Rule2022-11174
Music Modernization Act Notices of License, Notices of Nonblanket Activity, Data Collection and Delivery Efforts, and Reports of Usage and Payment
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 24, 2022
Effective
May 24, 2022
Issuing agencies
Library of CongressCopyright Office, Library of Congress
Abstract
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.
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 100 (Tuesday, May 24, 2022)</title>
</head>
<body><pre>
[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11174]
=======================================================================
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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 <a href="http://regulations.gov">regulations.gov</a> system for the submission and posting of
public comments in this proceeding. All comments are therefore to be
submitted electronically through <a href="http://regulations.gov">regulations.gov</a>. Specific instructions
for submitting comments are available on the Copyright Office's website
at <a href="https://www.copyright.gov/rulemaking/mma-notices-reports/">https://www.copyright.gov/rulemaking/mma-notices-reports/</a>. 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\4\ 85 FR 58114 (Sept. 17, 2020).
\5\ 37 CFR 210.27(f), (g)(3)-(4), (k).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\14\ Id. at 210.27(k)(6).
\15\ Id. at 210.27(g)(4)(ii).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\16\ Id. at 210.27(k)(3).
\17\ 85 FR 22518.
\18\ 85 FR 58114, 58138 (internal citations omitted).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\19\ 37 CFR 210.27(k)(4); 85 FR 58114, 58139 n.341.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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 <a href="https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html">https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html</a>. All rulemaking
activity, including public comments, as well as educational material
regarding the Music Modernization Act, can currently be accessed via
navigation from <a href="https://www.copyright.gov/music-modernization/">https://www.copyright.gov/music-modernization/</a>.
\26\ See 85 FR 84243 (Dec. 28, 2020), 86 FR 12822 (Mar. 5,
2021).
\27\ DLC Ex Parte Letter at 1 (Mar. 14, 2022).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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), <a href="https://www.copyright.gov/legislation/_conference_report.pdf">https://www.copyright.gov/legislation/_conference_report.pdf</a>; 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'').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\44\ MLC Ex Parte Letter at 3 & n.2 (Apr. 4, 2022).
\45\ Id. at 3 n.2.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\46\ 85 FR 58114, 58115.
\47\ Id. at 58115-16.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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'').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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)'').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\57\ Compare 37 CFR 210.27(g)(3) with id. at 210.27(k)(4).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\58\ Id. at 210.27(k)(1).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\59\ Id. at 210.27(g)(4).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on May 24, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.