[Federal Register Volume 87, Number 100 (Tuesday, May 24, 2022)]
[Rules and Regulations]
[Pages 31422-31428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11174]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 210

[Docket No. 2020-5]


Music Modernization Act Notices of License, Notices of Nonblanket 
Activity, Data Collection and Delivery Efforts, and Reports of Usage 
and Payment

AGENCY: U.S. Copyright Office, Library of Congress.

ACTION: Supplemental interim rule; request for comments.

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SUMMARY: The U.S. Copyright Office is amending its regulations 
governing certain reporting requirements of digital music providers 
pursuant to title I of the Orrin G. Hatch-Bob Goodlatte Music 
Modernization Act. This amendment modifies provisions concerning 
reports of adjustment and annual reports of usage in light of a recent 
request prompted by operational and compliance challenges with existing 
regulations. Based on the request and the imminence of related 
reporting deadlines, the Copyright Office has determined that there is 
a legitimate need to make this amendment effective immediately, while 
soliciting public comments on whether it should further modify these 
particular reporting requirements going forward.

DATES: 
    Effective date: The supplemental interim rule is effective May 24, 
2022.
    Comments due date: Written comments must be received no later than 
11:59 p.m. Eastern Time on July 8, 2022.

ADDRESSES: For reasons of Government efficiency, the Copyright Office 
is using the regulations.gov system for the submission and posting of 
public comments in this proceeding. All comments are therefore to be 
submitted electronically through regulations.gov. Specific instructions 
for submitting comments are available on the Copyright Office's website 
at https://www.copyright.gov/rulemaking/mma-notices-reports/. If 
electronic submission of comments is not feasible due to lack of access 
to a computer or the internet, please contact the Copyright Office 
using the contact information below for special instructions.

FOR FURTHER INFORMATION CONTACT: Megan Efthimiadis, Assistant to the 
General Counsel, by email at <a href="/cdn-cgi/l/email-protection#0a676f6c7e4a69657a7378636d627e246d657c"><span class="__cf_email__" data-cfemail="c9a4acafbd89aaa6b9b0bba0aea1bde7aea6bf">[email protected]</span></a> or telephone at 202-
707-8350.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Orrin G. Hatch-Bob Goodlatte Music Modernization Act (``MMA'') 
substantially modified the compulsory ``mechanical'' license for making 
and distributing phonorecords of nondramatic musical works under 17 
U.S.C. 115.\1\ It did so by switching from a song-by-song licensing 
system to a blanket licensing regime that became available on January 
1, 2021 (the ``license availability date''), administered by a 
mechanical licensing collective (``MLC'') designated by the Copyright 
Office (the ``Office'').\2\ Digital music providers (``DMPs'') are able 
to obtain the new compulsory blanket license to make digital 
phonorecord deliveries of nondramatic 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, including reporting obligations. DMPs may also continue 
to engage in those activities solely through voluntary licensing with 
copyright owners, in which case the DMP may be considered a significant 
nonblanket licensee (``SNBL'') under the statute,\3\ subject to 
separate reporting obligations.
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    \1\ Public Law 115-264, 132 Stat. 3676 (2018).
    \2\ 17 U.S.C. 115(d)(3)(B), (d)(3)(C); 84 FR 32274 (July 8, 
2019). As permitted under the MMA, the Office also 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)(3)(D)(i)(IV), (d)(5)(B), 
(d)(5)(C); 84 FR 32274.
    \3\ 17 U.S.C. 115(e)(31).
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    On September 17, 2020, the Office issued an interim rule adopting 
regulations concerning certain types of reporting required under the 
statute after the license availability date: Notices of license and 
reports of usage by DMPs and notices of nonblanket activity and reports 
of usage by SNBLs (the ``September 2020 rule'').\4\ As relevant here, 
those interim regulations provide requirements governing annual 
reporting and the ability to make adjustments to monthly and annual 
reports and related royalty payments, including to correct errors and 
replace estimated inputs with finally determined figures.\5\
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    \4\ 85 FR 58114 (Sept. 17, 2020).
    \5\ 37 CFR 210.27(f), (g)(3)-(4), (k).
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    Under the September 2020 rule, DMPs must deliver annual reports of 
usage (``AROUs'') and any related royalty payment to the MLC no later 
than the twentieth day of the sixth month following the end of the 
DMP's fiscal year covered by the AROU.\6\ AROUs must contain cumulative 
information for the applicable fiscal year, broken down by month and by 
activity or offering, including the total royalty payable, the total 
sum paid, the total adjustments made, the total number of payable 
units, and to the extent applicable to calculating the royalties owed, 
total service provider revenue, total costs of content, total 
performance royalty deductions, and total subscribers.\7\ In describing 
these requirements, the Office said that ``[r]eceiving these totals and 
having them broken down this way seems beneficial to the MLC in 
confirming proper royalties, while not unreasonably burdening DMPs, who 
would not have to re-provide all of the information contained in the 
monthly reports covered by the annual reporting period.'' \8\
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    \6\ Id. at 210.27(g)(3).
    \7\ Id. at 210.27(f); see also 37 CFR pt. 385 (defining terms, 
including ``service provider revenue'' ``total cost of content,'' 
and ``subscription,'' and permitting certain deductions).
    \8\ 85 FR 22518, 22533 (Apr. 22, 2020).
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    Under the September 2020 rule, DMPs have the ability to make 
adjustments to previously delivered monthly reports of usage 
(``MROUs'') and AROUs,

