Rule2024-14609
Termination Rights, Royalty Distributions, Ownership Transfers, Disputes, and the Music Modernization Act
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
July 9, 2024
Effective
August 8, 2024
Issuing agencies
Library of CongressCopyright Office, Library of Congress
Abstract
The U.S. Copyright Office is issuing a final rule regarding how the Copyright Act's derivative works exception to termination rights applies to the statutory mechanical blanket license established by the Music Modernization Act. The final rule also addresses other matters relevant to identifying the proper payee to whom the mechanical licensing collective must distribute royalties. Among other things, the Office is adopting regulations addressing the mechanical licensing collective's distribution of matched historical royalties and administration of ownership transfers, other royalty payee changes, and related disputes.
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 131 (Tuesday, July 9, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Rules and Regulations]
[Pages 56586-56617]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14609]
[[Page 56585]]
Vol. 89
Tuesday,
No. 131
July 9, 2024
Part III
Library of Congress
-----------------------------------------------------------------------
Copyright Office
-----------------------------------------------------------------------
37 CFR Part 210
Termination Rights, Royalty Distributions, Ownership Transfers,
Disputes, and the Music Modernization Act; Final Rule
Federal Register / Vol. 89 , No. 131 / Tuesday, July 9, 2024 / Rules
and Regulations
[[Page 56586]]
-----------------------------------------------------------------------
LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 210
[Docket No. 2022-5]
Termination Rights, Royalty Distributions, Ownership Transfers,
Disputes, and the Music Modernization Act
AGENCY: U.S. Copyright Office, Library of Congress.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Copyright Office is issuing a final rule regarding
how the Copyright Act's derivative works exception to termination
rights applies to the statutory mechanical blanket license established
by the Music Modernization Act. The final rule also addresses other
matters relevant to identifying the proper payee to whom the mechanical
licensing collective must distribute royalties. Among other things, the
Office is adopting regulations addressing the mechanical licensing
collective's distribution of matched historical royalties and
administration of ownership transfers, other royalty payee changes, and
related disputes.
DATES: This rule is effective August 8, 2024. However, compliance by
the mechanical licensing collective, other than with respect to
Sec. Sec. 210.27(g)(2)(ii)(B)(1), 210.29(b)(4)(i)(C), 210.29(k), and
210.30(c)(1)(i)(B), is not required until the first distribution of
royalties based on the first payee snapshot taken after October 7,
2024. The Copyright Office may, upon request, extend the compliance
deadlines in its discretion by providing public notice through its
website.
FOR FURTHER INFORMATION CONTACT: Rhea Efthimiadis, Assistant to the
General Counsel, by email at <a href="/cdn-cgi/l/email-protection#6c01090a182c0f031c151e050b0418420b031a"><span class="__cf_email__" data-cfemail="1f727a796b5f7c706f666d7678776b31787069">[email protected]</span></a> or telephone at 202-
707-8350.
SUPPLEMENTARY INFORMATION:
I. Background
The Copyright Office (``Office'') issues this final rule subsequent
to a supplemental notice of proposed rulemaking (``SNPRM''), published
in the Federal Register on September 26, 2023,\1\ and a notice of
proposed rulemaking (``NPRM''), published in the Federal Register on
October 25, 2022.\2\ This final rule assumes familiarity with the NPRM
and SNPRM, as well as the public comments received in response to those
notices.\3\
---------------------------------------------------------------------------
\1\ 88 FR 65908 (Sept. 26, 2023).
\2\ 87 FR 64405 (Oct. 25, 2022).
\3\ The NPRM stemmed from a previous rulemaking, discussed in
detail in the NPRM, that involved multiple rounds of public comments
through a notification of inquiry, 84 FR 49966 (Sept. 24, 2019), a
notice of proposed rulemaking, 85 FR 22518 (Apr. 22, 2020), and an
ex parte communications process. 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 MMA, can currently be accessed
via navigation from <a href="https://www.copyright.gov/music-modernization">https://www.copyright.gov/music-modernization</a>.
Comments received in response to the NPRM and SNPRM are available at
<a href="https://copyright.gov/rulemaking/mma-termination/">https://copyright.gov/rulemaking/mma-termination/</a>. References to the
public comments are by party name (abbreviated where appropriate),
followed by ``NPRM Initial Comments,'' ``NPRM Reply Comments,''
``SNPRM Initial Comments,'' ``SNPRM Reply Comments,'' or ``Ex Parte
Letter,'' as appropriate.
