2176 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

1Public Law 115–264, 132 Stat. 3676 (2018). 

2 84 FR 32274 (July 8, 2019). 

3As permitted under the MMA, the Office 

designated a digital licensee coordinator (‘‘DLC’’) to 

represent licensees in proceedings before the 

Copyright Royalty Judges (‘‘CRJs’’) and the Office, 

to serve as a non-voting member of the MLC, and 

to carry out other functions. 17 U.S.C. 115(d)(5)(B); 

84 FR 32274 (July 8, 2019); see also 17 U.S.C. 

115(d)(3)(D)(i)(IV), (d)(5)(C). 

4See 17 U.S.C. 115(b)(1), (c)(5) (2017). 5H.R. Rep. No. 115–651, at 10 (2018); S. Rep. No. 

115–339, at 10 (2018). 

6 17 U.S.C. 115(b)(2)(A), (c)(2)(I); see H.R. Rep. 

No. 115–651, at 4; S. Rep. No. 115–339, at 3. 

7 17 U.S.C. 115(b)(2)(A), (d)(9)(D)(i), (d)(10)(A)– 

(B); see H.R. Rep. No. 115–651, at 4, 10; S. Rep. No. 

115–339, at 3, 10, 22. 

8 17 U.S.C. 115(d)(10)(B); see H.R. Rep. No. 115– 

651, at 4, 10; S. Rep. No. 115–339, at 3, 10. 

9H.R. Rep. No. 115–651, at 14; S. Rep. No. 115– 

339, at 14–15; Report and Section-by-Section 

Analysis of H.R. 1551 by the Chairmen and Ranking 

Members of Senate and House Judiciary 

Committees, at 12 (2018), https://

www.copyright.gov/legislation/mma_conference_

report.pdf (‘‘Conf. Rep.’’). 10H.R. Rep. No. 115–651, at 13; S. Rep. No. 115– 

339, at 14; Conf. Rep. at 12. 11 17 U.S.C. 115(d)(10)(B)(iii). 12 Id. at 115(d)(10)(B)(iv). 

13 Id. 

14 Id. at 115(d)(10)(B)(iv)(II). 

LIBRARY OF CONGRESS 

U.S. Copyright Office 

37 CFR Part 210 

[Docket No. 2020–12] 

Music Modernization Act Transition 

Period Transfer and Reporting of 

Royalties to the Mechanical Licensing 

Collective 

AGENCY: U.S. Copyright Office, Library 

of Congress. 

ACTION: Final rule. 

SUMMARY: Pursuant to title I of the Orrin 

G. Hatch-Bob Goodlatte Music 

Modernization Act, and following 

extensive solicitation of public 

comments, the U.S. Copyright Office is 

issuing a final rule addressing digital 

music providers’ obligations to transfer 

and report accrued royalties for the use 

of unmatched musical works (or shares 

thereof) to the mechanical licensing 

collective for purposes of eligibility for 

the Act’s limitation on liability for prior 

unlicensed uses. 

DATES: The rule is effective February 10, 

2021. 

FOR FURTHER INFORMATION CONTACT: 

Regan A. Smith, General Counsel and 

Associate Register of Copyrights, by 

email at regans@copyright.gov, John R. 

Riley, Assistant General Counsel, by 

email at jril@copyright.gov, or Jason E. 

Sloan, Assistant General Counsel, by 

email at jslo@copyright.gov. Each can be 

contacted by telephone by calling (202) 

707–8350. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On October 11, 2018, the president 

signed into law the Orrin G. Hatch-Bob 

Goodlatte Music Modernization Act 

(‘‘MMA’’) which, among other things, 

substantially modifies the compulsory 

‘‘mechanical’’ license for making and 

distributing phonorecords of 

nondramatic musical works under 17 

U.S.C. 115.1 It does so by switching 

from a song-by-song licensing system to 

a blanket licensing regime administered 

by a mechanical licensing collective 

(‘‘MLC’’) that becomes available on 

January 1, 2021 (the ‘‘license availability 

date’’). In July 2019, the Copyright 

Office (the ‘‘Office’’) designated an 

entity to serve as the MLC, as required 

by the MMA.2 Digital music providers 

(‘‘DMPs’’) can obtain the new blanket 

license to make digital phonorecord 

deliveries (‘‘DPDs’’) of musical works, 

including in the form of permanent 

downloads, limited downloads, or 

interactive streams (referred to in the 

statute as ‘‘covered activity,’’ where 

such activity qualifies for a compulsory 

license), subject to compliance with 

various requirements.3 As was true 

before the MMA, DMPs may enter into 

privately negotiated voluntary licenses 

with copyright owners in lieu of using 

the compulsory license. 

Prior to the MMA, DMPs obtained a 

section 115 compulsory license on a 

per-work, song-by-song basis, by serving 

a notice of intention to obtain a 

compulsory license (‘‘NOI’’) on the 

copyright owner (or filing it with the 

Office if the Office’s public records did 

not identify the copyright owner) and 

then paying applicable royalties 

accompanied by accounting 

statements.4 The MMA includes a 

‘‘transition period’’ covering the period 

following its October 2018 enactment 

and before the blanket license becomes 

available in January 2021.5 During this 

transition period, anyone seeking to 

obtain a compulsory license to make 

DPDs must continue to do so on a songby-song basis by serving NOIs on 

copyright owners ‘‘if the identity and 

location of the musical work copyright 

owner is known,’’ and paying them 

applicable royalties accompanied by 

statements of account.6 If the musical 

work copyright owner is unknown, a 

DMP can no longer file an NOI with the 

Office, but instead may rely on a 

limitation on liability that requires the 

DMP to, among other things, 

‘‘continue[ ] to search for the musical 

work copyright owner’’ using goodfaith, commercially reasonable efforts 

and bulk electronic matching 

processes.7 The DMP must either 

account for and pay accrued royalties to 

the relevant musical work copyright 

owner(s) when found or, if they are not 

found before the end of the transition 

period, account for and transfer accrued 

royalties to the MLC at that time.8

Congress believed that the liability 

limitation, which limits recovery in 

lawsuits commenced on or after January 

1, 2018 to the statutory royalty that 

would be due, would ‘‘ensure that more 

artist royalties will be paid than 

otherwise would be the case through 

continual litigation,’’ 9 and also viewed 

this provision as a ‘‘key component that 

was necessary’’ to ensure support for 

legislative change.10

With respect to reporting and 

payment requirements for eligibility for 

the limitation on liability, the statute 

details three scenarios. First, if the DMP 

is successful in identifying and locating 

a copyright owner of a musical work (or 

share) by the end of the calendar month 

in which the DMP first makes use of the 

work, it must provide statements of 

account and pay royalties to that 

copyright owner in accordance with 

section 115 and applicable 

regulations.11 The second and third 

scenarios apply if the copyright owner 

is not identified or located by that 

date.12 In such cases, the DMP must 

accrue and hold applicable statutory 

royalties in accordance with usage of 

the work, from the initial use of the 

work until the royalties can be paid to 

the copyright owner or are required to 

be transferred to the MLC at the end of 

the transition period.13 If a copyright 

owner of an unmatched musical work 

(or share) is identified and located 

before the license availability date, the 

DMP must pay the copyright owner all 

accrued royalties accompanied by a 

cumulative statement of account that 

includes the information that would 

have been provided had the DMP been 

providing monthly statements of 

account to the copyright owner from its 

initial use of the work in accordance 

with section 115 and applicable 

regulations.14 If a copyright owner of an 

unmatched musical work (or share) is 

not identified and located by the license 

availability date, the DMP must, among 

other things, transfer, no later than 45 

calendar days after the license 

availability date, ‘‘all accrued royalties’’ 

to the MLC ‘‘accompanied by a 

cumulative statement of account that 

includes all of the information that 

would have been provided to the 

copyright owner had the [DMP] been 

serving monthly statements of account 

on the copyright owner from initial use 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2177 

15See 37 CFR 210.6(f)(1)(v). 

16 17 U.S.C. 115(d)(10)(B)(iv)(III). 

17 83 FR 63061 (Dec. 7, 2018). 

18See 37 CFR 210.10. 

19See 84 FR 10685 (Mar. 22, 2019). 

20 84 FR 49966 (Sept. 24, 2019). 

21 Id. at 49971. 

22See MLC Initial NOI Comment at 22–23; MLC 

Reply NOI Comment at 27–30, App. D at 19; MLC 

Ex Parte Letter at 2–4 (June 17, 2020). 

23See DLC Initial NOI Comment at 18–19; DLC 

Reply NOI Comment at 24–25, Add. A–24. 

24 85 FR 43517 (July 17, 2020) (‘‘NPRM’’). All 

rulemaking activity, including public comments, as 

well as educational material regarding the MMA, 

can currently be accessed via navigation from 

https://www.copyright.gov/music-modernization. 

Comments received in response to the September 

2019 notification of inquiry are available at https:// 

www.regulations.gov/docket?D=COLC-2019-0002, 

comments received in response to the NPRM and 

supplemental notice of proposed rulemaking 

(‘‘SNPRM’’) are available at https://

www.regulations.gov/docket?D=COLC-2020-0011. 

Guidelines for ex parte communications, along with 

records of such communications, are available at 

https://www.copyright.gov/rulemaking/mmaimplementation/ex-parte-communications.html. 

References to these comments are by party name 

(abbreviated where appropriate), followed by 

‘‘Initial NOI Comment,’’ ‘‘Reply NOI Comment,’’ 

‘‘NPRM Comment,’’ ‘‘SNPRM Comment,’’ or ‘‘Ex 

Parte Letter,’’ as appropriate. 

25See MLC NPRM Comment at 1 (‘‘The Proposed 

Regulation considers the aims and goals of the 

MMA in creating the new mechanical licensing 

system, and works to empower the MLC to improve 

the matching of DMP usage to musical works and 

the owners thereof and thereby reduce unmatched 

and unclaimed royalties. The MLC agrees with the 

bulk of the language in the Proposed Regulation.’’). 

26See DLC NPRM Comment at 2–3. 

27See, e.g., Artist Rights Alliance (‘‘ARA’’), Music 

Artists Coal. (‘‘MAC’’), Nashville Songwriters Ass’n 

Int’l (‘‘NSAI’’), Google Ex Parte Letter (Oct. 23, 

2020); MediaNet Ex Parte Letter (Oct. 28, 2020); 

MLC Ex Parte Letter (Oct. 16, 2020); Nat’l Music 

Publishers’ Ass’n (‘‘NMPA’’) Ex Parte Letter (Nov. 

3, 2020); Recording Acad. & Songwriters of N. Am. 

(‘‘SONA’’) Ex Parte Letter (Sept. 22, 2020); DLC Ex 

Parte Letter (Oct. 14, 2020); Songwriters Guild of 

Am. (‘‘SGA’’), Soc’y of Composers & Lyricists 

(‘‘SCL’’), All. for Women Film Composers 

(‘‘AWFC’’) & Music Creators N. Am. (‘‘MCNA’’) Ex 

Parte Letter (Sept. 15, 2020); SATV Music Publ’g 

(‘‘SATV’’) Ex Parte Letter (Oct. 28, 2020); Spotify 

Ex Parte Letter (Oct. 9, 2020); Universal Music 

Publ’g Grp. (‘‘UMPG’’) Ex Parte Letter (Oct. 30, 

2020); Warner Music Grp. (‘‘WMG’’) Ex Parte Letter 

(Oct. 21, 2020). 

28 85 FR 70544, 70546 (Nov. 5, 2020) (‘‘SNPRM’’). 

29 Id. at 70545–46; Letter from Senator Lindsey O. 

Graham, Chairman, Senate Committee on the 

Judiciary, to U.S. Copyright Office 1 (Sept. 30, 

2020); Johnson v. Copyright Royalty Bd., 969 F.3d 

363 (D.C. Cir. 2020). 

30SNPRM at 70547. 

31 Id. at 70546–47. 

32See DLC SNPRM Comment at 12–13; MLC 

SNPRM Comment at 15–17; DLC & MLC Ex Parte 

Letter (Dec. 9, 2020). 

of the work in accordance with [section 

115] and applicable regulations,’’ 

including the certification that would 

have been provided to an identified 

copyright owner 15 as well as an 

additional certification attesting to the 

DMP’s matching efforts during the 

transition period.16

In December 2018, the Office 

published an interim rule and requested 

comments to address payment and 

reporting obligations during the 

transition period.17 That interim rule 

specified that DMPs must pay royalties 

and provide cumulative statements of 

account to copyright owners and the 

MLC in compliance with the Office’s 

preexisting regulations regarding 

monthly statements of account.18 The 

Office received no comments in 

response to this public rulemaking and 

finalized the rule in March 2019.19 In 

September 2019, the Office issued a 

notification of inquiry regarding various 

topics related to MMA 

implementation.20 Observing the 

‘‘persistent concern about the ‘black 

box’ of unclaimed royalties, including 

its amount and treatment by digital 

music providers and the MLC,’’ this 

notice provided additional opportunity 

for public comment on, among other 

things, ‘‘any issues that should be 

considered relating to the transfer and 

reporting of unclaimed royalties by 

digital music providers to the MLC.’’ 21

Both the MLC and DLC provided 

comments in response to this later 

inquiry, as discussed further below. The 

MLC generally sought to expand the 

reporting and formatting requirements 

in a manner that approximated its 

requests for monthly reporting by 

blanket licensees on a prospective basis, 

to better facilitate its matching activities 

(which the DLC opposed).22 The DLC 

specifically sought regulatory certainty 

to ensure that monies previously paid 

by DMPs to copyright owners pursuant 

to privately negotiated, pre-MMA 

agreements need not also be paid a 

second time to the MLC to maintain 

DMP eligibility for the limitation on 

liability (which the MLC opposed).23

In July 2020, the Office issued a 

notice of proposed rulemaking 

(‘‘NPRM’’) to address these comments.24

It proposed expanding the reporting 

requirements to accommodate the 

MLC’s request for additional 

information. The NPRM also offered 

initial guidance regarding the potential 

relationship of pre-MMA agreements to 

the cumulative statement reporting 

obligations, but did not propose specific 

regulatory language concerning the 

issue of potential ‘‘double payments’’ in 

connection with such agreements; the 

Office invited further comment on the 

issue. The MLC’s comments to the 

NPRM were largely supportive of the 

NPRM’s proposed approach.25 The DLC 

supported some aspects of the proposed 

rule, but expressed concern with some 

of the proposed reporting requirements 

and urged the Office to promulgate 

regulations addressing privately 

negotiated pre-MMA agreements and 

their interaction with the limitation on 

liability requirements.26 Through the 

Office’s permitted ex parte meeting 

option, those parties, as well as 

individual DMPs, music publishers, and 

songwriter groups provided additional 

views regarding these issues, as 

summarized on the Office’s ex parte 

communications web page.27

In November 2020, the Office issued 

an SNPRM after determining that the 

public process would benefit from 

soliciting comments on alternative 

regulatory language to ensure that 

further views could be duly considered 

on the issues raised in the proceeding.28

The Office noted that the SNPRM 

resulted from then-received public 

comments, a letter from Senate Judiciary 

Committee Chairman Lindsey O. 

Graham specifically raising the issue of 

pre-MMA agreements between DMPs 

and music publishers and the payment 

of unclaimed accrued royalties, and the 

D.C. Circuit’s partial vacatur and 

remand of the Copyright Royalty Judges’ 

(‘‘CRJs’’) Phonorecords III 

determination.29 The Office explained 

that although it had not reached any 

final conclusions, it was issuing the 

SNPRM to provide interested parties 

with adequate notice and opportunity to 

comment in advance of the February 

2021 deadline for DMPs to be able to 

submit cumulative statements of 

account to the MLC. 

The SNPRM presented two main 

potential modifications to the NPRM. 

First, to address the DLC’s comments, 

the requirements governing reporting of 

sound recording and musical work 

information would more closely track 

existing regulations, with an added 

requirement that DMPs report certain 

additional information if requested by 

the MLC.30 Second, the circumstances 

under which a DMP may estimate and 

adjust the computation of its accrued 

royalties would be expanded where 

such computation depends upon an 

input that is unable to be finally 

determined at the time the cumulative 

statement of account is due.31 In 

response to the SNPRM, the MLC and 

DLC largely reached consensus on the 

data reporting issue, except with respect 

to partially matched works.32 On the 

second issue, the MLC and DLC both 

supported the SNPRM’s approach to 

more closely track the December 2018 

interim rule on estimates and 

adjustments adopted for reports of usage 


jbell on DSKJLSW7X2PROD with RULES5
2178 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

33See DLC SNPRM Comment at 2; MLC SNPRM 

Comment at 13–14, App. A at v, ix–x. 

34See DLC SNPRM Comment at 1–12. 

35See MLC SNPRM Comment at 2–13. 

36See ARA, Future of Music Coal. (‘‘FMC’’) & 

MusicAnswers SNPRM Comment at 2–4 

(supporting); MAC, Recording Acad. & SONA 

SNPRM Comment at 2–3 (opposing); SGA, SCL & 

MCNA SNPRM Comment at 5–6 (declining ‘‘to 

speak directly in these Comments regarding the 

USCO’s proposed Supplemental USCO Rules’’ due 

to underlying concerns with DMP and publisher 

transparency surrounding pre-MMA agreements). 

37See Letter from Senator Lindsey O. Graham, 

Chairman, Senate Committee on the Judiciary, to 

U.S. Copyright Office 1 (Sept. 30, 2020). 

38See H.R. Rep. No. 115–651, at 14; S. Rep. No. 

115–339, at 15; Conf. Rep. at 12 (‘‘The Copyright 

Office has the knowledge and expertise regarding 

music licensing through its past rulemakings and 

recent assistance to the Committee[s] during the 

drafting of this legislation.’’); 17 U.S.C. 

115(d)(12)(A) (‘‘The Register of Copyrights may 

conduct such proceedings and adopt such 

regulations as may be necessary or appropriate to 

effectuate the provisions of this subsection.’’); 

Alliance of Artists & Recording Cos. v. DENSO Int’l 

Am., Inc., 947 F.3d 849, 863 (D.C. Cir. 2020) (‘‘[T]he 

best evidence of a law’s purpose is the statutory 

text, and most certainly when that text is the result 

of carefully negotiated compromise among the 

stakeholders who will be directly affected by the 

legislation.’’) (internal quotation marks, brackets, 

and citations omitted); 84 FR at 49967–68. 

39H.R. Rep. No. 115–651, at 5–6, 14; S. Rep. No. 

115–339, at 5, 15; Conf. Rep. at 4, 12 

(acknowledging that ‘‘it is to be expected that 

situations will arise that were not contemplated by 

the legislation,’’ and that ‘‘[t]he Office is expected 

to use its best judgement in determining the 

appropriate steps in those situations’’); see 17 

U.S.C. 115(d)(12)(A); Nat’l Cable & Telecomms. 

Ass’n v. Brand X internet Servs., 545 U.S. 967, 980 

(2005) (‘‘[A]mbiguities in the statutes within an 

agency’s jurisdiction to administer are delegations 

of authority to the agency to fill the statutory gap 

in reasonable fashion.’’) (citing Chevron, U.S.A., 

Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 

(1984)). 

40NPRM at 43519; see 37 CFR 210.20. 

41NPRM at 43519; the interim rule regarding 

monthly reports of usage was published in 85 FR 

58114 (Sept. 17, 2020). 

42NPRM at 43519 (quoting DLC NPRM Reply at 

24). 

43 Id. at 43525. 

44 DLC NPRM Comment at Add. 21; DLC Ex Parte 

Letter at 2 (Aug. 11, 2020). 

45 DLC NPRM Comment at 8 (‘‘This uncertainty 

and ambiguity undermines the central bargain of 

the statute by eroding DMPs’ confidence in their 

ability to rely on the limitation on liability, thus 

decreasing their incentive to pay accrued royalties 

to the MLC if they cannot provide certain data 

included in the new rules.’’); see also DiMA NPRM 

Comment at 6–7 (saying the NPRM’s reporting 

amendments would create ‘‘massive operational 

hurdles’’ and would ‘‘jeopardize[ ] every [DMP’s] 

eligibility for the limitation on liability’’). 

46SNPRM at 70547. 

under the blanket license.33 They 

disagreed, however, on the SNPRM’s 

proposed approach to address reporting 

with respect to any applicable pre-MMA 

agreements. The DLC supported the 

SNPRM’s approach 34 while the MLC 

did not,35 and songwriter groups were 

split.36

At Chairman Graham’s request, the 

Office also convened a joint meeting to 

discuss their views on the treatment of 

certain pre-MMA agreements in 

connection with the limitation on 

liability requirements. Although it 

became clear that no significant 

consensus had emerged, the Office 

found it helpful for the parties to engage 

with each other directly, and believes 

that the record has benefited from the 

input of a variety of perspectives, each 

of which the Office has carefully 

considered in moving forward with a 

rule regarding cumulative statements 

consistent with the MMA’s statutory 

deadline.37

Having reviewed and considered all 

relevant comments received in response 

to the notification of inquiry, NPRM, 

and SNPRM, including through a 

number of permitted ex parte 

communications as detailed under the 

Office’s procedures, the Office has 

weighed the legal, business, and 

practical implications and equities that 

have been raised. Pursuant to its 

authority under 17 U.S.C. 115 and 702, 

it is adopting final regulations with 

respect to DMP obligations to transfer 

and report accrued royalties for 

unmatched musical works (or shares) to 

the MLC for purposes of eligibility for 

the MMA’s limitation on liability for 

prior unlicensed uses, which it believes 

best reflect the statutory language and 

its animating goals in light of the 

rulemaking’s record.38 In doing so, the 

Office has exercised its ‘‘broad 

regulatory authority’’ and ‘‘use[d] its 

best judgement in determining the 

appropriate steps’’ as Congress 

directed.39

II. Final Rule 

Several aspects of the proposed rule 

were not opposed. Where parties 

objected to other aspects of the 

proposed rule, the Office has considered 

those comments and resolved the issues 

as discussed below. If not otherwise 

discussed, the Office has concluded that 

the relevant proposed provision should 

be adopted as final for the reasons stated 

in the NPRM (though in some such 

cases, the adopted language reflects 

minor technical edits). In promulgating 

this rule, the Office has endeavored to 

ensure that the MLC receives the 

information and royalties it needs to 

fulfill its statutory duties, that copyright 

owners and songwriters are accurately 

paid any royalties they are owed, and 

that DMPs can realistically and 

practicably obtain the limitation on 

liability by complying with the statutory 

requirements. 

A. Cumulative Statements of Account 

Content and Format 

This section of the preamble discusses 

the final rule’s content and format 

requirements for cumulative statements 

of account delivered to the MLC, except 

with respect to requirements connected 

to the reliance upon estimates, 

adjustments, and reconciliation of 

statements, which are addressed below. 

1. Sound Recording and Musical Work 

Information 

The NPRM proposed requiring DMPs 

to provide additional information 

concerning sound recording and 

musical work metadata beyond what is 

required by existing regulations 

governing cumulative statements of 

account.40 The proposed requirements 

largely mirrored the content 

requirements the Office had proposed in 

a parallel rulemaking (and has recently 

adopted) for monthly reports of usage 

under the blanket license.41 This general 

approach was recommended by the 

MLC but disfavored by the DLC, which 

called it ‘‘impractical’’ and explained 

that ‘‘digital music providers have 

maintained usage information . . . with 

the existing statement of account 

regulations in mind.’’ 42

The Office sought to address the 

DLC’s concerns by including a 

practicability standard: DMPs would 

only be required to report information 

that would not have been reported to 

copyright owners in monthly statements 

of account, ‘‘to the extent 

practicable.’’ 43 In response, the DLC 

‘‘emphatically opposed’’ the NPRM, and 

described the requirement to report 

additional information as ‘‘impossible,’’ 

explaining that some of the information 

had not been collected by DMPs in the 

past and could not be collected in time 

to include in cumulative statements of 

account.44 The DLC further stated that 

the addition of a ‘‘practicability’’ 

standard did not alleviate its concerns, 

and implied that the reporting 

requirement as proposed might cause 

DMPs to forgo taking advantage of the 

limitation on liability.45

The SNPRM sought additional 

comments on this issue, stating the 

Office was considering adopting 

alternative language ‘‘to reflect the 

DLC’s comments and incentivize 

optional participation in th[e] transition 

period reporting for cumulative 

statements of account.’’ 46 The Office 

proposed a baseline reporting 

requirement for sound recording and 

musical work information that was 

closer to the existing requirements for 

transition period cumulative statements 

of account, but added a requirement that 

DMPs additionally ‘‘report information 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2179 

47 Id.; see also 17 U.S.C. 115(d)(10)(B)(i)(I)(aa) 

(‘‘Sound recording name, featured artist, sound 

recording copyright owner, producer, international 

standard recording code, and other information 

commonly used in the industry to identify sound 

recordings and match them to the musical works 

they embody.’’); id. at 115(d)(10)(B)(i)(I)(bb) (‘‘Any 

available musical work ownership information, 

including each songwriter and publisher name, 

percentage ownership share, and international 

standard musical work code.’’). 

48SNPRM at 70547. 

49 Id. 

50 DLC & MLC Ex Parte Letter at 1 (Dec. 9, 2020). 

51 Id. 

52 Id. at 2. The MLC and DLC’s proposed 

regulations do not require reporting of publisher or 

copyright owner information in the supplemental 

metadata report. This absence makes sense given 

that the data applies to unmatched royalties. 

Reporting requirements for partially matched tracks 

are discussed below. 

53 Id. The Office presumes that the DLC’s support 

of this joint proposal moots any concerns it voiced 

regarding the NPRM. 

54 In an ex parte meeting subsequent to the 

publication of the DLC & MLC joint proposal, Music 

Reports (a vendor of various DMPs) raised concerns 

regarding the introduction of new reporting 

requirements for cumulative statements of account 

so close to the required delivery date. Music 

Reports Ex Parte Letter at 2 (Dec. 15, 2020). While 

the Office does not discount the validity of these 

concerns, it notes that it is the DMPs, not Music 

Reports, who bear the risk, since they are subject 

to this requirement to maintain the statutory 

limitation on liability. Given that the DLC, which 

represents DMP interests, believes the reporting 

requirements are appropriate, the Office declines to 

deviate from the proposal. 

55 DLC & MLC Ex Parte Letter at 2 (Dec. 9, 2020). 

56 Id. The proposed language states, inter alia, 

that in the event injunctive relief is granted, ‘‘the 

court shall award, notwithstanding anything to the 

contrary in section 505, reasonable attorney’s fees 

and costs, as well as such other relief as the court 

determines appropriate,’’ or, in the event the court 

finds that the DMP acted unreasonably or in bad 

faith, ‘‘damages in the amount of 1.5% per month 

on the amount of royalties transferred pursuant to 

subsection (b)(3)(i), or the highest lawful rate, 

whichever is lower, for the period from June 15, 

2021 until the supplemental metadata report is 

provided to the mechanical licensing collective.’’ 

Id. at 10. 

57 Id. at 3. 

58 Id. 

59 Id. 

60 Id. at 2–3 (‘‘As an initial matter, DLC and MLC 

agree that loss of the limitation of liability or the 

blanket license would be an inappropriate means of 

enforcing the format and supplemental metadata 

report requirements proposed herein.’’). 

61 17 U.S.C. 115(d)(10)(B)(iv)(II)(aa). 

referenced in 17 U.S.C. 

115(d)(10)(B)(i)(I)(aa) or (bb) that was 

acquired by the DMP in connection with 

its efforts to obtain such information 

under 17 U.S.C. 115(d)(10)(B)(i)(I), or a 

DMP-assigned identifier, if such 

information is requested by the MLC.’’ 47

It sought comment on the feasibility and 

adequacy of this proposal or whether, as 

an alternative to DMPs providing such 

information upon the MLC’s request, the 

regulations should require submission 

of such supplementary information by a 

set date.48 The Office encouraged 

‘‘continued dialogue between the MLC 

and DLC as to this aspect of the 

reporting regulations, as well as 

submission of any joint proposals that 

may result from discussions.’’ 49

The MLC and DLC did engage in 

continued discussions on this issue, 

which proved fruitful. In a December 

2020 ex parte meeting, the organizations 

reported that they had reached 

agreement ‘‘on an operational 

framework that ensures the MLC obtains 

all reasonably available metadata for 

unmatched works via a simplified 

format that DLC members are wellprepared to operationalize,’’ along with 

proposed regulatory language.50 Their 

proposal would require DMPs to 

provide to the MLC by February 2021 a 

cumulative statement of account 

‘‘containing all metadata information 

that would have been delivered to 

copyright owners under the pre-MMA 

monthly statements of account,’’ similar 

to the present transition period 

requirement for cumulative statement of 

account.51 DMPs would also be required 

to submit a supplemental metadata 

report to the MLC by June 15, 2021 

containing ‘‘(1) available and up-to-date 

track-level metadata that has been 

obtained by the services and (2) in the 

event copyright owners of partial shares 

of particular works were identified and 

paid, information regarding those paid 

parties and the amounts that were 

paid.’’ 52 The cumulative statement of 

account would also contain both a DMPprovided track identifier and a unique 

identifier for each individual ‘‘usage’’ 

line that the MLC will use to index to 

the later-delivered supplemental 

metadata report.53

The Office appreciates the cooperative 

efforts of the MLC and DLC in crafting 

this joint proposal and generally agrees 

with their approach and list of 

information to be reported. The Office 

believes the proposal constitutes a 

reasonable approach that provides legal 

certainty and effectuates the intent of 

the MMA in light of the operational 

realities DMPs face at this time.54 The 

supplemental metadata provided by 

DMPs beyond what they are required to 

report under existing cumulative 

statement of account regulations should 

benefit the MLC in executing its 

matching duties, and the inclusion of a 

unique identifier will further enable the 

MLC to link data received through usage 

reports and the supplemental metadata 

report with sound recording and 

musical work information it receives in 

cumulative statements of account. At 

the same time, this pragmatic approach 

mitigates the risk that DMPs would 

forgo the statutory limitation on 

liability, which would ultimately harm 

songwriters, copyright owners, and 

DMPs by incentivizing continued 

litigation. 

The joint proposal provides that 

‘‘failure to deliver the supplemental 

metadata report would not result in the 

loss of limitation of liability or the 

blanket license.’’ 55 The MLC and DLC 

additionally propose that the MLC 

could enforce the supplemental 

metadata report delivery requirement by 

bringing an action in federal court 

against a DMP for ‘‘injunctive relief 

requiring delivery of that report, plus 

costs and attorney’s fees and, 

potentially, a penalty on the amount of 

accrued royalties paid to the MLC.’’ 56

During the ex parte meeting, the Office 

asked the MLC and DLC about the 

Office’s authority to adopt language 

prescribing these enforcement 

remedies.57 The MLC and DLC 

responded that they believed the 

Office’s general regulatory authority 

under section 115(d) was broad enough 

to cover this enforcement mechanism.58

They explained that the proposal ‘‘is 

intended to fill a gap in the statutory 

scheme,’’ saying that while the statute 

requires collection of such metadata by 

DMPs, it does not explicitly require 

delivery of the metadata to the MLC.59

The Office agrees with the MLC and 

DLC that failure to provide the 

additional metadata should not result in 

loss of the limitation on liability or 

default of the blanket license.60 This 

result is consistent with the statute, 

which premises the limitation on 

liability on a requirement to report only 

‘‘all of the information that would have 

been provided to the copyright owner 

had the digital music provider been 

providing monthly statements of 

account to the copyright owner from 

initial use of the work in accordance 

with this section and applicable 

regulations.’’ 61

The Office declines, however, to 

adopt the enforcement mechanism 

provisions proposed by the MLC and 

DLC. The Office has accommodated 

concerns regarding a gap in the statute 

by requiring, via regulation, that DMPs 

report the requested supplemental 

metadata. Multiple reasons compel the 

Office not to prescribe penalties for 

noncompliance to a federal court (which 

would also construct an entirely new 

monetary damages scheme for the MLC 

to administer). First, the timing of the 

proposal came too late in the 

rulemaking process to provide adequate 

notice to other potentially interested 

parties. Second, the establishment of 

such a penalty provision via regulations 

would be a significant departure from 


jbell on DSKJLSW7X2PROD with RULES5
2180 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

62E.g., id. at 115(d)(2)(A)(v) (improper rejection of 

notice of license); id. at 115(d)(4)(E)(iv) (improper 

termination of blanket license). 