[[Page 31423]]

including related royalty payments, by delivering reports of adjustment 
(``ROAs'') to the MLC.\9\ An ROA adjusting one or more MROUs may, but 
need not, be combined with the AROU for the annual period covering the 
MROUs and related payments.\10\ When an ROA and AROU are combined, the 
AROU is also considered an ROA, and the AROU must comply with the 
regulatory requirements applicable to both types of reports.\11\ The 
deadlines to deliver ROAs and any related royalty payment to the MLC 
differ depending on whether the ROA is adjusting an MROU or AROU and 
whether the ROA is combined with an AROU. An ROA adjusting an MROU that 
is not combined with an AROU must be delivered after the date that the 
MROU being adjusted is delivered and before the date that the AROU 
covering that MROU is delivered.\12\ If the ROA is combined with the 
AROU, then the due date for the AROU applies.\13\
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    \9\ 37 CFR 210.27(k).
    \10\ Id. at 210.27(k)(1); see 85 FR 22518, 22527.
    \11\ 37 CFR 210.27(k)(1).
    \12\ Id. at 210.27(g)(4)(i).
    \13\ See id. at 210.27(g)(3), (k)(1).
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    An ROA adjusting an AROU is only permitted in response to certain 
enumerated triggering events (e.g., in exceptional circumstances, when 
making an adjustment to a previously estimated input, or in response to 
a change in applicable rates or terms set by the CRJs under the section 
115 license).\14\ Such an ROA is due no later than six months after the 
occurrence of such an event.\15\
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    \14\ Id. at 210.27(k)(6).
    \15\ Id. at 210.27(g)(4)(ii).
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    All ROAs must include detailed information, including about the 
specific changes being made and the reason(s) for the adjustment.\16\ 
In response to comments from the DLC, the Office significantly modified 
these requirements between the Office's April 2020 notice of proposed 
rulemaking \17\ and the September 2020 rule. As the Office explained in 
the September 2020 rule, the DLC proposed deleting two portions of the 
proposed rule addressing reports of adjustments. The first was the 
requirement for DMPs to include in the description of adjustment ``the 
monetary amount of the adjustment'' and second, the requirement to 
include ``a detailed and step-by-step accounting of the calculation of 
the adjustment sufficient to allow the mechanical licensing collective 
to assess the manner in which the blanket licensee determined the 
adjustment and the accuracy of the adjustment.'' As the DLC explained, 
``[a]lthough DMPs must provide inputs to the MLC, it is typically the 
MLC, not the providers, that will use those inputs to perform a `step-
by-step accounting' and determine the `monetary amount[s]' due to be 
paid.'' In response, the MLC confirmed its shared understanding it 
would verify this math and did not oppose the DLC's proposal. The MLC 
proposed additional language, modeled off language in the monthly usage 
reporting provisions found in Sec.  210.27(d)(1)(ii) of the proposed 
rule to confirm ``DMPs must always provide all necessary royalty pool 
calculation information.'' As it found these changes reasonable, the 
Office adopted the DLC's proposal with the addition of the language 
proposed by the MLC.\18\
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    \16\ Id. at 210.27(k)(3).
    \17\ 85 FR 22518.
    \18\ 85 FR 58114, 58138 (internal citations omitted).
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    In adopting these proposals, the Office also modified the due date 
for delivering any underpayment of royalties to the MLC. Instead of 
always being due contemporaneously with the ROA's delivery, as was 
originally proposed, the September 2020 rule provides that it may 
either be due then ``or promptly after being notified by the mechanical 
licensing collective of the amount due.'' \19\
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    \19\ 37 CFR 210.27(k)(4); 85 FR 58114, 58139 n.341.
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    Separate from the requirements for ROAs and AROUs, the September 
2020 rule contains processes through which DMPs may receive royalty 
invoices and response files from the MLC in connection with MROUs, 
including after delivering MROUs but before making royalty 
payments.\20\ The Office explained that ``[a]lthough the MMA does not 
explicitly address invoices and response files, the DLC has 
consistently articulated the importance of addressing requirements for 
each in Copyright Office regulations,'' \21\ and that accommodating 
invoices and response files ``is intended to further the Office's 
longstanding policy objective that the compulsory license should be a 
realistic and practical alternative to voluntary licensing.'' \22\ 
Notably, the DLC did not request an invoice or response file process in 
connection with AROUs or ROAs.
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    \20\ 37 CFR 210.27(d)(1), (g)(1)-(2); see 85 FR 58114, 58137-38; 
85 FR 22518, 22528.
    \21\ 85 FR 58114, 58138.
    \22\ 85 FR 22518, 22528.
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    After the adoption of these rules, which involved multiple rounds 
of public comments through a notification of inquiry,\23\ notice of 
proposed rulemaking,\24\ and an ex parte communications process,\25\ 
the DLC raised a new concern regarding the applicability of certain 
reporting provisions to pass-through licenses for permanent downloads 
which the Office addressed through supplemental interim rules.\26\ The 
DLC now raises another new concern, this time arising from ``several 
operational and compliance challenges with the existing AROU and 
adjustment regulations.'' \27\
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    \23\ 84 FR 49966 (Sept. 24, 2019).
    \24\ 85 FR 22518.
    \25\ Guidelines for ex parte communications, along with records 
of such communications, including those referenced herein, are 
available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. All rulemaking 
activity, including public comments, as well as educational material 
regarding the Music Modernization Act, can currently be accessed via 
navigation from https://www.copyright.gov/music-modernization/.
    \26\ See 85 FR 84243 (Dec. 28, 2020), 86 FR 12822 (Mar. 5, 
2021).
    \27\ DLC Ex Parte Letter at 1 (Mar. 14, 2022).
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    As the DLC describes it, ``[t]he identified challenges stem 
principally from differences between the regulations governing AROUs 
and adjustments on the one hand, and the regulations governing monthly 
reporting under the blanket license that licensees and the MLC have now 
been successfully operating under for over a year.'' \28\ These 
``differences'' appear to largely refer to the lack of an express back-
and-forth process through which DMPs can obtain invoices and response 
files from the MLC in connection with AROUs and ROAs.\29\ To address 
its concerns, the DLC essentially proposes to amend the content 
requirements and royalty payment timing for AROUs and create a response 
file process for ROAs.\30\ The DLC further states that ``[g]iven the 
time pressure for those services that are currently in the AROU 
process, we urge the Office to consider adopting an immediately 
effective interim rule.'' \31\ The DLC also suggests that an 
alternative solution could be for the Office to ``postpon[e] the 
deadline for the 2021 annual reports of usage entirely until some 
period after the [CRJs] decide[] the Phonorecords III rate 
proceeding.'' \32\
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    \28\ Id.
    \29\ Id. at 2.
    \30\ Id. at 3, add. at i-iv.
    \31\ Id. at 3.
    \32\ Id. at 4. The D.C. Circuit partially vacated and remanded 
the CRJs' Phonorecords III determination, which was intended to set 
rates and terms for the section 115 license for the period from 
January 1, 2018 through December 31, 2022. Johnson v. Copyright 
Royalty Bd., 969 F.3d 363 (D.C. Cir. 2020). Remand proceedings 
before the CRJs are ongoing and it is unknown at this time when the 
CRJs will issue their new determination.
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    The MLC opposes the DLC's proposal for reasons discussed below, 
which mostly concern the disruptive impact it would have on the MLC's 
core operations, e.g., processing monthly royalty distributions and 
historical

