Source: https://blog.ericgoldman.org/archives/2019/01/an-analysis-of-title-i-and-title-iii-of-the-music-modernization-act-part-2-of-2-guest-blog-post.htm
Timestamp: 2019-04-24 09:42:14+00:00

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The Collective is not liable for “good-faith administration of policies and procedures adopted and implemented to carry out” these provisions, “except to the extent of correcting an underpayment or overpayment of royalties.” “Good-faith administration” means “in a manner that is not grossly negligent.” [17 U.S.C. §115(d)(11)(D)] However, “the collective may participate in a legal proceeding as a stakeholder party if the collective is holding funds that are the subject of a dispute between copyright owners.” [Id.] “The holding and distribution of funds by the [Collective] … shall supersede and preempt any State law … concerning escheatment or abandoned property.” [17 U.S.C. §115(d)(11)(E)] Whether distributing unclaimed royalties to other copyright owners complies with the Due Process Clause of the Fifth Amendment, however, is a serious and open question.
Section 102(f) of the MWM Act directs the Copyright Office to prepare a report recommending best practices to “identify and locate musical work copyright owners with unclaimed accrued royalties,” “encourage musical work copyright owners to claim” those royalties, and “reduce the incidence of unclaimed royalties.” The report is due to Congress no later than 2 years after the initial designation of the Collective (which will occur no later than July 8, 2019).
This section is ambiguous, with two possible meanings. It could mean that if a digital music provider wants to engage in covered activity, it must either do so on an individual work-by-work basis, or obtain a blanket license; and that if it obtains a blanket license, that blanket license supersedes any individual licenses (except a permanent download license, which will continue in effect unless and until the record company terminates it in writing, in which case the blanket license will supersede it at the beginning of the next month). Or, it could mean that the substitution of “a blanket license” is mandatory, whether or not the digital music provider wants a blanket license or attempted to obtain one. Given that Congress used the words “may obtain a blanket license” in subsection (d)(2), and provided a procedure for obtaining the blanket license as an alternative to an individual license, the better reading is the first one; but litigation about the meaning of this section certainly is possible.
“[Except as provided in (A),] licenses // other than individual download licenses obtained under this section for covered activities prior to the license availability date // shall no longer continue in effect.” This is the only reading that definitely can be excluded, because it does not specify which licenses “shall no longer continue in effect.” Surely Congress did not intend to nullify all licenses (or all those relating to musical works).
“[Except as provided in (A),] licenses // other than individual download licenses obtained under this section // for covered activities prior to the license availability date shall no longer continue in effect.” This further limits the licenses that “shall no longer continue in effect” to those “for covered activities” (meaning that licenses for things other than digital phonorecord delivery would continue in effect); but it suffers from the same grammatical problem as the second reading, thereby also making it unlikely.
“[Except as provided in (A),] licenses // other than individual download licenses // obtained under this section for covered activities prior to the license availability date shall no longer continue in effect.” This reading makes the most sense grammatically, as the clause “prior to” now modifies the verb “obtained.” Under this reading, section 115 licenses for covered activities (digital phonorecord delivery) obtained prior to January 1, 2021 shall no longer continue in effect, with two exceptions: 1) individual download licenses may continue in effect; and 2) licenses that are automatically substituted under (A) or that are exempt from automatic substitution under (A) may continue in effect. The only significant objection to this reading is that it is redundant, because the “individual download licenses” that continue in effect under subparagraph (B) overlap substantially with the “permanent downloads” that may continue in effect under subsection (A). Nonetheless, this appears to be the best reading of this poorly-written subsection.
Subsection (d)(9)(D) provides that as of the enactment date (October 11, 2018), “the Copyright Office shall no longer accept notices of intention with respect to covered activities,” and that “notices of intention filed before [October 11, 2018] will no longer be effective or provide license authority with respect to covered activities.” However, if a valid notice of intention was filed with the Copyright Office before October 11, 2018, the person who filed it cannot be held liable for infringement for covered activities before January 1, 2021.
Performing rights organizations (PROs) license the right to publicly perform any of the musical works in their repertoire, collect the royalties, and distribute them to musical work copyright owners. The three longstanding PROs are ASCAP (American Society of Composers, Authors and Publishers, BMI (Broadcast Music, Inc.), and SESAC (originally the Society of European Stage Authors and Composers, but now open to American copyright owners as well). They were recently joined by a new invitation-only PRO for musical work copyright owners called Global Music Rights (GMR).