63 Id. at 115(d)(3)(C)(i)(VIII); DLC & MLC Ex Parte 

Letter at 3 (Dec. 9, 2020). 

64The SNPRM itself was the latest formal call for 

public comment on an issue that has been open to 

public comment through various mechanisms since 

December 2018. See 83 FR 63061 (interim rule); see 

also 84 FR 49966 (notification of inquiry); NPRM; 

SNPRM. 

65NPRM at 43521; see MLC Reply NOI Comment 

App. D at 19; MLC Ex Parte Letter at 3 (June 17, 

2020) (giving the example of an identified 50% coowner being paid their 50% share by a DMP, and 

then subsequently being paid half of the remaining 

share by the MLC due to lack of record of the first 

payment; stating that ‘‘reporting on partiallymatched works and the respective shares that the 

DMP already paid is essential to allow the MLC to 

properly credit share owners who have been paid 

and avoid double payments’’). 

66NPRM at 43521; see DLC Reply NOI Comment 

at 25. 

67 DLC Reply NOI Comment at 25. 

68MLC Ex Parte Letter at 4 (June 17, 2020). 

69NPRM at 43525. 

70 Id. at 43521. 

71MLC NPRM Comment at 6. 

72 Id. at 6, App. A at v. 

73 Id. at 6–7, App. A at v–vi. 

74See SNPRM at 70550. 

75 DLC NPRM Comment at 6. 76 Id. at 2. 77 Id. at 6. 78 Id. 79 Id. at 7 n.15. 80 DLC Ex Parte Letter at 5, 14–15 (Oct. 14, 2020); 

see DLC NPRM Comment at 7. 

81Music Reports Ex Parte Letter at 2 (Sept. 29, 

2020) (‘‘We are currently working with our clients 

to understand and support their needs, on 

commercially reasonable terms, with respect to 

these needs. . . .’’); see DLC Ex Parte Letter at 5 

(Oct. 14, 2020) (‘‘Music Reports, Inc., has recently 

expressed willingness to provide this information to 

the MLC on behalf of its clients, although the 

commercial terms are still being discussed, and any 

regulatory provision here should ensure that 

vendors are not given undue bargaining power.’’). 

historical practice: The Office is not 

aware of analogous provisions 

elsewhere in its regulations. Finally, the 

Office notes that multiple provisions in 

the MMA provide that a ‘‘district court 

shall determine the matter de novo.’’ 62

The statute provides the MLC with the 

authority to enforce rights and 

obligations, including regulatory 

obligations, through the courts, which 

are well-positioned to determine 

appropriate remedies. The MLC and 

DLC also requested that, ‘‘if the Office 

is disinclined to adopt the particular 

enforcement mechanisms proposed 

herein, . . . [it] revert to the MLC and 

DLC for discussion of potential 

alternatives.’’ 63 In light of the advanced 

stage of this process and fastapproaching statutory deadline, 

however, the Office declines further 

discussion.64

2. Partially Matched and Paid Works 

Next, the Office addresses conflicting 

proposals from the MLC and DLC 

regarding the level of information that 

must be provided with respect to 

partially matched musical works. As 

discussed in the NPRM, the MLC 

initially requested that cumulative 

statements of account include 

information about matched shares of a 

musical work where unmatched shares 

for the work are reported, it expressed 

the concern that if a DMP paid one 

copyright owner its royalty share and 

held accrued royalties for any remaining 

unmatched share(s), then upon transfer 

of such unmatched royalties, if the paid 

share is not properly identified, the a 

paid co-owner might be able to collect 

a portion of an unpaid co-owner’s 

share.65

The NPRM noted that the DLC did not 

appear to disagree with the MLC’s 

description of the issue, but had 

suggested that DMPs’ third-party 

vendors, who it said are subject to 

‘‘strict contractual confidentiality 

restrictions,’’ may have this information 

and not the DMPs themselves.66 The 

DLC asked that the Office ‘‘account for 

these [confidentiality] restrictions and 

protect digital music providers from any 

liability related to their breach.’’ 67 In 

response, the MLC offered to amend its 

proposal to limit share reporting ‘‘to the 

share percentage and the owner of the 

share that was paid, [and] omit[ ] the 

precise amount of royalties paid under 

the voluntary license terms,’’ presuming 

that the DLC’s confidentiality concern 

‘‘relates to the amounts of royalties paid 

under voluntary licenses.’’ 68

The NPRM largely adopted the MLC’s 

amended proposal, stating that for each 

track for which a share of a musical 

work has been matched and for which 

accrued royalties for that share have 

been paid, but for which one or more 

shares remains unmatched and unpaid, 

the DMP must provide a clear 

identification of the share(s) that have 

been matched, the owner(s) of such 

matched shares, and, for shares other 

than those paid pursuant to a voluntary 

license, the amount of the accrued 

royalties paid.69 The Office tentatively 

concluded that the MLC’s proposal was 

reasonable in light of the statutory 

function of cumulative statements of 

account, noting that the situation the 

MLC anticipated seems likely to occur 

and that having the matched share 

information will be important.70

In response, the MLC generally agreed 

with the NPRM’s proposal but asked for 

two clarifications: 71 First, that the 

identification of the matched share(s) 

explicitly be of the ‘‘percentage’’ 

share(s); 72 and second, that unique 

party identifiers known by the DMP be 

provided for the owner(s) of the 

matched shares being reported, as they 

‘‘are very valuable for efficiency and 

accuracy.’’ 73 The Office agreed that 

having these identifiers will be helpful 

to the MLC in processing cumulative 

statements and proposed these 

clarifications as part of the SNPRM.74

Having received no comments in 

opposition, the Office incorporates these 

changes into the final rule. 

The DLC’s response to the NPRM 

confirmed its agreement that the 

treatment of partially matched works is 

‘‘a legitimate issue that needs to be 

resolved.’’ 75 It noted that it ‘‘support[s] 

providing information regarding 

partially matched works to ensure that 

the appropriate copyright owners are 

paid,’’ but only ‘‘as long as [DMPs] that 

do not have that information because of 

confidentiality restrictions in contracts 

with third-party vendors are not 

required to provide it in order to claim 

the benefits of the MMA’s limitation on 

liability.’’ 76 The DLC expanded on its 

vendor-related concerns, claiming that 

one such vendor, Music Reports, ‘‘has 

notified its client DMPs that it is 

unwilling to share any musical work 

ownership share information with the 

MLC or the DMPs, as it regards that 

information to be proprietary.’’ 77 The 

DLC expressed concern that other 

vendors could take a similar position.78

The DLC additionally stated that ‘‘there 

is also an issue related to voluntary 

licenses, in that the information that 

publishers provide about their share 

splits are subject to their own 

confidentiality restrictions.’’ 79 The DLC 

ultimately proposed that DMPs provide, 

on a per-track basis, a clear 

identification of the total aggregate 

percentage share that has been matched 

and the owner(s) of that share, without 

identifying the specific shares owned by 

each owner or the actual amount paid 

(which, the DLC argued, would be 

unnecessary and potentially 

problematic). It proposed that this 

requirement would be further subject to 

the limitation that if the information is 

maintained by a third-party vendor that 

the information is made available to the 

DMP on commercially reasonable and 

non-discriminatory terms.80

In response to the DLC’s assertions, 

Music Reports informed the Office that 

it ‘‘has never said it will not release 

information about partially matched 

works—only that such data has 

independent commercial value given 

the twenty-five years of effort the 

company has invested in curating that 

data.’’ 81 Despite initial speculation, the 

DLC has not informed the Office of any 

other vendors who have expressed an 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2181 

82MLC Ex Parte Letter at 6 (Oct. 5, 2020). 

83 Id. 

84 Id. 

85 DLC Ex Parte Letter at 5 n.9 (Oct. 14, 2020). 

86 DLC Ex Parte Letter at 2 (Nov. 10, 2020) 

(‘‘[T]here are significant operational and 

commercial obstacles to producing and submitting 

the reports by February 15.’’). 

87SNPRM at 70550. 

88 DLC SNPRM Comment at 13 n.35. 

89Music Reports SNPRM Comment at 1. 

90MLC SNPRM Comment at 16. 

91 Id. 

92 Id. at 15–16 (‘‘[I]t is not conceivable that there 

exists a reasonable restriction on disclosing 

individual shares that only applies when multiple 

shares are being disclosed together.’’). 

93 Id. at 16. 

94 Id. App. A at xiii. 

95 Id. 

96 DLC SNPRM Comment at 12–13, 13 n.35; MLC 

SNPRM Comment at 15; DLC & MLC Ex Parte Letter 

at 2, Add. A (Dec. 9, 2020). 

97While the DLC asserted that this scenario ‘‘is 

not one that tends to occur in reality,’’ it did not 

dispute the possibility that it could arise or that the 

MLC would need non-aggregated information in 

such cases, even if they are relatively rare. DLC Ex 

Parte Letter at 3 (Dec. 11, 2020). 

98See MLC SNPRM Comment at 16. 

unwillingness to provide share 

information. 

The MLC objected to the DLC’s 

proposal, stating that it ‘‘would not 

provide the MLC with adequate 

information to ensure proper payment 

allocation.’’ 82 The MLC disputed that 

copyright owner splits are subject to 

publisher confidentiality restrictions, 

noting that ‘‘[c]opyright owners will be 

providing their claimed splits to the 

MLC to receive royalty distributions and 

the MMA directs that such splits be 

included in the MLC’s public 

database.’’ 83 The MLC further stated 

that ‘‘the logical conclusion of the DLC’s 

argument is that it could not report any 

partially-paid royalty information where 

there was only one partially-paid 

copyright owner, since the aggregate 

percentage paid would of course reveal 

the percentage of the single copyright 

owner that was paid.’’ 84

The DLC countered that, with respect 

to the issue of ‘‘some copyright owners 

regard[ing] the splits of musical works 

they control as confidential,’’ ‘‘the MLC 

is not a party to these agreements, and 

does not purport to represent any 

parties to these agreements,’’ and that 

‘‘there is no reason that the MLC would 

need detailed matched share 

information in order to find the owners 

of unmatched shares.’’ 85 As with 

requirements to report certain sound 

recording and musical work information 

discussed above, the DLC also asserted 

that split information should be 

included in a supplemental report 

provided to the MLC at some point in 

time after the cumulative statement of 

account and that such reporting should 

not be tied to eligibility for the 

limitation on liability.86

To obtain additional public input, the 

SNPRM noticed an alternative approach 

that more closely resembled the DLC’s 

proposal than the MLC’s proposal, 

which had been largely embodied in the 

NPRM. The SNPRM proposed that 

DMPs provide ‘‘a clear identification of 

the total aggregate percentage share that 

has been matched and paid and the 

owner(s) of the aggregate matched and 

paid share (including any unique party 

identifiers for such known owner(s)), so 

long as, in the event such information 

is maintained by a third-party vendor, 

that information is made available to the 

digital music provider on commercially 

reasonable terms.’’ 87 The SNPRM was 

informed by the DLC’s explanation that 

the MLC did not necessarily need 

payment amounts and non-aggregated 

splits to perform its duties, and concern 

about DMPs potentially losing eligibility 

for the limitation on liability in the 

event of a legitimate inability to provide 

this information. The SNPRM did not 

include the DLC’s proposal about thirdparty vendor terms needing to be ‘‘nondiscriminatory,’’ as a vendor may well 

have commercially reasonable reasons 

for not treating differently situated 

DMPs the same. 

The DLC fully supported the 

SNPRM’s proposed provision,88 as did 

Music Reports, which said it ‘‘nicely 

draws a difficult line.’’ 89 The MLC, 

however, expressed concern, stating that 

‘‘the reporting of only aggregate share 

information would make it impossible 

for the MLC to determine with 

confidence what partial payments have 

been made, where multiple shares have 

been paid.’’ 90 The MLC provided an 

example to illustrate: 

[I]f a DMP reports on a partial match only 

that Publishers A and B were paid an 

aggregate 75%, and the MLC’s records show 

Publisher A owning 50% and Publisher B 

owning 50%, how can the MLC possibly 

determine how to fairly allocate the 

remaining 25% between Publisher A and B? 

The MLC needs the breakdown that 

Publisher A received 50% and Publisher B 

received 25%, instead of merely the 

aggregated 75% payment, in order to 

properly allocate the remaining royalties.91

The MLC also reiterated its previous 

argument that the DLC’s position on 

confidentiality restrictions is ‘‘illogical’’ 

because ‘‘[t]he DLC has no objection to 

reporting ‘aggregate’ shares paid when 

there has been only one share paid, 

which is of course equivalent to 

reporting the individual share paid.’’ 92

With respect to the SNPRM’s proposal 

to excuse reporting where the 

information is maintained by a thirdparty vendor and not made available to 

the DMP on commercially reasonable 

terms, the MLC agreed that ‘‘[i]f there 

truly was a situation where a digital 

music provider was somehow legally 

and commercially unable to obtain its 

own historical royalty payment 

information, then the rule could 

accommodate this,’’ but contended that 

because the information is ‘‘so critical to 

ensuring that royalties are paid to the 

correct parties,’’ the exception should be 

stricter.93 The MLC proposed the 

following conditions: (1) The 

information is maintained only by a 

third-party vendor; (2) the DMP does 

not have any contractual or other rights 

to access the information; (3) the DMP 

is unable to compile the information 

from records in its possession; and (4) 

the vendor refuses to make the 

information available to the DMP on 

commercially reasonable terms.94 The 

MLC further proposed that a DMP 

relying on the exception must provide 

the MLC with a certification, under 

penalty of perjury, that the conditions 

apply, and include a description of any 

terms on which the vendor offered to 

provide access to the information.95

Although the MLC and DLC 

continued to disagree about what 

should be reported, they agreed that the 

reporting itself should be contained in 

a supplemental report separate from the 

cumulative statement of account and 

delivered to the MLC by June 15, 2021, 

rather than by February 2021; they also 

agreed, as discussed above, that the 

supplemental report should not be a 

condition of the limitation on liability 

or the blanket license.96

Having considered this issue, the 

Office agrees with aspects of both the 

MLC’s and DLC’s respective positions 

and has adopted a final rule that is 

essentially a hybrid approach. The 

Office is persuaded by the MLC’s new 

example that there are at least some 

plausible situations where nonaggregated share information will need 

to be known.97 At the same time, while 

the Office is not in a position to opine 

on the legitimacy of asserted 

confidentiality concerns, it declines to 

issue a rule that may interfere with 

alleged confidentiality restrictions that 

may exist. And as the MLC agrees, to the 

extent there is a legitimate inability to 

report the information, the rule should 

accommodate it.98

Consequently, the adopted rule 

requires a DMP to provide a clear 

identification of the percentage share(s) 

that have been matched and paid and 

the owner(s) of such matched and paid 

share(s). If this information cannot be 


jbell on DSKJLSW7X2PROD with RULES5
2182 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

99NPRM at 43520; see MLC NPRM Comment at 

2 (supporting the proposed format provision). 

100 DLC Ex Parte Letter at 3 (Aug. 27, 2020); see 

also DiMA NPRM Comment at 6; DLC NPRM 

Comment at 10. Music Reports takes issue with the 

DLC’s further assertion that ‘‘[t]he vendors who 

maintain [historical records of use] are also unlikely 

to be familiar with DDEX,’’ stating that, at least with 

respect to Music Reports, this is ‘‘inaccurate.’’ 

Music Reports Ex Parte Letter at 2 (Sept. 29, 2020) 

(alterations in original) (quoting DLC Ex Parte Letter 

at 3 n.6 (Aug. 27, 2020)). 

101See, e.g., MLC Ex Parte Letter at 3 (June 17, 

2020) (noting the MLC will employ the DDEX DSRF 

format for reports of usage); see generally DDEX, 

DSRF Royalty Reporting Profile, https://

kb.ddex.net/display/3mil/ 

DSRF+Royalty+Reporting+Profile (last visited Dec. 

20, 2020). 

102 DLC Ex Parte Letter at 3 (Aug. 27, 2020). 

103 Id. 

104 DLC NPRM Comment at 10, Add. 23. 

105Music Reports Ex Parte Letter at 2 (Sept. 29, 

2020) (‘‘[W]e are in communication with the MLC 

at senior levels and are already working with them 

on the DDEX integration and testing process to 

ensure both sides are ready to exchange the 

necessary files. It appears to Music Reports that the 

time available for this task is adequate, and that 

commencement of operations on (or, where 

applicable, before) the License Availability Date is 

reasonably on track to occur.’’). 

106 DLC & MLC Ex Parte Letter at 2 (Dec. 9, 2020). 

107 Id.; see also Music Reports Ex Parte Letter at 

2 (Sept. 29, 2020) 

108 DLC & MLC Ex Parte Letter at 2, Add. A–8 

(Dec. 9, 2020); see also Music Reports Ex Parte 

Letter at 2 (Sept. 29, 2020) 

109Music Reports Ex Parte Letter at 2 (Dec. 15, 

2020) 

110See also, e.g., 37 CFR 210.27(h)(1) (requiring 

the MLC to offer at least two formatting methods for 

submitting reports of usage). 

111See id. at 210.27(n). 

reported for a particular track because it 

is subject to a contractual 

confidentiality restriction, the DMP, for 

each such track, must certify to the 

confidentiality restriction and instead 

provide a clear identification of the total 

aggregate percentage share that has been 

matched and paid and the owner(s) of 

the aggregate matched and paid share. 

Both scenarios are subject to the 

SNPRM’s proposed exception for 

vendor-held information, which the 

Office agrees should be made stricter, 

along the lines of the MLC’s proposal. 

Subject to a slight modification, the 

MLC’s four proposed conditions are 

reasonably focused to ensure that the 

exception only applies where there is a 

legitimate issue without foreclosing 

practical reliance on the exception. The 

final rule adjusts the proposed third 

condition to limit it to where the DMP 

cannot compile the information using 

commercially reasonable efforts within 

the required reporting timeframe. A 

DMP relying on the exception must 

certify that the conditions apply, but the 

Office disagrees that it is necessary to 

provide the MLC with a description of 

any terms on which the vendor offered 

to provide access to the information. 

The certification is adequate. 

The Office also agrees with the MLC 

and DLC that it is sufficient for partially 

matched work information to be 

delivered to the MLC in a subsequent 

supplemental report by June 15, 2021, 

and that delivery of this supplemental 

report should not be a condition of the 

limitation on liability. This is reflected 

in the final rule. 

3. Format 

The final rule includes adjusted 

language regarding the formatting of 

cumulative statements that may be 

submitted to the MLC. To facilitate 

efficient and accurate reporting and 

processing of cumulative statements of 

account, as supported by the MLC, the 

NPRM proposed carrying over the 

existing provision reports of usage 

format, which requires delivery to the 

MLC in a machine-readable format that 

is compatible with its information 

technology systems, as reasonably 

determined by the MLC and taking into 

consideration relevant industry 

standards.99

The DLC expressed concern with this 

provision, asserting that ‘‘the records at 

issue are very old in many instances, 

and therefore reflect the formats of their 

time,’’ and that, for at least some DMPs, 

‘‘it would be impossible to produce 

historical records in the DDEX standard 

that the MLC has indicated it will use 

for these purposes.’’ 100 (Elsewhere in 

the record, this DDEX standard is 

disclosed as DSRF.) 101 The DLC further 

stated that ‘‘the alternative to a DDEX 

report—a so-called ‘flat file’ 

spreadsheet—is smaller and more 

manageable,’’ is something ‘‘DMPs 

generally use,’’ and ‘‘can be converted 

by the MLC into a uniform format with 

some simple computer 

programming.’’ 102 The DLC also said 

that ‘‘while there are many DMPs, there 

are not many different formats (even 

within flat files),’’ so the MLC ‘‘will not 

be significantly burdened by the DMPs’ 

use of formats that are not 100% 

consistent.’’ 103 The DLC also proposed 

including a qualification that 

compliance with format requirements be 

conditioned ‘‘[t]o the extent practicable’’ 

to ‘‘allow some flexibility to [DMPs], 

which is particularly necessary given 

the relatively short amount of time left 

to produce the required report.’’ 104

While noting the DLC’s concerns, 

Music Reports, a major DMP vendor, 

said that using the MLC’s initially 

intended DDEX format will not be a 

problem and ‘‘all of Music Reports’ 

current clients are certainly capable of 

reporting to the MLC in DDEX format, 

because Music Reports has stored their 

historical records of use and is capable 

of transcoding these into the MLC’s 

required DSRF format when 

necessary.’’ 105

In December 2020, the MLC and DLC 

reported that they had reached 

agreement on format requirements.106

The negotiated proposal would require 

the MLC to accept both the cumulative 

statement of account and supplemental 

metadata report in a simplified format, 

which the MLC and DLC refer to as the 

‘‘simplified usage reporting format’’ 

(‘‘SURF’’), a format developed by the 

MLC in consultation with the DLC and 

its members.107 They proposed 

regulations that would permit the MLC 

to accept reports from DMPs in 

alternative formats, but require a DMP 

to pay to the MLC costs incurred for 

accepting the alternative format.108

Music Reports subsequently expressed 

concern that the announcement of this 

‘‘simplified framework’’ ‘‘fails to take 

into account the development lead 

times necessary to process and present 

billions of rows of data (per service) in 

a new format.’’ 109

The Office adopts the format 

requirements proposed by the MLC and 

DLC with two modifications. First, 

although the Office understands the 

preference for most parties to accept a 

simplified usage reporting format, it 

wishes to avoid discouraging 

submission of reports in alternate, but 

still acceptable formats, where this may 

be necessary for a DMP to comply with 

the statutory timeframe for reporting 

and transfer of royalties to the MLC, to 

the ultimate benefit of copyright 

owners.110 Thus, the Office has 

modified the proposed language to 

require submission of cumulative 

statements of account in SURF to the 

extent practicable, but otherwise allow 

submission of an alternative format by 

agreement. As a part of this proceeding, 

the Office is adopting provisions that 

permit voluntary agreements to alter 

particular reporting procedures, similar 

to the one adopted for reports of 

usage.111 The Office does not anticipate 

that the MLC will generally rebuff 

requests to report in alternative 

formats—indeed, there appears to be 

little authority for it to reject a 

cumulative statement of account and 

accompanying transfer of royalties in 

different formats. Nevertheless, the rule 

provides that the MLC’s consent to such 

requests should not be unreasonably 

withheld. For example, given the MLC’s 

previous signaling of the intention to 

require reporting in the more complex 

DSRF format, which apparently 

generated some reliance interests, the 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2183 

112 17 U.S.C. 115(d)(7). 

113 In December 2020, the DLC and MLC jointly 

petitioned the CRJs to modify the terms of 

implementation of the initial administrative 

assessment. See Joint Motion to Modify the Terms 

of Implementation of the Initial Administrative 

Assessment, Determination and Allocation of Initial 

Administrative Assessment to Fund Mechanical 

Licensing Collective (No. 19–CRB–0009–AA) (filed 

Dec. 18, 2020), https://app.crb.gov/document/ 

download/23405. 

114 17 U.S.C. 115(d)(7)(A)(ii). 

115NPRM at 43520. 

116 Id. 

117 Id. 

118 DLC NPRM Comment at 5–6, Add. 24; MLC 

NPRM Comment at 4–5, App. A at vi. 

119 DLC SNPRM Comment at 2; MLC SNPRM 

Comment at 13–14, App. A at v, ix–x; DLC Ex Parte 

Letter at 3–4, 12–14 (Oct. 14, 2020); MLC Ex Parte 

Letter at 2 (Oct. 5, 2020). 

120See DLC NPRM Comment at 5–6 (supporting 

approach); DLC Ex Parte Letter at 2–3 (Nov. 10, 

2020) (providing examples of various estimates and 

adjustments). 

121See Johnson v. Copyright Royalty Bd., 969 

F.3d 363. 

122See DLC NPRM Comment at 6 (‘‘[A]s a result, 

the cumulative statements will undoubtedly need to 

be adjusted to account for the new rates when they 

come into force.’’); DLC Ex Parte Letter at 3 (Oct. 

14, 2020) (‘‘[D]igital music providers may require 

significant retroactive adjustments to the amount of 

accrued royalties during the relevant time period 

depending on the resolution of that proceeding.’’). 

123See 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa) 

(emphasis added). 

124See 37 CFR 210.6, 210.7. 

125 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa). 

126See, e.g., id. at 115(d)(12)(A); City of Arlington 

v. FCC, 569 U.S. 290, 296 (2013); Brand X internet 

Servs., 545 U.S. at 980, 982. 

Office assumes that it would be 

reasonable for the MLC to accept a 

report submitted in that format. 

Although the Office appreciates the 

joint proposal’s intention behind 

requiring DMPs to incur incremental 

costs of submitting reports in alternative 

formats, thereby encouraging standard 

reporting formats and reducing the 

potential MLC burden, the Office 

declines to require this by regulation. 

Funding of the total costs of the MLC is 

already provided for in the statute, 

including covering any unanticipated 

shortfalls.112 The Office is reluctant to 

establish a precedent whereby the MLC 

can directly charge individual DMPs; 

such a proposal may be more 

appropriately considered under the 

aegis of the Copyright Royalty Judges in 

connection with their establishment of 

the administrative assessment.113 The 

Office notes, however, that the statute 

permits voluntary contributions from 

DMPs to fund the collective total costs 

of the MLC.114 The parties could 

consider whether this provision, along 

with the ability to enter into voluntary 

agreements to alter process, might 

accomplish the same goal as their 

proposal to require payment of 

incremental costs. 

B. Estimates, Adjustments, and 

Reconciliation of Cumulative 

Statements 

This section of the preamble discusses 

requirements connected to the reliance 

upon estimates, adjustments, and 

reconciliation of statements, with 

respect to royalty calculation inputs as 

well as the relationship between 

voluntary agreements and the obligation 

to transfer accrued royalties to the MLC. 

1. Estimates and Adjustments Relating 

to Royalty Pool Calculation Inputs 

The Office is adopting a rule that 

establishes a mechanism for DMPs to 

employ necessary estimates and 

adjustments, including to account for 

unknown royalty pool calculation 

inputs, in a manner similar to the 

recently adopted rule governing 

submission of reports of usage under the 

blanket license. Under the cumulative 

statement of account regulations 

initially adopted in December 2018, 

DMPs could make estimates to the 

extent permitted by 37 CFR 

210.6(d)(3)(i) (where the final public 

performance royalty has not yet been 

determined), and there would be no 

adjustment mechanism.115 The NPRM 

proposed to retain this status quo, 

except to allow any overpayment 

(whether resulting from an estimate or 

otherwise) to be credited to a DMP’s 

account, or refunded upon request.116

The Office tentatively declined to 

conform the proposed provision to the 

estimates and adjustments provisions 

for reports of usage given the one-time 

nature of the cumulative statements as 

compared to the regulatory structure 

designed for the ongoing reporting of 

reports of usage.117

Both the MLC and DLC sought 

modification to this aspect of the rule. 

While they gave different reasons and 

offered different proposed modifications 

in their comments to the NPRM,118

more recent submissions revealed 

concurrence that the most prudent 

approach is for the Office to adopt a 

final rule that more closely tracks the 

estimates and adjustments provisions 

adopted for reports of usage under the 

blanket license.119 The Office agrees 

and, following notice in the SNPRM and 

due consideration of the public 

comments, has revised the rule 

accordingly. On reflection, the Office 

acknowledges that while cumulative 

statements of account are a one-time 

filing, the need to estimate inputs that 

cannot be finally determined at the time 

reporting is due, and to make 

adjustments in the future, is no less 

critical here than in the context of 

reports of usage. Although the NPRM 

would have narrowly allowed estimates 

where the final public performance 

royalty is unknown, the Office has 

concluded that broadening this 

provision and allowing DMPs to make 

estimates and adjustments more 

generally as necessary, such as based on 

the discovery of fraudulent streams after 

algorithms are applied, and also 

accounting for the possibility of both 

underpayments and overpayments, best 

fulfills the statutory objectives of 

facilitating accurate royalty payment.120

The recent remand of the CRJs’ 

Phonorecords III determination by the 

D.C. Circuit further illustrates why this 

provision should be expanded.121 The 

CRJs’ Phonorecords III determination 

was intended to set rates and terms for 

the section 115 mechanical license for 

the period from January 1, 2018 through 

December 31, 2022, but the D.C. 

Circuit’s decision means that ultimate 

rates for this time period have not yet 

been finalized. As a result, when DMPs 

are required to deliver their cumulative 

statements of account to the MLC in 

February they will not know what the 

final operative royalty rate is for the 

compulsory license for the period going 

back to 2018. Without changes to the 

NPRM’s proposal, there would be no 

mechanism for DMPs to make 

adjustments after the CRJs eventually 

establish final rates and terms, meaning 

that a DMP acting in good faith could, 

through no fault of its own, end up with 

an incurable underpayment and be 

rendered ineligible for the limitation on 

liability.122 The Office does not believe 

Congress could have intended for a 

DMP’s limitation on liability to depend 

on how well it predicts what the CRJs 

may do on remand. 

The statutory language requiring that 

‘‘all accrued royalties’’ be transferred 45 

days after the license availability date 

does not restrict the Office’s authority or 

discretion to adopt the rule’s system of 

estimates and adjustments.123 Estimates 

and adjustments have long been a part 

of the section 115 reporting and 

payment structure,124 and Congress was 

surely aware of that when it adopted the 

further statutory language requiring 

related reporting to include 

‘‘information . . . provided . . . in 

accordance with . . . applicable 

regulations.’’ 125 The tension between 

these two phrases in the same statutory 

provision creates an ambiguity that the 

Office concludes to be properly within 

its authority to resolve in its reasonable 

discretion.126 Moreover, given the 

degree of importance Congress placed 


jbell on DSKJLSW7X2PROD with RULES5
2184 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

127See H.R. Rep. No. 115–651, at 13–14; S. Rep. 

No. 115–339, at 14–15; Conf. Rep. at 12–13 

(‘‘[C]ontinued litigation generates unnecessary 

administrative costs, diverting royalties from 

artists. . . . The imposition of detailed statutory 

requirements for obtaining [the] limitation of 

liability ensure that more artist royalties will be 

paid than otherwise would be the case through 

continual litigation.’’; provision is a ‘‘key 

component that was necessary to bring the various 

parties together in an effort to reach common 

ground’’); Letter from Senator Lindsey O. Graham, 

Chairman, Senate Committee on the Judiciary, to 

U.S. Copyright Office 1 (Sept. 30, 2020) (stating that 

‘‘the intent of the MMA was to provide legal 

certainty for past, present, and future usage’’). 

128See, e.g., Mova Pharm. Corp. v. Shalala, 140 

F.3d 1060, 1068 (D.C. Cir. 1998) (‘‘If the literal 

application of a statute will produce a result 

demonstrably at odds with the intentions of its 

drafters, the intention of the drafters, rather than the 

strict language, controls. The rule that statutes are 

to be read to avoid absurd results allows an agency 

to establish that seemingly clear statutory language 

does not reflect the unambiguously expressed intent 

of Congress, and thus to overcome the first step of 

the Chevron analysis.’’ (internal citations omitted)). 

129See SNPRM at 70549. 

130 Id. at 70550–51. 

131See DLC SNPRM Comment at 14–15. 

132 Id. at 2; MLC SNPRM Comment at 14, App. 

A at v, ix–x; see also MLC Ex Parte Letter at 2 (Oct. 

5, 2020); DLC Ex Parte Letter at 3–4, 12–14 (Oct. 

14, 2020). 

133MLC SNPRM Comment at 14 n.7. As noted 

above, it is separately possible that computation 

errors could be corrected under the adjustment 

provisions, for example, following an audit. See 

DLC NPRM Comment at 5; DLC SNPRM Comment 

at 2 (supporting the Office’s approach). 

134See 84 FR 10685, 10686 (noting the Office 

received no comments in Dkt. 2018–10); see also, 

e.g., DLC Initial NOI Comment at 3 (‘‘Rulemaking 

will be necessary to clarify the relationship between 

these preexisting deals and the MMA’s provisions 

regarding accrual of unmatched royalties during the 

transition period leading to the license availability 

date.’’). 

135 DLC Initial NOI Comment at 18–19. 

136NPRM at 43522–23. 

137 DLC Initial NOI Comment at 18. 

138NPRM at 43523 (citing DLC Initial NOI 

Comment at 19). 

