On October 11, 2018, the President signed into law the Orrin G. Hatch–Bob Goodlatte Music Modernization Act (“MMA”). This major piece of bipartisan legislation touches on nearly every aspect of U.S. copyright law that relates to licensing of either musical compositions or sound recordings. The legislation is the result of many years of examination of reform proposals by Congress and the Copyright Office and many years of negotiations among industry stakeholders. The lengthy MMA makes five principal sets of changes to the Copyright Act:
- Creation of a blanket statutory mechanical license for digital music providers, which will be administered by a new “Mechanical Licensing Collective;”
- Substantial federalization of copyright protection for pre-1972 sound recordings, which generally had been protected only under state law;
- Adoption of a “willing buyer, willing seller” rate standard to be used when setting rates for musical compositions and sound recordings under statutory licenses;
- Changes to procedures for “rate court” proceedings for public performance licenses administered by PROs ASCAP and BMI, including randomized assignment of judges to hear those proceedings and permitting those judges to consider royalty rates for sound recordings; and
- Providing statutory procedures for producers, mixers, and sound engineers to receive royalties for the use of sound recordings under a statutory license.
Blanket License for Digital Reproduction and Distribution of Musical Compositions
The MMA’s centerpiece is a major rewrite of the “mechanical” compulsory license provisions in Section 115 of the Copyright Act. That license was originally created as part of the Copyright Act of 1909 and was under strain, as ownership of musical composition copyrights became increasingly fractured and the industry migrated toward digital streaming as the dominant method of music distribution.
Providers of subscription audio streaming services have relied on compulsory mechanical licenses to obtain the right to reproduce and distribute musical compositions. Those licenses have been available only by serving on the copyright owner notices of intention (“NOIs”) that list individual musical compositions the provider intends to use, and then paying statutory royalties on those individual compositions. If a composition was not identified in the Copyright Office’s public records, an NOI could be filed in the Office, and no royalties would be payable. Digital music providers found this system difficult and expensive to administer, and music publishers and songwriters believed that providers often did not obtain valid licenses or pay required royalties. Music publishers and song writers began filing litigation against streaming services on that basis.
The goal of the MMA’s blanket license is to make compulsory mechanical license administration for digital uses simpler and more efficient and ensure that a higher proportion of usage results in payment of statutory royalties to the proper music publishers and songwriters. To do so, the MMA establishes the Mechanical Licensing Collective, a non-profit organization that will administer the blanket license industry-wide at the expense of digital music providers. Among other things, the Mechanical Licensing Collective will develop and provide a publicly accessible database of current ownership information for musical compositions. Because it will take some time to get the Collective up and running, the blanket license will not be available until January 1, 2021. To obtain a blanket license once they become available, a digital music provider will need only submit a notice to the Collective.
During the transition period (i.e., prior to the availability of blanket licenses on January 1, 2021), a digital music provider’s potential exposure to liability for copyright infringement is limited, so long as the digital music provider engages in good-faith, commercially reasonable efforts to identify, locate, and pay royalties to the owners of musical compositions, and pays any remaining unpayable royalties to the Collective once it is up and running.
The MMA does not materially affect mechanical licensing for physical copies (e.g., CDs and vinyl), or most record company mechanical licensing for permanent downloads. Because only digital music providers will be eligible for the blanket license, the direct effects of the new blanket license structure will largely be limited to digital music providers, music publishers, songwriters and some sound recording distributors that obtained compulsory licenses by filing NOIs. However, the musical works database should address a long-felt need for more accurate and timely ownership information for musical compositions, with the hope that it will simplify licensing of musical works for all uses.
Federal Protection for Pre-1972 Sound Recordings
A separate title of the MMA, referred to as the “Classics Protection and Access Act,” or the “Classics Act,” extends copyright-like federal protection to sound recordings fixed before February 15, 1972, commonly referred to as “pre-1972 recordings.” Previously, such recordings were largely excluded from the federal copyright system.