[[Page 31424]]

unmatched royalties.\33\ The MLC explains that its understanding is 
``that the interim status of the rule is not intended to enable new and 
onerous substantive requirements to be added without meaningful notice, 
comment and transition, as the DLC Letter now seems to propose.'' \34\ 
Nevertheless, the MLC states that ``it intends to provide response 
files to DSPs in connection with ARoUs'' and ``can provide invoices in 
connection with ARoUs,'' noting that it ``will continue to work with 
DSPs on timing and coordination, as it has done since its inception.'' 
\35\
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    \33\ MLC Ex Parte Letter at 2-4 (Apr. 4, 2022) (discussing the 
MLC's ``inability to shift resources without delaying critical path 
royalty distribution work'').
    \34\ Id. at 4.
    \35\ Id. at 3 & n.2.
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    Having reviewed and considered all relevant comments, the Office 
concludes, based on the current record, that it is necessary and 
appropriate under its authority pursuant to 17 U.S.C. 115 and 702 to 
amend the regulations governing AROUs and ROAs to address the DLC's 
concerns.\36\ Because of the short amount of time remaining before the 
June 20, 2022 deadline for many DMPs to deliver their AROUs, and the 
even shorter period of time that may remain for DMPs whose AROUs are 
due sooner, the Office finds there is good cause to adopt the 
supplemental interim rule without public notice and comment, and to 
make it effective immediately upon publication.\37\ In doing so, the 
Office notes that, as discussed below, the aspects of the rule that 
impose new obligations on the MLC come with a nine-month transition 
period, which means that the Office can make modifications in response 
to public comments before the transition period expires. The Office 
solicits public comments on any aspect of the supplemental interim rule 
that stakeholders wish to address.
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    \36\ See 17 U.S.C. 702, 115(c)(2)(I), 115(d)(4)(A)(iv)(II), 
115(d)(12)(A); see also H.R. Rep. No. 115-651, at 5-6, 14 (2018); S. 
Rep. No. 115-339, at 5, 15 (2018); Report and Section-by-Section 
Analysis of H.R. 1551 by the Chairmen and Ranking Members of Senate 
and House Judiciary Committees, at 4, 12 (2018), https://www.copyright.gov/legislation/_conference_report.pdf; Nat'l Cable & 
Telecomms. Ass'n v. Brand X internet Servs., 545 U.S. 967, 980 
(2005) (discussing an agency's congressionally delegated authority 
and stating that ``ambiguities in statutes within an agency's 
jurisdiction to administer are delegations of authority to the 
agency to fill the statutory gap in reasonable fashion'').
    \37\ See 5 U.S.C. 553(b)(B), (d)(3); see also DLC Ex Parte 
Letter at 3 (Mar. 14, 2022) (``urg[ing] the Office to consider 
adopting an immediately effective interim rule'' because of ``the 
time pressure for those services that are currently in the AROU 
process'').
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II. Supplemental Interim Rule and Request for Comments