139 Id. 

upon the limitation on liability,127 it 

would be unreasonable to believe 

Congress intended that, where the 

precise royalty owed cannot be 

ascertained at the time it is due to the 

MLC, the DMP must guess and hope 

that subsequent events outside of its 

control do not render that amount too 

low.128

Accordingly, the Office is adopting 

language that allows DMPs to use 

certain estimates where the computation 

of attributable royalties depends on an 

input that cannot be finally determined 

at the time the cumulative statement of 

account is due, and the reason is outside 

of the DMP’s control.129 The rule also 

permits DMPs to subsequently adjust 

cumulative statements in five 

situations: 130 First, where a previously 

estimated input becomes finally 

determined, such as a determination of 

the final public performance royalty; 

second, where an audit of a DMP reveals 

a need to adjust a payment; third, in 

response to a change in applicable rates 

or terms by the CRJs; fourth, where the 

DMP discovers or is notified of an 

inaccuracy in the cumulative statement 

of account, or in the amounts of 

royalties owed, based on information 

that was not previously known to the 

DMP despite its good-faith efforts; and 

finally, as the DLC requested in 

response to the SNPRM,131 to ensure 

consistency with any adjustments made 

in an annual statement of account 

generated under 37 CFR 210.7 for the 

most recent fiscal year. The Office finds 

this additional scenario to reasonably 

further the aims of accuracy and 

consistency. To ensure promptness, the 

final rule provides that where more than 

one scenario necessitates the same 

adjustment, the six-month period to 

make the adjustment begins to run from 

the occurrence of the earliest triggering 

event. 

The MLC and DLC both signaled 

support for the SNPRM’s approach, and 

the Office received no comments 

opposing it.132 The MLC maintained 

that this provision should be limited to 

information outside a given DMP’s 

control and expressed concern that the 

use of the word ‘‘attributable’’ before 

‘‘royalties’’ may be read to allow a DMP 

to report ‘‘something less’’ than total 

royalties.133 The Office does not intend 

the use of the word ‘‘attributable’’ to 

allow a casual approach to royalty 

calculations; the royalty calculation 

requirements of paragraph (d), including 

the estimate provision in paragraph 

(d)(2), are tied to the requirement in 

paragraph (c)(4) to report on all 

unmatched usage, meaning these 

provisions require reporting of the total 

potential royalties, calculated at the 

applicable rate under 37 CFR part 385, 

that could be owed for all such usage. 

2. Estimates and Adjustments Relating 

to Private Agreements 

Relatedly, the Office is resolving 

requests by DMPs that the rule address 

the treatment of payments made 

pursuant to agreements that required the 

distribution of unmatched royalties that 

predate the MMA’s enactment, to avoid 

a scenario that DMPs contend could 

result in ‘‘double payment’’ of royalties 

to musical work copyright owners for 

uses covered under these agreements. 

As explained below, the rule resolves 

this request by establishing conditions 

under which a DMP may in good faith 

employ estimates in calculating total 

accrued royalties, subject to subsequent 

adjustments, to reflect the effect of these 

agreements upon the DMP’s cumulative 

reporting obligations. A relevant 

copyright owner may notify the MLC of 

a dispute in good faith over a DMP’s 

reliance on such an agreement. If so, 

once the MLC would otherwise be ready 

to distribute the disputed royalties, the 

MLC will invoice the DMP for the 

disputed royalty amounts and hold 

those amounts until the dispute is 

resolved. 

i. Factual Background 

Although the Office received no 

comments in 2018 when it solicited 

public input on the transition rule that 

is currently in place, the DLC and 

individual DMPs subsequently 

requested that the Office update its rule 

to address the interrelationship between 

statutory obligations and certain private 

agreements.134 The DLC initially 

proposed that the Office adopt a 

provision stating: 

Notwithstanding anything in this section to 

the contrary, digital music providers are not 

required to accrue any royalties that are 

required to be paid to copyright owners of 

musical works pursuant to any agreements 

entered into prior to the effective date of the 

Music Modernization Act, and such royalties 

shall not be treated as ‘‘accrued royalties’’ for 

purposes of this section or 17 U.S.C. 

115(d)(10).135

The Office declined to adopt this 

initial proposal, in part over concerns 

that it was overbroad, noting that the 

Office ‘‘must be careful to avoid 

speaking over either the statute or 

private transactions.’’ 136 The Office 

noted that if these agreements were, as 

the DLC suggested, in ‘‘conflict’’ with 

‘‘the MMA’s directions in section 

115(d)(10) regarding the accrual of 

unmatched royalties,’’’ 137 the statute 

‘‘could not yield to such 

agreements.’’ 138 To address the DLC’s 

concerns, however, the Office provided 

preliminary guidance regarding the 

statutory obligations to report all 

accrued royalties while preserving the 

effectiveness of existing voluntary 

agreements, noting that the proposed 

rule included a provision that would 

require the MLC to credit or refund any 

overpayment back to the DMP, and 

offered to have a further dialogue.139

A number of parties took the Office 

up on this offer, and the record now 

benefits from this enriched dialogue. 

While the Office reiterates its view that 

matters regarding the specific 

interpretation of various private 

contracts should be resolved by the 

relevant parties rather than a blanket 

rule, additional information has been 

provided that narrows the focus of the 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2185 

140See id. 141The DLC quotes an NMPA statement claiming 

that one agreement covered ‘‘virtually the entire 

commercially relevant publishing community.’’ 

DLC NPRM Comment at 15 (quoting Tim Ingham, 

Hunt for US Streaming Publishing Settlements 

Won’t Stop at Spotify, Music Business Worldwide 

(Mar. 20, 2016), https://

www.musicbusinessworldwide.com/hunt-for-usstreaming-publishing-settlements-wont-stop-atspotify); see also Ed Christman, Vast Majority Join 

Royalties Settlement Between Spotify and 

Publishing Group, Billboard (July 11, 2016), https:// 

www.billboard.com/articles/business/7431272/ 

nmpa-spotify-settlement-most-members-join. 

142To inform its background analysis, and by the 

consent of the contracting parties, the Office has 

received three of the agreements between the 

NMPA and individual services on a confidential 

basis, which has been duly noted in this rulemaking 

docket. See DLC NPRM Comment at 13 (‘‘We urge 

the Office to request copies of these NMPA 

agreements, subject to appropriate confidentiality 

protections.’’); Google Ex Parte Letter at 1 (Oct. 23, 

2020); MediaNet Ex Parte Letter at 1–2 (Oct. 28, 

2020); NMPA Ex Parte Letter at 1 (Aug. 25, 2020); 

Spotify Ex Parte Letter at 1–3 (Oct. 9, 2020); see also 

5 U.S.C. 552(b)(4). 

143NMPA and Spotify Announce Landmark 

Industry Agreement for Unmatched U.S. Publishing 

and Songwriting Royalties (Mar. 17, 2016), http:// 

nmpa.org/press_release/nmpa-and-spotifyannounce-landmark-industry-agreement-forunmatched-u-s-publishing-and-songwritingroyalties. 

144NMPA and YouTube Reach Agreement to 

Distribute Unclaimed Royalties (Dec. 8, 2016), 

http://nmpa.org/press_release/nmpa-and-youtubereach-agreement-to-distribute-unclaimed-royalties. 

145 DLC Ex Parte Letter at 1–2 (Oct. 14, 2020); 

Google Ex Parte Letter at 1–3 (Oct. 23, 2020); 

MediaNet Ex Parte Letter at 2 (Oct. 28, 2020); 

Spotify Ex Parte Letter at 2 (Oct. 9, 2020). 

146NMPA Ex Parte Letter at 1–2 (Aug. 24, 2020); 

SATV Ex Parte Letter at 1–2 (Oct. 28, 2020); UMPG 

Ex Parte Letter at 1–2 (Oct. 30, 2020); WMG Ex 

Parte Letter at 1 (Oct. 21, 2020). The Office also 

offered to meet with additional publishers. 

147See, e.g., DLC Initial NOI Comment at 17; 

MediaNet Ex Parte Letter at 2 (Oct. 28, 2020); 

Spotify Ex Parte Letter at 1 (Sept. 1, 2020); see also 

Ed Christman, Vast Majority Join Royalties 

Settlement Between Spotify and Publishing Group, 

Billboard (July 11, 2016), https://

www.billboard.com/articles/business/7431272/ 

nmpa-spotify-settlement-most-members-join (‘‘The 

vast majority of our members have opted into our 

settlement,’’ NMPA president and CEO David 

Israelite tells Billboard, saying the agreement has 

‘‘one of our highest opt-in rates ever.’’). 

148 DLC NPRM Comment at 13 (‘‘[A]t issue are 

specific industry-wide accrued royalty liquidation 

agreements that the NMPA . . . structured with 

DMPs with the specific purpose of distributing 

accrued royalties to copyright owners, based on a 

claiming and market-share distribution model that 

was later essentially codified in the MMA. These 

landmark agreements were aimed at solving the 

exact same problem that the MMA address: 

Ensuring that accrued royalties for unmatched 

works are paid out promptly to copyright owners.’’); 

DLC Ex Parte Letter at 1 (Aug. 11, 2020) (‘‘We 

discussed industry-wide agreements between 

certain digital services (Spotify, Google, MediaNet, 

and Napster/Rhapsody) and the [NMPA] that 

predated the enactment of the [MMA] and 

facilitated distribution of historic accrued royalties 

to copyright owners. As we explained, those 

agreements were the model for the MMA.’’). 

149Ed Christman, Spotify and Publishing Group 

Reach $30 Million Settlement Agreement Over 

Unpaid Royalties, Billboard (Mar. 17, 2016), https:// 

www.billboard.com/articles/business/7263747/ 

spotify-nmpa-publishing-30-million-settlementunpaid-royalties (‘‘In exchange for participating in 

the settlement, publishers release Spotify from any 

claims related to the identified pool of pending and 

unmatched works.’’); Ed Christman, YouTube 

Strikes Settlement Deal Over Unpaid Royalties with 

National Music Publishers Assoc., Billboard (Dec. 8, 

2016) https://www.billboard.com/articles/business/ 

7616409/youtube-settlement-unpaid-royaltiesnational-music-publishers-association. 

150NMPA and Spotify Announce Landmark 

Industry Agreement for Unmatched U.S. Publishing 

and Songwriting Royalties (Mar. 17, 2016), http:// 

nmpa.org/press_release/nmpa-and-spotifyannounce-landmark-industry-agreement-forunmatched-u-s-publishing-and-songwritingroyalties (‘‘the agreement will not affect the 

royalties owed to any publisher or writer who does 

not choose to participate’’); Spotify Ex Parte Letter 

at 2 (Oct. 9, 2020) (‘‘Spotify confirmed that this 

‘holdback’ reflects the portion of the market that 

NMPA and Spotify estimated as a conservative 

amount designed to cover the market share of nonparticipating publishers—and that Spotify’s data 

reflected that the non-covered streaming during the 

relevant usage periods is likely even smaller than 

that.’’). 

151NMPA and Spotify Announce Landmark 

Industry Agreement for Unmatched U.S. Publishing 

and Songwriting Royalties (Mar. 17, 2016), http:// 

nmpa.org/press_release/nmpa-and-spotifyannounce-landmark-industry-agreement-forunmatched-u-s-publishing-and-songwritingroyalties (emphasis added). 

152 Id. 

153 Id. 

154Spotify Ex Parte Letter at 2–3 (Oct. 9, 2020) 

(‘‘The effect of this was that publishers did not need 

to claim unmatched works—and, for the most part, 

did not do so—in order to participate in the market 

share distribution of unclaimed royalties at the 

conclusion of each claiming period.’’); id. at 2 n.2 

(noting ‘‘[the] tremendous difficulty in identifying 

works embodied in particular tracks’’). 

DLC’s request.140 The DLC, NMPA, and 

individual DMPs and publishers 

disclosed details regarding agreements 

that certain DMPs apparently entered 

into with the NMPA and the ‘‘vast 

majority’’ of the U.S. music publishing 

industry.141 These agreements have 

been referred to using various terms by 

the parties, including as liquidation 

agreements, pending and unmatched 

agreements, or NMPA settlement 

agreements, but it has become clear that 

the issue centers on sets of agreements 

with four signatory services.142 The DLC 

represented that these services are 

Spotify,143 YouTube,144 MediaNet, and 

Rhapsody; the first three met with the 

Office individually, generally 

corroborating the DLC’s position and 

providing specifics as to their 

individual circumstances.145 The Office 

also met with the NMPA and certain 

individual publishers.146 From the 

information provided, the Office has 

gleaned a general sense of the shared 

understandings between the interested 

parties, as well as areas of disagreement. 

It appears undisputed that these 

agreements were generally structured 

through an umbrella agreement between 

the NMPA and the relevant service, 

where publishers were subsequently 

able to, and did, enter into individual 

agreements with such DSPs.147 The DLC 

characterizes these agreements as 

forming the framework for the idea of 

the MMA, and factual reports of the 

time support this characterization.148 As 

reported with respect to two of these 

agreements, publishers released claims 

against the relevant service for a 

relevant period of time of usage in 

exchange for payments, including (i) for 

works that were claimed and (ii) for a 

market-share based distribution of 

unclaimed royalties after a subsequent 

period of time.149 For example, under 

its agreement, Spotify agreed to hold 

back amounts required to pay nonparticipating publishers, which was 

represented to the Office as calculated 

conservatively to account for the risk 

that the participating parties had 

undercounted the royalties accrued for 

non-participating copyright owners.150

As described by NMPA at the time of 

agreement in 2016, the NMPA-Spotify 

agreement established ‘‘a large bonus 

compensation fund that is a substantial 

percentage of what is currently being 

held by Spotify for unmatched royalties, 

and creates a better path forward for 

finding the owners of publishing rights 

who should receive streaming 

royalties.’’ 151 As a result, the NMPA 

and Spotify announced that: 

The deal will allow copyright owners to 

identify their works and receive the money 

Spotify has set aside for the past usage of 

unmatched works. It will allow the entire 

industry to benefit by filling in the gaps in 

ownership information, which help to ensure 

that royalties are promptly paid to their 

rightful owners in the future. Any royalties 

associated with works that remain 

unmatched after each claiming period will be 

distributed to publishers and songwriters 

who participate in the settlement, but the 

agreement will not affect the royalties owed 

to any publisher or writer who does not 

choose to participate. The agreement is a key 

step in improving transparency in the music 

community and ensuring that music’s 

creators receive royalties when their music is 

used.152

NMPA’s President and CEO further 

explained, ‘‘we have found a way for 

Spotify to quickly get royalties to the 

right people.’’ 153 Spotify represented 

that as it turned out, the transaction 

costs associated with claiming musical 

works, coupled with the assurance of a 

market-share based distribution for 

unclaimed works, resulted in a low 

level of publisher participation in 

claiming ownership of musical 

works.154 As a result, most payments 

were made pursuant to the unmatched 


jbell on DSKJLSW7X2PROD with RULES5
2186 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

155 Google Ex Parte Letter at 2 (Oct. 23, 2020); 

Spotify Ex Parte Letter at 2–3 (Oct. 9, 2020). 156NMPA and YouTube Reach Agreement to 

Distribute Unclaimed Royalties (Dec. 8, 2016), 

http://nmpa.org/press_release/nmpa-and-youtubereach-agreement-to-distribute-unclaimed-royalties. 157 Id.; Google Ex Parte Letter at 1–2 (Oct. 23, 

2020). 158See Google Ex Parte Letter at 2–3, 2 n.2 (Oct. 

23, 2020) (noting that the agreement ‘‘encompasses 

more than section-115-eligible uses; rather, it covers 

usage on YouTube more generally’’). 159See id. at 2. 160 Id. 161 DLC NPRM Comment at 13 (quoting Lowery et 

al. v. Rhapsody Int’l Inc., No. 4:16-cv-01135–JSW 

(N.D. Cal. filed Mar. 7, 2016), Dkt. No. 175 at 3) 

(‘‘Rhapsody has been advised by the NMPA that the 

aggregate market share of the NMPA members who 

opted-in to the NMPA[-Rhapsody] agreement is 

approximately 97.13%.’’); Spotify Ex Parte Letter at 

5 (Oct. 9, 2020) (projecting that ‘‘an estimated 5– 

10% of the market of non-participating publishers’’ 

were not part of Spotify’s agreement); see DLC 

NPRM Comment at 14 (‘‘These agreements have all 

operated in essentially the same way. . . . [F]or 

each period covered by the agreement, the vast 

majority of the pool of accrued unmatched royalties 

(e.g., 90%) was distributed to participating 

copyright owners based on their respective market 

shares’’ and ‘‘[t]he remaining, smaller share of 

royalties (e.g., 10%) was left in the accrued pool as 

reserve funds.’’). 

162Ed Christman, Vast Majority Join Royalties 

Settlement Between Spotify and Publishing Group, 

Billboard (July 11, 2016), https://

www.billboard.com/articles/business/7431272/ 

nmpa-spotify-settlement-most-members-join. 

163 DLC Ex Parte Letter at 2 (Nov. 17, 2020). The 

Office understands that this amount does not 

encompass the smaller subset of royalties paid 

pursuant to ‘‘claimed’’ uses of works. Google Ex 

Parte Letter at 2 (Oct. 23, 2020); Spotify Ex Parte 

Letter at 2–3 (Oct. 9, 2020) 

164NMPA Ex Parte Letter at 1–2 (Aug. 24, 2020). 

165See, e.g., NMPA and YouTube Reach 

Agreement to Distribute Unclaimed Royalties (Dec. 

8, 2016), http://nmpa.org/press_release/nmpa-andyoutube-reach-agreement-to-distribute-unclaimedroyalties (noting initial claiming period covering 

uses from ‘‘August 1, 2012 through December 31, 

2015’’ and that the claiming process ‘‘will be 

repeated for future twelve-month usage periods 

beginning on January 1, 2016 and ending on 

December 31, 2019’’); MediaNet Ex Parte Letter at 

2 (Oct. 28, 2020) (noting performance periods for 

MediaNet agreements); Spotify Ex Parte Letter at 5 

(Oct. 9, 2020) (noting that Spotify terminated its 

agreement). 

166 DLC Ex Parte Letter at 2 (Nov. 17, 2020) (‘‘DLC 

also explained that the accruals that were 

derecognized because copyright owners were paid 

and provided releases were a fraction of that 

amount [of several hundred million dollars]—on 

the order of tens of millions of dollars.’’). 

167See, e.g., DiMA NPRM Comment at 3; DLC Ex 

Parte Letter at 4 (Oct. 14, 2020); DLC & MLC Ex 

Parte Letter at 2 (Dec. 9, 2020). 

168 DiMA NPRM Comment at 3; see also H.R. Rep. 

No. 115–651, at 13; S. Rep. No. 115–339, at 14; 

Conf. Rep. at 12. 

169 DLC NPRM Comment at 3–4. 

170 Id. at 4; see also MediaNet Ex Parte Comment 

at 3 (Oct. 28, 2020). 

171 DLC Ex Parte Letter at 2 (Nov. 17, 2020). 

liquidation provision of the 

agreement.155

Contemporary statements surrounding 

the NMPA-Google/YouTube agreement 

made similar claims that the agreement 

structure would represent a 

breakthrough path ‘‘to help pay out 

millions of dollars in previously 

unclaimed royalties to publishers and 

songwriters.’’ 156 The Google/YouTube 

agreement was reported to be structured 

slightly differently, with an initial fourmonth claiming period, followed by 

three-month claiming periods that were 

open for respective twelve-month usage 

periods.157 The Office was also 

informed that it covered more than just 

uses eligible for the section 115 license, 

e.g., broader access to YouTube’s 

Content ID claiming platform.158 Similar 

to the MMA structure, payment for 

unmatched uses based on market share 

occurred only after an additional 

holdback period, two years for the 

Google/YouTube program.159 Like 

Spotify, Google disclosed that 

participation in claiming activities was 

relatively low, with ‘‘about 18% to 

20%’’ of unmatched works ‘‘eventually 

claimed, with the remainder distributed 

on a market share basis.’’ 160

Participation by publishers in these 

agreements for the relevant time periods 

was apparently extremely high.161 For 

example, NMPA reported that 96% of 

its members participated in the Spotify 

agreement.162 As a result, for the time 

periods these agreements were 

respectively in effect, the services in 

question paid ‘‘tens of millions of 

dollars’’ to copyright owners that the 

DLC describes as payments to release 

claims for accrued royalties based on 

usage that was unmatched to a 

particular musical work.163 In 

describing the landscape, the Office also 

credits NMPA’s assertion that the 

‘‘pending and unmatched agreements’’ 

varied with respect to material 

provisions and market coverage, as well 

as with respect to performance by the 

relevant services.164 The Office does 

not, however, understand any party to 

dispute the general contours of these 

agreement structures as described 

herein. 

The relevant parties agree that these 

agreements, to the extent they are valid, 

performed, and relevant, do not address 

the entire obligations for the 

participating services. First, as noted, 

they do not account for royalties 

accrued by DSPs for uses owed to nonparticipating music publishers or other 

copyright owners (e.g., selfadministered songwriters). The Office 

does not understand any party, 

including the DLC, to contend that these 

agreements may be used to alleviate a 

DMP’s obligation under the limitation 

on liability to transfer royalties for 

usages of musical works that are not 

subject to a valid agreement. Second, 

these agreements only cover a portion of 

the period DMPs need to report on to 

obtain the statutory limitation on 

liability, meaning that the DMP would 

need to transfer unclaimed accrued 

royalties for any uncovered periods.165

After conducting ‘‘a limited survey of a 

subset of DLC members,’’ the DLC 

estimates ‘‘that several hundred million 

dollars were available to be transferred 

to the MLC as accrued royalties’’ by the 

relevant services, not including amounts 

that those DMPs maintain do not 

constitute accrued royalties as a result 

of the operation of pending and 

unmatched agreements.166

DMPs repeatedly reminded the Office 

that submission of cumulative 

statements and payment of accrued 

royalties is a condition for DMPs to 

make use of the optional limitation on 

liability, and not a condition of the 

ongoing blanket license.167 From their 

perspective, an obtainable limitation on 

liability was a critical piece of the 

MMA’s core compromise, intended to 

short-circuit an inefficient and costly 

pattern of litigation so long as a DMP 

complied with the relevant 

provisions.168 The DLC thus sought 

clarity surrounding this reporting 

obligation, suggesting that absent 

regulatory certainty, ‘‘DMPs may be 

forced to retain accrued royalties to 

fund’’ ensuing infringement litigation, 

‘‘precisely what the MMA was supposed 

to prevent.’’ 169 It further suggested that 

if regulations ‘‘increase[] the risk that a 

court would deem a DMP to not have 

complied with the requirements in 

section 115(d)(10), a DMP could make 

the rational choice to forego the 

payment of accrued royalties entirely, 

and save that money to use in defending 

itself against any infringement suits.’’ 170

Given the DLC’s statement that 

‘‘several hundred million’’ dollars are 

otherwise ‘‘available to be transferred to 

the MLC as accrued royalties,’’ a DMP’s 

election to retain accrued royalties for 

litigation expenses would have the 

troubling result of withholding from 

copyright owners—those who did not 

participate in the agreements at issue (or 

for time periods outside such valid 

agreements)—compensation that all 

agree they are otherwise entitled to 

receive.171 Accordingly, the Office 

concludes that regulations, to the extent 

appropriate and permissible under the 

statute, should maintain the calibration 

intended by Congress to incentivize 

DMPs to participate in transferring over 

accrued royalties, without prejudicing 

the entitlements of music publishers or 

songwriters to receive compensation for 

past usages of their works. As Chairman 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2187 

172Letter from Senator Lindsey O. Graham, 

Chairman, Senate Committee on the Judiciary, to 

U.S. Copyright Office 1 (Sept. 30, 2020). 

173Summaries of that October 30, 2020 

discussion are available here: https://

www.copyright.gov/rulemaking/mmaimplementation/ex-parte-communications.html. 

The Office invited every party who had submitted 

comments on this issue in this rulemaking docket 

to participate in the discussion. 

174 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa). 

175 DLC SNPRM Comment at 9–10 (stating ‘‘the 

statute specifically incorporates [GAAP], which 

specifically contemplate de-recognition of liabilities 

when they have been extinguished’’ and ‘‘it is the 

incorporation of [GAAP] that, when given meaning 

(as they must be), provide that once a liability has 

been extinguished, it is not accrued’’); see also 

ARA, FMC & MusicAnswers SNPRM Comment at 

3 (‘‘GAAP clearly allows for ‘derecognition’ of 

liabilities if certain conditions are met—conditions 

that these agreements and the releases they include 

apparently satisfy.’’); DLC NPRM Comment at 17 

n.45; DLC Ex Parte Letter at 2 (Nov. 10, 2020); 

Spotify Ex Parte Letter at 2 (Oct. 9, 2020) (noting 

that ‘‘the [Spotify] Agreement extinguished such 

[copyright owner] rights for the periods of time 

covered by the Agreement—not only because the 

copyright owner had already received unmatched 

royalties for those periods, but because the 

copyright owner had released any and all claims to 

such royalties’’). 

176 DLC Initial NOI Comment at 19; Spotify Ex 

Parte Letter at 1 (Sept. 1, 2020) (‘‘Congress certainly 

did not intend for double payment of royalties paid 

to publishers who released claims under those [preMMA] agreements’’); Google Ex Parte Letter at 3 

(Oct. 23, 2020) (Google asserts that its YouTube 

agreement ‘‘was not established to resolve any 

pending or even threatened litigation. Rather, it was 

born out of a joint effort by Google and NMPA to 

ensure that royalties flowed to copyright owners.’’). 

177 DLC NPRM Comment at 3. 

178 Id. at 11. 

179MLC Reply NOI Comment at 29. 

180WMG Ex Parte Letter at 1 (Oct. 21, 2020). 

181UMPG Ex Parte Letter at 1 (Oct. 30, 2020). 

182SATV Ex Parte Letter at 1–2 (Oct. 28, 2020). 

183 Id. 

184NMPA Ex Parte Letter at 2 (August 24, 2020). 

185MLC Ex Parte Letter at 5 (Oct. 16, 2020) 

(reflecting NSAI’s comments); MLC Ex Parte Letter 

at 5 (Oct. 5, 2020); NMPA Ex Parte Letter at 2 (Nov. 

3, 2020). 

186MLC SNPRM Comment at 10. 

Graham explained in a letter to the 

Register: 

The legislative history makes clear that 

. . . ‘‘continued litigation generates 

unnecessary administrative costs, diverting 

royalties from artists.’’ . . . Since the intent 

of the MMA was to provide legal certainty for 

past, present, and future usage, it is critical 

that this issue be resolved in a manner that 

protects copyright owner interests while 

ensuring that songwriters are paid their splits 

and services are not burdened with double 

payments. If the parties are unable to address 

this current dispute on their own in the 

immediate future, I urge the Copyright Office 

to bring them together in order to prevent a 

return to the inefficient litigation that 

featured prominently in the prior licensing 

regime.172

In response, the Office convened a 

multi-stakeholder call to address the 

substance of this rulemaking, and this 

rule reflects the comments from that 

discussion.173

The crux of the dispute concerns the 

statutory requirement to accrue and 

hold royalties, and to maintain them in 

accordance with GAAP principles. 

While there is agreement that the statute 

requires ‘‘all accrued royalties’’ 174 to be 

reported and paid over to the MLC, 

there is disagreement regarding the 

meaning of this requirement in light of 

these industry-wide agreements and 

surrounding statutory language. The 

DLC and individual DMPs contend that 

the requirement to maintain accrued 

royalties in accordance with GAAP has 

resulted in the derecognition of 

obligations extinguished by these 

agreements, such that these previous 

liabilities are not part of what must be 

transferred to the MLC to be eligible for 

the limitation on liability.175

Participating DMPs also suggest that an 

alternate reading would penalize those 

companies that entered into voluntary 

agreements to ensure royalties were 

paid to publishers and songwriters, in 

comparison to DMPs who did not enter 

into such agreements to settle pre-MMA 

disputes.176 As the DLC put it, ‘‘these 

agreements were designed to, and did, 

put tens of millions of dollars in 

statutory royalties in the hands of 

copyright owners—money that they had 

been unable to access due to the broken 

pre-MMA statutory royalty system.’’ 177

The DLC also noted that ‘‘some DMPs 

simply do not have the financial 

resources to make duplicate payments’’ 

under both their agreements and the 

limitation on liability, which would 

force them to forgo the benefit of the 

limitation on liability.178

In contrast, the MLC stated that 

‘‘[w]hile prior to the enactment of the 

MMA, certain DMPs entered into 

settlement agreements with certain 

music publishers in connection with 

disputes arising from their failure to 

license, match and/or pay royalties due, 

such settlement payments were 

definitively not the proper payment of 

royalties to copyright owners of 

unmatched uses,’’ and were ‘‘more 

likely consideration for releases from 

liability for copyright infringement or 

covenants not to sue.’’ 179 As discussed 

below, the MLC contends that the clear 

directive of the statute precludes the 

DLC’s interpretation and that services 

must transfer over all royalties 

(calculated at the statutory rate) for all 

unmatched uses without regard for 

these agreements. 

The MLC and various music 

publishers acknowledge, however, that 

there may be a need for some resolution 

with respect to the effect of past 

payments related to usage of unmatched 

works. Strikingly, despite much 

discussion on this matter, the 

administrative record contains no 

statement by any music publisher or 

other copyright owner professing 

entitlement to royalty payments related 

to usages for which they have entered 

into a valid liquidation agreement. 

Warner Music Group, for example, 

explained, ‘‘[f]or those DSPs with which 

we have already settled claims for the 

distribution of royalties owed before the 

enactment of the MMA, we consider 

these claims closed.’’ 180 Universal 

Music Publishing Group (‘‘UMPG’’) 

‘‘believes that any issues relating to 

payments under private settlements can 

and should be dealt with between the 

contracting parties’’ and ‘‘intends to 

assist and facilitate voluntary 

procedures for doing so with the digital 

services, to the extent applicable.’’ 181

And Sony/ATV Publishing (‘‘SATV’’) 

‘‘is open to discussing letters of 

direction and other potential solutions 

that would ensure that the requirements 

of the MMA are satisfied and also 

address the concerns raised by the 

digital services regarding payments 

made pursuant to private 

settlements.’’ 182 SATV prefers ‘‘that any 

potential reimbursements to digital 

services be made by the MLC rather 

than music publishers.’’ 183

Representing the marketplace at large, 

NMPA indicated a preference that the 

issue ‘‘be addressed through state 

contract law and discussions between 

the contracting parties.’’ 184

The MLC and others suggested that 

one potential solution could be to rely 

upon letters of direction. Although this 

approach was not entirely fleshed out, 

as the Office understands it, the idea is 

that disputes could be resolved by 

letters of direction sent by a copyright 

owner directing the MLC to return 

royalties that would otherwise go to the 

copyright owner to the DMP with whom 

the copyright owner had contracted.185

The MLC opined that DMPs 

participating in these agreements would 

be able to ‘‘sit in the position of an 

entity that has acquired rights through 

a license or sale’’ and that ‘‘payments 

can be redirected to the new owner 

pursuant to the explicit or implicit 

terms of the private contract.’’ 186 Apart 

from its proffered statutory 

interpretation addressed below, the 

MLC did not address how a scheme 

requiring a DMP to transfer funds to the 

MLC with an expectation by both the 

DMP and copyright owner that those 

funds will ultimately just be returned to 

that DMP would effectuate Congress’s 


jbell on DSKJLSW7X2PROD with RULES5
2188 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

187See Conf. Rep. at 4 (noting that the MLC 

should engage in an ‘‘efficient and fair 

administration of the collective in a manner that 

respects varying interests and concerns’’). 

188 Google Ex Parte Letter at 3 (Oct. 23, 2020); see 

also DLC SNPRM Comment at 11 (‘‘the MLC’s 

invitation for DMPs to rely on self-help and battle 

it out in court later is contrary to the spirit of the 

statute . . . and may lead some DMPs to simply 

withhold all the royalties in order to fund such 

litigation’’); SGA SNPRM Comment at 8. 

189 DLC SNPRM Comment at 5; see also Spotify 

Ex Parte Letter at 4–5 (Oct. 9, 2020) (‘‘[W]e are 

aware of no copyright owner who has released their 

claims to the royalties covered by the Agreement 

that is now demanding, or at any time since the 

Agreement has demanded, a double payment of 

those royalties.’’). 