---------------------------------------------------------------------------
While the final rule retains many elements from the SNPRM, it also
adopts a number of changes in response to the public comments,
including a scaling back of certain proposals. We have adopted a number
of commenter suggestions where reasonable, and have striven to
establish a fair and balanced approach to the issues presented in this
proceeding. In particular, the Office has endeavored to find solutions
to the practical and administrative concerns that were raised by
commenters. We are thankful for their participation in this process.
This document first summarizes the Office's earlier proposals and
the public comments. It next addresses questions raised regarding our
rulemaking authority. Finally, it discusses the different parts of the
final rule: termination and the derivative works exception; the
copyright owner entitled to blanket license royalties; matched
historical royalties; ownership transfers and royalty payee changes;
disputes; the corrective royalty adjustment; and the rule's effective
date and compliance deadline.
A. The NPRM
The Office commenced this proceeding after the Mechanical Licensing
Collective (``MLC'') \4\ adopted a termination dispute policy
(``Termination Policy'') that conflicted with prior Office guidance and
was based on an erroneous interpretation of how the Copyright Act's
derivative works exception (``Exception'') to termination rights
applies to the statutory mechanical blanket license (``blanket
license'') established by the Orrin G. Hatch-Bob Goodlatte Music
Modernization Act (``MMA'').\5\ The Office concluded it was necessary
to address the legal issues more directly, including how termination
law and the Exception intersect with the blanket license.\6\ In the
NPRM, it explained that clarifying the issues ``would provide much
needed business certainty to music publishers and songwriters'' and
``would enable the MLC to appropriately operationalize the distribution
of post-termination royalties in accordance with existing law.'' \7\
The NPRM contained a detailed discussion of the procedural background
leading to this rulemaking,\8\ the Office's regulatory authority,\9\
and legal background about the Copyright Act's termination provisions
and the Exception.\10\
---------------------------------------------------------------------------
\4\ The preamble uses the terms ``Mechanical Licensing
Collective'' or ``MLC'' to refer to the currently designated
mechanical licensing collective. The regulatory text uses the
lowercase statutory term ``mechanical licensing collective,'' as the
regulations apply to any designated mechanical licensing collective,
including the current or any future designee.
\5\ 87 FR 64405, 64407.
\6\ Id.
\7\ Id. (``Moreover, without the uniformity in application that
a regulatory approach brings, the Office is concerned that the MLC's
ability to distribute post-termination royalties efficiently would
be negatively impacted.'').
\8\ Id. at 64406-07.
\9\ Id. at 64407-08.
\10\ Id. at 64408-10.
---------------------------------------------------------------------------
The Office then analyzed the application of the Exception in the
context of the blanket license and preliminarily concluded that the
MLC's Termination Policy was ``inconsistent with the law.'' \11\ We
explained that ``[w]hether or not the Exception applies to a [digital
music provider's (``DMP's'')] blanket license (and the Office concludes
that the Exception does not), the statute entitles the current
copyright owner to the royalties under the blanket license, whether
pre- or post-termination.'' \12\ This means that ``the post-termination
copyright owner (i.e., the author, the author's heirs, or their
successors, such as a subsequent publisher grantee) is due the post-
termination royalties paid by the DMP to the MLC.'' \13\
---------------------------------------------------------------------------
\11\ Id. at 64410-11.
\12\ Id. at 64411.
\13\ Id.
---------------------------------------------------------------------------
The Office proposed a rule to recognize the payee under the blanket
license who is legally entitled to royalties following a statutory
termination.\14\ We also proposed to require the MLC to immediately
repeal its Termination Policy in full after concluding that it was
``contrary to the Office's interpretation of current law.'' \15\ We
further proposed to require the MLC to adjust any royalties distributed
under the policy within 90
[[Page 56587]]
days to make copyright owners whole for any distributions it made based
on ``an erroneous understanding and application of current law.'' \16\
---------------------------------------------------------------------------
\14\ Id. at 64411-12.
\15\ Id. at 64412.
\16\ Id.