    Based on the current record, the Office agrees with the DLC that it 
should amend the regulations governing AROUs and ROAs, but disagrees 
with much of the DLC's proposed regulatory approach. Each aspect is 
discussed in turn below.
    Content of AROUs. The DLC proposes to strike Sec.  210.27(f)(4)(i) 
and (iii), which respectively require DMPs to report the total royalty 
payable and total adjustments for the annual reporting period, calling 
them ``unnecessary'' and ``redundant of each other.'' \38\ The DLC also 
proposes to amend Sec.  210.27(f)(4)(ii), which requires DMPs to report 
the total sum paid for the annual reporting period including the amount 
of any adjustments, to instead ``require reporting of the sum paid . . 
. prior to any adjustments being made.'' \39\ In the alternative, the 
DLC proposes adding language allowing DMPs to use estimates in 
calculating the amounts required to be reported under Sec.  
210.27(f)(4)(i)-(iii).\40\ The DLC calls these provisions ``a vestige 
of the old [pre-blanket license] annual statement of account 
regulations,'' where ``licensees were responsible for matching and 
calculating royalties owed to individual publishers and delivering 
annual statements directly to those publishers.'' \41\ The DLC explains 
that because ``under the blanket license, the MLC is, on a month-to-
month basis, responsible for matching usage, calculating the amount of 
royalties owed, and ultimately for confirming proper payment,'' the 
lack of ``a mechanism by which a service can request and obtain an 
invoice and/or response file'' for AROUs ``has created operational 
issues for services that depend on the MLC to engage in the 
calculations necessary to ensure the proper amounts are reported and 
paid.'' \42\ The DLC states that this issue ``is not limited to 
services that have voluntary licenses for which MLC matching is 
required,'' and says that while ``[t]his issue might be of limited 
import if the AROU process were merely an exercise in adding together 
figures reported and paid as part of monthly reporting,'' ``the reality 
is that nearly every service engages in a process of adjustment as part 
of the year end process,'' meaning that ``most, if not all, DMPs will 
need to adjust previously reported information to the MLC as part of 
the AROU process and will need the MLC to calculate the amount of 
royalties owed.'' \43\
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    \38\ DLC Ex Parte Letter at 3, add. at i (Mar. 14, 2022).
    \39\ Id.
    \40\ Id. at 3.
    \41\ Id. at 1-2.
    \42\ Id. at 2.
    \43\ Id.
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    The MLC disagrees with the DLC's proposed changes, including its 
alternative proposal, stating that ``DSPs are able to calculate their 
own royalty pools, and indeed many DSPs choose to calculate their 
royalty pools each month and pay that amount, which the MLC then 
verifies as part of processing.'' \44\ The MLC also notes that Sec.  
210.27(k)(3)(ii) already permits using estimates under certain 
circumstances.\45\
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    \44\ MLC Ex Parte Letter at 3 & n.2 (Apr. 4, 2022).
    \45\ Id. at 3 n.2.
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    The Office declines to adopt the specific amendments proposed by 
the DLC, but agrees that certain changes are warranted. With respect to 
AROUs that are not combined with ROAs, the Office continues to believe 
that the existing reporting requirements are reasonable and beneficial 
to the MLC without unduly burdening DMPs. The DLC has not presented 
evidence to the contrary. The Office disagrees that Sec.  
210.27(f)(4)(i) and (iii) are unnecessary and redundant (one is a 
subset of the other). In any event, the Office declines the DLC's 
apparent ``invitation to revisit settled provisions or rehash 
arguments.'' \46\ As the Office emphasized when it decided to adopt the 
September 2020 rule on an interim basis, the intent was ``to maintain 
flexibility to make necessary modifications in response to new 
evidence, unforeseen issues, or where something is otherwise not 
functioning as intended.'' \47\
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    \46\ 85 FR 58114, 58115.
    \47\ Id. at 58115-16.
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    In contrast, the Office agrees with the DLC that changes should be 
made with respect to the reporting requirements for AROUs that are 
combined with ROAs. In that context, the regulations do not appear to 
be functioning as intended. As discussed above, in response to a DLC 
proposal that the MLC did not oppose, the Office significantly modified 
some of the requirements for ROAs between the notice of proposed 
rulemaking and the September 2020 rule to provide that, rather than 
reporting information such as the monetary amount of the adjustment and 
a detailed accounting of the calculation of the adjustment, as was 
originally proposed, the reporting would instead include the 
information necessary for the MLC to compute the adjusted royalties 
payable by the DMP.\48\ In making those changes, the Office recognized 
that DMPs may not

