. ¹⁰ And under the Berne Treaty, copyright protection is automatic in all Berne Countries without the necessity of registration. ¹¹ This would explain why Ed Sheeran, an English citizen, would not bother with registration in the U.S. Also, the database does not include any pre-1978 works. ¹²Which explains why Google “can’t find” the composer of a 1963 song.

So, for the next two years, the digital music service must actually serve the NOI on the copyright owner. If it can’t, its safe harbor from liability depends on the digital music provider making “good faith commercially acceptable efforts to identify and locate each copyright owner.” This includes a continuing effort to locate the copyright owner at least once a month.

This is where I get a little skeptical that this will work… “good faith commercially reasonable effort.”

“Good faith” and the tech companies are not two phrases that often appear in the same sentence together.

Consider Google took the time in less than one year to file 4 million NOI’s because they “couldn’t find” somebody. Really? Google? The most profitable company in the world that has billions of dots of information on virtually everybody, can’t find Brian Wilson? Does that sound like “good faith” to you?

Or consider Google’s heavy handed passive aggressive approach to make it as hard as possible to serve a takedown notice, as chronicled by my previous blog post. ¹³

My guess is the tech companies will push the limits of “good faith” to absurd tactics. But I hope I’m wrong.

Also, in a welcome change, if the digital music provider cannot locate you after to “good faith effort,” they must escrow the royalties due you. No more free rides. However, if you are not located by the time of the “license availability date,” this money is paid over to the MLC, and the rule on unclaimed royalties will apply.

The trade-off here is another miserable “safe harbor” for tech companies. If you didn’t file your lawsuit before January 1, 2018 for illegal activity prior to the “licensing availability date” of the MMA, you can only sue them for the royalty otherwise owed to you. No lost profits. No statutory damages. Note that the Spotify class action settlement, being commenced before January 1, 2018, is not affected by the MMA.

Frankly, I think this safe harbor is unconstitutional. The MMA was introduced on December 17, 2017. The safe harbor is retroactive to January 1, 2018. Depriving you of your rights to effectively sue on two weeks’ notice does not strike me as being compliant with the “due process of law” as guaranteed by the constitution.

Going forward, the digital music services must make a “good faith commercially reasonable effort to obtain from sound recording copyright owners…information concerning…sound recording copyright owners [and]…the authorship and ownership of musical works, including songwriters [and]…ownership shares.”

After the “license availability date,” all notices are served on the MLC and all royalties payable under a compulsory license are paid to the MLC.

Also after the “license availability date” of the MMA, you can’t sue a digital music service at all if the digital music provider is otherwise compliant.

In any event, here are the remaining quick hit bullet points of the MMA’s new compulsory licensing scheme:

• A digital music service can still negotiate with you directly, (to get a lower rate obviously)
• The MLC can refuse a request for a blanket license if the proposed licensee has had a previous license terminated by the MLC in the preceding 3 years
• The make-up of the MLC is to be reviewed every 5 years
• Unclaimed royalties must be held in an interest bearing account
• If royalties remain unclaimed for 3 years, they are then distributed according to market share
• The MLC can be audited by songwriters
• The MLC is funded by an administrative assessment on the digital music providers
• All State property laws, e.g. escheatment and abandoned property are pre-empted
• The “license availability date,” or the date on which the MMA goes into full effect, will be October 11, 2020
• “Rate Court” proceedings for ASCAP, BMI et al are now to be randomly assigned
• The Department of Justice must notify Congress prior to any action to terminate the performing rights consent decrees

I would be remiss if I did not give a huge round of applause to Texas attorney Chris Castle whose dogged reporting on the MusicTechPolicy website uncovered the massive dishonest filing of NOI’s by the streaming industry.

Full Federal Copyright Protection for Pre-1972 Sound Recordings

When first introduced, the idea was to give performance rights to pre-1972 sound recording when transmitted digitally. Following some squawking, and some of it was pretty ridiculous, the decision was made to go for full Federal protection for pre-1972 sound recordings. So now this means:

• All State laws regarding pre-1972 sound recordings are pre-empted to the same extent that State laws regarding post 1972 sound recordings are pre-empted
• Fair use now applies
• Section 512 notice and takedown now applies
• Section 230 of the Communication Decency Act does not now apply
• Analog broadcasts remain exempt from performance fees for pre-1972 recordings
• All digital broadcast and streamers must pay performance royalties on pre-1972 recordings
• Non-commercial use of a pre-1972 recording that is “not being commercially exploited” has safe harbor from lawsuits under certain conditions.

So, now given full copyright protection to pre-1972 recordings, Congress chose to fiddle with the copyright terms. Part of this was that some pre-1972 sound recordings would go into the public domain pretty quickly, and in some cases instantly. To avoid this, and to satisfy the ridiculous assertion in some circles that the Act would extend copyright in the sound recordings for 144 years, a new scheme of copyright terms was enacted.

• Recordings made before 1923 get three years protections from October 11, 2018.
• Recordings made between 1923 and the end of 1946 get 95 years from date of first publication plus 5 years.
• Recordings made between 1947 and the end of 1956 get 95 years from date of first publication plus 15 years.
• All recordings made after January 1, 1957 will have their protection terminate on February 15, 2067.

No matter how well intentioned, this will only make things more complicated. Instead of one rule on copyright duration, we now have four.

Ugh. Oh well. Keeping attorneys gainfully employed, I suppose.

The Allocation for Music Producers Act

The final, shortest and least controversial part of the MMA is the AMP Act or Allocation for Music Producers Act.

It allows producers of sound recordings to receive a portion of the royalties collected by Sound Exchange. This will happen if:

• The recording artist sends a “Letter of Direction” to SoundScan requesting the payment of a portion for the royalties be paid to the producer, or
• If the recording was made before 1995, 2% of the collected sums will be paid to the producer if the producer has made a good faith attempt to obtain a letter of direction from the recording artist with no response, or no response is made to inquiries from SoundExchange.

So, there you have it. Will it work? We’ll find out.