190MLC Ex Parte Letter at 5 (Oct. 5, 2020). The 

MLC’s proposal would not fall under the MLC’s 

Dispute Resolution Committee and related 

provisions, as the dispute is not between copyright 

owners. See 17 U.S.C. 115(d)(3)(G)(i)(III)(bb), (K); 

see also DLC Ex Parte Letter at 2, n.2 (Oct. 14, 2020) 

(‘‘The dispute resolution process required by the 

MMA is aimed at resolving disagreements among 

copyright owners. . . . Thus, even the solution that 

the MLC has proposed would require regulatory 

action by the Office.’’). 

191MLC Ex Parte Letter at 5 (Oct. 5, 2020). 

192Spotify Ex Parte Letter at 4–5 (Oct. 9, 2020). 

193SNPRM at 70546–47. 

194ARA, FMC & MusicAnswers SNPRM 

Comment at 2; ARA Ex Parte Letter at 1 (Nov. 17, 

2020); see also DLC NPRM Comment at 16 (noting 

that Office ‘‘regulation is plainly necessary to 

provide unambiguous guidance to DMPs and the 

MLC’’). 

195See, e.g., DiMA NPRM Comment at 5–6; MLC 

SNPRM Comment at 3; SGA & SCL SNPRM 

Comment at 2; NSAI Ex Parte Letter at 1 (Nov. 17, 

2020); Recording Acad. & SONA Ex Parte Letter at 

2 (Nov. 17, 2020). 

196 DLC Initial NOI Comment at 18; DLC Reply 

NOI Comment at 24 (requesting that the Office 

‘‘clarify that agreements under which accrued 

royalties for unmatched musical works were paid 

to rightsowners, are not ‘accrued royalties’ subject 

to transfer to the MLC’’); DLC SNPRM Comment at 

3 (‘‘the proposed rule provides the clarity needed 

to preserve the core bargain struck in the MMA’’). 

197MLC SNPRM Comment at 5–8, App. A at i; see 

also NMPA Ex Parte Letter at 1 (Nov. 17, 2020); 

Recording Acad. & SONA Ex Parte Letter at 2 (Nov. 

17, 2020); SGA, SCL & MCNA Ex Parte Letter at 3 

(Nov. 18, 2020). 

198MLC Ex Parte Letter at 3 (Oct. 16, 2020); see 

also NSAI Ex Parte Letter at 1 (Nov. 17, 2020); 

MAC, Recording Acad. & SONA SNPRM Comment 

at 4; SGA, SCL & MCNA Ex Parte Letter at 3 (Nov. 

18, 2020). 

199Spotify Ex Parte Letter at 2–4 (Oct. 9, 2020). 

200 DLC Initial NOI Comment at 18; see also DLC 

Reply NOI Comment at 24; DLC SNPRM Comment 

at 4. 

201See, e.g., Spotify Ex Parte Letter at 3–4 (Oct. 

9, 2020); DLC Ex Parte Letter at 3 (Oct. 14, 2020). 

202ARA Ex Parte Letter at 1 (Nov. 17, 2020). 

203 DLC SNPRM Comment at 1–3 (quoting ARA 

Ex Parte Letter at 1 (Nov. 17, 2020)). 

intention that the MLC operate 

efficiently and fairly.187

DMPs disagreed that reliance upon 

letters of direction to the MLC would be 

workable, with Google explaining that a 

DMP would be unlikely to get complete 

coverage via letters of direction and, to 

address any gaps, would ‘‘need to file a 

significant number of separate 

declaratory judgment actions in courts 

around the country.’’ 188 The DLC 

strongly objected to the MLC’s 

suggestion that DMPs should first pay 

the contested amounts, then seek 

redress for ‘‘double payments’’ by 

‘‘proving the existence of a release’’ or 

‘‘clawing back’’ overpayments, 

contending that ‘‘the DMP does not get 

any benefit from the transfer of royalties 

that might be matched (or paid via 

market share distribution) by the MLC 

to those same owners pursuant to the 

limitation on liability provision in the 

MMA; it already has a limitation on 

liability pursuant to the release.’’ 189

Separately, the MLC clarified that in 

the event of a relevant dispute between 

a DMP and a copyright owner, it 

intended to ‘‘hold such unmatched 

royalties pending the resolution of the 

dispute,’’ accruing interest until the 

dispute was resolved.190 The MLC 

reasoned that ‘‘Congress intended for 

the MLC to be that trusted party to 

receive unmatched royalties and ensure 

that they are paid to the right 

parties.’’ 191 Spotify objected to this 

position, stating that the MLC’s proposal 

to require all funds at issue under these 

agreements to be immediately paid to 

the MLC would create a dispute ‘‘in the 

first instance,’’ as they are not aware of 

any participating copyright owner who 

claims they are entitled to additional 

funds.192

In light of this additional information, 

the SNPRM proposed a solution that 

would allow for participating DMPs to 

pay their accrued royalties in 

accordance with GAAP, permitting 

reliance on certain temporary 

estimations and subject to detailed 

adjustment provisions. And the SNPRM 

explained that, ‘‘[u]nder no 

circumstances could this [noticed] 

provision be used to shortchange 

payment of accrued royalties for 

musical work copyright owners who did 

not participate in such agreements.’’ 193

The Office received many comments 

opining on Congress’s intent and the 

statutory payment and reporting 

requirements for the limitation on 

liability contained in 17 U.S.C. 

115(d)(10)(B)(iv). Some commenters, 

including the Artists Rights Alliance, 

the Future of Music Coalition, and 

MusicAnswers, opined that the statute 

was ambiguous on this point.194 Others, 

including the DLC, DiMA, individual 

DMPs, the MLC, and representatives of 

copyright owners and songwriters, 

suggested that the applicable statutory 

language is unambiguous,195 although 

they offered conflicting interpretations 

of the relevant requirements. Because of 

these disparate views, the DLC 

suggested that parties would benefit 

from a ‘‘regulatory clarification.’’ 196 As 

discussed below, there was considerable 

disagreement regarding the meaning of 

section 115(d)(10)(B)(iv)’s requirement 

that ‘‘[a]ccrued royalties shall be 

maintained by the digital music 

provider in accordance with [GAAP],’’ 

whether this provision would benefit 

from a regulatory clarification, and 

whether the Office had authority to 

promulgate the rule proposed in the 

SNPRM (or alternate proposals 

suggested by the DLC).197

In brief, the MLC believes that section 

115(d)(10)(B)(iv) ‘‘sets out a statutory 

accrual and payment obligation that 

identifies precisely what must be 

accrued, the time frame for holding and 

the two accepted ways the accrued 

royalties can be paid,’’ that is, to a 

matched copyright owner or the 

MLC.198

DMPs contend that the 

aforementioned agreements 

extinguished their statutory duties to 

transfer royalties to the MLC, ‘‘not only 

because the copyright owner had 

already received unmatched royalties 

for those periods, but because the 

copyright owner had released any and 

all claims to such royalties.’’ 199 The 

DLC stated that a ‘‘regulatory 

clarification . . . may help music 

industry participants understand the 

proper treatment of unclaimed royalties 

under the MMA.’’ 200 Beyond the 

liquidation agreements at issue, the 

services contended that the MLC’s 

reading would prohibit reliance upon 

voluntary agreements generally, despite 

other statutory provisions guaranteeing 

that such agreements would remain in 

effect.201

The Artist Rights Alliance commented 

that the proposed rule ‘‘creates a 

workable, practical system that serves 

the foundational statutory goal of 

ensuring songwriters and publishers are 

accurately, completely, and fairly paid 

for all uses of their work . . . while 

providing business certainty needed to 

ensure the broadest number of digital 

music providers possible participate in 

the transfer of unmatched royalty funds 

contemplated by the MMA.’’ 202 The 

DLC concurred with this assessment 

and ‘‘strongly supports the proposed 

rule noticed in the SNPRM.’’ 203

ii. Statutory Analysis 

Having considered these comments 

and examined the relevant statutory 

text, the Office concludes that the MMA 

‘‘ ‘is silent or ambiguous with respect to 

the specific issue’ ’’ at hand, i.e., the 

DMP payment and reporting 

requirements for the limitation on 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2189 

204See City of Arlington, 569 U.S. at 296 (quoting 

Chevron, 467 U.S. at 843); see also ARA, FMC & 

MusicAnswers SNPRM Comment at 2–3 (opining 

that the statute is ambiguous); ARA Ex Parte Letter 

at 1 (Nov. 17, 2020). 

205See 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa). 

206See DLC NPRM Comment at 5–6; DLC SNPRM 

Comment at 2; MLC SNPRM Comment at 13–14, 

App. A at v, ix–x; DLC Ex Parte Letter at 3–4, 12– 

14 (Oct. 14, 2020); MLC Ex Parte Letter at 2 (Oct. 

5, 2020). In addition, the DLC has suggested that an 

adjustment scheme is appropriate to address 

subsequent discoveries of fraudulent stream counts. 

207See, e.g., ARA, FMC & MusicAnswers SNPRM 

Comment at 2–4; DLC NPRM Comment at 3–4, 11– 

18; DLC SNPRM Comment at 1–12; MAC, 

Recording Acad. & SONA SNPRM Comment at 2– 

3; MLC NPRM Comment at 8; MLC SNPRM 

Comment at 2–13; SGA, SCL & MCNA SNPRM 

Comment at 9; ARA Ex Parte Letter at 1 (Nov. 17, 

2020); DLC Ex Parte Letter at 2 (Oct. 14, 2020); 

Google Ex Parte Letter at 2 (Oct. 23, 2020); MLC Ex 

Parte Letter at 2–3 (Oct. 16, 2020); MLC Ex Parte 

Letter at 2–5 (Oct. 5, 2020); MLC Ex Parte Letter at 

2–7 (Nov. 17, 2020); NMPA Ex Parte Letter at 1 

(Nov. 17, 2020); NSAI Ex Parte Letter at 1 (Nov. 17, 

2020); Recording Acad. & SONA Ex Parte Letter at 

2 (Nov. 17, 2020); SATV Ex Parte Letter at 1 (Oct. 

28, 2020); Spotify Ex Parte Letter at 2–5 (Oct. 9, 

2020); UMPG Ex Parte Letter at 1 (Oct. 30, 2020); 

WMG Ex Parte Letter at 1 (Oct. 21, 2020). 

208 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa); see supra 

section II(B)(1). 

209The Office finds the MLC’s assertion that ‘‘[a] 

DMP does not estimate its total accrued royalties’’ 

unpersuasive, as it begs the question of how a DMP 

can know its accrued royalties with certainty and 

finality if, as the MLC agrees, a DMP can estimate 

its royalty pool inputs where unknown, or where, 

as is the case presently, no ultimate royalty rates 

have even been set. MLC SNPRM Comment at 8– 

10. Compare id. with DLC SNPRM Comment at 12 

n.33 (referring to ‘‘the necessary estimates that 

GAAP requires—not just to account for the release 

of claims prior to the MMA, but for other estimates, 

including royalty rates and inputs,’’ and noting that 

‘‘[a]s a result of the D.C. Circuit’s vacatur and 

remand of the Copyright Royalty Board’s 

determination of the relevant statutory royalty rates, 

it is a given that all DSPs will need to use estimates 

when calculating accrued royalties pursuant to this 

provision’’). The rule discussed herein simply 

clarifies that certain good-faith estimates, subject to 

adjustments, are permitted for purposes of the 

payment and reporting requirements of the 

limitation on liability. 

210MLC Ex Parte Letter at 5 (Oct. 5, 2020) (citing 

17 U.S.C. 115(d)(3)(I)). 211MLC Ex Parte Letter at 2–4 (Oct. 16, 2020); see 

MLC SNPRM Comment at 3; MLC Ex Parte Letter 

at 2–3 (Nov. 17, 2020); see also MAC, Recording 

Acad. & SONA SNPRM Comment at 2; Recording 

Acad. & SONA Ex Parte Letter at 2 (Nov. 17, 2020). 212See 17 U.S.C. 115(d)(10)(B)(iv)(II). 213MLC Ex Parte Letter at 7 (Nov. 17, 2020) 

(quoting 17 U.S.C. 115(d)(10)(B)(iv)(II)(aa)). 214See DLC SNPRM Comment at 10. 215See 17 U.S.C. 115(d)(10)(B)(iv)(II)(aa). 216See id. at 115(d)(10)(B)(iv)(I). 

liability contained in 17 U.S.C. 

115(d)(10)(B)(iv) and its subclauses (I) 

through (III)—particularly the treatment 

during the transition period of voluntary 

licenses and other agreements whereby 

copyright owners may have released 

certain royalty claims such that a DMP’s 

obligation to pay royalties for related 

uses has been extinguished, and the 

related possibility that some portion of 

unmatched musical work uses may not 

have accrued royalties associated with 

them.204

First, the statute is not clear about 

what happens if a DMP legitimately 

cannot determine what accrued 

royalties are owed by the required date 

of transfer to the MLC under section 

115(d)(10)(B)(iv)(III). At first glance, the 

statute presumes this amount will be a 

final and ascertainable figure by the 

deadline, directing that DMPs ‘‘not later 

than 45 calendar days after the license 

availability date, transfer all accrued 

royalties to the mechanical licensing 

collective.’’ 205 But, as discussed above, 

both the MLC and DLC acknowledge 

that this may not be possible, 

particularly in light of the Phonorecords 

III remand, and agree that a regulatory 

scheme of estimates and adjustments is 

necessary in at least some instances, 

such as where the computation of 

accrued royalties depends upon one or 

more then-unknown royalty pool inputs 

outside the DMP’s control (such as 

applicable performance royalties), or 

where the applicable statutory royalty 

rates or terms change retroactively after 

the cumulative statement of account has 

been delivered to the MLC.206

Commenters disagree, however, as to 

whether an estimate and adjustment 

mechanism should also be applied 

where certain usage of certain 

unmatched works may be subject to a 

voluntary license or other agreement 

containing an appropriate release of 

royalty claims. Under such a scenario, 

because the specific works are 

unmatched and cannot be identified as 

being subject to the agreement at the 

time of delivery of the cumulative 

statement, the amount of accrued 

royalties is predicated upon estimating 

certain usages for which royalties have 

already been paid or otherwise are not 

considered accrued.207

The statute is no less unclear in the 

contested scenario (where a voluntary 

agreement may affect accrued royalties) 

than the agreed-upon scenario (where 

an unknown royalty pool input may 

affect accrued royalties); both involve 

the statutory reference to ‘‘all accrued 

royalties,’’ which, as discussed above, is 

ambiguous.208 Under both scenarios, the 

purported need to estimate and adjust 

stems from a DMP’s need to pay all 

accrued royalties by the statutory 

payment due date when the precise 

accrued royalties is not yet 

calculable.209

Second, the limitation on liability 

provision does not address the 

application of voluntary licenses, 

making no explicit acknowledgement of 

their existence. The MLC argues that for 

‘‘works initially unmatched that are 

later matched to voluntary licenses, . . . 

for periods prior to the license 

availability date, the MMA provides for 

payments of matched royalties to be 

made to copyright owners, and does not 

provide for the MLC to carve out 

voluntary agreements,’’ further 

contending that ‘‘the distinction 

between blanket license coverage and 

voluntary license coverage only exists 

after the license availability date.’’ 210

The MLC also argues that for a DMP to 

be eligible for the limitation on liability, 

after royalties have been accrued in 

accordance with section 

115(d)(10)(B)(iv), they must ‘‘be held 

through the date when the royalties are 

either (a) matched and distributed to the 

proper copyright owner pursuant to 

subsection II or (b) transferred to the 

MLC pursuant to subsection III.’’ 211

Given that neither section 

115(d)(10)(B)(iv)(II) nor (III) references 

voluntary licenses, this interpretation 

would seem to result in such licenses 

not being given effect, whether entered 

into before the MMA or after. Taken 

literally, this would seem to mean, for 

example, that if a DMP uses a work that 

is not matched by the end of the 

calendar month of first usage, even if its 

efforts later result in a match subject to 

an existing voluntary license (such as 

delayed matching of new releases), the 

DMP must pay the copyright owner 

pursuant to the statutory payment and 

reporting requirements instead of the 

terms of the existing agreement in order 

to retain eligibility for the limitation on 

liability.212 The MLC tries to avoid this 

conclusion by arguing that ‘‘Section 

115(d)(10)(B)(iv)(II) is fully consistent 

on its face with the payment of royalties 

under voluntary license terms’’ because 

‘‘[t]he subsection provides that, when a 

DMP matches an unmatched work, it 

shall pay all respective accrued royalties 

to the identified copyright owner ‘in 

accordance with this section and 

applicable regulations.’ ’’ 213 But, as the 

DLC observes, this is a misreading of the 

statute.214 The language quoted by the 

MLC concerns ‘‘the information’’ that 

must be ‘‘include[d]’’ in the required 

cumulative statement of account; it does 

not relate to the payment of royalties or 

other aspects of the reporting.215

The DMPs contend that section 

115(d)(10)(B)(iv)(I) speaks to this issue 

by requiring that ‘‘[a]ccrued royalties 

shall be maintained by the digital music 

provider in accordance with generally 

accepted accounting principles.’’ 216

They argue that this provision covers 

how accrued liabilities can be 

extinguished, asserting that GAAP 

permits this in ways not provided for in 


jbell on DSKJLSW7X2PROD with RULES5
2190 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

217See DLC NPRM Comment at 17 (‘‘[U]nder 

GAAP, accrued royalties that were paid to 

participating publishers, who released all 

entitlement to royalties for such usage, would cease 

being ‘maintained’ in accordance with GAAP; only 

those royalties expected to be due to third parties 

who had not released such royalty claims would be 

accrued.’’); DLC SNPRM Comment at 10; DLC Ex 

Parte Letter at 2 (Oct. 14, 2020); Spotify Ex Parte 

Letter at 3–4 (Oct. 9, 2020). 

218Spotify Ex Parte Letter at 4 (Oct. 9, 2020); see 

DLC SNPRM Comment at 10; DLC Ex Parte Letter 

at 2 (Oct. 14, 2020) (‘‘[T]he MLC’s proffered 

statutory argument . . . would improperly read the 

GAAP requirement out of the law, and fail to 

account for voluntary licenses.’’). 

219See 17 U.S.C. 115(d)(3)(I)(ii), (d)(10)(B)(iv)(II)– 

(III) (all referring to the payment of ‘‘accrued 

royalties’’). For example, where a DMP transferred 

over royalties for an unmatched work that, when 

later matched by the MLC, turns out to be subject 

to a catalog-based voluntary license where payment 

for the relevant usage was already made to the 

copyright owner under the terms of that agreement. 

220See, e.g., R–S–C v. Sessions, 869 F.3d 1176, 

1183–85 (10th Cir. 2017) (finding statute ambiguous 

where it was ‘‘apparent’’ that statutory provisions 

were ‘‘at odds with one another,’’ such that the 

‘‘intra-statutory conflict obscure[d] any clear 

command from Congress’’ on the subject at issue). 

221 17 U.S.C. 115(c)(2)(A)(i); see also id. at 

801(b)(7)(A), (C); H.R. Rep. No. 115–651, at 4; S. 

Rep. No. 115–339, at 4; Conf. Rep. at 3 (‘‘Consistent 

with the current 115 compulsory license, 

subsection (c)(2)(A) makes clear that voluntary 

licenses entered into between musical work 

copyright owners and digital music providers are 

given effect in lieu of the rates established for the 

blanket license.’’). 

222 17 U.S.C. 115(d)(9)(C); see also id. at 

115(d)(1)(C); H.R. Rep. No. 115–651, at 10; S. Rep. 

No. 115–339, at 10–11; Conf. Rep. at 8–9 (‘‘[A]ny 

voluntary license agreement between a digital 

music provider and a musical work copyright 

owner continues to be effective and takes 

precedence over the blanket license until such 

license expires according to its own terms.’’). 

223See U.S. Copyright Office, Views of the United 

States Copyright Office Concerning PRO Licensing 

of Jointly Owned Works, at 20 (Jan. 2016), https:// 

www.copyright.gov/policy/pro-licensing.pdf 

(‘‘Congress established [compulsory licenses] to 

address specific market conditions, and they are 

narrowly construed in their application.’’) (citing 

Fame Publ’g Co. v. Alabama Custom Tape, Inc., 507 

F.2d 667, 670 (5th Cir. 1975) and WPIX, Inc. v. ivi, 

Inc., 691 F.3d 275, 281 (2d Cir. 2012)); see also DLC 

SNPRM Comment at 10 (observing that ‘‘other 

references to voluntary agreements in the statute 

say nothing about how those agreements should be 

applied to the issues posed by accrued unmatched 

royalties’’). 

224See 85 FR 22518, 22528 (Apr. 22, 2020) (‘‘The 

DLC is specifically concerned with the handling of 

voluntary licenses, explaining that because such 

licenses are often procured through blanket deals 

covering all musical works in a publisher’s catalog, 

the DMP usually does not know which specific 

musical works are covered, and will be reliant on 

the MLC to make that determination based on its 

statutorily directed matching efforts; this in turn 

affects the amount of royalties the DMP owes under 

the blanket license.’’); DLC SNPRM Comment at 9 

(‘‘[I]t is common in the industry, if not standard, for 

full-catalog licenses not to identify each work 

covered, and for the list of covered works to change 

from time to time. . . . [I]t is precisely for this 

reason that the MLC must provide a response file 

identifying the works covered by a voluntary 

license, in order to allow the licensee to calculate 

the royalties owed pursuant to the blanket license 

for the remaining works.’’); see also, e.g., Steven 

Winogradsky & David Lowery, Music Publishing: 

The Complete Guide 267 (2nd ed. 2019) (discussing 

production music library licenses on a non-title 

basis). 

225See 17 U.S.C. 115(d)(10)(B)(iv)(II). 

226MLC Ex Parte Letter at 2–3 (Oct. 16, 2020); see 

MLC SNPRM Comment at 3. 

227The first clause reads, ‘‘[i]f the copyright 

owner is not identified or located by the end of the 

calendar month in which the digital music provider 

first makes use of the work.’’ 17 U.S.C. 

115(d)(10)(B)(iv). 

228The second clause reads, ‘‘the digital music 

provider shall accrue and hold royalties calculated 

section 115(d)(10)(B)(iv)(II) or (III), such 

as pursuant to agreement.217 They argue 

that ‘‘this is how Subclause (I) has to 

work, in order to account for voluntary 

licenses’’ because subclause (II) ‘‘does 

not address voluntary licenses at all’’ 

and instead ‘‘requires—regardless of the 

terms of any contrary agreement— 

payment of ‘all accrued royalties’ on a 

specific timetable, accompanied by a 

statutorily mandated ‘cumulative 

statement of account.’ ’’ 218

The Office concludes that the 

limitation on liability provision is not 

clear about the treatment of voluntary 

licenses. The MLC’s formulation 

assumes that any amount transferred to 

the MLC must necessarily be ‘‘accrued,’’ 

failing to recognize that some portion of 

what is transferred may instead 

constitute an overpayment subject to 

credit or refund.219 Additionally, 

neither the MLC’s nor the DMPs’ 

interpretations resolve conflicts between 

section 115(d)(10)(B)(iv) and at least two 

other related provisions in section 115 

intended to preserve the effect of 

existing voluntary transactions.220 The 

first provision states that ‘‘[l]icense 

agreements voluntarily negotiated at any 

time between one or more copyright 

owners of nondramatic musical works 

and one or more persons entitled to 

obtain a compulsory license . . . shall 

be given effect in lieu of any 

determination by the Copyright Royalty 

Judges.’’ 221 The second provides that 

‘‘[a] voluntary license for a covered 

activity in effect on the license 

availability date will remain in effect 

unless and until the voluntary license 

expires according to the terms of the 

voluntary license, or the parties agree to 

amend or terminate the voluntary 

license.’’ 222 Both in essence require that 

voluntary licenses be given effect in lieu 

of compulsory licenses, and yet by the 

MLC’s read (despite its attempts to 

suggest otherwise), section 

115(d)(10)(B)(iv)(II) and (III) would 

require the opposite.223

It seems highly unlikely that 

Congress, without being explicit about 

what it was doing, would have adopted 

a statutory scheme that broadly 

encourages and gives effect to the 

common practice of voluntary licenses 

(including by preserving existing 

agreements), only to override them and 

risk marketplace confusion for purposes 

of the limitation on liability 

requirements. It is possible that 

Congress may have assumed that an 

unmatched work would not be subject 

to a voluntary license, but that appears 

to be factually untrue, as it has been 

represented to the Office that many 

voluntary licenses operate on a 

participating-party or musical work 

catalog or library basis, rather than a 

per-matched-work (or ‘‘title-bound’’) 

basis.224

The DMPs’ reliance on the GAAP 

provision in subclause (I) does not 

resolve the matter, however. Even if the 

provision encompassed derecognition of 

liabilities, including by agreement, in 

certain contexts, it would still be in 

conflict with subclause (II). For 

example, where a previously unmatched 

work becomes matched prior to the 

license availability date, if the work is 

matched to a copyright owner with 

whom the DMP has a voluntary license, 

then under subclause (I), that license 

could be given effect, or, if there is no 

such license, the DMP and copyright 

owner could agree to one at that time to 

extinguish the liability. But under 

subclause (II), in the exact same 

situation, the DMP is told to undertake 

certain acts that could be contrary to 

any such agreement.225 Even if a 

voluntary license was structured so that 

no further accrued royalties would be 

due, to the extent further reporting is 

still required under the agreement, there 

could be a conflict with the reporting 

requirements of subclause (II). Congress 

has given no indication as to whether 

subclause (I) or (II) should control in 

these types of situations. 

Third, the Office finds section 

115(d)(10)(B)(iv) to be ambiguous on its 

face. The MLC argues that the provision 

is clear and requires that ‘‘on enactment 

of the MMA, DMPs must accrue and 

hold royalties for all of their historical 

and ongoing unmatched uses, with such 

accrued royalties to be calculated at the 

statutory rate and to cover all uses from 

initial use of the work, with such 

accrued royalties to be held through the 

date when the royalties are either (a) 

matched and distributed to the proper 

copyright owner pursuant to subsection 

II or (b) transferred to the MLC pursuant 

to subsection III.’’ 226 The MLC contends 

that the ‘‘first clause’’ of section 

115(d)(10)(B)(iv) 227 ‘‘serves to identify 

what is being addressed by the 

provision, namely all unmatched works 

and associated royalties;’’ the ‘‘second 

clause’’ 228 ‘‘sets forth the unambiguous 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2191 

under the applicable statutory rate in accordance 

with usage of the work.’’ Id. 

229The third clause reads, ‘‘from initial use of the 

work until the accrued royalties can be paid to the 

copyright owner or are required to be transferred to 

the mechanical licensing collective.’’ Id. 

230MLC Ex Parte Letter at 3 (Oct. 16, 2020). 

231 Id. at 3–4; see MLC SNPRM Comment at 5– 

10; MLC Ex Parte Letter at 2–4 (Nov. 17, 2020); see 

also, e.g., Recording Acad. & SONA Ex Parte Letter 

at 2 (Nov. 17, 2020) (‘‘[The GAAP provision] is 

meant to safeguard the royalties until they can be 

successfully matched to the owner or transferred to 

the MLC. It is not intended to provide a trap door 

through which accrued royalties can be disposed of 

in a way not prescribed in the statute.’’); NMPA Ex 

Parte Letter at 1 (Nov. 17, 2020); SGA, SCL & 

MCNA Ex Parte Letter at 3 (Nov. 17, 2020). 

232 DLC Ex Parte Letter at 2 (Oct. 14, 2020); see 

also, e.g., ARA, FMC & MusicAnswers SNPRM 

Comment at 3 (non-DMP organizations agreeing that 

‘‘Congress clearly intended the . . . [relevant] 

provisions to cover usages of musical works for 

which rightsholders had not yet received payment 

at all—not usages for which a corresponding 

payment had been negotiated and made,’’ and that 

‘‘[t]he financial structures and allowances of GAAP 

are incorporated in their entirety by a plain reading 

of the statute’’); DLC SNPRM Comment at 9; Spotify 

Ex Parte Letter at 3–4 (Oct. 9, 2020). 

233Spotify Ex Parte Letter at 3 (Oct. 9, 2020); see 

also DLC Ex Parte Letter at 2 (Oct. 14, 2020). 

234Spotify Ex Parte Letter at 3–4 (Oct. 9, 2020); 

see also DLC Ex Parte Letter at 2 (Oct. 14, 2020). 

235See 17 U.S.C. 115(d)(10)(B)(iv). 

236 Id. at 115(d)(10)(B)(iv)(II)(aa), (III)(aa). 

237 Id. at 115(d)(10)(B)(iv)(II)(bb)–(cc), (III)(bb). 

238See id. at 115(d)(10)(B)(iv). 

obligation to accrue and hold royalties 

at the statutory rate,’’ with ‘‘[t]he 

statutory obligation to accrue and hold 

these royalties begin[ning] on the 

enactment date;’’ and the ‘‘third 

clause’’ 229 ‘‘details the scope of the 

accrual to be made, the time frame for 

holding, and the ultimate payment 

obligation.’’ 230 Based on this analysis, 

the MLC disagrees with the DMPs’ 

position on the meaning of the GAAP 

provision in section 115(d)(10)(B)(iv)(I), 

asserting that ‘‘[r]eading the generic 

direction to ‘maintain’ royalties in 

accordance with GAAP as overriding 

the detailed statutory instructions and 

producing a result where the DMP in 

fact does not maintain the accrued 

royalties and does not transfer them 

under either subsection II or III—the 

exact opposite of the explicit statutory 

directive—does not appear 

reasonable.’’ 231

The DMPs disagree, arguing that ‘‘the 

MLC’s proffered statutory argument . . . 

would improperly read the GAAP 

requirement out of the law, and fail to 

account for voluntary licenses.’’ 232

Instead, they contend that the phrase 

‘‘as follows’’ at the end of clause (iv) 

must mean that ‘‘the subsequent 

Subclauses (I)–(III) describe how and 

when the royalties are accrued, paid to 

copyright owners, or transferred to the 

MLC.’’ 233 They further explain that 

‘‘Subclause (I) provides a general 

instruction that the royalties ‘shall be 

maintained’ in accordance with 

GAAP—which means that GAAP 

standards apply to the initial calculation 

of the accrual as well as to any 

adjustment of that initial calculation in 

light of new facts. That is made clear by 

the fact that Clause (iv) ends with the 

phrase ‘as follows,’ which links the 

initial accrual determination described 

in Clause (iv) to the application of 

GAAP standards specified in Subclause 

(I).’’ 234

The Office finds that neither of these 

interpretations eliminates the 

ambiguities in clause (iv). A key 

uncertainty lies in what the MLC refers 

to as the ‘‘third clause’’ of clause (iv): 

‘‘from initial use of the work until the 

accrued royalties can be paid to the 

copyright owner or are required to be 

transferred to the mechanical licensing 

collective.’’ 235 It is not clear what that 

phrase is referencing. Looking at the 

immediately preceding phrase (‘‘the 

digital music provider shall accrue and 

hold royalties calculated under the 

applicable statutory rate in accordance 

with usage of the work’’), it seems that 

two possibilities are most likely. 

First, the ‘‘third clause’’ of clause (iv) 

could be referencing ‘‘accrue and hold 

royalties calculated under the 

applicable statutory rate.’’ Under that 

reading, it would direct when the DMP 

must accrue statutory royalties for an 

unmatched usage of the work and for 

how long it must hold them. For 

example, if first use of a work occurred 

in May 2015 and that work remained 

unmatched at the license availability 

date, the DMP must have started 

accruing statutory royalties in May 2015 

and must be holding all such royalties 

until they are transferred to the MLC in 

early 2021. Second, the ‘‘third clause’’ 

could be referencing ‘‘in accordance 

with usage of the work.’’ Under that 

reading, it would define the lookback 

period for the unmatched usage of the 

work that may be subject to accrual and 

holding of statutory royalties, but would 

not speak to when royalties must 

actually be accrued by the DMP or for 

how long they must be held. For 

example, if first use of a work occurred 

in May 2015 and that work remained 

unmatched at the license availability 

date, those uses occurring between May 

2015 and the date of transfer to the MLC 

in early 2021 would be subject to 

royalty accrual requirements for 

purposes of cumulative reporting and 

transfer to the MLC (but this clause 

would not speak to what those 

requirements are, including when or for 

how long royalties must be accrued and 

held; e.g., following enactment in 

October 2018, a DMP could first accrue 

royalties for the period of use stretching 

back to May 2015). The ‘‘third clause’’ 

could perhaps also be referring to both 

the royalty accrual and holding period 

and usage lookback period, but that 

formulation would not resolve the 

issues identified below. 

