“The Long and Winding Road” to Compensation: The Music Modernization Act of 2018

by: Briana Falcon, Senior Associate

On September 17, 2018, Ross Golan, multi-platinum song writer, published a letter in Variety.[1] The letter was addressed to Liberty Media, parent company to SiriusXM, and, in the letter, Golan expressed concern for SiriusXM’s opposition to the Music Modernization Act.[2] Golan did not speak alone. Some of the most prolific songwriters and recording artists in history signed on to the letter to show their support for the MMA.[3] Notable among the list are Sir Paul McCartney, Don Henley, Stevie Nicks, Mick Fleetwood, and Steven Tyler. As Golan correctly noted in the letter, SiriusXM remained the lone holdout to the “historic law.” The Act received widespread, bipartisan support and, less than one month after Golan’s letter was published, President Trump signed into law the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (the “Act”).[4] For the first time, the Copyright Act of 1976 makes honest efforts to address the new challenges raised by Digital Service Providers (“DSPs”) like SiriusXM and Pandora. The MMA represents the largest reform to the Copyright Act in decades.

First, Title I of the Act creates a centralized entity called a Mechanical Licensing Collective.[5] The Collective will be funded by DSPs who, in turn, will be granted blanket mechanical licenses for downloads and streaming. Second, and most notably for legacy artists like Sir Paul McCartney, the Classics Protection and Access Act (the “CPA Act”), provides federal copyright protection for sound recordings fixed before 1972.[6] The CPA Act is incorporated as Title II of the Act. Third, the MMA directs the Copyright Royalty Board (“CRB”) to set the statutory rate for compulsory licenses under the willing buyer, willing seller standard of valuation.[7] Finally, under the Act, district judges in the Southern District of New York would form the “wheel” of district judges authorized to settle resolve rate setting disputes.[8] Before the Act was enacted, licensees and performing rights organizations alike were assigned to a single judge for the purpose of rate setting disputes.[9] Notably, Title III of the Act–the Allocation for Music Producers Act—makes important changes to royalty allocations to producers and engineers. Title III will not be discussed in this blog post.

I. The Mechanical Licensing Collective

Title I overhauls Section 115(b) of the Copyright Act and attempts to improve compensation to rights holders by creating a new, centralized database called the Mechanical Licensing Collective (“MLC”).[10] The MLC functions to issue blanket mechanical licenses—grants of the right to produce and release a work in exchange for a royalty[11]—to DSPs. The new licensing system is intended to eliminate the need for song-by-song licensing negotiations. Significantly, at least in theory, the creation of the MLC could make litigation over mechanical royalties obsolete—like the $1.6 billion infringement action currently pending against Spotify.[12]

In a petition filed on December 29, 2017, Wixen Music Publishing (“Wixen”) accused Spotify of repeated violations of federal copyright law.[13] According to commentators and attorneys familiar with the matter, Wixen’s copyright suit has merit.[14] Wixen is an exclusive licensee of songs like Tom Petty’s “Free Fallin,” the Doors’ “Light My Fire,” and Weezer’s “(Girl We Got a) Good Thing.”[15] The petition alleges Spotify failed to acquire either direct or compulsory licenses from Wixen that would allow for reproduction and distribution of the songs.[16]

Wixen’s allegations make sense. Before passage of the Act, high transactional costs prevented DSPs and third-party agencies from tracking down and compensating the rights holders for the millions of songs that make up the catalogs of DSPs, like SiriusXM. The MLC aims to solve this problem. DSPs that follow Section 115’s requirements and are still unable to locate copyright owners will receive a blanket license to use the repertoire. The DPS will turn over any accrued royalties for unmatched works to the Collective and will avoid penalty and the risk of liability for copyright infringement. In theory, costly litigation will be avoided and rights holders are assured compensation.

II. The Classics Protection and Access Act

The Classics Protection and Access Act (“CPA Act”) provides important compensation for copyright owners of sound recordings made before 1972.[17] Prior to its passage, the public performance right for sound recordings fixed before February 15, 1972 were outside of federal purview. As a result, pre-1972 sound recordings were covered by the legal regimes of the various states.

In 2011, the United States Copyright Office released its findings on the desirability of and means federalizing sound recordings fixed before February 15, 1972.[18] Registrar of Copyrights, Maria A. Pallante, urged that bringing pre-1972 sound recordings into the federal copyright system would serve the interests of consistency and certainty.[19] The newly enacted CPA Act, incorporated as Title II of the Act, achieves this end. Sound recordings of all ages are afforded a term of 95 years of protection measured from the date of first publication.[20]

III. The Willing Buyer, Willing Seller Standard

Section 115 of the Copyright Act allows individuals to obtain a compulsory license to reproduce a work in exchange for a statutory rate.[21] Before the Act was passed, the Copyright Royalty Board used inequitable standards, like the now unnecessary discount for “pre-existing services,” to set the statutory rate.[22] The Act replaces this standard with a uniform willing buyer, willing seller rate that is meant to approximate rates that would be negotiated in a free market. To determine the appropriate rate, the Copyright Royalty Judges will consider economic, competitive and programing information presented by the parties.[23] The new standard will benefit rights holders who have, until now, been prevented from introducing relevant evidence in rate court proceedings.