[[Page 31425]]

necessarily be making the ultimate royalty calculations in connection 
with their ROAs; they may instead be dependent on the MLC to make such 
computations and then provide notice to them of the amount due (if 
there is an underpayment).\49\
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    \48\ Id. at 58138.
    \49\ See 85 FR 58114, 58139-40 (discussing changes to proposed 
certification requirements to reflect that ``under the blanket 
license, DMPs are no longer solely responsible for making all 
royalty calculations''); 37 CFR 210.27(k)(4) (contemplating that 
when royalties are underpaid, as part of an adjustment, the DMP will 
pay the difference, including ``after being notified by the 
mechanical licensing collective of the amount due'').
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    The current requirements in Sec.  210.27(f)(4)(i) and (iii) to 
report certain royalty totals seem at odds with the Office's prior 
decision, at least where such totals are required in connection with an 
AROU that is combined with an ROA. Consequently, to resolve this 
tension, the Office is amending these provisions so that where an ROA 
is combined with an AROU, and the DMP is relying on the MLC to provide 
notice of the amount due with respect to the adjustment (which, as 
discussed below, will take the form of an invoice), the totals required 
to be reported in the AROU may exclude non-invoiced amounts related to 
the adjustment.\50\ The Office believes this approach is more 
appropriate than the DLC's proposal to eliminate the reporting 
entirely. The Office declines to amend Sec.  210.27(f)(4)(ii) because 
doing so seems unnecessary. To the extent the total sum paid must 
include the amount of any adjustment made in connection with the AROU, 
the provision is already limited to where the adjustment is delivered 
contemporaneously with the AROU.\51\
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    \50\ To be clear, the exclusion of such amounts from the 
reporting of these totals does not alter the ``requirement that DMPs 
must still certify to any underlying data necessary for such 
calculations.'' 85 FR 58114, 58140.
    \51\ See 37 CFR 210.27(f)(4)(ii).
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    Because the Office has decided to address this issue in the manner 
discussed, the Office declines to adopt the DLC's alternative proposal 
to broadly allow the use of estimates in reporting the AROU totals. The 
Office is, however, taking this opportunity to add language to clarify 
that information reported pursuant to Sec.  210.27(f)(4) may be 
calculated using estimates as permitted by Sec.  210.27(d)(2)(i). This 
is intended as a non-substantive clarification to merely recognize that 
certain relevant royalty inputs may be unable to be finally determined 
at the time the AROU is due.\52\
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    \52\ See id. at 210.27(k)(6)(ii) (permitting AROUs to be 
adjusted ``[w]hen making an adjustment to a previously estimated 
input under paragraph (d)(2)(i)'').
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    Timing of royalty payments related to AROUs and ROAs. Under the 
September 2020 rule, the deadlines to deliver an AROU and any related 
royalty payment are the same.\53\ The DLC proposes to change this by 
``[a]mend[ing] Sec.  210.27(g)(3) to allow the delivery of any royalty 
payment either contemporaneously with the AROU or promptly after being 
notified by the MLC about the amount owed.'' \54\ The DLC is seeking 
this change for the same reasons as detailed above.\55\ The MLC 
similarly opposes this aspect of the DLC's proposal for the same 
reasons as noted above, adding that it ``does not see a reason to 
change DSP royalty payment deadlines.'' \56\
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    \53\ Id. at 210.27(g)(3) (noting that both must be delivered 
``no later than the 20th day of the sixth month following the end of 
the fiscal year covered by the [AROU]'').
    \54\ DLC Ex Parte Letter at 3, add. at ii (Mar. 14, 2022).
    \55\ Id. at 1-2.
    \56\ MLC Ex Parte Letter at 3 & n.2 (Apr. 4, 2022).
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    The Office agrees with the DLC that the timing provision should be 
changed. Similar to the content provisions discussed above, the timing 
provision in the September 2020 rule for royalty payments related to 
AROUs seems at odds with the Office's previous recognition that DMPs 
may be dependent on the MLC to make ultimate royalty calculations in 
connection with ROAs and then provide notice of the amount due (if 
there is an underpayment). Indeed, where an ROA is combined with an 
AROU, there appears to be a direct conflict between the AROU royalty 
payment deadline in Sec.  210.27(g)(3) and the ROA royalty payment 
deadline in Sec.  210.27(k)(4). The former provides that an AROU and 
related royalty payment have the same deadline which is fixed based on 
the end of the DMP's fiscal year, while the latter provides that they 
do not necessarily have the same deadline and that the royalty payment 
deadline may be connected to whenever the MLC provides notice of the 
amount due.\57\
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    \57\ Compare 37 CFR 210.27(g)(3) with id. at 210.27(k)(4).
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    To resolve this issue, the Office is amending Sec.  210.27(g)(3) to 
strike the language about related royalty payments, as the DLC 
proposes. The Office declines to adopt the DLC's proposed additional 
language because it appears to be unnecessary. Where an AROU is not 
combined with an ROA, there should not be any related royalty payment 
to deliver. Where an AROU is combined with an ROA, then the royalty 
payment timing provision for ROAs in Sec.  210.27(k)(4) should govern 
because ``such an annual report of usage shall also be considered a 
report of adjustment, and must satisfy the requirements of both 
paragraphs (f) and (k).'' \58\
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    \58\ Id. at 210.27(k)(1).
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    Though not raised by the DLC, the same problem exists with Sec.  
210.27(g)(4), which provides that the deadlines to deliver an ROA and 
any related royalty payment are the same.\59\ This provision appears to 
directly conflict with the royalty payment deadline for ROAs specified 
in Sec.  210.27(k)(4). Therefore, the Office is making the same change 
to Sec.  210.27(g)(4), to clarify that Sec.  210.27(k)(4) should govern 
when royalty payments related to ROAs are due.
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    \59\ Id. at 210.27(g)(4).
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    Invoices and response files for ROAs. The DLC proposes to add a new 
provision creating a response file process for ROAs. Specifically, the 
proposed provision would require the MLC to deliver a response file to 
a DMP, if requested, ``within a reasonable period of time'' after 
receiving the ROA, except that ``if the digital music provider states 
that a response file is necessary to the digital music provider's 
ability to timely submit an annual report of usage, the MLC shall 
deliver an invoice and/or a response file to the digital music provider 
within 45 days.'' \60\ As the DLC explains:
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    \60\ DLC Ex Parte Letter add. at iv (Mar. 14, 2022).