The first construction, which would 

construe this phrase as a set holding 

period for accrued royalties, mostly 

aligning with the MLC’s interpretation, 

is problematic in multiple ways. One 

obvious issue is that it causes significant 

friction with the structure of the overall 

provision. Clause (iv) ends with the 

phrase ‘‘as follows:’’ after which 

detailed requirements are provided 

under subclauses (I) through (III). Thus, 

the most natural reading is that DMPs 

‘‘shall accrue and hold royalties’’ as 

specified in subclauses (I) through (III). 

But if the ‘‘third clause’’ of clause (iv) 

is construed as speaking to the accrual 

and holding of royalties in absolute 

terms, it would essentially act as an 

exception to the operation of subclauses 

(I) through (III). There is no indication 

that the ‘‘third clause’’ is meant to 

function this way, to undercut the 

subclauses in the very same provision. 

As the DMPs argue, treating it in such 

a manner would significantly diminish 

the scope and application of the GAAP 

provision in subclause (I). If Congress 

had meant to further delineate the 

requirements of subclauses (I) through 

(III), it would likely have done so within 

that framework of subclauses, or by at 

least using verbiage indicative of an 

exception. Further, subclauses (II) and 

(III) do not merely dictate the initial 

bulk historical payment and cumulative 

statement of account requirements,236

but also the ongoing payment and 

reporting obligations for subsequent 

reporting periods,237 making it even less 

likely that the ‘‘third clause’’ is meant 

as an overarching exception to the 

whole of subclauses (I) through (III). 

Another problem is that to read the 

‘‘third clause’’ as referring to the royalty 

holding period, it would have to define 

both the beginning and end points of 

that period—i.e., starting with the 

‘‘initial use of the work’’ and ending 

when ‘‘the accrued royalties can be paid 

to the copyright owner or are required 

to be transferred to the mechanical 

licensing collective.’’ 238 If understood 

this way, to qualify for the limitation on 

liability, a DMP would have needed to 

‘‘accrue and hold royalties . . . from 

initial use of the work,’’ no matter how 

many years ago that may have been and 

regardless of whether the DMP 

addresses any historic bookkeeping or 


jbell on DSKJLSW7X2PROD with RULES5
2192 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

239See id. 

240MLC Ex Parte Letter at 3 (Oct. 16, 2020). 

241 Id. 

242See 17 U.S.C. 115(d)(10)(B). 

243 Id. at 115(d)(10)(B)(iv)(II)(aa), (III)(aa). 

244 Id. at 115(d)(10)(B)(iv)(II)(bb)–(cc), (III)(bb). 

245See id. at 115(d)(10)(B)(iv). 

246See id. at 115(d)(10)(B)(iv)(II)(aa)–(bb), 

(III)(aa)–(bb). 

247See City of Arlington, 569 U.S. at 296 (quoting 

Chevron, 467 U.S. at 842–43). 

248See Vill. of Barrington v. Surface Transp. Bd., 

636 F.3d 650, 659 (D.C. Cir. 2011). 

249See Brand X Internet Servs., 545 U.S. at 980 

(‘‘[A]mbiguities in statutes within an agency’s 

jurisdiction to administer are delegations of 

authority to the agency to fill the statutory gap in 

reasonable fashion.’’). 

250H.R. Rep. No. 115–651, at 5–6, 14; S. Rep. No. 

115–339, at 5, 15; Conf. Rep. at 4, 12; see 17 U.S.C. 

115(d)(12)(A); see also AT&T Corp. v. Iowa Utils. 

Bd., 525 U.S. 366, 397 (1999) (‘‘Congress is well 

aware that the ambiguities it chooses to produce in 

a statute will be resolved by the implementing 

agency.’’); Brand X Internet Servs., 545 U.S. at 982. 

The Office is not persuaded by the MLC’s 

invocation of expressio unius est exclusio alterius 

to argue that because there is a provision in the 

MMA relating to private agreements in the context 

of pre-1972 sound recordings, weight should be 

given to the assertion that with respect to the 

limitation on liability requirements, ‘‘the MMA 

could have easily included language providing for 

the deduction of moneys paid in private 

settlements, but it did not.’’ MLC SNPRM Comment 

at 4–5 (discussing 17 U.S.C. 1401(d)). The provision 

about pre-1972 sound recordings is in a separate 

section of title 17, was enacted in a separate title 

of the MMA that originated from a completely 

different bill, and is unrelated to the section 115 

compulsory license. It is difficult to see how in 

such circumstances silence can be construed as 

dispositive of Congress’s intent, especially in light 

of the other ambiguities identified above and 

Congress’s express cautioning to the Office with 

respect to the portions of the MMA relating to 

section 115 that uncontemplated issues will arise 

and need to be addressed. See H.R. Rep. No. 115– 

651, at 5–6, 14; S. Rep. No. 115–339, at 5, 15; Conf. 

Rep. at 4, 12. 

251See U.S. Copyright Office, Copyright & the 

Music Marketplace 30–31 (2015), https://

www.copyright.gov/policy/musiclicensingstudy/ 

copyright-and-the-music-marketplace.pdf (noting 

that pre-MMA, the statutory license served as a 

‘‘ghost in the attic’’ while voluntary licensing 

facilitated the majority of licensed uses). 

252See 17 U.S.C. 115(d)(12)(A) (‘‘The Register of 

Copyrights may conduct such proceedings and 

adopt such regulations as may be necessary or 

appropriate to effectuate the provisions of this 

subsection.’’); see also ARA, FMC & MusicAnswers 

SNPRM Comment at 2–4; ARA Ex Parte Letter at 

1 (Nov. 17, 2020) (noting ambiguity and asserting 

that ‘‘[a]s a consequence of this ambiguity, we 

believe the Copyright Office has discretion to 

interpret the MMA’s terms and the authority to 

promulgate a rule that creates a workable, practical 

system’’); SGA, SCL & MCNA Ex Parte Letter at 1 

(Nov. 17, 2020) (‘‘[R]eject[ing] the assertion by some 

music publisher representatives (backed by at least 

one of their affiliated songwriter groups) that the 

USCO’s oversight and rulemaking authority 

concerning matters related to 2020–12 should be 

viewed as being narrowly limited.’’). 

253See 17 U.S.C. 115(d)(4)(A)(iv) (directing Office 

to adopt regulations ‘‘regarding adjustments to 

reports of usage by digital music providers, 

including mechanisms to account for overpayment 

and underpayment of royalties in prior periods’’). 

254See 37 CFR 210.6, 210.7, 210.27. 

accounting issues by reporting on and 

paying all properly accrued royalties as 

required under subclauses (II) and 

(III).239 It seems unlikely that Congress 

would have intended something so 

sweepingly retroactive and incurable 

given its clear intent to encourage 

participation in the limitation on 

liability and concerns about imposing 

potentially retroactive obligations on 

DMPs to qualify for this limitation. 

Even the MLC does not go this far, 

instead stating that ‘‘[t]he statutory 

obligation to accrue and hold these 

royalties begins on the [MMA’s] 

enactment date.’’ 240 It is not clear why 

the MLC believes this to be the case, 

since it contends that the ‘‘third clause’’ 

details ‘‘the time frame for holding.’’ 241

The MLC’s view would only give effect 

to the half of the provision purportedly 

detailing the end date. To the extent the 

MLC qualifies its reading by the overall 

direction that the requirements for the 

limitation on liability ‘‘shall apply on 

the enactment date and through the end 

of the period that expires 90 days after 

the license availability date,’’ the Office 

finds that provision to be yet another 

reason why the ‘‘third clause’’ of clause 

(iv)—with its conflicting reference to the 

starting point of ‘‘initial use of the 

work’’ (at least where initial use 

predates the MMA’s enactment)— 

cannot be construed as the royalty 

holding period, or at minimum adds a 

layer of ambiguity.242

The second construction, which 

would construe this phrase as defining 

the applicable usage lookback period, 

despite avoiding most of the problems 

plaguing the first construction is also 

problematic. As noted above, the details 

of subclauses (II) and (III) do not merely 

dictate the initial bulk historical 

payment and cumulative statement of 

account requirements,243 but also the 

ongoing payment and reporting 

obligations for subsequent reporting 

periods.244 Understanding the ‘‘third 

clause’’ of clause (iv) to be defining the 

usage lookback period does not resolve 

that tension. 

The main issue, though, concerns the 

end points of the usage lookback period. 

Defining the end of the period as the 

dates when ‘‘the accrued royalties can 

be paid to the copyright owner [under 

subclause (II)(aa)] or are required to be 

transferred to the mechanical licensing 

collective [under subclause (III)(aa)]’’ 245

creates tension with the usage periods 

defined in those subclauses, which in 

both cases end 45 calendar days 

earlier.246 This discrepancy means that 

the ‘‘third clause’’ of clause (iv) does not 

refer to an unambiguous usage lookback 

period. 

The foregoing demonstrates that 

Congress’s intent cannot be clearly 

divined, and ‘‘ ‘Congress has [not] 

directly spoken to the precise question 

at issue’ ’’ 247 or prescribed a ‘‘precise 

course of conduct.’’ 248 Therefore, the 

Office may proceed to fill the statutory 

gap in a reasonable fashion.249

Specifically with respect to the MMA, 

Congress ‘‘expected that situations will 

arise that were not contemplated by the 

legislation’’ and imbued the Office with 

‘‘broad regulatory authority’’ to act, 

directing that ‘‘[t]he Office is expected 

to use its best judgement in determining 

the appropriate steps in those 

situations.’’ 250

iii. Appropriateness of Regulatory 

Action 

In light of the statutory ambiguities 

identified above in the limitation on 

liability provision, including those 

raised when reading it in connection 

with the provisions preserving 

voluntary licensing, the Office 

concludes that the most reasonable 

interpretation is one that does not 

disrupt the existing marketplace for 

licensing on a participating-party or 

musical work catalog or library basis, as 

opposed to a title-bound basis. An 

alternative conclusion that disfavors 

transactions not based on song-by-song 

licenses would be at odds with 

animating legislative desires to facilitate 

large scale licensed uses of musical 

works and avoid disrupting the 

marketplace that has arisen around the 

compulsory license.251 Accordingly, the 

Office finds that it is necessary and 

appropriate to promulgate a rule that 

accounts for voluntary agreements 

(whether considered licenses, 

settlements, liquidations, releases, or 

otherwise) during the transition period, 

and the corresponding possibility that 

the royalties a DMP has accrued may 

not associate with all unmatched 

musical work usages because some of 

those usages may be subject to relevant 

agreements.252 Beyond the broad 

statutory grant of authority bestowed 

upon the Office as part of the MMA and 

the authority delegated to the Office by 

virtue of the ambiguities identified 

above, it has long been recognized to be 

well within the ambit of the Office’s 

authority to promulgate rules governing 

processes for reporting and paying 

royalties, including reliance upon 

estimates and adjustments.253 Indeed, 

the Office’s longstanding pre-MMA 

statement of account regulations, and 

the more-recently enacted reports of 

usage regulations under the blanket 

license, employ a system of estimates 

and adjustments.254


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2193 

255See H.R. Rep. No. 115–651, at 13–14; S. Rep. 

No. 115–339, at 14–15; Conf. Rep. at 12; Letter from 

Senator Lindsey O. Graham, Chairman, Senate 

Committee on the Judiciary, to U.S. Copyright 

Office 1 (Sept. 30, 2020). 

256See, e.g., MAC, Recording Acad. & SONA 

SNPRM Comment at 2–3 (‘‘The original NPRM, 

which remained silent on how the Agreements 

should be treated, is the better approach. If the DMP 

interpretation of GAAP is correct and can be 

justified, the Office does not need to explicitly 

ratify it in the regulations. The DMPs can simply 

comply with the statute and transfer their accrued 

royalties as they understand them along with the 

usage data.’’) MLC SNPRM Comment at 2, 10–11. 

257 DLC SNPRM Comment at 11; see DLC NPRM 

Comment at 16–17 (‘‘[R]egulation is plainly 

necessary to provide unambiguous guidance to 

DMPs and the MLC. . . . [L]eaving this provision 

open ended will undoubtedly invite litigation that 

second-guesses DMPs’ accounting determinations 

and render the limitation on liability illusory. . . . 

Regulatory clarification to guard against that result 

is warranted.’’); DLC Ex Parte Letter at 2 (Oct. 14, 

2020); Spotify Ex Parte Letter at 4 n.5 (Oct. 9, 2020). 

258See NPRM at 43523. 

259See DLC SNPRM Comment at 12 (‘‘[E]ven if 

the DMPs are to employ the self-help invited by the 

MLC with respect to the GAAP treatment of preMMA releases, the Office would still need to issue 

regulations clarifying the manner in which DMPs 

reconcile the cumulative statement of account with 

the necessary estimates that GAAP requires—not 

just to account for the release of claims prior to the 

MMA, but for other estimates, including royalty 

rates and inputs.’’). 

260See H.R. Rep. No. 115–651, at 13–14; S. Rep. 

No. 115–339, at 14; Conf. Rep. at 12 (noting 

concerns over continued litigation, including how 

it diverts royalties from artists); Letter from Senator 

Lindsey O. Graham, Chairman, Senate Committee 

on the Judiciary, to U.S. Copyright Office 1 (Sept. 

30, 2020) (noting that the MMA was intended to 

provide legal certainty and that it is ‘‘critical’’ to 

resolve the issue, considering copyright owner, 

songwriter, and DMP interests). 

261See ARA, FMC & MusicAnswers SNPRM 

Comment at 3–4 (agreeing that the ‘‘structure seems 

to accomplish exactly what Congress intended’’ and 

‘‘resolves the current controversy in a way that best 

serves the interest of independent and working 

songwriters who have a strong interest in bringing 

as much money as possible into the MLC matching 

and payment process for pre-MMA uses’’). 

262See Am. Intellectual Prop. Law Ass’n, 2019 

Report of the Economic Survey 54 (2019) (median 

cost in 2019 for a party to litigate a copyright 

infringement lawsuit with less than $1 million at 

risk through to appeal was $550,000; median cost 

to reach the close of discovery was $150,000). 

263 DLC Ex Parte Letter at 2 (Nov. 17, 2020); see 

ARA, FMC & MusicAnswers SNPRM Comment at 

4 (stating that ‘‘potentially hundreds of millions of 

dollars for songwriters and publishers are at stake’’ 

because the risk of DMPs foregoing the limitation 

on liability ‘‘is real’’). 

264 DLC Ex Parte Letter at 2 (Nov. 17, 2020). 

265See, e.g., NMPA Ex Parte Letter at 2 (Nov. 3, 

2020) (discussing the ability of DMPs to get letters 

of direction from relevant publishers and potential 

litigation to enforce contract rights); MLC Ex Parte 

Letter at 5 (Oct. 5, 2020) (noting that ‘‘in the event 

of any such legal dispute between a DMP and a 

copyright owner concerning the right to receive 

unmatched royalties that the DMP had turned over 

under the MMA, the MLC would hold such 

unmatched royalties pending the resolution of the 

dispute,’’ and that the MLC would ‘‘follow[ ] the 

direction of the parties or appropriate courts as to 

how royalties should be distributed pursuant to 

private agreements’’); SATV Ex Parte Letter at 2 

(Oct. 28, 2020) (‘‘SATV is open to discussing letters 

of direction and other potential solutions that 

would ensure that the requirements of the MMA are 

satisfied and also address the concerns raised by the 

digital services regarding payments made pursuant 

to private settlements.’’); UMPG Ex Parte Letter at 

1 (Oct. 30, 2020) (‘‘UMPG believes that any issues 

relating to payments under private settlements can 

and should be dealt with between the contracting 

parties. UMPG intends to assist and facilitate 

voluntary procedures for doing so with the digital 

services, to the extent applicable.’’); WMG Ex Parte 

Continued 

Concluding otherwise would be at 

odds with Congress’s intent to create 

certainty and discourage litigation over 

historical usage.255 The Office did give 

thought to remaining silent on the issue, 

as some commenters urged. In 

particular, the MLC and others 

contended that a regulation is 

unnecessary, essentially opining that 

since the DMPs believe the statute is 

clear, they should simply rely on their 

asserted interpretation.256 in contrast, 

the DLC and DMPs asserted that ‘‘[t]he 

need for [a] rule is critical’’ because ‘‘the 

MLC’s very insistence that the statute 

doesn’t square with the interpretation 

advanced by the DLC confirms that 

clarifying regulation is imperative, and 

that a lack of such clarification is likely 

to provoke litigation—which will be a 

burden not just for DMPs, but also for 

the copyright owners who would have 

to bring those infringement suits.’’ 257

The Office concludes that the better 

approach is to provide regulatory 

guidance to address what most parties 

seem to agree will be inevitable 

situations where usage that certain 

DMPs could not match is subsequently 

determined by the MLC to be owned by 

copyright owners who may be party to 

a valid agreement covering the relevant 

period. Contrary to the MLC’s and 

others’ statements, the rule’s approach 

is in many ways aligned with the 

original NPRM, as it seeks to give effect 

to voluntary agreements, where 

appropriate, without opining on any 

particular individual agreements.258 At 

its heart, the rule detailed below simply 

creates a mechanism through which the 

MMA’s limitation on liability 

requirements can accommodate 

voluntary agreements (including those 

adopted on a non-title-bound basis) to 

the extent they may be appropriately 

relied upon in computing accrued 

royalties. Moreover, in the event that a 

court found the statute unambiguously 

to require the DLC’s and DMPs’ 

interpretation, a rule would still be 

necessary to prescribe conditions under 

which their interpretation could be 

given effect, including by articulating 

how estimates and adjustments as well 

as underpayments and overpayments 

should operate.259 In this respect, the 

Office believes regulatory guidance will 

help guide DMP compliance, and 

provide a mechanism for additional 

royalty monies to be payable to 

copyright owners entitled to such 

payment, in the event obligations have 

been underestimated. Without the 

uniformity in application that a 

regulatory scheme brings, it could 

negatively impact the MLC’s ability to 

process cumulative statements of 

account. 

Importantly, the Office also concludes 

that regulatory action will best limit the 

risk of DMPs choosing to forego the 

limitation on liability by providing 

added certainty, helping to ensure that 

accrued royalties owed to copyright 

owners and songwriters are transferred 

to the MLC and eventually matched and 

distributed accurately without resorting 

to litigation, as Congress intended.260

The transfer of cumulative statements 

and royalties is an optional condition to 

the limitation on liability and not 

otherwise required for DMPs to use the 

blanket license. As explained below, the 

adopted rule acknowledges, without 

endorsing, the DMPs’ proffered 

interpretation of relevant agreements by 

establishing a process that leaves room 

for such issues to be litigated if 

necessary.261 DMP participation is 

particularly important for smaller 

publishers and self-published 

songwriters who may not have the 

means to engage in the litigation that 

could otherwise be necessary to obtain 

royalty payments.262 That loss could be 

significant; as noted, the DLC 

‘‘estimated that several hundred million 

dollars were available to be transferred 

to the MLC as accrued royalties, even 

after accounting for the derecognition of 

accruals based on preexisting 

agreements containing releases to claims 

for accrued royalties.’’ 263 Indeed, 

regulatory action seems particularly 

appropriate to ensure that those 

copyright owners who did not 

participate in voluntary agreements will 

see the money to which they are entitled 

for uses of their works transferred to the 

MLC and ultimately paid without 

needing to resort to litigation. The 

adopted final rule is a practical solution 

to a complex issue. It is a permissible 

construction of the statute that best 

effectuates Congress’s intent and is 

within the Office’s authority to adopt. 

Other practical considerations weigh 

in favor of adopting the rule. Most 

notably, it would be a waste of resources 

to require DMPs to transfer ‘‘tens of 

millions of dollars’’ 264 to the MLC, 

which the MLC and music publishers 

seem to agree, may have to circuitously 

make their way back to the DMPs in 

cases where valid releases apply.265 The 


jbell on DSKJLSW7X2PROD with RULES5
2194 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

Letter at 1 (Oct. 21, 2020) (‘‘For those DSPs with 

which we have already settled claims for the 

distribution of royalties owed before the enactment 

of the MMA, we consider these claims closed.’’). 

266H.R. Rep. No. 115–651, at 6; S. Rep. No. 115– 

339, at 5; Conf. Rep. at 4, 6. 

267See SATV Ex Parte Letter at 2 (Oct. 28, 2020) 

(noting, in the context of market-based solutions, a 

preference for ‘‘any potential reimbursements to 

digital services be made by the MLC rather than 

music publishers’’). 

268See, e.g., DLC NPRM Comment at 14–15 (‘‘The 

NMPA has represented that 90%-plus of all usage 

was covered by the NMPA agreements: It would be 

absurd to require DMPs to make an acknowledged 

duplicate payment of tens of millions of dollars to 

cover payments that are merely around 10%, or 

less, of that amount.’’); id. at 13 (quoting Ed 

Christman, Vast Majority Join Royalties Settlement 

Between Spotify and Publishing Group, Billboard 

(July 11, 2016), https://www.billboard.com/articles/ 

business/7431272/nmpa-spotify-settlement-mostmembers-join (stating that participation was ‘‘96% 

of [NMPA’s] market share’’)); id. (quoting Lowery et 

al. v. Rhapsody Int’l Inc., No. 4:16–cv–01135–JSW 

(N.D. Cal. filed Mar. 7, 2016), Dkt. No. 175 at 3) 

(noting opt in market share of 97.13%). 

269 Id. Add. at 22; see also NPRM at 43523; NMPA 

Ex Parte Letter at 2 (Aug. 25, 2020) (‘‘[R]esolution 

of issues and disputes concerning privately 

negotiated agreements such as the pending and 

unmatched settlement agreements . . . is to be 

addressed through state contract law and 

discussions between the contracting parties.’’); MLC 

NPRM Comment at 8–9 (accord). 

270SNPRM at 70548; see id. at 70546 (citing Fed. 

Acct. Standards Bd. (‘‘FASB’’) Acct. Standards 

Codification (‘‘ASC’’), titled ‘‘Derecognition’’). 

271 Id. at 70548. 

272See, e.g., MAC, Recording Acad., & SONA 

SNPRM Comment at 2–3; MLC SNPRM Comment 

at 2–10; NMPA Ex Parte Letter at 1–2 (Nov. 17, 

2020); MLC Ex Parte Letter at 2–5 (Nov. 17, 2020); 

SGA, SCL & MCNA Ex Parte Letter at 3 (Nov. 17, 

2020). 

273See 17 U.S.C. 115(d)(10)(B)(iv)(I) (‘‘Accrued 

royalties shall be maintained by the digital musical 

provider in accordance with generally accepted 

accounting principles.’’). 

274See MLC SNPRM Comment at 2–10. The 

MLC’s approach seems to assume that the principle 

that derecognition is only appropriate if there is 

payment to the creditor or a release ‘‘judicially or 

by the creditor’’ cannot be used to reflect payments 

to, and/or releases by, creditors that are made on 

a creditor basis as opposed to a title-bound basis. 

See id. at 7. The MLC does not fully explain the 

basis for its assumption, which the DLC does not 

share. See DLC NPRM Comment at 17. Neither 

party submitted statements from any accounting 

authority in support of their respective contentions. 

275See MLC Ex Parte Letter at 2–3 (Nov. 17, 

2020); see also MLC SNPRM Comment at 6–8; MLC 

Ex Parte Letter at 3–4 (Oct. 16, 2020); Recording 

Acad. & SONA Ex Parte Letter at 2 (Nov. 17, 2020). 

276See DLC SNPRM Comment at 9. 

Office is mindful that Congress expects 

the MLC to operate in an ‘‘efficient and 

fair’’ manner without engaging in 

‘‘waste’’ or the ‘‘unreasonable use of 

funds.’’ 266 Unnecessary reimbursement 

would be an inefficiency and waste to 

be avoided. Music publishers may also 

not want to incur their own 

administrative costs if funds distributed 

to them by the MLC are ultimately 

returnable to DMPs, such as those 

relating to legal review and accounting 

processes.267 There is no practical 

purpose to this exercise, especially if it 

is correct, as appears uncontested, that 

a large portion of the music publishing 

industry (in terms of market share) is 

subject to relevant releases for relevant 

reporting periods.268

iv. Regulatory Approach 

The Office declines to adopt the 

DLC’s initial proposal, made in response 

to the NPRM, which would have the 

Office establish a blanket rule that 

draws conclusions about private 

contracts.269 Instead, the Office 

concludes that a reasonable and 

appropriate approach is to promulgate a 

rule that: (1) Incorporates the statutory 

reference to GAAP in section 

115(d)(10)(B)(iv)(I) and confirms this 

includes principles with respect to 

derecognition of liabilities where 

appropriate; (2) clarifies that the 

requirements of section 

115(d)(10)(B)(iv)(II) do not supersede a 

relevant voluntary agreement to the 

contrary; and (3) with respect to section 

115(d)(10)(B)(iv)(III), adopts an estimate 

and adjustment mechanism for cases 

where certain usage of certain 

unmatched works is believed to be 

subject to a voluntary agreement, but 

because the specific works are 

unmatched, the DMP’s accrued royalties 

do not fully identify which works are 

subject to such an agreement at the time 

of delivery of the cumulative statement 

to the MLC and the amount of accrued 

royalties may need to be adjusted in 

response to matching. 

GAAP treatment. To address, in part, 

the discussed ambiguities in section 

115(d)(10)(B)(iv) and to clarify the 

operation of subclause (I), the SNPRM 

proposed language stating that 

‘‘[a]ccrued royalties shall be maintained 

by the digital music provider in 

accordance with generally accepted 

accounting principles, including those 

concerning derecognition of 

liabilities.’’ 270 The SNPRM also stated 

that ‘‘[a]ccrued royalties can cease being 

accrued royalties within the meaning of 

17 U.S.C. 115(e)(2) if the digital music 

provider’s payment obligation is 

extinguished, such as pursuant to a 

voluntary license or other agreement 

whereby the digital music provider is 

legally released from the liability by the 

relevant creditor copyright owner.’’ 271

The MLC and other commenters 

object, contending that this language 

conflicts with the statute and blesses an 

incorrect interpretation of GAAP.272 On 

the first point, as discussed, the Office 

has concluded that the regulatory 

clarification to address an area of 

ambiguity is appropriate. On the 

second, the Office is unconvinced that 

incorporating the statutory directive to 

maintain accrued royalties in 

accordance with GAAP can be read as 

blessing a specific interpretation of 

GAAP.273 To the extent the proposed 

language expressly acknowledges a 

GAAP provision that DMPs indicate is 

relevant to their reporting, and to the 

extent that copyright owners disagree 

that this provision is, in fact, relevant, 

copyright owners may contest whether 

a DMP has appropriately applied GAAP, 

but the Office will not presume that 

DMPs may not rely upon this 

provision.274

Nor is the Office convinced by the 

MLC’s contention that ‘‘since the 

copyright owners of unmatched works 

are by definition not known or located, 

there cannot be private agreements that 

dispose of these unmatched royalties 

prior to the required transfer to the 

MLC.’’ 275 The MLC does not adequately 

support this assertion or point to 

relevant principles of contract law. 

While the DLC does not cite clear 

authority either, its reasoning is more 

persuasive: 

[These assertions are] patently wrong: It is 

common in the industry, if not standard, for 

full-catalog licenses not to identify each work 

covered, and for the list of covered works to 

change from time to time. . . . [I]t is 

precisely for this reason that the MLC must 

provide a response file identifying the works 

covered by a voluntary license, in order to 

allow the licensee to calculate the royalties 

owed pursuant to the blanket license for the 

remaining works. To suggest that the license 

simply does not exist or is ineffective until 

that matching takes place is contrary to the 

law and is inconsistent with long-standing 

industry practice. Moreover, the notion that 

derecognizing liability for unmatched 

royalties can never be appropriate unless and 

until all royalties are matched ignores the 

reality of the market. If the owners of the 

works that generated over 90% of the 

royalties have released their claims, there is 

no need to know exactly which owner 

released which royalties to know that there 

is not an outstanding liability of 100% of the 

royalties.276

Indeed, a public version of an 

agreement purporting to be one of the 

agreements referenced by the DMPs 

includes a broadly worded release 

provision that would apply to claims 

‘‘whether disclosed or undisclosed, 

whether known or unknown, whether 

asserted or unasserted, whether 

determined, determinable or otherwise, 

whether strict, absolute or continent, 

whether accrued or unaccrued, whether 

liquidated or unliquidated, whether in 

law, in equity, or otherwise, whether 

incurred or consequential, whether due 

or to become due, and of any kind or 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2195 

277See Participating Publisher Pending and 

Unmatched Usage Agreement 15 (2016) (embedded 

in Paul Resnikoff, Exclusive: This Is the Contract 

Songwriters Are Signing With Spotify, Digital Music 

News (Apr. 27, 2016) https://www.digital

musicnews.com/2016/04/27/exclusivespotifyestablishing-direct-publisher-contracts-to-solvemechanicals-issues (document is embedded in 

article)). The Office again emphasizes that it is not 

in any way opining on the meaning of this or any 

other relevant private agreement, but noting the 

language used as a potential example. No party 

disputes the DLC’s suggestion that this public 

version of the agreement is authentic, although the 

MLC and others note that there exist supplemental 

agreements and other documentation concerning 

negotiation or performance. See, e.g., MLC SNPRM 

Comment at 9. 

278See DLC SNPRM Comment at 10. 

279See MLC SNPRM Comment at 8–9. 

280See id. at 5–6, 8 (‘‘Maintaining an accrued 

liability under GAAP means maintaining 

accounting records and financial statements that 

reflect the details of the accrual.’’); MLC Ex Parte 

Letter at 3–4 (Oct. 16, 2020) (arguing it ‘‘does not 

appear reasonable’’ if ‘‘producing a result where the 

DMP in fact does not maintain the accrued 

royalties’’); Recording Acad. & SONA Ex Parte 

Letter at 2 (Nov. 17, 2020) (‘‘The provision to 

‘maintain’ accrued royalties in accordance with 

GAAP is meant to safeguard the royalties until they 

can be successfully matched to the owner or 

transferred to the MLC.’’). 

281ARA, FMC, & MusicAnswers SNPRM 

Comment at 3; see DLC SNPRM Comment at 9. 

282See NMPA and Spotify Announce Landmark 

Industry Agreement for Unmatched U.S. Publishing 

and Songwriting Royalties (Mar. 17, 2016), http:// 

nmpa.org/press_release/nmpa-and-spotifyannounce-landmark-industry-agreement-forunmatched-u-s-publishing-and-songwritingroyalties (noting ‘‘the agreement establishes a large 

bonus compensation fund that is a substantial 

percentage of what is currently being held by 

Spotify for unmatched royalties’’). 

283See SNPRM at 70548. 

284See MLC Ex Parte Letter at 7 (Nov. 17, 2020) 

(‘‘Section 115(d)(10)(B)(iv)(II) is fully consistent on 

its face with the payment of royalties under 

voluntary license terms.’’). 

285See SNPRM at 70548. 

286See MLC SNPRM Comment at 3–4, 13–14, 

App. A at v, ix–x. 

nature whatsoever.’’ 277 If a relevant 

voluntary agreement were worded 

appropriately, it would be difficult to 

see how a work would not be subject to 

the agreement just because it is not 

matched at a particular point in time by 

a particular DMP; a work belonging to 

a copyright owner under the relevant 

period of agreement still belongs to that 

owner regardless of whether the DMP 

knows it. Moreover, if the DMPs’ 

assertions about GAAP are correct, the 

MLC’s position seems to read the word 

‘‘accrued’’ out of subclause (III).278 Only 

‘‘accrued royalties’’ for uses of 

unmatched works must be transferred to 

the MLC, and these may not necessarily 

be the same as the royalties that would 

otherwise be attributable to such usage 

under the statutory rate in the absence 

of any voluntary agreements that may 

extinguish or alter such royalty 

obligations for certain uses of certain 

works.279

The Office also disagrees that the 

requirement for accrued royalties to be 

‘‘maintained’’ in accordance with GAAP 

must be read to prohibit royalties from 

ceasing to be maintained.280 It is far 

more logical that relevant principles 

governing maintenance of such royalties 

may dictate how and under what 

circumstances or conditions such 

maintenance may conclude prior to the 

events of subclauses (II) and (III). In 

light of the foregoing, the Office is 

adopting as final the proposed language 

clarifying that GAAP treatment can 

include its derecognition principles 

where appropriate, to make clear that 

‘‘[t]he financial structures and 

allowances of GAAP are incorporated in 

their entirety.’’ 281

With respect to the MLC’s assertion 

that the SNPRM blesses an incorrect 

interpretation of GAAP, the Office does 

not concur. The Office agrees, however, 

that it can clarify that it is not opining 

on what GAAP may or may not allow. 