Until now, successive rate proceedings for each PRO were typically assigned to the same judge each time (provided that judge was still active), on the theory that the judge had continuing jurisdiction over the consent decree and would already be familiar with the consent decrees, the parties, and the methodology. To overcome any actual or perceived bias, however, section 104(b)(1)(B) of the MWM Act provides that rate proceedings will now be “randomly assigned to a judge of that district court according to the rules of that court for the division of business among district judges,” except that such rate proceedings specifically shall not be assigned to “a judge to whom continuing jurisdiction over … any performing rights society consent decree is assigned or has previously been assigned,” or to a judge to whom any other rate proceeding has been assigned. Under section 104(b)(1)(C), however, this random assignment does not apply to proceedings under 17 U.S.C. § 513, which provides that individual proprietors who own seven or fewer non-publicly traded establishments may challenge the ASCAP or BMI rates either in the Southern District of New York, or in the District Court “that is the seat of the Federal circuit … in which the proprietor’s establishment is located.” Moreover, under section 104(b)(2), the judge with continuing jurisdiction over the consent decree will still construe the meaning of any terms in the consent decree; he or she is divested only of rate-setting proceedings.
In the absence of a voluntary agreement, the rates for the section 114(d)(2) compulsory license are set by the Copyright Royalty Board. Former section 114(f) provided for two types of rates for compulsory licenses: one for “subscription transmissions by preexisting subscription services and transmissions by preexisting satellite digital audio radio services” [Former 17 U.S.C. § 114(f)(1)] and one for “eligible nonsubscription transmission services and new subscription services” [Former 17 U.S.C. § 114(f)(2)]. The dichotomy arose because the 1998 Digital Millennium Copyright Act amended section 114 by adding “eligible nonsubsciption transmis­sions” to the statute and providing that those transmissions (and new subscription services) would be subject to “rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” [Former 17 U.S.C. § 114(f)(2)(B)] Because of the reliance by preexisting services on the terms of the 1995 Digital Audio Performances in Sound Recordings Act, however, Congress left the terms of the statute alone with regard to those preexisting services. In particular, Congress did not impose the “willing buyer, willing seller” standard on preexisting services.
Congress has apparently now decided that the dichotomy between preexisting services (those that existed before the DMCA) and new services (including webcasting) are no longer justified. [The legislative history refers to “the now unnecessary discount for so-called “pre-existing services” and states “[w]hatever justification for the discounts has long since vanished.” [Goodlatte Report, p. 13] Section 103 of the MWM Act eliminates the distinction between preexisting services and new services, combining both into an amended section 114(f)(1), and subjecting both to the “willing buyer, willing seller” standard. [17 U.S.C. §114(f)(1)] To placate the preexisting services (Sirius XM and Music Choice), Congress extended the existing rates for such services until December 31, 2027. [MWM Act §103(i)] The remaining three subsections (f)(3), (f)(4) and (f)(5) are renumbered as (f)(2), (f)(3) and (f)(4), but are otherwise unchanged.
What is the purpose of this repeal and re-enactment? The original purpose of former section 114(i) is evident in its original second sentence (which was not reenacted), which read: “It is the intent of Congress that the royalties payable to copyright owners of musical works for the public performance of their works shall not be diminished in any respect as a result of the rights granted by section 106(6).” Congress was apparently concerned that digital broadcasters would plead poverty, and would try to use the existence of their new royalty obligations to sound recording copyright owners (added in 1995) to reduce the royalty rates due to musical work copyright owners (collected by PROs such as ASCAP and BMI) for the public performance of their musical works. The legislative history says that the repeal was intended “to address the long­standing concern that songwriters have not been adequately compensated for their contributions and section 114(i) prevents songwriters from introducing potentially relevant evidence in rate court proceedings.” [Goodlatte Report, p. 13] In other words, songwriters (the initial musical work copyright owners) believed that introducing evidence of sound recording license fees would not harm them, and might help them, in setting royalty rates for the use of musical works. Nonetheless, because of the re-enactment with an exception, the repeal is effectively limited to rate proceedings for the use of musical works in digital audio transmissions. This apparently includes rate proceedings under the ASCAP and BMI consent decrees, plus the new blanket license for interactive streaming (which is, by definition, also a digital audio transmission).