    The adjustment provision (unlike the annual report of usage 
provision) does appear to contemplate some process by which the MLC 
can inform a service of the amount of money owed after submission of 
the report of adjustment . . . . But that provision--unlike the 
provision for regular monthly reports of usage--does not specify 
that a response file shall be sent from the MLC to the blanket 
licensee. The lack of a response file provision is particularly 
problematic for services that have voluntary licenses. Because many 
blanket licensees are adjusting both the top line royalty figures 
and usage figures, the MLC matching and response file process is 
critical to allow those services to accurately pay their voluntary 
license partners as well as the MLC, just as it is in the ordinary 
course of monthly reporting.\61\
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    \61\ Id. at 2 (internal citation omitted).

    The MLC opposes the DLC's proposal, detailing the disruptive impact 
that ``add[ing] an accelerated 45-day deadline for the MLC to deliver 
ARoU response files to DSPs'' would have on the MLC's core 
operations.\62\ The MLC says that its ``resources are fully dedicated 
to critical path statutory functions, and--even if it were feasible to 
accelerate ARoU processing or response files on the proposed timeline--
the MLC cannot remove

[[Page 31426]]

resources and delay such core functions as monthly royalty 
distributions and processing the substantial historical unmatched 
royalties in order to assist with these voluntary license 
administration concerns.'' \63\ As the MLC further explains:
---------------------------------------------------------------------------

    \62\ MLC Ex Parte Letter at 2-3 (Apr. 4, 2022).
    \63\ Id. at 2.

    ARoU processing is not at all the same as monthly processing and 
requires substantial time and work to design and execute. This type 
of complex processing--which involves data comparison and 
integration across thousands of usage reporting files from over 
forty DSPs containing billions of data points--is a very significant 
task, and this is the first year that it is being done under the 
blanket license. This project involves requirements gathering, 
design, implementation, testing, production, and processing. The MLC 
has begun this project, but it will take a number of additional 
months and cannot reasonably be accelerated.\64\
---------------------------------------------------------------------------

    \64\ Id.

    The MLC also states that while it intends to provide invoices and 
response files in connection with AROUs, it is not in a position at 
this time to guarantee or estimate any particular turnaround time 
before receiving and reviewing the various AROUs.\65\
---------------------------------------------------------------------------

    \65\ Id. at 3.
---------------------------------------------------------------------------

    The Office agrees with the DLC that an invoice and response file 
process should be established for ROAs (and by extension, AROUs that 
are combined with ROAs). With respect to invoices, there appears to 
perhaps be some ambiguity in the September 2020 rule, which allows a 
royalty payment to be delivered ``promptly after being notified by the 
mechanical licensing collective of the amount due.'' \66\ In describing 
this provision, the DLC says it ``appear[s] to contemplate some process 
by which the MLC can inform a service of the amount of money owed after 
submission of the report of adjustment.'' \67\ To resolve any potential 
uncertainty about this provision, the Office takes this opportunity to 
amend Sec.  210.27(k)(4) to clarify that the notice to be delivered by 
the MLC of the amount due in connection with an ROA should be an 
invoice containing information similar to what is required for MROU 
invoices.\68\ Since invoices for MROUs and ROAs serve similar 
functions, it seems reasonable that their content be similar. The 
Office is also establishing a timeframe for the MLC to deliver such 
invoices (subject to the transition period discussed below). If the DMP 
is going to receive a response file in connection with the ROA, then 
the invoice must be delivered contemporaneously with the response file 
(see discussion below concerning response file timing); otherwise, the 
invoice must be delivered in a reasonably timely manner. This timing is 
similar to how the timing works for MROU invoices and response files 
and appears reasonable to adopt in the ROA context.\69\
---------------------------------------------------------------------------

    \66\ 37 CFR 210.27(k)(4).
    \67\ DLC Ex Parte Letter at 2 (Mar. 14, 2022) (internal citation 
omitted) (emphasis added).
    \68\ See 37 CFR 210.27(g)(1) (requiring MROU invoices to ``set[] 
forth the royalties payable by the blanket licensee under the 
blanket license for the applicable monthly reporting period, which 
shall be broken down by each applicable activity or offering 
including as may be defined in part 385'').
    \69\ See id. at 210.27(g)(2)(v).
---------------------------------------------------------------------------

    Regarding response files, the MLC does not seem to disagree with 
the DLC that they should be provided, but the MLC appears to be 
primarily concerned with the DLC's proposed turnaround time. These 
concerns echo those expressed by the MLC in connection with the 
adoption of the invoice and response file process for MROUs under the 
September 2020 rule.\70\ As the Office said then, and believes now in 
the context of ROAs, ``a rule would ultimately be valuable to build 
reliance that DMPs can obtain these items.'' \71\ Therefore, the Office 
is adopting a requirement for the MLC to provide DMPs with response 
files in connection with ROAs (and by extension, AROUs that are 
combined with ROAs) if requested by the DMP. Such a requirement 
naturally follows from the Office's above-discussed previous 
recognition that DMPs may be dependent on the MLC to make ultimate 
royalty calculations in connection with ROAs and then provide notice of 
the amount due (if there is an underpayment).\72\
---------------------------------------------------------------------------