---------------------------------------------------------------------------
After the NPRM was published, the MLC said that it voluntarily
``suspended [its Termination Policy] pending the outcome of the
[Office's] rulemaking proceeding'' and will ``hold[ ] all royalties for
uses of musical works that are subject to statutory termination claims
beginning with the royalties for the October 2022 usage period, which
would have been initially distributed in January 2023.'' \17\ To the
Office's knowledge, the MLC continues to hold such royalties.
---------------------------------------------------------------------------
\17\ The MLC, Policies, <a href="https://www.themlc.com/dispute-policy">https://www.themlc.com/dispute-policy</a>
(last visited June 14, 2024).
---------------------------------------------------------------------------
B. The NPRM Comments
The Office received over 40 public comments in response to the
NPRM. These comments reflected the views of hundreds of interested
parties, including songwriters, music publishers and administrators,
record companies, public interest groups, academics, and practitioners.
Most commenters, including multiple music publishers and
administrators, generally supported the NPRM.\18\ While some commenters
raised concerns with certain aspects of the NPRM,\19\ the National
Music Publishers' Association (``NMPA'') was the only commenter to
oppose the proposed rule more broadly, though it supported the NPRM's
goal of ``ensuring that royalties for uses under the Section 115(d)
blanket license . . . are paid to the proper copyright owner.'' \20\
---------------------------------------------------------------------------
\18\ See, e.g., Authors All. et al. NPRM Initial Comments at 1-
3; BMG Rights Mgmt. NPRM Initial Comments at 1-2; BMG Rights Mgmt.
NPRM Reply Comments at 1; ClearBox Rights NPRM Initial Comments at
2, 6-8; Fishman & Garcia NPRM Initial Comments at 1-4; Gates NPRM
Reply Comments; Howard NPRM Initial Comments at 1-2; Howard NPRM
Reply Comments at 2-3; King, Holmes, Paterno & Soriano LLP NPRM
Initial Comments; Landmann NPRM Initial Comments; Miller NPRM
Initial Comments; North Music Grp. NPRM Reply Comments at 2-3; NSAI
NPRM Initial Comments at 3; Promopub NPRM Initial Comments at 1-2;
Promopub NPRM Reply Comments at 1-2; Recording Academy NPRM Reply
Comments at 2-3; Rights Recapture NPRM Initial Comments; SGA et al.
NPRM Initial Comments at 1-2, 5; SONA et al. NPRM Initial Comments
at 2-3; SONA et al. NPRM Reply Comments at 3; Songwriters NPRM Reply
Comments at 1; Wixen Music Publ'g NPRM Initial Comments at 1-2.
\19\ See, e.g., CMPA NPRM Initial Comments at 1-2; A2IM & RIAA
NPRM Reply Comments at 1-2; MPA NPRM Reply Comments at 2-5.
\20\ See generally NMPA NPRM Initial Comments; NMPA Ex Parte
Letter (Feb. 6, 2023).
---------------------------------------------------------------------------
Several commenters, including the MLC, sought additional guidance
from the Office on various related issues not directly addressed by the
NPRM. Examples include the following:
<bullet> Application of the Exception to other types of statutory
mechanical licenses; \21\
---------------------------------------------------------------------------
\21\ See, e.g., MLC NPRM Initial Comments at 6; MLC NPRM Reply
Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox
Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5;
King, Holmes, Paterno & Soriano LLP NPRM Initial Comments.
---------------------------------------------------------------------------
<bullet> Application of the Exception to voluntary licenses; \22\
---------------------------------------------------------------------------
\22\ See, e.g., MLC NPRM Initial Comments at 4-6; MLC NPRM Reply
Comments at 2; ClearBox Rights NPRM Initial Comments at 6; ClearBox
Rights NPRM Reply Comments at 2; Howard NPRM Initial Comments at 5;
Rights Recapture NPRM Initial Comments.
---------------------------------------------------------------------------
<bullet> Procedures for carrying out the proposed corrective
royalty adjustment to remedy prior distributions by the MLC based on an
erroneous understanding and application of the Exception; \23\
---------------------------------------------------------------------------
\23\ See, e.g., MLC NPRM Initial Comments at 6-8; ClearBox
Rights NPRM Reply Comments at 3-4; ClearBox Rights Ex Parte Letter
at 2-4 (June 28, 2023); Howard NPRM Initial Comments at 6; Promopub
NPRM Initial Comments at 2; Promopub NPRM Reply Comments at 3; North
Music Grp. NPRM Reply Comments at 2.