Accordingly, the final rule omits the 

second sentence of the proposed 

provision, relating to the interaction 

between GAAP and the statute. The 

Office intends for this deletion to make 

clear that to the extent something (e.g., 

the potential extinguishment of a DMP’s 

payment obligation pursuant to a 

voluntary license or other agreement 

whereby the DMP is legally released 

from the liability by the relevant 

creditor copyright owner) is permitted 

under GAAP, it is also permitted under 

the statute and regulations. While the 

rule does not opine on whether royalty 

payment liabilities were appropriately 

extinguished and derecognized by 

DMPs pursuant to GAAP, the final rule 

accommodates that possibility within 

the MMA’s transitional cumulative 

reporting and payment structure if 

DMPs are correct in their assertions 

about GAAP with respect to their 

relevant agreements. The Office believes 

this approach is reasonable particularly 

in light of the asserted purpose of 

certain voluntary agreements at issue.282

Voluntary agreements and works 

matched during the transition period. 

As noted, the limitation on liability 

provision makes no explicit 

acknowledgement of the existence of 

voluntary licenses or other agreements, 

while Congress has elsewhere broadly 

encouraged and given effect to 

voluntary licenses (including by 

preserving existing licenses). In the 

absence of clear congressional intent 

otherwise, to harmonize these 

provisions and ensure that such 

agreements are given effect in the 

context of the limitation on liability as 

well, the SNPRM proposed to limit the 

application of the requirements in 

section 115(d)(10)(B)(iv)(II) where a 

voluntary license or other relevant 

agreement, entered into before the 

statutory reporting and payment 

deadline, applies to the relevant musical 

work (or share) that the DMP has 

matched during the transition period.283

That way, the DMP can pay and report, 

and the copyright owner can receive 

royalties and reporting, in accordance 

with their preexisting or a newlyentered-into mutual agreement. Notably, 

even the MLC seems to concur that 

voluntary agreements should apply in 

lieu of the requirements detailed in 

section 115(d)(10)(B)(iv)(II).284 This 

aspect of the proposed rule is being 

adopted as final, as a necessary and 

appropriate clarification. 

Estimating and adjusting accrued 

royalties reported and transferred to the 

MLC. All agree that, at a minimum, the 

total accrued royalties owed by a DMP 

at the end of the transition period may 

not be a finally calculable figure because 

of the need to estimate certain royalty 

pool inputs that are unknown at that 

point in time. At present, because of the 

Phonorecords III remand, no final 

operative rates have been set; not even 

a rate structure has been finally 

established. This means that, even in 

the absence of any other need to 

estimate and adjust, whatever amount is 

transferred to the MLC in February is 

unlikely to align with what a DMP will 

ultimate owe under the finally 

determined rates and terms. Because of 

this need to make estimates and 

adjustments, the Office concluded, as 

discussed above, that the statutory 

reference in section 

115(d)(10)(B)(iv)(III)(aa) to ‘‘all accrued 

royalties’’ cannot be read to prohibit a 

regulatory structure permitting DMPs to 

make estimates and subsequent 

adjustments. Anticipating this 

conclusion, the SNPRM omitted the 

word ‘‘all’’ from the proposed regulatory 

language to alleviate any ambiguity.285

The MLC opposed the deletion, 

stating that ‘‘the SNPRM’s provisions for 

less than all accrued royalties to be 

transferred conflicts with the MMA,’’ 

which seems inconsistent with its 

agreement that royalty pool inputs 

should be subject to estimation and 

adjustment, including regulations 

specifically addressing the 

‘‘underpayment of royalties’’ (i.e., some 

amount less than ‘‘all’’).286 The MLC 

appears to believe that allowing for 

potential underpayment is appropriate 

where the reason is due to an unknown 

royalty pool input, but not where the 

reason is due to the unknown 

applicability of a voluntary agreement; 


jbell on DSKJLSW7X2PROD with RULES5
2196 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

287This distinction is striking given that the MLC 

did not oppose the inclusion of a provision in 

regulations governing reports of usage under the 

MMA’s blanket license that permits DMPs in 

similar circumstances to, subject to later 

adjustment, ‘‘compute the royalties payable by the 

blanket licensee under the blanket license using a 

reasonable estimation of the amount of payment for 

[usage subject to applicable voluntary licenses and 

individual download licenses] to be deducted from 

royalties that would otherwise be due under the 

blanket license, determined in accordance with 

GAAP.’’ See 37 CFR 210.27(d)(2)(ii); MLC NPRM 

Comment at 34–35, U.S. Copyright Office Dkt. No. 

2020–5, https://www.regulations.gov/ 

document?D=COLC-2020-0005-0014 

(acknowledging the need for estimates in this 

context). 

288See SNPRM at 70548–49. 289See 37 CFR 210.24(b)(8). 

290See, e.g., MLC SNPRM Comment at 11–13; 

SGA, SCL & MCNA SNPRM Comment at 9; MAC, 

Recording Acad., & SONA SNPRM Comment at 2; 

MLC Ex Parte Letter at 5–6 (Nov. 17, 2020); NMPA 

Ex Parte Letter at 1–2 (Nov. 17, 2020); NSAI Ex 

Parte Letter at 1 (Nov. 17, 2020). 

291 It may not matter how much was paid or 

whether the payment constituted royalties under 

relevant voluntary agreements. See MLC NOI Reply 

it does not adequately explain its basis 

for this distinction.287 Nevertheless, to 

address the MLC’s comment, the final 

rule restores the word ‘‘all’’ and resolves 

any ambiguity by adding clarifying 

language that it is subject to the ability 

to estimate and adjust pursuant to other 

regulatory provisions. 

In addition to identifying the 

possibility of needing to estimate and 

adjust royalty pool inputs, the SNPRM 

recognized another type of unknown 

variable that could affect the calculation 

of accrued royalties: whether an 

unmatched work is subject to a 

voluntary agreement whereby the DMP’s 

payment obligations have been 

extinguished, whether by blanket or 

advance payment, release of claims, or 

otherwise (to the extent permitted by 

GAAP and thereby the statute). The 

SNPRM proposed an estimate and 

adjustment mechanism to cover this 

scenario as well, as follows:288

• Under paragraph (c)(4), a DMP 

would have to report on all unmatched 

usage, meaning that the royalty 

calculation provisions in paragraph (d), 

which are tied to paragraph (c)(4), 

would require reporting of the total 

potential royalties, calculated at the 

applicable rate under 37 CFR part 385, 

that could be owed for all such usage. 

Such calculations would be subject to 

potential estimation of royalty pool 

inputs under paragraph (d)(2). 

• Under paragraph (c)(5)(i), a DMP 

would be permitted to report total 

accrued royalties that employ 

reasonable estimations if it has a 

reasonable good-faith belief that the 

total accrued royalties are less than the 

total potential royalties calculated under 

paragraph (c)(4), and the unmatched 

status of relevant musical works at the 

end of the transition period requires 

reliance upon estimations in calculation 

of such accrued royalties. 

• Under paragraph (c)(5)(ii), DMPs 

reporting and transferring accrued 

royalties that employ estimations would 

have to provide detailed information 

about any voluntary agreement being 

relied on in making a (c)(5)(i) estimation 

so that the MLC is able to confirm uses 

of musical works subject to such an 

agreement. The required information 

largely tracks information about 

voluntary licenses required to be 

reported to the MLC under the blanket 

license for similar purposes.289

• Under paragraph (c)(5)(iii), the MLC 

would have to engage in efforts to 

confirm uses of musical works that are 

subject to any identified agreement, and 

may notify relevant copyright owners 

about the DMP’s reliance. Where the 

MLC confirms that a reported use of a 

musical work is subject to an identified 

agreement, the MLC would be required 

to presume that the DMP appropriately 

relied on the agreement, and during the 

pendency of any dispute between a 

DMP and copyright owner over the 

DMP’s reliance, the MLC would not be 

permitted to make a corresponding 

distribution to the copyright owner or 

treat the amount at issue as an 

overpayment unless directed to do so by 

agreement of the parties or by order. 

• Under paragraph (c)(5)(iv), if a 

DMP’s estimate turns out to be 

insufficient to cover a required 

distribution to a copyright owner, the 

MLC would deliver an invoice and/or 

response file to the DMP for the 

additional amount outstanding 

(including interest) along with the basis 

for the MLC’s conclusion that such 

amount is due. The DMP would have 14 

business days to pay the invoiced 

amount or dispute the bill. If the bill 

were disputed, the MLC would notify 

the relevant copyright owner. If a DMP 

were ultimately found by an appropriate 

adjudicative body to have erroneously 

withheld any accrued royalties— 

whether as part of its estimate or in 

response to an MLC bill—it would be 

able to potentially remain in compliance 

with the regulations for purposes of 

retaining its limitation on liability if the 

other requirements for the limitation 

have been satisfied, the additional 

amount due is paid, and the DMP did 

not withhold the royalties unreasonably 

or in bad faith. 

• Under paragraph (c)(5)(v), an 

overpayment based on a (c)(5)(i) 

estimate would be subject to credit or 

refund like any other overpayment. 

• Under paragraph (c)(5)(vi), any 

underpayment of royalties would have 

to be remedied by a DMP without regard 

for the relevant statute of limitations, 

and by using an estimate—whether 

under (c)(5)(i) or (d)(2)—the DMP would 

be deemed to have agreed to waive any 

statute-of-limitations-based defenses 

with respect to any asserted 

underpayment of royalties connected to 

the use of the estimate. 

To provide a workable estimate and 

adjustment mechanism that is 

consistent with the statute and 

congressional aims, and that 

appropriately balances the flexibility 

DMPs need to help ensure they 

participate in the limitation on liability 

against the right of copyright owners to 

receive complete and prompt payment 

of accrued royalties (to the extent a DMP 

participates), the Office is adopting 

many core aspects of the proposed rule 

as final, while making significant 

modifications in response to various 

stakeholder concerns, as discussed 

below. 

The MLC and others oppose the 

SNPRM’s proposed rule primarily on 

the grounds that it would allow DMPs 

to improperly deduct accrued royalties, 

that it would improperly shift burdens 

from DMPs to copyright owners and 

otherwise prejudice copyright owners, 

and that it will lead to the increased 

litigation the proposed rule sought to 

avoid.290 The Office addresses each in 

turn. 

With respect to deductions, 

commenters seem to misunderstand the 

SNPRM’s proposal, and therefore no 

changes are being made in the final rule 

with respect to this concern. To be clear, 

the final rule does not permit 

deductions of accrued royalties; all 

accrued royalties must be transferred to 

the MLC. The rule merely allows DMPs, 

in transferring such accrued royalties by 

the statutory deadline, to rely upon 

temporary estimates, subject to later 

adjustment, where that precise figure of 

all accrued royalties is not otherwise 

ascertainable at that time. 

For example, if the total potential 

royalties (calculated at the statutory 

rate) attributable to all of a DMP’s 

unmatched usage is $20 million, the 

rule does not permit the DMP to deduct 

$5 million because that is what it 

previously paid out under certain preMMA agreements. Instead, the rule 

acknowledges that DMPs may be correct 

that because of such agreements— 

whether due to previous payment, claim 

release, or otherwise—some portion of 

the $20 million may not constitute 

accrued royalties at the time of required 

transfer to the MLC in February.291 In 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2197 

Comment at 29 (‘‘Simply paying lump sums of 

money to publishers who threaten to sue for 

copyright infringement is in no sense the equivalent 

of paying unclaimed accrued royalties. . . . Rather, 

settlement payments are more likely consideration 

for releases from liability for copyright infringement 

or covenants not to sue.’’); MAC, Recording Acad., 

& SONA SNPRM Comment at 3; MLC Ex Parte 

Letter at 3 (Oct. 5, 2020). As a legal principle, it is 

not clear why the amount of consideration or how 

the consideration is classified should be material if 

the result is still an appropriately worded full and 

complete release of relevant royalty claims for a 

given period. Moreover, a voluntary license could 

theoretically, for example, be structured as a 

blanket license for all of an owner’s works (without 

listing them) for which a one-time flat fee was paid 

for a covered period. Regardless of how common 

such an arrangement may be, the possibility of its 

existence highlights flaws in commenters’ argument 

on this point. 

292See, e.g., DLC SNPRM Comment at 9 (‘‘If the 

owners of the works that generated over 90% of the 

royalties have released their claims, there is no 

need to know exactly which owner released which 

royalties to know that there is not an outstanding 

liability of 100% of the royalties.’’). 

293The MLC has ‘‘confirmed that its goal is to 

match all unmatched uses, including all historical 

unmatched uses for which accrued royalties are 

transferred to the MLC, and to minimize the 

incidence of unclaimed accrued royalties. The 

MLC’s position has always been, and remains, that 

it can and will hold unmatched royalties for longer 

than the required minimum statutory period where 

appropriate in service of this goal.’’ MLC Ex Parte 

Letter at 2 (Nov. 17, 2020). 

294See SGA, SCL & MCNA SNPRM Comment at 

10. 

295While the DLC ‘‘agrees with the aspect of the 

proposed rule that builds in protection for 

copyright owners by preserving their legal claims in 

the event that a DMP fails to remedy an 

underpayment of royalties,’’ it proposes certain 

modifications ‘‘to clarify that the defense is waived 

where the underpayment is one that is determined 

pursuant to the procedures in the rule, and is not 

remedied.’’ DLC SNPRM Comment at 16; see DLC 

Ex Parte Letter at 2 n.7 (Dec. 11, 2020). The Office 

declines this request. The waiver provision is meant 

to be broad and not limited merely to the MLC 

invoice process provided for in the rule. On the 

contrary, this provision must also cover litigation 

surrounding an alleged underpayment where it is 

connected to the DMP’s use of an estimate. 

296See, e.g., MAC, Recording Acad., & SONA 

SNPRM Comment at 4; MAC Ex Parte Letter at 1 

(Nov. 17, 2020). 

297See 17 U.S.C. 115(d)(3)(J)(i)(I); MLC Ex Parte 

Letter at 2 (Nov. 17, 2020). 

298See NMPA Ex Parte Letter at 2 (Nov. 17, 2020). 

299See Fed. R. Civ. P. 8(c)(1); cf. Capitol Records, 

LLC v. Vimeo, LLC, 826 F.3d 78, 94 (2d Cir. 2016) 

(describing the section 512 safe harbor as ‘‘an 

affirmative defense’’ that the ‘‘defendant 

undoubtedly bears the burden of raising entitlement 

to’’ and showing that it ‘‘has taken the steps 

necessary for eligibility’’). 

300See MLC Ex Parte Letter at 6 (Nov. 17, 2020); 

see also NSAI Ex Parte Letter at 1 (Nov. 17, 2020). 

301See NSAI Ex Parte Letter at 1 (Nov. 17, 2020); 

see also NMPA Ex Parte Letter at 2 (Nov. 17, 2020) 

(citing 17 U.S.C. 115(d)(10)(D)). 

302See MLC Ex Parte Letter at 6 (Nov. 17, 2020). 

303Compare id. at 5–6 and MLC SNPRM 

Comment at 12 n. 4 with DLC SNPRM Comment at 

11–12 n.32 (‘‘Just because a DMP cannot re-pay 

millions of dollars of accrued royalties for nearly 

the entire market of usage for certain time periods 

does not suggest it would not be able to pay a 

potential shortfall to one or more copyright owners 

if it were to have incorrectly estimated the accrued 

royalties. . . .’’). 

304See, e.g., DLC SNPRM Comment at 5 (‘‘[T]here 

is nothing in the record to assume or even suggest 

that any DMP is likely to rely on a release 

improperly.’’); SATV Ex Parte Letter at 2 (Oct. 28, 

2020); Spotify Ex Parte Letter at 4–5 (Oct. 9, 2020); 

WMG Ex Parte Letter at 1 (Oct. 21, 2020); UMPG 

Ex Parte Letter at 1 (Oct. 30, 2020). 

other words, certain unmatched usage 

may no longer have outstanding accrued 

royalties associated with it at the time 

of transfer because, to the extent 

permitted under GAAP, those liabilities 

may have been appropriately 

derecognized by the DMP. The rule 

allows the DMP to employ reasonable 

estimations, subject to adjustment, 

where the unmatched status of the work 

prevents the DMP from definitively 

confirming whether or not it is subject 

to a relevant voluntary agreement.292 If 

the DMP appropriately calculates that 

$15 million are accrued royalties, then 

that is what it must transfer in February. 

If, after the MLC later engages in its 

matching activities,293 it is discovered 

that the DMP’s estimate was off because 

it mistakenly, but in good faith, believed 

certain usage of works to be subject to 

certain agreements when in fact the 

opposite turns out to be true once they 

have been identified, the DMP will 

either need to make a true-up payment 

for any shortfall or may be entitled to 

credit or refund for any surplus. 

Thus, this is not a question of whether 

copyright owners will or will not see the 

money owed to them. It is only a 

question of when, and even then, that 

question only becomes relevant to the 

extent the DMP’s February 2021 

payment—which must be reasonable, 

determined in accordance with GAAP, 

made in good faith and on the basis of 

the best knowledge, information, and 

belief of the DMP at the time—ends up 

being an inadvertent underpayment. 

While some commenters raised statute 

of limitations concerns,294 as noted, the 

rule anticipates and accounts for this 

explicitly, so it should not impede the 

recovery of any underpaid royalties.295

To the extent some commenters also 

raise concerns about possible delayed 

payments to copyright owners, these are 

unfounded.296 Copyright owners receive 

royalty distributions from the MLC 

either when the MLC matches usage to 

the owner or when the MLC makes a 

distribution of unclaimed accrued 

royalties to identified owners after a 

prescribed holding period. No money 

can be distributed until one of these 

events occurs, and a potential 

distribution of unclaimed accrued 

royalties cannot occur until 2023 at the 

earliest, and may well be later.297 If 

there is a shortfall due to a DMP’s 

estimate, the rule requires DMPs to pay 

the difference (with interest) within 14 

business days after being billed by the 

MLC. That is hardly an undue delay 

when weighed against the reasons for 

permitting estimates. 

With respect to burden shifting and 

prejudice to copyright owners, the 

Office finds commenter concerns to be 

largely overstated, but has made some 

adjustments to the final rule. As 

background, the proposed rule would 

not ‘‘improperly shift the burden of 

proving compliance with the statutory 

requirements for the limitation on 

liability from the DMPs, who are 

seeking the limitation, to copyright 

owners.’’ 298 In an infringement action, 

the limitation on liability would be an 

affirmative defense, and, as such, the 

DMP would bear the burden of proving 

compliance with its requirements.299

The rule does not change this. Second, 

the proposed rule would not, as the 

MLC suggested, ‘‘allow[ ] DMPs to 

unilaterally withhold unmatched 

royalties in their discretion.’’ 300 Rather, 

it would have allowed a DMP to dispute 

a bill from the MLC on a reasonable, 

good-faith basis, not merely because it 

hoped to avoid paying by forcing a 

copyright owner to sue for the money— 

which would clearly be bad faith. Third, 

although the Office has calibrated this 

rulemaking to discouraging litigation 

within relevant statutory parameters, 

copyright owners are inherently in the 

position of potentially needing to bring 

an infringement suit to obtain royalties 

if a DMP does not transfer accrued 

royalties to the MLC. the Office also 

disagrees that allowing a DMP to 

potentially retain its limitation on 

liability if it is adjudged to have 

erroneously in good faith withheld 

accrued royalties would necessarily 

significantly ‘‘impede[ ] the ability of 

copyright owners to enforce their 

rights’’ 301 or otherwise deprive them of 

a ‘‘just remedy.’’ 302 The Office also 

notes the proposed rule limited the 

effect to compliance with the Office’s 

regulations, not all statutory 

requirements. Finally, the record 

provides no basis for asserted fears of 

DMP insolvency.303

Nevertheless, to alleviate some of 

these concerns, the final rule has been 

adjusted to reach a better balance 

between copyright owners and DMPs. A 

significant change is how the final rule 

handles a dispute between a DMP and 

a copyright owner over the DMP’s 

reliance on an agreement in connection 

with its estimation and adjustment of 

accrued royalties. Although, as noted, 

the available record suggests such 

disputes may be uncommon,304 the final 

rule establishes a better-dispute 

mechanism for this eventuality, 


jbell on DSKJLSW7X2PROD with RULES5
2198 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

305See MAC, Recording Acad., & SONA SNPRM 

Comment at 4 (‘‘[T]he MLC should be viewed as a 

trusted party to hold the disputed funds for the 

benefit of both copyright owners and digital 

services.’’); MLC Ex Parte Letter at 5 (Oct. 5, 2020) 

(‘‘[I]n the event of any such legal dispute between 

a DMP and a copyright owner concerning the right 

to receive unmatched royalties that the DMP had 

turned over under the MMA, the MLC would hold 

such unmatched royalties pending the resolution of 

the dispute.’’); MLC Ex Parte Letter at 6 (Nov. 17, 

2020) (suggesting the MLC would hold funds in 

dispute); MLC SNPRM Comment at 11, 13 (same). 

306This time limit is only for the administrative 

process described in the rule involving the MLC 

holding disputed funds and is without prejudice to 

a copyright owner’s rights to otherwise dispute a 

DMP’s reliance outside of this process, such as in 

court. 

307The Office declines at this time to opine on 

statutory requirements surrounding distributions of 

unclaimed accrued royalties under section 

115(d)(3)(J); that issue is not within the scope of 

this proceeding. See ARA, FMC, & MusicAnswers 

SNPRM Comment at 4–5 (addressing this issue); 

MAC, Recording Acad., & SONA SNPRM Comment 

at 4–5 (same). The statute provides that the MLC’s 

unclaimed royalties oversight committee will 

establish relevant policies and procedures, 17 

U.S.C. 115(d)(3)(J)(ii), and Congress has made clear 

that ‘‘it is expected that such policies and 

procedures will be thoroughly reviewed by the 

Register to ensure the fair treatment of interested 

parties,’’ S. Rep. No. 115–339, at 5. As there will 

be no such distribution until 2023 at the earliest, 

there is ample time for the Office to provide 

guidance if necessary. 

308See 17 U.S.C. 115(d)(3)(G)(i)(III)(bb), (K). 

309See MLC SNPRM Comment at 11–12 (‘‘[T]he 

SNPRM would place the MLC in the middle, 

requiring the MLC to administer the agreements, 

and further to ‘presume’ that DMPs ‘appropriately 

relied’ on agreements (which would not even be 

provided to the MLC). Requiring the MLC to make 

presumptions in favor of certain disputing parties, 

let alone presumptions unconnected to knowledge 

or accuracy, is unreasonable and inconsistent with 

its mandate.’’) (internal citation omitted). 

310This is somewhat similar to what is required 

of the MLC in the context of the blanket license. 

There, the MLC will receive a similar level of 

information about voluntary licenses, see 37 CFR 

210.24(b)(8), and then must use that information to 

‘‘confirm uses of musical works subject to voluntary 

licenses . . . , and, if applicable, the corresponding 

amounts to be deducted from royalties that would 

otherwise be due under the blanket license,’’ 37 

CFR 210.27(g)(2)(ii). 

whereby the MLC will hold disputed 

funds, as the MLC and others argue it 

should.305

After receiving the detailed 

information about any voluntary 

agreement being relied upon by the 

DMP in making its estimation, the MLC 

will be required to promptly notify 

relevant copyright owners of such 

reliance. A notified copyright owner 

may then dispute the appropriateness of 

the DMP’s reliance by notifying the 

MLC within one year.306 The copyright 

owner’s notification must describe its 

basis with particularity and must be 

certified as being made in reasonable 

good faith. The notice must also specify 

whether the owner is disputing reliance 

with respect to potential distributions 

based on matched usage or of unclaimed 

accrued royalties under section 

115(d)(3)(J), or both. The MLC must 

then promptly provide the DMP with 

any such notification it receives. 

If the MLC has received a notice of 

dispute from a copyright owner, then at 

or around the point in time that the 

MLC would otherwise make a particular 

distribution to that copyright owner but 

for the DMP’s reliance on the disputed 

agreement, the MLC must send an 

invoice and/or response file to the DMP 

for the amount that would otherwise be 

distributed at that time (including 

interest), accompanied by an 

appropriate explanation. Depending on 

the scope of the notice of dispute, this 

may include distributions based on 

matched usage and/or distributions of 

unclaimed accrued royalties under 

section 115(d)(3)(J).307 In the case of the 

latter, the relevant approximate date to 

bill the DMP is the date the MLC 

provides the notice required under 

section 115(d)(3)(J)(iii)(II)(dd). To be 

clear, this means that the MLC may be 

in a position to invoice the DMP for 

usages that it has matched to a disputing 

copyright owner, while not yet able to 

invoice for unmatched remaining 

usages. Where a copyright owner 

delivers a notice of dispute after the 

relevant point in time has passed for a 

particular distribution, the MLC should 

bill the DMP promptly after receiving 

the notification. Upon receiving the bill, 

the DMP has 14 business days to pay the 

invoiced amount, which is then held by 

the MLC pending resolution of the 

dispute. 

Because the holding of such funds 

would not be pursuant to policies and 

procedures that the MLC’s dispute 

resolution committee is empowered to 

adopt to govern ownership disputes,308

the final rule dictates how the MLC 

must hold the disputed funds. The MLC 

must hold the newly transferred funds 

in accordance with section 

115(d)(3)(H)(ii) (e.g., with interest) 

without regard for whether or not the 

funds are in fact accrued royalties. The 

MLC must not make a distribution of the 

funds or treat them as an overpayment 

unless directed to do so pursuant to the 

agreement of the relevant parties or by 

order of an appropriate adjudicative 

body. If the MLC has not been so 

directed within one year after the DMP 

transfers the disputed funds, and if 

there is no active dispute resolution 

occurring at that time (e.g., litigation, 

arbitration, mediation, private 

settlement discussions), then the MLC 

shall credit or refund the disputed funds 

back to the DMP. Any resolution of the 

dispute should be reflected in the MLC’s 

ongoing administration activities. 

The Office believes these changes are 

a reasonable accommodation to help 

allay concerns about DMP insolvency 

and ensure that disputed funds are held 

somewhere that copyright owners trust 

and that is subject to public disclosure 

and oversight. At the same time, several 

features built into this dispute 

framework (e.g., that it has to be 

triggered by the copyright owner, the 

certification requirement, the timing of 

when a DMP may need to transfer 

disputed funds, the limited holding 

period if there are no active efforts at 

resolution) should quell concerns about 

it becoming a back door compelling 

DMPs to make large potential double 

payments up front whenever an 

unfounded general dispute is raised. 

With respect to the MLC’s 

presumption that the DMP has 

appropriately relied upon the relevant 

agreement, that aspect of the proposed 

rule is retained in the final rule, with 

the clarification that the presumption 

applies where there is no dispute raised 

by the relevant copyright owner. It is 

unclear why the MLC should object to 

this,309 as it should not be exercising 

independent judgment or discretion 

with respect to a DMP’s asserted 

reliance on a voluntary agreement.310

That is a private matter between the 

parties to the agreement. 

As with the proposed rule, the final 

rule requires that if the amount 

transferred to the MLC ends up being 

insufficient to cover any required 

distributions to copyright owners, the 

MLC must send an invoice and/or 

response file to the DMP for the amount 

outstanding (including interest) that 

includes an explanation of the basis for 

the MLC’s conclusion that such amount 

is due. The key change to this provision 

is that unlike the proposed rule, the 

final rule does not permit a DMP to 

dispute such a bill. The DMP must pay 

the invoiced amount within 14 business 

days or it will not be in compliance 

with the rule and will risk loss of the 

limitation on liability. The inability to 

dispute such a bill cuts off a potential 

avenue for misuse of the rule’s estimate 

and adjustment mechanism, and should 

help alleviate concerns with the 

SNPRM’s proposed approach. 

The Office does not believe this 

change should cause alarm among 

DMPs. The practical effect is that a DMP 

cannot challenge a bill with respect to 

amounts that bear no relation to 

voluntary agreements that the DMP 

relied upon in estimating its accrued 

royalties, e.g., a bill that concerns time 

periods not covered by such an 

agreement or copyright owners who are 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2199 

311See DLC NPRM Comment at 16, Add. at 22 

(proposing that where there are ‘‘insufficient funds 

. . . to pay royalties that are owed to a copyright 

owner who has not previously released claims to 

such royalties pursuant to an [identified] agreement 

. . . , the mechanical licensing collective shall 

issue an invoice and/or response file . . . , and the 

digital music provider shall pay the additional 

royalties to the MLC within 45 days of receipt of 

such invoice’’). 

312See, e.g., DLC SNPRM Comment at 3 

(‘‘Copyright owners who did not participate in any 

pre-MMA agreements that released royalty 

obligations are not impacted by this proposed rule; 

they will still get all the royalties to which they are 

entitled.’’); DLC NPRM Comment at 15–16; DLC Ex 

Parte Letter at 2 (Oct. 14, 2020). 

313See, e.g., WMG Ex Parte Letter at 1 (Oct. 21, 

2020); SATV Ex Parte Letter at 2 (Oct. 28, 2020); 

UMPG Ex Parte Letter at 1 (Oct. 30, 2020); DLC 

SNPRM Comment at 5; Spotify Ex Parte Letter at 

4–5 (Oct. 9, 2020). 

314See, e.g., MLC Ex Parte Letter at 6 (Nov. 17, 

2020) (‘‘[The proposed rule] appears likely to 

generate far more litigation activity than a DMP 

simply enforcing its claimed unambiguous 

contractual right to be repaid royalties that match 

to copyright owners with who it has private 

agreements.’’); NMPA Ex Parte Letter at 2 (Nov. 3, 

2020) (arguing that if the regulations ‘‘permit DSPs 

to not pay all of the accrued unmatched royalties 

that songwriters and copyright owners are 

expecting to be paid to the MLC, that will 

undoubtedly result in litigation that is far broader 

and more fundamental than an action to simply 

enforce a contract right’’). 

315See, e.g., DLC SNPRM Comment at 5; Spotify 

Ex Parte Letter at 4–5 (Oct. 9, 2020); SATV Ex Parte 

Letter at 2 (Oct. 28, 2020); WMG Ex Parte Letter at 

1 (Oct. 21, 2020); UMPG Ex Parte Letter at 1 (Oct. 

30, 2020). 

316MLC SNPRM Comment at 11 (‘‘There is no 

history presented of copyright owners acting 

unreasonably with respect to private agreements 

with DMPs.’’). 

317See, e.g., ARA, MAC, NSAI, Recording Acad. 

& SONA Ex Parte Letter at 1–3 (Sept. 22, 2020); 

Recording Acad. & SONA Ex Parte Letter at 2 (Nov. 

17, 2020); SGA, SCL, AWFC & MCNA Ex Parte 

Letter at 1–2 (Sept. 15, 2020). 

not parties. This approach is consistent 

with the DLC’s proposal made in 

response to the NPRM 311 and aligns 

with statements that ‘‘the DLC and its 

members agree that copyright owners 

that did not participate in such an 

agreement should receive the full 

amount of royalties they may be 

owed.’’ 312 In disputes involving 

copyright owners who are allegedly 

parties to an effective agreement for 

relevant time periods, no such bill can 

be sent via this provision; either the 

MLC is prohibited from doing so 

because it is required to presume that 

the DMP relied appropriately, or if the 

copyright owner has raised a dispute, 

the separate above-discussed dispute 

mechanism would control. 

The final rule retains the provision 

that would permit a DMP to keep its 

limitation on liability even if it is 

adjudged to have erroneously withheld 

accrued royalties, so long as all other 

requirements for the limitation are 

satisfied, the additional amount due is 

paid, and the DMP is not found to have 

withheld the royalties unreasonably or 

in bad faith. With the final rule 

restricting a DMP’s ability to dispute a 

bill from the MLC in the event of 

shortfall, challenges should generally be 

limited to circumstances where a 

copyright owner is allegedly party to an 

agreement relied upon by the DMP and 

the owner disputes the appropriateness 

of the DMP’s reliance (assuming the 

DMP is otherwise in compliance with 

the limitation on liability). As noted, 

there is no evidence in the record that 

participating musical work copyright 

owners will necessarily dispute DMP 

reliance on voluntary agreements with 

respect to accrued royalties.313

Lastly, the Office has added a savings 

clause to make plain that nothing in the 

final rule should be construed as 

prejudicing a copyright owner’s ability 

to challenge whether a DMP has 

satisfied the requirements for the 

limitation on liability. 