    \70\ See 85 FR 22518, 22528 (citation omitted) (``The MLC does 
not seem to generally disagree with this choreography and ultimately 
states that it intends to provide DMPs with both invoices and 
response files, but argues that such matters, particularly with 
respect to timing, are not ripe for rulemaking.'').
    \71\ Id.
    \72\ Cf. 37 CFR 210.27(g)(2)(ii) (``The mechanical licensing 
collective shall engage in efforts to confirm uses of musical works 
subject to voluntary licenses and individual download licenses, and, 
if applicable, the corresponding amounts to be deducted from 
royalties that would otherwise be due under the blanket license.'').
---------------------------------------------------------------------------

    The Office believes, however, that the MLC's timing concerns have 
merit and should be accommodated. First, the supplemental interim rule 
provides two different deadlines for delivering response files to DMPs 
in connection with ROAs--45 days after receipt of the ROA, or 60 days 
after receipt of the AROU where the ROA is combined with it. By 
proposing a 45-day deadline where the DMP ``states that a response file 
is necessary to the digital music provider's ability to timely submit 
an annual report of usage,'' \73\ the DLC seems to suggest that a 45-
day deadline is a reasonable turnaround time for DMPs with respect to 
ROAs that are not combined with AROUs. Meanwhile, the MLC's comments 
appear to be primarily focused on AROUs, rather than uncombined ROAs. 
Given that 45 days is nearly double the 25-day timeline for the MLC to 
provide MROU response files,\74\ and that ROAs that are not combined 
with AROUs will not necessarily be arriving mostly all at the same time 
like AROUs and likely will not cover the same volume of adjustments 
that AROUs are anticipated to cover, the Office believes that 45 days 
is reasonable based on the current record. Based on the MLC's comments, 
however, the Office believes that additional time is warranted for 
providing response files for ROAs that are combined with AROUs, and 60 
days strikes the Office as a reasonable deadline to both provide the 
MLC with extra processing time while not unreasonably delaying delivery 
of response files to DMPs needing to rely on them for voluntary license 
administration or other purposes.
---------------------------------------------------------------------------

    \73\ DLC Ex Parte Letter add. at iv (Mar. 14, 2022).
    \74\ See 37 CFR 210.27(g)(1), (2)(v).
---------------------------------------------------------------------------

    Second, the supplemental interim rule provides for a nine-month 
transition period during which the MLC is not required to deliver 
invoices or response files within the specified timeframes. In adopting 
the September 2020 rule on an interim basis, the Office said that ``if 
any significant changes prove necessary, the Office intends, as the DLC 
requests, to provide adequate and appropriate transition periods.'' 
\75\ Just as the Office provided DMPs with transition periods for 
aspects of the September 2020 rule that required them to update their 
systems or develop new processes, the Office finds it reasonable to 
provide one to the MLC here to minimize any potential disruption on the 
MLC's current operations.\76\ The Office understands that the adoption 
of a transition period may mean that certain DMPs may be unable to 
obtain response files from the MLC in time to meet certain near-term 
obligations that may exist under their voluntary licenses. While this 
is an unfortunate result, the MLC represents that, at this point, 
``even if an additional reasonable fee was paid,'' it still would ``not 
have the resources to complete an accelerated timetable'' for 
processing AROUs and

[[Page 31427]]

delivering response files to DMPs.\77\ Consequently, while the 
supplemental interim rule is intended to address this issue going 
forward, DMPs affected by the MLC's current, though ultimately 
temporary, inability to provide response files for AROUs and ROAs may 
need to make other arrangements with respect to their voluntary 
licenses.\78\
---------------------------------------------------------------------------

    \75\ 85 FR 58114, 58116.
    \76\ See, e.g., 37 CFR 210.27(e)(2)(i), (e)(3)(ii), (e)(5), 
(h)(3).
    \77\ MLC Ex Parte Letter at 2 n.1 (Apr. 4, 2022).
    \78\ The Office understands that DMPs used outside vendors or 
in-house services to meet reporting obligations that may have 
existed under their voluntary licenses prior to the MMA's enactment. 
DMPs may wish to revisit those earlier methods to meet any 
obligations under their voluntary licenses until the MLC is able to 
deliver invoices or response files under this rule.
---------------------------------------------------------------------------

    Based on the current record, the Office believes the supplemental 
interim rule ``is a reasonable approach to ensuring that DMPs that need 
invoices and response files can get them, while providing the MLC the 
time it needs to generate them.'' \79\ The Office recognizes that 
because the MLC is still in the process of developing systems to 
process AROUs and has not yet reviewed the various AROUs yet to be 
delivered, the MLC may not be in a position to fully address the timing 
of the new response file requirement for several months--long after the 
comment period for the supplemental interim rule has expired. 
Consequently, the Office will continue to welcome updates from the 
MLC's operations advisory committee or the MLC or DLC separately if, 
after development is further along or after the process becomes 
operational and the MLC has reviewed the AROUs, the parties believe 
timing changes are necessary.
---------------------------------------------------------------------------