Instead, prior to the enactment of the MMA, pre-1972 recordings were protected under state statutory and common law. As a result, the law across the country lacked uniformity. For example, while most states gave the owner of a pre-1972 recording the right to control reproduction and distribution of its recording, the highest courts of two states determined that their state law provided no public performance right in pre-1972 sound recordings. Some large digital music services refused to pay the artists who created those works for the use of their recordings.
The Classics Act was originally designed as a response to judicial decisions finding no public performance right under state law, and earlier bills would have created only a federal public performance right in pre-1972 sound recordings. However, a last-minute compromise resulted in substantially full federalization of protection of pre-1972 recordings in the enacted version of the MMA.
Now, under a new Section 1401 of Title 17, owners of pre-1972 sound recordings have federal protection against unauthorized use of their recordings that largely mirrors the scope of federal copyright protection. That protection will continue for the following periods:
- For recordings published before 1923, the term of protection ends on December 31, 2021;
- For recordings published between 1923 and 1946, the term of protection continues until December 31 of the year 100 years after publication;
- For recordings published between 1947 and 1956, the term of protection continues until December 31 of the year 110 years after publication; and
- For all other recordings (including unpublished recordings and ones published after 1956), the term of protection ends on February 15, 2067.
While protection under Section 1401 largely mirrors federal copyright protection, there are important differences. For example, formalities such as registration do not apply, but there is a special statutory process for rights owners to record claims to works to be eligible to recover statutory damages. Additional provisions address settlements of state law claims. The Classics Act also includes a special statutory process for seeking permission for noncommercial uses of pre-1972 recordings that are not being commercially exploited.
The continuation of state protection for pre-1972 recordings when all other works were brought into the federal system in the Copyright Act of 1976 was a historical anomaly. That anomaly made increasingly less sense as the music market migrated away from physical product distribution and toward distribution by digital services with national reach. Federalizing protection for these works will provide uniform legal treatment that should facilitate commerce involving these recordings and result in consistent payment for the use of these works.
Willing Buyer, Willing Seller Rate Standard
Previously, some users of music under statutory licenses paid statutory royalties set under a “willing buyer, willing seller” standard, while others paid statutory royalties set under an older standard that had been interpreted to allow the Copyright Royalty Judges to set below-market rates. The MMA establishes a “willing buyer, willing seller” standard for setting royalty rates for mechanical licenses under Section 115 of the Copyright Act and for all users of sound recordings under the statutory license in Section 114 of the Copyright Act.
Changes to ASCAP and BMI Rate Court Proceedings
For many decades, royalty rates under performance licenses for musical composition issued by ASCAP and BMI have been subject to oversight by federal judges in the Southern District of New York, pursuant to consent decrees between those organizations and the Department of Justice dating back to 1941. Proceedings to set rates under those consent decrees are commonly referred to as “rate court” proceedings. Music publishers and songwriters have long sought changes to certain aspects of those proceedings. The MMA makes two such changes.
First, assignments of judges to hear rate-setting proceedings will now be made randomly, on a case-by-case basis. Previously, one judge had retained jurisdiction over each consent decree for many years. The aim of this change is to neutralize any perceived biases and bring a fresh perspective to each rate court case. It also means, however, that the outcomes of proceedings may be less predictable.
Second, the MMA removes a provision in Section 114(i) that previously prohibited the rate courts from considering evidence of royalty rates for sound recordings when setting rates for public performances of musical compositions. When Congress created the digital performance right in sound recordings, that provision was intended to protect musical composition rates from erosion. However, more than twenty years later, it seemed like an unnecessary constraint on the conduct of rate court proceedings.
Payment of Statutory Royalties to Producers, Mixers, and Sound Engineers
Yet another title of the MMA is referred to as the “AMP Act.” The AMP Act codifies procedures used to pay producers and certain other creative participants their share of Section 114 statutory royalties. It also creates a new process for such persons who contributed to pre-1995 recordings to claim a share of royalties when they are not able to obtain a “letter of direction” of the kind contemplated by many producer agreements. Finally, the AMP Act simplifies the tax treatment of situations where a producer is paid out of the artist’s share of statutory royalties.