With respect to suggestions of 

potential increased litigation, the Office 

is not persuaded to further adjust the 

rule. Commenters’ arguments are based 

on a speculative comparison between 

the volume and complexity of litigation 

they believe might ensue under the rule 

for copyright owners to rectify 

underpayments, and the litigation that 

DMPs might engage in without a rule to 

rectify overpayments and enforce their 

voluntary agreements.314 That is the 

wrong comparison. The main litigation 

the rule seeks to avoid is that which 

may be brought if DMPs choose to 

forego the limitation on liability and 

transfer nothing to the MLC. Indeed, the 

limitation on liability was enacted 

precisely to prevent such litigation. The 

rule provides the certainty DMPs have 

told the Office is necessary for them to 

participate in the limitation on liability 

instead of holding back the money as a 

litigation war chest. Potential litigation 

over the estimated tens of millions of 

dollars at issue with respect to these 

voluntary agreements pales in 

comparison to potential litigation over 

the estimated several hundred million 

dollars in unpaid royalties that may 

otherwise be withheld, including 

payments to those copyright owners 

who did not opt into the voluntary 

agreements at issue. 

By establishing a default posture that 

accommodates potential private 

agreements but cabins reliance upon 

those agreements—as well as disputes 

about those agreements—through goodfaith certifications of the very parties 

who allegedly entered into them, the 

rule should forestall further litigation 

and foster resolution of disagreements. 

Perhaps no regulation can secure against 

parties engaging in litigation in an area 

so contentious that it generated historic 

copyright legislation. Certainly, the rule 

does not curtail the ability of a 

copyright owner or DMP to seek judicial 

recourse. But to the extent there is a 

legitimate dispute, the rule seeks to 

incentivize DMPs and relevant 

copyright owners to privately resolve 

these issues. 

A DMP’s risk of losing its limitation 

on liability entirely if found to have 

acted unreasonably or in bad faith 

should be powerful motivation to try to 

avoid being sued, and the prospect of 

not being able to recover costs or 

statutory damages may make such a suit 

unappealing to a copyright owner. As 

noted several times, there is no evidence 

in the record that musical work 

copyright owners will necessarily 

dispute DMP reliance on voluntary 

agreements with respect to accrued 

royalties.315 As the MLC points out, 

‘‘there is no basis to think that copyright 

owners would spend time or money on 

frivolous litigation over their contracts 

with DMPs.’’ 316 Likewise, there is no 

basis to think that DMPs would act 

differently, such as by inappropriately 

using voluntary agreements (including 

those that may have been terminated, 

breached, or have performance issues), 

to avoid paying accrued royalties, or by 

employing unreasonable or inaccurate 

GAAP interpretations to try to 

rationalize a spurious underpayment. 

3. Songwriter Concerns and 

Transparency Considerations 

Upon publication of the NPRM, the 

Office heard from a variety of creator 

groups expressing unfamiliarity with 

the contours of these agreements or 

confusion regarding whether payments 

had been passed through to 

songwriters.317 While the record 

contains some factual information 

regarding such practices, the Office 

notes that payment questions with 

respect to the operation of private 

agreements between publishers and 

songwriters are separate from this 

rulemaking’s required focus on DMP 

obligations to transfer royalties and 

report information to satisfy the 

eligibility conditions for the limitation 

on liability. The MMA does not regulate 

the terms by which publishers (or 

administrators) and songwriters may 

enter into contractual arrangements— 

and certainly not on a retroactive basis, 

insofar as these questions may implicate 

payments passed through (or not) to 


jbell on DSKJLSW7X2PROD with RULES5
2200 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

318 In contrast, the section 114 license, currently 

administered by SoundExchange, does specify the 

percentage of statutory royalties that are payable to 

sound recording copyright owners, recording 

artists, nonfeatured musicians, and nonfeatured 

vocalists, respectively. 17 U.S.C. 114(g)(2). The 

MMA did not amend the section 115 license to 

adopt a similar approach. 

319See NMPA Ex Parte Letter at 2 (Nov. 17, 2020) 

(‘‘settlements entered into prior to the enactment 

date of the MMA, in some cases even years before, 

could not be considered to be subject to the 

requirements of the MMA’’). 

320 17 U.S.C. 115(d)(3)(J)(iv). 

321See, e.g., ARA, MAC, NSAI, Recording Acad. 

& SONA Ex Parte Letter at 1–3 (Sept. 22, 2020); 

MAC Ex Parte Letter at 1 (Nov. 17, 2020); Recording 

Acad. & SONA Ex Parte Letter at 3 (Nov. 17, 2020); 

SGA, SCL, AWFC & MCNA Ex Parte Letter at 1 

(Sept. 15, 2020). 

322See, e.g., SGA & SCL NPRM Comment at 3; see 

also Cas Martin SNPRM Comment at 3; Rayn 

Jackson NPRM Comment at 1; Sophie Korpics 

SNPRM Comment at 2. 

323Recording Acad. & SONA Ex Parte Letter at 2 

(Nov. 17, 2020) (‘‘Many songwriter groups 

expressed continued frustration that so little is 

known about the agreements, including how much 

money was involved, how the money was 

accounted for, and whether songwriters benefited 

from it.’’). 

324SATV Ex Parte Letter at 2 (Oct. 28, 2020); see 

also WMG Ex Parte Letter at 1 (Oct. 21, 2020) 

(accord). 

325UMPG Ex Parte Letter at 2 (Oct. 30, 2020). 

326No creator group has reported the results of 

reaching out to publishers on this issue. See SGA, 

SCL & MCNA Ex Parte Letter at 1–2 (Dec. 14, 2020) 

(acknowledging Office recommendation to contact 

publishers directly). 

327U.S. Copyright Office, Copyright and the 

Music Marketplace 1 (2015), https://

www.copyright.gov/docs/musiclicensingstudy/ 

copyright-and-the-music-marketplace.pdf. 

328S. Rep. 115–339 at 17. To that end, the Office 

has separately conducted a rulemaking aimed at 

furthering appropriate transparency of the MLC. 85 

FR 58170 (Sept. 17, 2020). 

329Compare SGA & SCL NPRM Comment at 3 

(suggesting unmatched royalties encompassing a 

range ‘‘from a few hundred million dollars to over 

$1.5 billion’’) (citation omitted) with SGA, SCL & 

MCNA Ex Parte Letter at 2 (Nov. 18, 2020) 

(reflecting understanding that ‘‘while there remain 

hundreds of millions of dollars in accrued, 

unmatched royalties in the possession of the Digital 

Music Providers, tens of millions of dollars in 

accrued unmatched royalties were indeed turned 

over directly to music publishers pursuant to the 

terms of the confidential, private negotiated 

agreements’’ (emphasis omitted)). 

330ARA, FMC & MusicAnswers SNPRM 

Comment at 3 n.2 (‘‘urg[ing] the [O]ffice to use all 

levers available to it’’); SGA & SCL SNPRM 

Comment at 8 (stating that the Office ‘‘has sufficient 

authority to compel disclosure of the details of the 

private and confidential agreements between DSPs 

and music publishers’’). 

331These roundtables have not been scheduled at 

the time of this rule’s publication. For more 

information on the policy study, visit https://

www.copyright.gov/policy/unclaimed-royalties. 

songwriters prior to enactment.318

Further, even if DMPs were to transfer 

royalties for uses subject to pre-MMA 

agreements, it is not clear whether 

songwriters would be entitled to any of 

these funds, due to releases provided by 

copyright owners to whom they have 

assigned rights. 

In any event, even if those 

agreements’ details were widely public, 

it could not change the Office’s 

analysis.319 Even when the MLC 

distributes matched royalties and 

related statements to musical work 

copyright owners (e.g., music 

publishers), the MMA does not further 

restrict the conditions, typically spelled 

out by contract, for how those copyright 

owners subsequently pay songwriters. 

This is true regardless whether the MLC 

is matching works connected to preMMA usages reported and payments 

made for purposes of eligibility for the 

limitation of liability or in connection 

with future usages authorized under the 

blanket license. To be sure, for those 

usages that the MLC cannot reasonably 

match after the prescribed holding 

period, the MMA specifies that 

copyright owners receiving future 

distributions of unclaimed accrued 

royalties by the MLC must pay or credit 

individual songwriters in accordance 

with applicable contractual terms, and 

in no case less than 50% of the payment 

received by the copyright owner 

attributable to usage of musical 

works.320 But this rulemaking is focused 

on the separate, predicate obligation for 

DMPs to report unmatched usages and 

transfer accrued royalties to the MLC, 

which in turn will match usages and 

pay copyright owners, who will pay 

songwriters (either in accordance with 

contract for payments connected to 

matched uses, or in accordance with 

contract subject to the 50% floor for 

payments for unmatched uses). 

Notwithstanding this clarification, 

and while the Office believes that the 

rule offers a reasonable and workable 

compromise to concerns raised by the 

MLC, DMPs, and songwriters in a 

manner consistent with the statutory 

language and congressional intent, the 

Office also recognizes that multiple 

creator groups expressed uncertainty 

regarding the substance of these preMMA agreements. At the core of these 

concerns is a perceived lack of 

transparency concerning the existence 

and terms of these agreements,321 the 

amount of these agreements,322 and 

whether songwriters received payments 

under these agreements (and if so, upon 

what terms).323

The Office appreciates that the music 

publishers who met with the Office each 

confirmed individually that they 

followed their respective business 

practices in sharing payments received 

through these agreements with 

songwriters affiliated with their 

publishing houses. For example, SATV 

stated that ‘‘payments made by DSPs to 

SATV under private agreements, as well 

as any other distribution of unmatched 

funds, whether title bound or not, are 

always paid through to our songwriters’’ 

and offered ‘‘to explain to our writers 

who inquire how these royalties are 

distributed and reflected on their 

statements.’’ 324 UMPG provided similar 

assurances, noting ‘‘UMPG does so as a 

matter of policy, notwithstanding the 

fact that applicable contracts may not 

require payment for non-title-bound 

revenues.’’ 325 The Office does not know 

whether individual songwriters or 

creator groups have made inquiries to 

publishers in response to these 

letters.326

To be sure, the Office continues to 

support greater transparency in the 

music industry. In its 2015 report, the 

Office identified the ‘‘key principle’’ 

that ‘‘[u]sage and payment information 

should be transparent and accessible to 

rightsowners.’’ 327 Following this report, 

the Office is gratified that Congress 

clearly intended the MLC to operate ‘‘in 

a transparent and accountable 

manner.’’ 328 And it appears that this 

rulemaking process has resulted in the 

voluntary public disclosure of 

additional information regarding these 

agreements, including with respect to 

the aggregate monies paid under the 

pre-MMA agreements.329 The Office 

cannot, however, compel publishers or 

DMPs to disclose the terms of private 

deals to songwriters.330 The Office 

encourages the interested parties to 

continue to engage on this matter and 

can make itself available to assist in 

facilitating dialogue. While the MMA 

addresses some longstanding 

complaints over transparency, the Office 

will keep creators’ concerns in mind as 

it continues its implementation work 

and advises Congress on future potential 

improvements to the music ecosystem. 

The Office also notes that creator groups 

will have the opportunity to offer 

additional views on this issue at the 

upcoming Unclaimed Royalties policy 

study roundtables.331

4. Reconciliation 

Relatedly, the Office proposed 

language that would address situations 

where the total amount of royalties 

transferred does not match the 

corresponding report. Although the 

MLC and DLC both supported the 

NPRM’s proposed reconciliation 

provision—whereby if the total royalties 

turned over to the MLC do not reconcile 

with the corresponding cumulative 

statement of account, the DMP should 

include a clear and detailed explanation 

of the deviation—the DLC sought two 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2201 

332See DLC NPRM Comment at 4–5, Add. 23; 

MLC NPRM Comment at 7–8; see also NPRM at 

43522. 

333 DLC NPRM Comment at 4–5. 

334SNPRM at 70549; see MLC SNPRM Comment 

App. A at v (not opposing this phrase). 

335 DLC NPRM Comment at Add. 23. 

336See NPRM at 43522; SNPRM at 70549. 

337SNPRM at 70549. 

338 Id. at 70547 (citing MediaNet Ex Parte Letter 

at 2–3 (Oct. 28, 2020)). 

339See MediaNet Ex Parte Letter at 3 (Oct. 28, 

2020). 

340 Id. at 2–3. 

341 Id. at 3. 

342 Id. 

343 Id. (citing 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa)). 

344 Jeff Price Ex Parte Letter at 1, 2, 10 (Nov. 23, 

2020). 

345 Id. at 1–2. 

346 Id. at 1. 

347 Id. at 2–7. 

348SNPRM at 70547. 

349MediaNet SNPRM Comment at 2. 

350 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa). 

minor modifications.332 First, the DLC 

‘‘suggest[ed] changing the phrase ‘total 

royalty payable’ to ‘total royalty 

reported,’ to avoid any suggestion that 

the amount reflected on the cumulative 

statement of account is necessarily 

‘payable’ to the MLC.’’ 333 The Office 

incorporated this technical edit into the 

SNPRM, proposing the phrase ‘‘total 

accrued royalty reported’’ (inserting 

‘‘accrued’’ for added precision), which it 

now adopts as final.334

Second, the DLC’s regulatory proposal 

added an illustrative clause referring to 

discrepancies ‘‘due to the GAAP 

treatment of previously-distributed 

royalties or for any other reason.’’ 335

Just as the Office did not include the 

MLC’s previously proposed language 

about interest, deductions, and 

adjustments in the NPRM, the Office did 

not include the DLC’s language in the 

SNPRM and declines to include it in the 

final rule, as any discrepancy of any 

kind should be explained.336 The DLC 

did not oppose this in its comments to 

the SNPRM. 

The SNPRM further proposed that a 

clear and detailed explanation also be 

required if the royalties reported 

include use of an estimate permitted for 

computing accrued royalties in 

paragraph (c)(5)(i).337 This would be 

required whether or not there is also a 

discrepancy between the total accrued 

royalty reported and the actual amount 

transferred, and should describe the 

basis for the total accrued royalty 

reported including any deviation from 

the total potential statutory royalty 

attributable to all unmatched usage 

reported under paragraph (c)(4)(i). With 

the Office having concluded that it 

should adopt a version of this SNPRM 

structure as final, this corresponding 

proposal is being adopted as well. It was 

not opposed (other than in connection 

with certain commenters’ overall 

opposition to this proposed framework), 

and should be helpful to the MLC in 

processing cumulative statements of 

account that contain any such estimates, 

and will result in MLC-held records of 

how any such estimates were employed. 

C. Period of Reporting 

Next, the Office addresses an issue 

raised by MediaNet related to required 

information that may not be able to be 

located or recreated. The SNPRM 

solicited comments regarding whether 

the rule should include language 

addressing MediaNet’s concern that it 

may be unable to provide pre-2013 

usage data, as such data may be 

unavailable or inaccessible because it is 

not in the DMP’s possession and may no 

longer be held by its former vendor.338

In operation for nearly 20 years, 

MediaNet carries a potentially greater 

burden to report past unmatched usages 

than newer services.339 MediaNet 

explained that it previously used 

vendors to maintain its royalty and 

usage data, but once those agreements 

were terminated ‘‘the relevant data was 

not transferred to MediaNet,’’ and it was 

unsure whether those vendors with 

whom it has terminated its relationships 

continued to maintain that data.340

MediaNet requested regulatory language 

requiring provision of all available data, 

subject to an exception addressing the 

circumstance when such information 

relates to usage that is over five years 

old and was held by a third-party 

vendor who no longer has a business 

relationship with the DMP, and such 

vendor cannot or will not provide such 

historic information.341 MediaNet 

explained that, without such an 

exemption, it ‘‘may decline to take 

advantage of the limitation on liability, 

which may deprive copyright owners of 

additional accrued royalties.’’ 342

MediaNet further suggested that such a 

regulation would be ‘‘consistent with 

the overall statutory scheme,’’ because 

the statute requires reporting to be 

pursuant to ‘‘applicable regulations,’’ 

and the relevant reporting regulations at 

the time required that documentation 

related to royalties and usages needed to 

be preserved for only five years.343

Commenter Jeff Price challenged 

MediaNet’s assertion that royalty and 

usage information would not have been 

retained by MediaNet and also 

suggested that, even if this information 

was not retained, it could be 

recreated.344 In Mr. Price’s experience, 

DMPs who used vendors to match 

works and pay mechanical royalties 

engaged in a workflow that sent output 

and return files between the vendor and 

the DMP several times. A DMP would 

send sound recording data to the vendor 

who would try to match works, the 

vendor would reply by sending a file 

listing matched works and whether they 

were licensed, the DMP would then 

send usage and metadata inputs to the 

vendor, and the vendor would send 

back mechanical royalty calculations 

addressing the total time period, each 

publisher, and each individual work.345

Mr. Price believes that, based on this 

workflow, ‘‘some or all of the original 

elements necessary to calculate the 

mechanicals still exist.’’ 346 Mr. Price 

also suggested that other data 

presumably residing with MediaNet 

concerning monthly revenue, monthly 

subscribers, eligible streams, and total 

streams for sound recordings could be 

used with other known royalty 

calculation inputs to ‘‘possibly recreate 

the missing mechanical statements.’’ 347

The Office noticed this issue and 

requested public comment, but ‘‘[g]iven 

the timing of MediaNet’s request’’ did 

not propose its own regulatory language 

and instead requested comments on 

MediaNet’s proposal.348 In response, 

only MediaNet addressed this issue. 

MediaNet affirmed that it is ‘‘committed 

to ensuring that all creators are paid for 

the use of their works,’’ but stated that 

it remained unclear ‘‘whether such data 

exists, and can be reported to the 

MLC.’’ 349 MediaNet did not comment 

on either Mr. Price’s assertion that 

MediaNet may still have this royalty 

and usage data, or the feasibility of Mr. 

Price’s suggested alternative solution of 

recreating the necessary reporting 

information, as discussed above. 

The Office understands MediaNet’s 

concern and hopes it is able to locate or 

recreate such data to take advantage of 

the limitation on liability, but must 

decline to promulgate its proposed rule. 

As an initial matter, MediaNet has not 

confirmed whether this information 

currently exists with its former vendors 

or can be recreated. The Office is 

reluctant to promulgate MediaNet’s 

requested exemption without a showing 

confirming its necessity. Further, the 

request appears to depart from statutory 

requirements. The operative statutory 

language contemplates that to obtain the 

limitation on liability a DMP will report 

‘‘all of the information that would have 

been provided to the copyright owner’’ 

to the MLC.350 Based on the applicable 

regulations, such information would 

have included, for example, the number 

of phonorecords made during a 

reporting period, phonorecord 

identification information such as titles, 


jbell on DSKJLSW7X2PROD with RULES5
2202 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

351See 37 CFR 210.6(c)(3), 210.10(d), (e). 

352 In response to the Office’s NOI, the MLC asked 

for even more information to support its matching 

efforts. NPRM at 43518–19 (citing MLC Reply NOI 

Comment App. D at 19; MLC Ex Parte Letter at 2 

n.1 (June 17, 2020)). 

353See 17 U.S.C. 115(d)(3)(E), (G), (J). 

354SNPRM at 70547; 37 CFR 210.27(m) (reports 

of usage records of use provision). 

355SNPRM at 70551 (‘‘except that such records 

and documents that relate to an estimated input 

permitted under paragraph (d)(2) of this section 

must be kept and retained for a period of at least 

seven years from the date of delivery of the 

statement containing the final adjustment of such 

input’’). 

356 37 CFR 210.27(m)(2). 

357MLC SNPRM Comment at 14 n.6; Cas Martin 

SNPRM Comment at 2; see also MLC Ex Parte Letter 

at 2 (Oct. 5, 2020). 

358MLC SNPRM Comment at App. xi. 

359 DLC Ex Parte Letter at 1–2 (Dec. 11, 2020). 

360See 17 U.S.C. 115(d)(4)(A)(iii), (iv)(I). 

361 43 FR 44511, 44515 (Sept. 28, 1978). 

362Similarly, the record retention requirement 

under the non-blanket compulsory license does not 

have a ‘‘reasonable access’’ requirement. See 37 

CFR 210.8. 

363 DLC SNPRM Comment at 13. 

364NPRM at 43521–22 (citing 85 FR at 22518, 

22546). 

365 37 CFR 210.27(n). 

366MLC NPRM Comment at 7. 

367SNPRM at 70551. 

368 Id. at 70547, 70551. 

369 DLC SNPRM Comment at 1 (‘‘DLC strongly 

supports the proposed rule noticed in the 

SNPRM.’’); MLC SNPRM Comment at App. x. 

ISRCs, catalog numbers, ISWCs, and 

UPCs, and, importantly, detailed 

information on how per-work royalty 

allocations for these works were 

calculated.351 MediaNet’s broad 

proposed exemption would deprive the 

MLC of all of this information. 

The information-related reporting 

requirement is intended to facilitate the 

MLC in appropriately accounting for the 

previously unreported usage.352 This 

information would allow the MLC to 

confirm that the appropriate royalties 

are being turned over, confirm which 

matched and unmatched works have 

been paid, pay for any matched works, 

and consider whether to make an 

eventual distribution of unclaimed 

accrued royalties by market share for 

this period.353 Based on the above 

considerations, the Office declines 

MediaNet’s proposed amendment. 

D. Other Provisions and Additional 

Clarifications 

In this section, the Office addresses 

additional matters raised in this 

rulemaking, including those relating to 

record retention requirements, harmless 

errors, certifications, and voluntary 

agreements between the MLC and a 

DMP to alter certain procedures. 

Records of use. The SNPRM proposed 

to impose a ‘‘records of use’’ provision 

on DMPs for cumulative statements of 

account, modeled in part after the 

records of use provision that applies to 

DMPs under the reports of usage 

regulations.354 A DMP would be 

required to ‘‘keep and retain in [their] 

possession all records and documents 

necessary and appropriate to support 

fully the information set forth in 

[cumulative statements of account and/ 

or statements of adjustment]’’ for at least 

seven years after delivering the 

statement to the MLC.355 Unlike the 

reports of usage records of use 

provision, the SNPRM did not include 

language allowing the MLC ‘‘reasonable 

access’’ to the DMPs’ records or 

accompanying access limitation 

provisions.356

The Office received comments 

supporting its proposed records of use 

provision and no comments in 

opposition.357 But the MLC asserted that 

‘‘the value of the provision is largely 

lost without a provision for reasonable 

access to the records,’’ and proposed 

adding the following language: 

The mechanical licensing collective or its 

agent shall be entitled to reasonable access to 

records and documents described in this 

section, which shall be provided promptly 

and arranged for no later than 30 calendar 

days after the mechanical licensing 

collective’s reasonable request, subject to any 

confidentiality to which they may be 

entitled.358

In response, the DLC disputed the 

MLC’s needs for these records, stating 

that while these records may be relevant 

for copyright owners bringing related 

legal challenges, ‘‘the MLC has no role 

in enforcing the accuracy of the 

cumulative statement of account— 

which is a feature of the limitation on 

liability, and not the blanket 

license.’’ 359

The Office appreciates the MLC’s 

suggestion, but is not including its 

proposed access-related language. While 

the statute requires that the records of 

use provision that applies to reports of 

usage, contain an MLC-access provision, 

there is no such requirement for 

cumulative statement of account 

reporting.360 The Office previously 

declined to promulgate access rules for 

pre-MMA mechanical license reporting, 

stating that ‘‘we believe that rules 

governing access to business records 

. . . are beyond our authority to 

establish. In any event, judicial 

discovery procedures—and possible 

other alternatives—are available to 

copyright owners to secure such 

access.’’ 361 The Office concludes that 

given the lack of congressional direction 

and the ability for litigants to secure 

access to these records via judicial 

order, it does not need to promulgate a 

‘‘reasonable access’’ regulation.362

Activity or offering clarification. The 

DLC asked for a clarification to reflect 

that, when a DMP reports on historic 

activities and offerings as a part of a 

cumulative statement of account, such 

reporting ‘‘is to be of service offerings at 

the time of the usage, and that there is 

no expectation to map old categories of 

offerings onto the most recent categories 

of offerings.’’ 363 The Office confirms 

that it shares this understanding. In 

light of the DLC’s request, it has 

clarified section 210.10(g) accordingly 

to expressly state that reporting 

requirements are related to the 

applicable activity or offering at the 

time of the usage. 

Voluntary agreements to alter process. 

In the NPRM, the Office solicited 

comments ‘‘regarding whether the rule 

should . . . permit the MLC and 

individual DMPs to enter into 

agreements to alter [the cumulative 

statement of account reporting] process’’ 

and noted that, at that time, it was 

proposing ‘‘a similar provision with 

respect to monthly reports of usage.’’ 364

The Office subsequently adopted such a 

rule for monthly reports of usage.365 The 

MLC supports including a similar 

provision for cumulative reporting, 

stating ‘‘while the reporting required 

under the [NPRM] should be the 

baseline, every circumstance cannot be 

anticipated, and allowing the MLC the 

flexibility to address specific 

considerations attendant to a particular 

DMP is appropriate.’’ 366

The SNPRM proposed a provision 

modelled after that recently adopted in 

connection with monthly reports of 

usage, including clarification that 

certification procedures could not be 

altered by agreement and that any 

flexibility ‘‘does not empower the 

mechanical licensing collective to agree 

to alter any substantive requirements 

described in this section, including but 

not limited to the required royalty 

payment and accounting information 

and sound recording and musical work 

information.’’ 367 Non-substantive 

procedures, such as reporting formats, 

could be altered by agreement, 

‘‘provided that any such alteration does 

not materially prejudice copyright 

owners owed royalties required to be 

transferred to the MLC or for the DMP’s 

eligibility for the 17 U.S.C. 115(d)(10) 

limitation on liability.’’ 368

Neither the MLC nor DLC directly 

addressed the SNPRM’s proposal, 

although the MLC included this 

language in its proposed regulatory 

language and the DLC signaled general 

support for the Office’s SNPRM.369 An 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2203 

370Cas Martin SNPRM Comment at 2–3. 

371SNPRM at 70547 n.33; see 37 CFR 210.9. 

372 DLC Ex Parte Letter at 3 (Dec. 11, 2020). 

373 Id. at 2. 

374 Id. 

375 79 FR 56190, 56205 (Sept. 18, 2014). 

376 DLC NPRM Comment at 5, 9. 

377 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa). 

378NPRM at 43520. 

379 DLC NPRM Comment at 2, 4. 

380 DLC SNPRM Comment at 15 (suggesting 

revision parallel requirements for submission of 

notices of license; quoting 37 CFR 210.24(c)). 

381 Id. 

382 85 FR at 58152–53; see 37 CFR 210.16(f) 

(2015). 

individual commenter also indicated 

support for this provision.370 The Office 

has incorporated this aspect of the 

SNPRM into the final rule. 

Harmless errors. In the SNPRM, the 

Office asked parties whether it should 

adopt a harmless error provision 

‘‘similar to the provision adopted for 

reporting by significant nonblanket 

licensees’’ and noted that pre-MMA 

regulations did contain a harmless error 

rule pertaining to monthly and annual 

statements of account.371 The DLC 

supported this provision, and proposed 

alternate regulatory language based 

upon pre-MMA regulations governing 

monthly and annual statements of 

account: ‘‘Errors in a Cumulative 

Statement of Account or Statement of 

Adjustment that do not materially 

prejudice the rights of the copyright 

owner shall be deemed harmless, and 

shall not render that statement of 

account invalid.’’ 372 The DLC explained 

that cumulative, monthly, and annual 

statements of account are ‘‘prepared 

using at least some of the same 

processes’’ and ‘‘include specifically the 

information that would have been 

included at the time of the use,’’ in 

arguing that harmless errors should be 

treated in the same manner.373 It 

suggested that the inclusion of an 

estimate and adjustment provision 

would not ‘‘obviate the need for a 

harmless error provision’’ as ‘‘some 

harmless errors might not result from 

the use of an estimate, and/or might not 

be appropriate for adjustment.’’ 374

The Office accepts the DLC’s 

suggestion to promulgate a harmless 

error rule for cumulative statements of 

account, based on the current harmless 

error regulations governing monthly and 

annual statements of account. As the 

Office previously noted in the context of 

the monthly and annual statement of 

account harmless error rule, ‘‘[i]t would 

be unduly severe to treat . . . 

inconsequential mistakes as equal to 

errors that result in material prejudice to 

the copyright owner.’’ 375

Certification requirements. With 

respect to the proposed certification 

requirement for cumulative statements 

of account, which no party opposes, the 

DLC says its members ‘‘have interpreted 

the reference to using ‘processes and 

internal controls that were subject to an 

examination, during the past year, by a 

licensed certified public accountant,’ to 

refer to the CPA examination that has 

happened for the 2019 annual 

statements of account, which were 

distributed to publishers earlier this 

calendar year, rather than to a new CPA 

certification related to the cumulative 

statement of account.’’ 376 The Office 

cautions DMPs to consider the scope of 

the relevant CPA examination, and be 

sure that the processes and internal 

controls that were examined previously 

are the same processes and controls 

relevant to preparing the cumulative 

statement of account. If not, a DMP may 

need a separate examination for the 

processes and controls applicable to the 

cumulative statement of account, or it 

can use the alternative certification 

option that does not involve a CPA 

examination. 

The DLC also requested changes to 

the signature requirements in provisions 

addressing certifications in cumulative 

statements of account. The statute 

requires a DMP to submit the 

certification that would have been 

provided to an identified copyright 

owner (i.e., the pre-existing statement of 

account certification) as well as ‘‘an 

additional certification by a duly 

authorized officer of the digital music 

provider that the digital music provider 

has fulfilled the [statutory good-faith 

matching] requirements’’ during the 

transition period.377 The NPRM 

proposed ‘‘a technical change to include 

the actual language for clarity’’ and 

moved both required certifications into 

the same paragraph.378 The DLC 

initially ‘‘welcomed’’ this clarification, 

calling it ‘‘reasonable and 

appropriate.’’ 379 Subsequently, 

however, the DLC proposed edits to 

both certification provisions.380 It 

explained that the proposed regulation 

‘‘may unintentionally be read to limit 

the corporate personnel who can sign 

and certify the cumulative statement of 

account and the facts therein,’’ as 

‘‘officer’’ has a specific meaning under 

corporate law.381

The Office declines to adopt the 

DLC’s proposed edits. It is not clear that 

the pre-existing statement of account 

certification, which is mirrored in the 

cumulative statement of account rule 

and was similarly just adopted as a 

requirement in connection with future 

reports of usage, has caused DMPs any 

issues since it was implemented years 

ago.382 Further, the cumulative 

statement of account certification 

language for good-faith matching is 

dictated by statute, which references 

‘‘officer’’ and not ‘‘representative.’’ 

Finally, the Office has not received 

additional input from other potentially 

interested parties, such as the MLC, 

confirming they also understand this to 

be a technical clarification. For these 

reasons, the Office believes that it is 

better to maintain consistency for 

cumulative statements of account 

certifications and respectfully declines 

the DLC’s proposal. 

List of Subjects in 37 CFR Part 210 

Copyright, Phonorecords, Recordings. 

For the reasons set forth in the 

preamble, the Copyright Office amends 

37 CFR part 210 as follows: 

PART 210—COMPULSORY LICENSE 

FOR MAKING AND DISTRIBUTING 

PHYSICAL AND DIGITAL 

PHONORECORDS OF NONDRAMATIC 

MUSICAL WORKS 

■ 1. The authority citation for part 210 

continues to read as follows: 

Authority: 17 U.S.C. 115, 702. 

■ 2. Amend § 210.2 by revising 

paragraph (k) and removing paragraphs 

(l) through (o). 

The revision reads as follows: 

§ 210.2 Definitions. 

* * * * * 

(k) Any terms not otherwise defined 

in this section shall have the meanings 

set forth in 17 U.S.C. 115(e). 

■ 3. Amend § 210.10 by revising 

paragraphs (b) introductory text, (b)(1), 

(b)(2) introductory text, and (b)(3)(i) and 

adding paragraphs (c) through (m) to 

read as follows: 

§ 210.10 Statements required for limitation 

on liability for digital music providers for 

the transition period prior to the license 

availability date. 