    \79\ 85 FR 22518, 22528 (referencing monthly invoice and 
response file process). Despite the MLC's contention that ``this 
issue is extremely confined and does not affect blanket licensees at 
large,'' MLC Ex Parte Letter at 2 (Apr. 4, 2022), the Office 
believes that promulgating a rule is reasonable.
---------------------------------------------------------------------------

    AROU deadline postponement. In light of the changes being made by 
the Office to the AROU and ROA regulations, the Office declines to 
adopt the DLC's alternative solution to ``postpon[e] the deadline for 
the 2021 annual reports of usage entirely until some period after the 
[CRJs] decide[ ] the Phonorecords III rate proceeding.'' \80\ Moreover, 
it does not appear that delaying the deadline would necessarily provide 
meaningful relief to DMPs needing response files in the near-term. As 
the DLC explains, ``for some services that have independent annual 
reporting obligations under voluntary licenses, those services may 
still require response files from the MLC to fulfill existing 
obligations,'' ``[b]ut presumably if all annual reporting to the MLC 
were postponed, the MLC would then have sufficient bandwidth to address 
the needs of those services.'' \81\ In response, the MLC makes clear 
that this is ``not accurate,'' as ``the ARoU processing design and 
implementation needs to be completed before any ARoUs can be 
processed.'' \82\ Thus, it appears that postponing the deadline would 
not resolve the issue any more satisfactorily than the solution being 
adopted in the supplemental interim rule.
---------------------------------------------------------------------------

    \80\ DLC Ex Parte Letter at 4 (Mar. 14, 2022).
    \81\ Id. at 4 n.3.
    \82\ MLC Ex Parte Letter at 3 (Apr. 4, 2022).
---------------------------------------------------------------------------

List of Subjects in 37 CFR Part 210

    Copyright, Phonorecords, Recordings.

Interim Regulations

    For the reasons stated in the preamble, the U.S. 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

0
1. The authority citation for part 210 continues to read as follows:

    Authority:  17 U.S.C. 115, 702.


0
2. Amend Sec.  210.27 as follows:
0
a. In paragraph (f)(4) introductory text, add the words ``which may, as 
appropriate, be calculated using estimates permitted under paragraph 
(d)(2)(i) of this section,'' after the word ``information,'' and before 
the word ``cumulative'' in the first sentence.
0
b. In paragraph (f)(4)(i), add a sentence at the end of the paragraph.
0
c. In paragraph (f)(4)(iii), add a sentence at the end of the 
paragraph.
0
d. In paragraph (g)(3), remove the words ``and, if any, related royalty 
payment''.
0
e. In paragraph (g)(4), remove the words ``and, if any, related royalty 
payment''.
0
f. Revise paragraph (k)(4).
0
g. Add paragraphs (k)(8) and (9).
    The revision and additions read as follows:


Sec.  210.27  Reports of usage and payment for blanket licensees.

* * * * *
    (f) * * *
    (4) * * *
    (i) * * * Where the blanket licensee will receive an invoice under 
paragraph (k)(4) of this section with respect to an adjustment made in 
connection with the annual report of usage as described in paragraph 
(k)(1) of this section, the reporting of such total royalty payable may 
exclude non-invoiced amounts related to such adjustment.
* * * * *
    (iii) * * * Where the blanket licensee will receive an invoice 
under paragraph (k)(4) of this section with respect to an adjustment 
made in connection with the annual report of usage as described in 
paragraph (k)(1) of this section, the reporting of such total 
adjustment(s) may exclude non-invoiced amounts related to such 
adjustment.
* * * * *
    (k) * * *
    (4) In the case of an underpayment of royalties, the blanket 
licensee shall pay the difference to the mechanical licensing 
collective contemporaneously with delivery of the report of adjustment 
or promptly after receiving an invoice from the mechanical licensing 
collective that sets forth the royalties payable by the blanket 
licensee under the blanket license with respect to the adjustment, 
which shall be broken down by each applicable activity or offering 
including as may be defined in part 385 of this title. Where the 
blanket licensee will receive a response file under paragraph (k)(8) of 
this section, the mechanical licensing collective shall deliver the 
invoice to the blanket licensee contemporaneously with such response 
file. The mechanical licensing collective shall otherwise deliver the 
invoice to the blanket licensee in a reasonably timely manner. A report 
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 report of adjustment to the payment.
* * * * *
    (8) If requested by the blanket licensee, the mechanical licensing 
collective shall deliver a response file to the blanket licensee that 
contains the information required by paragraph (g)(2)(v) of this 
section to the extent applicable to the adjustment. The response file 
shall be delivered no later than 45 calendar days after receiving the 
relevant report of adjustment, unless the report of adjustment is 
combined with an annual report of usage, in which case the response 
file shall be delivered no later than 60 calendar days after receiving 
the relevant annual report of usage.
    (9) The mechanical licensing collective may make use of a 
transition period ending February 24, 2023, during which the mechanical 
licensing collective shall not be required to deliver invoices or 
response files within

[[Page 31428]]

the timeframes specified in paragraphs (k)(4) and (8) of this section.
* * * * *

    Dated: May 18, 2022.
Shira Perlmutter,
Register of Copyrights and Director of the U.S. Copyright Office.

Approved by:
Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2022-11174 Filed 5-23-22; 8:45 am]
BILLING CODE 1410-30-P


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