IV. The “Wheel” Approach

Before the Act, performance rights societies, like the American Society of Composers, Authors, and Publishers (“ASCAP”) and Broadcast Music Inc. (“BMI”), were each assigned to a single, respective rate court judge for the purpose of resolving rate disputes.[24] Under the new “wheel” approach, a district judge in Southern District of New York would be randomly assigned from a set of district judges to resolve rate disputes. This new system will ensure that judges approach each dispute “without impressions derived from prior cases.”[25] This will, in hope, benefit to licensees and performance rights societies alike.

Rapid technological changes and evolving consumer preferences have long outpaced United States copyright law. The Act aims to eliminate inconsistent rules that place certain technologies at a disadvantage and result in inequitably variable compensation for creators. There is work yet to be done, but the Act represents a positive step forward.

[1] Shirley Halperin, Paul McCartney, Don Henley, Katy Perry, More Pen Letter to SiriusXM: ‘We Will Boycott, Variety (Sept. 17, 2018, 1:30 PM), https://variety.com/2018/music/news/katy-perry-pink-max-martin-artist-letter-siriusxm-boycott-music-modernization-act-1202944141/ [https://perma.cc/3SSS-HENC]; see also Variety Staff, SiriusXM Responds to Artists’ Letter Threatening Boycott, Variety (Sept. 17, 2018, 3:21 PM), https://variety.com/2018/biz/news/siriusxm-responds-artists-letter-boycott-1202945226/ [https://perma.cc/WF84-Q4XS] (“Contrary to new reports and letters, this is really not about a SiriusXM victory, but implementing some simple, reasonable and straightforward amendments to MMA. There is nothing in our ‘asks’ that gut the MMA or kills the Act.”).

[2] S. 2823, 115th Cong. (2018) (Music Modernization Act of 2018).

[3] Halperin, supra note 1.

[4] Orrin G. Hatch-Bob Goodlatte Music Modernization Act, Pub. L. No. 115-364, 132 Stat. 3676 (2018); Remarks by President Trump at Signing of H.R. 1551, the “Orrin G. Hatch-Bob Goodlatte Music Modernization Act” (Oct. 11, 2018), https://www.whitehouse.gov/briefings-statements/remarks-president-trump-signing-h-r-1551-orrin-g-hatch-bob-goodlatte-music-modernization-act/ [https://perma.cc/98SP-NJ3A].

[5] S. 2823, 115th Cong. (Music Modernization Act of 2018).

[6] Emmanuel Legrand, US Music Modernization Act Becomes “The Law of the Land”; A Boost for Songwriter Compensation, Intell. Prop. Watch, 2018 WL 4939276 (Oct. 12, 2018).

[7] Id.

[8] Id.

[9] The Music Modernization Act, House of Representatives Judiciary Committee, https://judiciary.house.gov/wp-content/uploads/2018/04/MMA.pdf [https://perma.cc/J5XW-6MKV] (last visited Oct. 18, 2018).

[10] S. 2823, 115th Cong. (2018) (Music Modernization Act of 2018).

[11] Mechanical license, Black’s Law Dictionary (10th ed. 2014).

[12] Complaint, Wixen Music Publishing Inc. v. Spotify USA Inc., No. 17-cv-9288, 2017 WL 6663826 (C.D. Cal. Dec. 29, 2017).

[13] Id.

[14] Patrick H.J. Hughes, Copyright Suit Against Spotify Has Merit, Attorneys Say, Wixen Music Publishing v. Spotify USA, 24 Westlaw J. Intell. Prop. 2 (Jan. 17, 2018).

[15] Spotify hits with $1.6 billion copyright lawsuit, Reuters (Jan. 2, 2018), https://www.reuters.com/article/us-spotify-lawsuit/spotify-hit-with-1-6-billion-copyright-lawsuit-idUSKBN1ER1RX [https://perma.cc/HT7A-ZF95].

[16] Id.

[17] Patrick H.J. Hughes, Music Modernization Act gets Senate approval, 36 Westlaw J. Computer & Internet 09 (Oct. 5, 2018).

[18] U.S. Copyright Office, Federal Copyright Protection for Pre-1972 Sound Recordings (2011).

[19] Id.

[20] 17 U.S.C. §1401(a)(2)(A). Sound recordings are also protected during a transition period of 3 to 15 years. Id.

[21] 17 U.S.C. § 115 (2010) (entitled “Scope of exclusive rights in nondramatic musical works: Compulsory license for making and distributing phonorecords”).

[22] H.R. Rep. No. 115–651 (“The Committee finds no current justification for such 40-year old discounts that harm

copyright owners as well as competitors of such pre-existing services.”).

[23] Id.

[24] Summary of H.R. 1551, the Music Modernization Act (MMA), Copyright Alliance, https://copyrightalliance.org/wp-content/uploads/2018/09/CA-MMA-HR1551-Summary.pdf [https://perma.cc/5ZYE-PDHB] (last visited Oct. 18, 2018); Overview of the Music Modernization Act, House of Representatives, https://lieu.house.gov/sites/lieu.house.gov/files/Overview%20of%20the%20Music%20Modernization%20Act.pdf [https://perma.cc/MHD6-UXVQ] (last visited Oct. 18, 2018).

[25] Id.