* * * * * 

(b) If the copyright owner is not 

identified or located by the end of the 

calendar month in which the digital 

music provider first makes use of the 

work, the digital music provider shall 

accrue and hold royalties calculated 

under the applicable statutory rate in 

accordance with usage of the work, from 

initial use of the work until the accrued 

royalties can be paid to the copyright 

owner or are required to be transferred 

to the mechanical licensing collective, 

as follows: 


jbell on DSKJLSW7X2PROD with RULES5
2204 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

(1) Accrued royalties shall be 

maintained by the digital music 

provider in accordance with generally 

accepted accounting principles, 

including those concerning 

derecognition of liabilities. 

(2) If a copyright owner of an 

unmatched musical work (or share 

thereof) is identified and located by or 

to the digital music provider before the 

license availability date, the digital 

music provider shall, unless a voluntary 

license or other relevant agreement 

entered into prior to the time period 

specified in paragraph (b)(2)(i) of this 

section applies to such musical work (or 

share thereof)— 

* * * * * 

(3) * * * 

(i) Not later than 45 calendar days 

after the license availability date, 

transfer all accrued royalties to the 

mechanical licensing collective (as 

required by paragraph (i)(2) of this 

section and subject to paragraphs (c)(5) 

and (k) of this section), such payment to 

be accompanied by a cumulative 

statement of account that: 

(A) Includes all of the information 

required by paragraphs (c) through (e) of 

this section covering the period starting 

from initial use of the work; 

(B) Is delivered to the mechanical 

licensing collective as required by 

paragraph (i)(1) of this section; and 

(C) Is certified as required by 

paragraph (j) of this section; and 

* * * * * 

(c) Each cumulative statement of 

account delivered to the mechanical 

licensing collective under paragraph 

(b)(3)(i) of this section shall be clearly 

and prominently identified as a 

‘‘Cumulative Statement of Account for 

Making and Distributing Phonorecords,’’ 

and shall include a clear statement of 

the following information: 

(1) The period (months and years) 

covered by the cumulative statement of 

account. 

(2) The full legal name of the digital 

music provider and, if different, the 

trade or consumer-facing brand name(s) 

of the service(s), including any specific 

offering(s) (including as may be defined 

in part 385 of this title), through which 

the digital music provider engages, or 

has engaged at any time during the 

period identified in paragraph (c)(1) of 

this section, in covered activities. If the 

digital music provider has a unique 

DDEX identifier number, it must also be 

provided. 

(3) The full address, including a 

specific number and street name or rural 

route, of the place of business of the 

digital music provider. A post office box 

or similar designation will not be 

sufficient except where it is the only 

address that can be used in that 

geographic location. 

(4) For each sound recording 

embodying a musical work that is used 

by the digital music provider in covered 

activities during the period identified in 

paragraph (c)(1) of this section and for 

which a copyright owner of such 

musical work (or share thereof) is not 

identified and located by the license 

availability date, a detailed cumulative 

statement, from which the mechanical 

licensing collective may separate 

reported information for each month 

and year for each applicable activity or 

offering including as may be defined in 

part 385 of this title, of all of: 

(i) The royalty payment and 

accounting information required by 

paragraph (d) of this section; and 

(ii) The sound recording and musical 

work information required by paragraph 

(e) of this section. 

(5) The total accrued royalty payable 

by the digital music provider for the 

period identified in paragraph (c)(1) of 

this section, computed in accordance 

with the requirements of this section 

and part 385 of this title, and including 

detailed information regarding how the 

royalty was computed, with such total 

accrued royalty payable broken down by 

month and year and by each applicable 

activity or offering including as may be 

defined in part 385 of this title. 

(i) Where a digital music provider has 

a reasonable good-faith belief that the 

total accrued royalties payable are less 

than the total of the amounts reported 

under paragraph (c)(4)(i) of this section, 

and the precise amount of such accrued 

royalties cannot be calculated at the 

time the cumulative statement of 

account is delivered to the mechanical 

licensing collective because of the 

unmatched status of relevant musical 

works embodied in sound recordings 

reported under paragraph (c)(4)(ii) of 

this section, the total accrued royalties 

reported and transferred may make use 

of reasonable estimations, determined in 

accordance with GAAP and broken 

down by month and year and by each 

applicable activity or offering including 

as may be defined in part 385 of this 

title. Any such estimate shall be made 

in good faith and on the basis of the best 

knowledge, information, and belief of 

the digital music provider at the time 

the cumulative statement of account is 

delivered to the mechanical licensing 

collective, and subject to any additional 

accounting and certification 

requirements under 17 U.S.C. 115 and 

this section. In no case shall the failure 

to match a musical work by the license 

availability date be construed as 

prohibiting or limiting a digital music 

provider’s entitlement to use such an 

estimate if the digital music provider 

has satisfied its obligations under 17 

U.S.C. 115(d)(10)(B) to engage in 

required matching efforts. 

(ii) A digital music provider reporting 

and transferring accrued royalties that 

make use of reasonable estimations 

must provide a description of any 

voluntary license or other agreement 

containing an appropriate release of 

royalty claims relied upon by the digital 

music provider in making its estimation 

that is sufficient for the mechanical 

licensing collective to engage in efforts 

to confirm uses of musical works subject 

to any such agreement. Such description 

shall be sufficient if it includes at least 

the following information: 

(A) An identification of each of the 

digital music provider’s services, 

including by reference to any applicable 

types of activities or offerings that may 

be defined in part 385 of this title, 

relevant to any such agreement. If such 

an agreement pertains to all of the 

digital music provider’s applicable 

services, it may state so without 

identifying each service. 

(B) The start and end dates of each 

covered period of time. 

(C) Each applicable musical work 

copyright owner, identified by name 

and any known and appropriate unique 

identifiers, and appropriate contact 

information for each such musical work 

copyright owner or for an administrator 

or other representative who has entered 

into an applicable agreement on behalf 

of the relevant copyright owner. 

(D) A satisfactory identification of any 

applicable catalog exclusions. 

(E) At the digital music provider’s 

option, and in lieu of providing the 

information listed in paragraph 

(c)(5)(ii)(D) of this section, a list of all 

covered musical works, identified by 

appropriate unique identifiers. 

(F) A unique identifier for each such 

agreement. 

(iii)(A) After receiving the information 

required by paragraph (c)(5)(ii) of this 

section, the mechanical licensing 

collective shall, among any other 

actions required of it, engage in efforts 

to confirm uses of musical works 

embodied in sound recordings reported 

under paragraph (c)(4)(ii) of this section 

that are subject to any identified 

agreement, and shall promptly notify 

relevant copyright owners of the digital 

music provider’s reliance on such 

identified agreement(s). 

(B)(1) A notified copyright owner may 

dispute whether a digital music 

provider has appropriately relied upon 

an identified agreement by delivering a 

notice of dispute to the mechanical 

licensing collective no later than one 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2205 

year after being notified. A notice of 

dispute must describe the basis for the 

copyright owner’s dispute with 

particularity and specify whether the 

copyright owner is disputing the digital 

music provider’s reliance with respect 

to potential distributions based on 

matched usage or of unclaimed accrued 

royalties under 17 U.S.C. 115(d)(3)(J), or 

both. The notice must contain a 

certification by the copyright owner that 

its dispute is reasonable and made in 

good faith. The mechanical licensing 

collective shall promptly provide the 

digital music provider with a copy of 

any notice of dispute it receives. 

Nothing in this paragraph 

(c)(5)(iii)(B)(1) shall be construed as 

prejudicing a copyright owner’s right or 

ability to otherwise dispute a digital 

music provider’s reliance on an 

identified agreement outside of this 

process. 

(2) If the mechanical licensing 

collective receives a notice of dispute 

from an appropriate copyright owner in 

compliance with paragraph 

(c)(5)(iii)(B)(1) of this section, then at or 

around the point in time that the 

mechanical licensing collective would 

otherwise make a particular distribution 

to that copyright owner but for the 

digital music provider’s reliance on the 

disputed agreement, the mechanical 

licensing collective shall deliver an 

invoice and/or response file to the 

digital music provider consistent with 

paragraph (h) of this section that 

includes the amount that would 

otherwise be distributed at that time 

(which shall include the interest that 

would have accrued on such amount 

had it been held by the mechanical 

licensing collective pursuant to 17 

U.S.C. 115(d)(3)(H)(ii) from the original 

date of transfer) and an explanation of 

how that amount was determined. 

Depending on the scope of the notice of 

dispute, this may include distributions 

based on matched usage and/or 

distributions of unclaimed accrued 

royalties under 17 U.S.C. 115(d)(3)(J). In 

the case of the latter, the relevant 

approximate date to deliver the invoice 

and/or response file to the digital music 

provider shall be the date on which the 

mechanical licensing collective 

provides the notice required under 17 

U.S.C. 115(d)(3)(J)(iii)(II)(dd). Where a 

copyright owner delivers a notice of 

dispute after the relevant point in time 

has passed for a particular distribution, 

the mechanical licensing collective shall 

deliver the invoice and/or response file 

to the digital music provider promptly 

after receiving the notice of dispute. No 

later than 14 business days after receipt 

of the invoice and/or response file, the 

digital music provider must pay the 

invoiced amount. 

(3) All amounts delivered to the 

mechanical licensing collective by a 

digital music provider pursuant to 

paragraph (c)(5)(iii)(B)(2) of this section 

shall be held by the mechanical 

licensing collective pending resolution 

of the dispute, in accordance with 17 

U.S.C. 115(d)(3)(H)(ii)(I) without regard 

for whether or not the funds are in fact 

accrued royalties. The mechanical 

licensing collective shall not make a 

distribution of the funds (or any part 

thereof), treat the funds (or any part 

thereof) as an overpayment, or 

otherwise release the funds (or any part 

thereof), unless directed to do so by 

mutual agreement of the relevant parties 

or by order of an adjudicative body with 

appropriate authority. If the mechanical 

licensing collective has not been so 

directed within one year after the funds 

have been received from the digital 

music provider, and if there is no active 

dispute resolution occurring at that 

time, the mechanical licensing 

collective shall treat the funds as an 

overpayment which shall be handled in 

accordance with paragraph (k)(5) of this 

section. 

(C) The mechanical licensing 

collective shall presume that a digital 

music provider has appropriately relied 

upon an identified agreement, except 

with respect to a relevant copyright 

owner who has delivered a valid notice 

of dispute for such agreement pursuant 

to paragraph (c)(5)(iii)(B)(1) of this 

section. Notwithstanding the preceding 

sentence, any resolution of a dispute 

shall be reflected in the mechanical 

licensing collective’s ongoing 

administration activities. 

(iv)(A) Subject to paragraph (c)(5)(iii) 

of this section, if the amount transferred 

to the mechanical licensing collective 

by a digital music provider with its 

cumulative statement of account is 

insufficient to cover any required 

distributions to copyright owners, the 

mechanical licensing collective shall 

deliver an invoice and/or response file 

to the digital music provider consistent 

with paragraph (h) of this section that 

includes the amount outstanding (which 

shall include the interest that would 

have accrued on such amount had it 

been held by the mechanical licensing 

collective pursuant to 17 U.S.C. 

115(d)(3)(H)(ii) from the original date of 

transfer) and the basis for the 

mechanical licensing collective’s 

conclusion that such amount is due. No 

later than 14 business days after receipt 

of such notice, the digital music 

provider must pay the invoiced amount. 

(B) In the event a digital music 

provider is found by an adjudicative 

body with appropriate authority to have 

erroneously, but not unreasonably or in 

bad faith, withheld accrued royalties, 

the digital music provider may remain 

in compliance with this section for 

purposes of retaining its limitation on 

liability if the digital music provider has 

otherwise satisfied the requirements for 

the limitation on liability described in 

17 U.S.C. 115(d)(10) and this section 

and if the additional amount due is paid 

in accordance with a relevant order. 

(v) Any overpayment of royalties 

based upon an estimate permitted by 

paragraph (c)(5)(i) of this section shall 

be handled in accordance with 

paragraph (k)(5) of this section. 

(vi) Any underpayment of royalties 

shall be remedied by a digital music 

provider without regard for the adjusted 

statute of limitations described in 17 

U.S.C. 115(d)(10)(C). By using an 

estimate permitted by either paragraph 

(c)(5)(i) or (d)(2) of this section, a digital 

music provider agrees to waive any 

statute-of-limitations-based defenses 

with respect to any asserted 

underpayment of royalties connected to 

the use of such an estimate. 

(vii) Nothing in this section shall be 

construed as prejudicing a copyright 

owner’s ability to challenge whether a 

digital music provider has satisfied the 

requirements for the limitation on 

liability. 

(6) If the total accrued royalty 

reported under paragraph (c)(5) of this 

section does not reconcile with the 

royalties actually transferred to the 

mechanical licensing collective, or if the 

royalties reported employ an estimate as 

permitted under paragraph (c)(5)(i) of 

this section, a clear and detailed 

explanation of the difference and the 

basis for it. 

(d) The royalty payment and 

accounting information called for by 

paragraph (c)(4)(i) of this section shall 

consist of the following: 

(1) A detailed and step-by-step 

accounting of the calculation of 

attributable royalties under applicable 

provisions of this section and part 385 

of this title, sufficient to allow the 

mechanical licensing collective to assess 

the manner in which the digital music 

provider determined the royalty and the 

accuracy of the royalty calculations, 

including but not limited to the number 

of payable units, including, as 

applicable, permanent downloads, 

plays, and constructive plays, for each 

reported sound recording. 

(2) Where computation of the 

attributable royalties depends on an 

input that is unable to be finally 

determined at the time the cumulative 

statement of account is delivered to the 

mechanical licensing collective and 


jbell on DSKJLSW7X2PROD with RULES5
2206 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

where the reason the input cannot be 

finally determined is outside of the 

digital music provider’s control (e.g., the 

amount of applicable public 

performance royalties and the amount of 

applicable consideration for sound 

recording copyright rights), a reasonable 

estimation of such input, determined in 

accordance with GAAP, may be used or 

provided by the digital music provider. 

Royalty payments based on such 

estimates shall be adjusted pursuant to 

paragraph (k) of this section after being 

finally determined. A cumulative 

statement of account containing an 

estimate permitted by this paragraph 

(d)(2) should identify each input that 

has been estimated, and provide the 

reason(s) why such input(s) needed to 

be estimated and an explanation as to 

the basis for the estimate(s). 

(3) All information and calculations 

provided pursuant to paragraph (d) of 

this section shall be made in good faith 

and on the basis of the best knowledge, 

information, and belief of the digital 

music provider at the time the 

cumulative statement of account is 

delivered to the mechanical licensing 

collective, and subject to any additional 

accounting and certification 

requirements under 17 U.S.C. 115 and 

this section. 

(e) For each sound recording 

embodying a musical work required to 

be reported under paragraph (c)(4)(ii) of 

this section, the digital music provider 

shall provide the information referenced 

in § 210.6(c)(3) that would have been 

provided to the copyright owner had the 

digital music provider been serving 

Monthly Statements of Account as a 

compulsory licensee in accordance with 

this subpart on the copyright owner 

from initial use of the work, plus the 

unique identifier assigned by the digital 

music provider to the sound recording 

and a unique identifier assigned by the 

digital music provider to each 

individual usage line. 

(f) The information required by 

paragraphs (c), (d), (e), (k), and (o) of 

this section requires intelligible, legible, 

and unambiguous statements in the 

cumulative statements of account, 

without incorporation of facts or 

information contained in other 

documents or records. 

(g) References to part 385 of this title, 

as used in paragraphs (c), (d), and (k) of 

this section, refer to the rates and terms 

of royalty payments, including any 

defined activities or offerings, as in 

effect as to each particular reported use 

based on when the use occurred. 

(h) If requested by a digital music 

provider, the mechanical licensing 

collective shall deliver an invoice and/ 

or a response file to the digital music 

provider within a reasonable period of 

time after the cumulative statement of 

account and related royalties are 

received. The response file shall contain 

such information as is common in the 

industry to be reported in response files, 

backup files, and any other similar such 

files provided to digital music providers 

by applicable third-party administrators. 

(i)(1) To the extent practicable, each 

cumulative statement of account 

delivered to the mechanical licensing 

collective under paragraph (b)(3)(i) of 

this section, and each supplemental 

metadata report delivered to the 

mechanical licensing collective under 

paragraph (o) of this section, shall be 

delivered in a machine-readable format 

that is compatible with the information 

technology systems of the mechanical 

licensing collective as reasonably 

determined by the mechanical licensing 

collective and set forth on its website, 

taking into consideration relevant 

industry standards and the potential for 

different degrees of sophistication 

among digital music providers. The 

mechanical licensing collective must 

offer an option that is accessible to 

smaller digital music providers that may 

not be reasonably capable of complying 

with the requirements of a sophisticated 

reporting or data standard or format. 

Nothing in this section shall be 

construed as prohibiting the mechanical 

licensing collective from adopting more 

than one reporting or data standard or 

format. A digital music provider may 

use an alternative reporting or data 

standard or format pursuant to an 

agreement with the mechanical 

licensing collective under paragraph (l) 

of this section, consent to which shall 

not be unreasonably withheld by the 

mechanical licensing collective. 

(2) Royalty payments shall be 

delivered to the mechanical licensing 

collective in such manner and form as 

the mechanical licensing collective may 

reasonably determine and set forth on 

its website. A cumulative statement of 

account and its related royalty payment 

may be delivered together or separately, 

but if delivered separately, the payment 

must include information reasonably 

sufficient to allow the mechanical 

licensing collective to match the 

cumulative statement of account to the 

payment. 

(j) Each cumulative statement of 

account delivered to the mechanical 

licensing collective under paragraph 

(b)(3)(i) of this section shall be 

accompanied by: 

(1) The name of the person who is 

signing and certifying the cumulative 

statement of account. 

(2) A signature, which in the case of 

a digital music provider that is a 

corporation or partnership, shall be the 

signature of a duly authorized officer of 

the corporation or of a partner. 

(3) The date of signature and 

certification. 

(4) If the digital music provider is a 

corporation or partnership, the title or 

official position held in the partnership 

or corporation by the person who is 

signing and certifying the cumulative 

statement of account. 

(5) One of the following statements: 

(i) Statement one: 

I certify that (1) I am duly authorized 

to sign this cumulative statement of 

account on behalf of the digital music 

provider, (2) I have examined this 

cumulative statement of account, and 

(3) all statements of fact contained 

herein are true, complete, and correct to 

the best of my knowledge, information, 

and belief, and are made in good faith. 

(ii) Statement two: 

I certify that (1) I am duly authorized 

to sign this cumulative statement of 

account on behalf of the digital music 

provider, (2) I have prepared or 

supervised the preparation of the data 

used by the digital music provider and/ 

or its agent to generate this cumulative 

statement of account, (3) such data is 

true, complete, and correct to the best of 

my knowledge, information, and belief, 

and was prepared in good faith, and (4) 

this cumulative statement of account 

was prepared by the digital music 

provider and/or its agent using 

processes and internal controls that 

were subject to an examination, during 

the past year, by a licensed certified 

public accountant in accordance with 

the attestation standards established by 

the American Institute of Certified 

Public Accountants, the opinion of 

whom was that the processes and 

internal controls were suitably designed 

to generate monthly statements that 

accurately reflect, in all material 

respects, the digital music provider’s 

usage of musical works, the statutory 

royalties applicable thereto, and any 

other data that is necessary for the 

proper calculation of the statutory 

royalties in accordance with 17 U.S.C. 

115 and applicable regulations. 

(6) A certification by a duly 

authorized officer of the digital music 

provider that the digital music provider 

has fulfilled the requirements of 17 

U.S.C. 115(d)(10)(B)(i) and (ii) but has 

not been successful in locating or 

identifying the copyright owner. 

(k)(1) A digital music provider may 

adjust its previously delivered 

cumulative statement of account, 

including related royalty payments, by 

delivering to the mechanical licensing 

collective a statement of adjustment. 


jbell on DSKJLSW7X2PROD with RULES5
Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 2207 

(2) A statement of adjustment shall be 

clearly and prominently identified as a 

‘‘Statement of Adjustment of a 

Cumulative Statement of Account.’’ 

(3) A statement of adjustment shall 

include a clear statement of the 

following information: 

(i) The previously delivered 

cumulative statement of account, 

including related royalty payments, to 

which the adjustment applies. 

(ii) The specific change(s) to the 

previously delivered cumulative 

statement of account, including a 

detailed description of any changes to 

any of the inputs upon which 

computation of the royalties payable by 

the digital music provider depends. 

Such description shall include the 

adjusted royalties payable and all 

information used to compute the 

adjusted royalties payable, in 

accordance with the requirements of 

this section and part 385 of this title, 

such that the mechanical licensing 

collective can provide a detailed and 

step-by-step accounting of the 

calculation of the adjustment under 

applicable provisions of this section and 

part 385 of this title, sufficient to allow 

each applicable copyright owner to 

assess the manner in which the digital 

music provider determined the 

adjustment and the accuracy of the 

adjustment. As appropriate, an 

adjustment may be calculated using 

estimates permitted under paragraph 

(d)(2) of this section. 

(iii) Where applicable, the particular 

sound recordings and uses to which the 

adjustment applies. 

(iv) A description of the reason(s) for 

the adjustment. 

(4) In the case of an underpayment of 

royalties, the digital music provider 

shall pay the difference to the 

mechanical licensing collective 

contemporaneously with delivery of the 

statement of adjustment or promptly 

after being notified by the mechanical 

licensing collective of the amount due. 

A statement of adjustment and its 

related royalty payment may be 

delivered together or separately, but if 

delivered separately, the payment must 

include information reasonably 

sufficient to allow the mechanical 

licensing collective to match the 

statement of adjustment to the payment. 

(5) In the case of an overpayment of 

royalties, the mechanical licensing 

collective shall appropriately credit or 

offset the excess payment amount and 

apply it to the digital music provider’s 

account, or upon request, issue a refund 

within a reasonable period of time. 

(6)(i) A statement of adjustment must 

be delivered to the mechanical licensing 

collective no later than 6 months after 

the occurrence of any of the scenarios 

specified by paragraph (k)(6)(ii) of this 

section, where such an event 

necessitates an adjustment. Where more 

than one scenario applies to the same 

cumulative statement of account at 

different points in time, a separate 6- 

month period runs for each such 

triggering event. Where more than one 

scenario necessitates the same particular 

adjustment, the 6-month deadline to 

make the adjustment begins to run from 

the occurrence of the earliest triggering 

event. 

(ii) A statement of adjustment may 

only be made: 

(A) Except as otherwise provided for 

by paragraph (c)(5) of this section, 

where the digital music provider 

discovers, or is notified of by the 

mechanical licensing collective or a 

copyright owner, licensor, or author (or 

their respective representatives, 

including by an administrator or a 

collective management organization) of 

a relevant sound recording or musical 

work that is embodied in such a sound 

recording, an inaccuracy in the 

cumulative statement of account, or in 

the amounts of royalties owed, based on 

information that was not previously 

known to the digital music provider 

despite its good-faith efforts; 

(B) When making an adjustment to a 

previously estimated input under 

paragraph (d)(2) of this section; 

(C) Following an audit of a digital 

music provider that concludes after the 

cumulative statement of account is 

delivered and that has the result of 

affecting the computation of the 

royalties payable by the digital music 

provider (e.g., as applicable, an audit by 

a sound recording copyright owner 

concerning the amount of applicable 

consideration paid for sound recording 

copyright rights); or 

(D) In response to a change in 

applicable rates or terms under part 385 

of this title. 

(E) To ensure consistency with any 

adjustments made in an Annual 

Statement of Account generated under 

§ 210.7 for the most recent fiscal year. 

(7) A statement of adjustment must be 

certified in the same manner as a 

cumulative statement of account under 

paragraph (j) of this section. 

(l)(1) Subject to the provisions of 17 

U.S.C. 115, a digital music provider and 

the mechanical licensing collective may 

agree in writing to vary or supplement 

the procedures described in this section, 

including but not limited to pursuant to 

an agreement to administer a voluntary 

license, provided that any such change 

does not materially prejudice copyright 

owners owed royalties required to be 

transferred to the mechanical licensing 

collective for the digital music provider 

to be eligible for the limitation on 

liability described in 17 U.S.C. 

115(d)(10). The procedures surrounding 

the certification requirements of 

paragraph (j) of this section may not be 

altered by agreement. This paragraph 

(l)(1) does not empower the mechanical 

licensing collective to agree to alter any 

substantive requirements described in 

this section, including but not limited to 

the required royalty payment and 

accounting information and sound 

recording and musical work 

information. 

(2) The mechanical licensing 

collective shall maintain a current, free, 

and publicly accessible online list of all 

agreements made pursuant to paragraph 

(l)(1) of this section that includes the 

name of the digital music provider (and, 

if different, the trade or consumer-facing 

brand name(s) of the services(s), 

including any specific offering(s), 

through which the digital music 

provider engages, or has engaged at any 

time during the period identified in 

paragraph (c)(1) of this section, in 

covered activities) and the start and end 

dates of the agreement. Any such 

agreement shall be considered a record 

that a copyright owner may access in 

accordance with 17 U.S.C. 

115(d)(3)(M)(ii). Where an agreement 

made pursuant to paragraph (l)(1) of this 

section is made pursuant to an 

agreement to administer a voluntary 

license or any other agreement, only 

those portions that vary or supplement 

the procedures described in this section 

and that pertain to the administration of 

a requesting copyright owner’s musical 

works must be made available to that 

copyright owner. 

(m) Each digital music provider shall, 

for a period of at least seven years from 

the date of delivery of a cumulative 

statement of account or statement of 

adjustment to the mechanical licensing 

collective, keep and retain in its 

possession all records and documents 

necessary and appropriate to support 

fully the information set forth in such 

statement (except that such records and 

documents that relate to an estimated 

input permitted under paragraph (d)(2) 

of this section must be kept and retained 

for a period of at least seven years from 

the date of delivery of the statement 

containing the final adjustment of such 

input). 

(n) Errors in a cumulative statement of 

account or statement of adjustment that 

do not materially prejudice the rights of 

the copyright owner shall be deemed 

harmless, and shall not render that 

statement invalid. 

(o)(1) By June 15, 2021, the digital 

music provider must submit a 


jbell on DSKJLSW7X2PROD with RULES5
2208 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations 

supplemental metadata report that 

includes all of the information provided 

in the cumulative statement of account 

pursuant to paragraph (c) of this section, 

as well as, separately or together with 

such information, the following 

information for each sound recording 

embodying a musical work that was 

reported under paragraph (c)(4)(ii) of 

this section: 

(i) Identifying information for the 

sound recording, including but not 

limited to: 

(A) Sound recording name(s), 

including, to the extent practicable, all 

known alternative and parenthetical 

titles for the sound recording; 

(B) Featured artist(s); 

(C) Unique identifier assigned by the 

digital music provider, if any, including 

to the extent practicable, any code(s) 

that can be used to locate and listen to 

the sound recording through the digital 

music provider’s public-facing service; 

(D) Actual playing time measured 

from the sound recording audio file, 

where available; and 

(E) To the extent acquired by the 

digital music provider in connection 

with its use of sound recordings of 

musical works to engage in covered 

activities, and to the extent practicable: 

(1) Sound recording copyright 

owner(s); 

(2) Producer(s); 

(3) International standard recording 

code(s) (ISRC); 

(4) Any other unique identifier(s) for 

or associated with the sound recording, 

including any unique identifier(s) for 

any associated album, including but not 

limited to: 

(i) Catalog number(s); 

(ii) Universal product code(s) (UPC); 

and 

(iii) Unique identifier(s) assigned by 

any distributor; 

(5) Version(s); 

(6) Release date(s); 

(7) Album title(s); 

(8) Label name(s); and 

(9) Distributor(s). 

(ii) Identifying information for the 

musical work embodied in the reported 

sound recording, to the extent acquired 

by the digital music provider in the 

metadata provided by sound recording 

copyright owners or other licensors of 

sound recordings in connection with the 

use of sound recordings of musical 

works to engage in covered activities, 

and to the extent practicable: 

(A) Information concerning 

authorship of the applicable rights in 

the musical work embodied in the 

sound recording, including but not 

limited to: 

(1) Songwriter(s); and 

(2) International standard name 

identifier(s) (ISNI) and interested parties 

information code(s) (IPI) for each such 

songwriter; 

(B) International standard musical 

work code(s) (ISWC) for the musical 

work embodied in the sound recording; 

and 

(C) Musical work name(s) for the 

musical work embodied in the sound 

recording, including any alternative or 

parenthetical titles for the musical work. 

(iii)(A) For each track for which a 

share of a musical work has been 

matched and for which accrued 

royalties for such share have been paid, 

but for which one or more shares of the 

musical work remains unmatched and 

unpaid, the digital music provider must 

provide, for each usage line for such 

track, a reference to the specific unique 

identifier for the usage line reported 

under paragraph (e) of this section, and 

a clear identification of the percentage 

share(s) that have been matched and 

paid and the owner(s) of such matched 

and paid share(s) (including any unique 

party identifiers for such owner(s) that 

are known by the digital music 

provider). 

(B) If, for a particular track, a digital 

music provider cannot provide a clear 

identification of the percentage share(s) 

that have been matched and paid and 

the owner(s) of such share(s) because 

this information is subject to a 

contractual confidentiality restriction or 

the conditions of paragraph (o)(1)(iii)(C) 

of this section apply with respect to 

such information, the digital music 

provider must provide alternate 

information for the track, namely, a 

clear identification of the total aggregate 

percentage share that has been matched 

and paid and the owner(s) of the 

aggregate matched and paid share 

(including any unique party identifiers 

for such owner(s) that are known by the 

digital music provider). If the digital 

music provider still cannot provide 

such alternate information because of 

the conditions of paragraph (o)(1)(iii)(C) 

of this section, the information required 

by this paragraph (o)(1)(iii)(B) may be 

omitted for the track from the 

supplemental metadata report. A digital 

music provider reporting under this 

paragraph (o)(1)(iii)(B) must deliver a 

certification to the mechanical licensing 

collective stating that the conditions of 

being permitted to report under this 

paragraph (o)(1)(iii)(B) apply with 

respect to the provision of alternate 

information or omission of percentage 

share(s) information entirely, as 

specified in the certification. 

(C) The conditions referred to in 

paragraph (o)(1)(iii)(B) of this section 

are: 

(1) The information is maintained 

only by a third-party vendor; 

(2) The digital music provider does 

not have any contractual or other rights 

to access the information; 

(3) The digital music provider is 

unable to compile the information from 

records in its possession using 

commercially reasonable efforts within 

the required reporting timeframe; and 

(4) The vendor refuses to make the 

information available to the digital 

music provider on commercially 

reasonable terms. 

(2) Any obligation under paragraph 

(o)(1) of this section concerning 

information about sound recording 

copyright owners may be satisfied by 

reporting the information for applicable 

sound recordings provided to the digital 

music provider by sound recording 

copyright owners or other licensors of 

sound recordings (or their 

representatives) contained in each of the 

following DDEX fields: LabelName and 

PLine. Where a digital music provider 

acquires this information in addition to 

other information identifying a relevant 

sound recording copyright owner, all 

such information must be reported to 

the extent practicable. 

(3) As used in this paragraph (o), it is 

practicable to provide the enumerated 

information if: 

(i) It belongs to a category of 

information expressly required to be 

reported by the enumerated list of 

information contained in § 210.6(c)(3); 

(ii) It belongs to a category of 

information that has been reported, or is 

required to be reported, by the 

particular digital music provider to the 

mechanical licensing collective under 

the blanket license; or 

(iii) It belongs to a category of 

information that is reported by the 

particular digital music provider to the 

mechanical licensing collective under a 

voluntary license or individual 

download license. 

(4) The supplemental metadata report 

provided for in this paragraph (o) is not 

a condition for eligibility for the 

limitation on liability in 17 U.S.C. 

115(d)(10), or a condition of the blanket 

license. 

Dated: December 23, 2020. 

Shira Perlmutter, 

Register of Copyrights and Director of the 

U.S. Copyright Office. 

Approved by: 

Carla D. Hayden, 

Librarian of Congress. 

[FR Doc. 2020–29190 Filed 1–7–21; 8:45 am] 

BILLING CODE 1410–30–P 


jbell on DSKJLSW7X2PROD with RULES5