In repealing subsection 114(i), Congress did not redesignate existing subsection 114(j). So, section 114 now has subsections (a) through (h) and subsection (j), skipping subsection (i) altogether. One suspects this will be cleaned up in a subsequent technical amendment.
Title III of Public Law 115-264, the Allocation for Music Producers Act, or AMP Act, amends section 114(g) of the Copyright Act. Under existing law, section 114(g) provides that proceeds from the compulsory license for digital audio transmission of sound recordings are to be distributed as follows: 50 percent to the sound recording copyright owner, 45 percent to featured artists, 2.5 percent to non-featured musicians, and 2.5 percent to non-featured vocalists. That distribution remains unchanged, except that all references to a collecting “agent” are amended to refer instead to a “nonprofit collective” (the current nonprofit collective for the section 114 compulsory license is SoundExchange), and three new subsections are added.
New subsection 114(g)(5) requires the collective to “adopt and reasonably implement a policy that provides … for acceptance of instructions from” either sound recording copyright owners or featured artists, directing the collective to pay a portion of their share of royalties to “a producer, mixer, or sound engineer who was part of the creative process that created a sound recording.” [17 U.S.C. § 114(g)(5)(A)] These instructions are dubbed “letters of direction.” The statute does not specify any particular share of royalties to be paid to producers, mixers, and sound engineers. Letters of direction are voluntary under the statute, although one assumes that producers, mixers, and sound engineers may require them in their record contracts. (In fact, according to the legislative history, “SoundExchange has had a policy since 2004 of honoring” such letters of direction, and has approximately 2,000 already on file. [Goodlatte Report, p. 16] Thus, this section seems designed simply to give Congressional imprimatur to existing policy.
New subsection (g)(7) provides that the federal law concerning distribution of these royalties preempts any state law concerning abandonment and escheat. [17 U.S.C. § 114(g)(7)] The effective date for the collective to accept letters of direction and make mandatory distributions (or, more precisely, to limit its liability for doing so) is January 1, 2020. [AMP Act §303(b)] The rest of the AMP Act went into effect upon enactment.
The MWM Act is so complex that words like “baroque” or “byzantine” are inadequate to fully capture its complexity. Instead, one can only recall the title of an article that David Nimmer wrote on the Digital Performance Rights in Sound Recordings Act, Ignoring the Public, Part I: On the Absurd Complexity of the Digital Audio Transmission Right, 7 UCLA Ent. L. Rev. 189 (2000). Like section 114 and former section 115, the subjects of that article, the new section 115 (as amended by the MWM Act) is even more absurdly complex, and it essentially ignores the public interest in favor of a negotiated agreement between existing stakeholders, exacerbating a trend toward regulatory and legislative capture first identified by Jessica Litman in her seminal article, Copyright, Compromise, and Legislative History, 72 Cornell L. Rev. 857 (1987). These statutes read like negotiated agreements between existing stakeholders because that is exactly what they are: Congress invites existing stakeholders to negotiate what they want, and it enacts whatever contractual provisions the stakeholders agree upon, so long as they keep the campaign contributions flowing.
On the plus side, the MWM Act resolves some disputes between the existing stakeholders concerning the application of former 115 to interactive streaming services, and it potentially reduces the transactions costs needed for digital music providers to obtain a license to make musical works available through such services. It also attempts to grapple with the problem of orphan works in the music industry. Indeed, creating a comprehensive musical works database and making it public is perhaps the single best thing to emerge from the Act. But those benefits come with the costs of further entrenching existing stakeholders and business models in statutory language, erecting barriers to entry for new entities in the form of an impenetrable tangle of statutory language that deters all but repeat players from engaging in the system. Moreover, distributing unclaimed royalties from orphan musical works to other musical work copyright owners seems like little more than a naked money grab. To those that complain that corporate interests have captured Congress and that the public has little to no say in the laws that Congress enacts, the MWM Act might well serve as Exhibit A.

References: §115
 §115
 § 513
 § 114
 § 114
 § 114
 §114
 §103
 § 114
 § 114
 §303