---------------------------------------------------------------------------
<bullet> Procedures concerning notice, documentation, timing, and
other matters relating to the MLC's implementation of a termination
notification; \24\ and
---------------------------------------------------------------------------
\24\ See, e.g., MLC NPRM Initial Comments at 10-11; ClearBox
Rights NPRM Initial Comments at 8; ClearBox Rights NPRM Reply
Comments at 5-6; Howard NPRM Initial Comments at 3-5; Howard NPRM
Reply Comments at 2-3; SGA et al. NPRM Initial Comments at 2, 6-8.
---------------------------------------------------------------------------
<bullet> Procedures concerning termination disputes and related
confidential information.\25\
---------------------------------------------------------------------------
\25\ See, e.g., MLC NPRM Initial Comments at 11-14; ClearBox
Rights NPRM Reply Comments at 6.
---------------------------------------------------------------------------
The MLC emphasized the importance of the Office providing guidance
regarding its termination-related procedures, explaining that rules
addressing these procedures are ``essential to processing royalties in
connection with statutory termination claims'' and ``would provide
important guidance to parties involved in termination claims.'' \26\
---------------------------------------------------------------------------
\26\ MLC NPRM Initial Comments at 9-10; see also MLC NPRM Reply
Comments at 2.
---------------------------------------------------------------------------
C. The SNPRM
After considering the requests for further guidance and other
comments received, the Office issued an SNPRM modifying the NPRM,
providing additional detail, and expanding the NPRM's scope. In
addition to addressing the Exception, the SNPRM addressed and sought
comments on other matters relevant to identifying the proper payee to
whom the MLC must distribute royalties. Such matters included issues
related to the MLC's distribution of matched historical royalties and
administration of ownership transfers, other royalty payee changes, and
related disputes. While requests for additional guidance largely
pertained to termination-related issues, those requests and other
comments suggested that more comprehensive regulations would be
beneficial to the MLC, publishers, songwriters, and the wider music
industry. As the SNPRM explained, ``[t]he accurate distribution of
royalties is a core objective of the MLC'' and ``[a]dopting the
[supplemental proposed rule] would establish standards and settle
expectations for all parties with respect to such distributions.'' \27\
At a high level, the SNPRM provided the following views and proposals
beyond those in the NPRM:
---------------------------------------------------------------------------
\27\ 88 FR 65908, 65909.
---------------------------------------------------------------------------
<bullet> The Office's preliminary views on the application of the
Exception to matched historical royalties,\28\ pre-2021 statutory
mechanical licenses, individual download licenses, and voluntary
licenses.\29\
---------------------------------------------------------------------------
\28\ Phrases defined in the SNPRM--e.g., ``historical unmatched
royalties,'' ``matched historical royalties,'' ``the owner at the
time of the use,'' and ``the owner at the time of the payment''--
have the same meaning here. See id. at 65909-10, 65912-13.
\29\ Id. at 65910-12.
---------------------------------------------------------------------------
<bullet> Additional discussion relating to the Office's preliminary
view in the NPRM that the owner at the time of the use is entitled to
distributions of blanket license royalties absent an agreement to the
contrary, and a related proposal to accommodate and give effect to
contractual payment arrangements that may require a different
result.\30\
---------------------------------------------------------------------------
\30\ Id. at 65912-14.
---------------------------------------------------------------------------
<bullet> A proposal that the MLC report and distribute matched
historical royalties in the same manner and subject to the same
requirements that apply to the reporting and distribution of blanket
license royalties.\31\
---------------------------------------------------------------------------
\31\ Id. at 65914.
---------------------------------------------------------------------------
<bullet> A proposal regarding how the MLC should be notified about
an ownership transfer or other royalty payee change, with detailed
provisions covering different types of changes, such as those relating
to contractual assignments, statutory terminations, and other changes
(e.g., when parties direct the MLC to pay an alternative designated
payee).\32\
---------------------------------------------------------------------------
\32\ Id. at 65914-65917.
---------------------------------------------------------------------------
<bullet> A proposal regarding how the MLC should implement and give
effect to such payee changes.\33\
---------------------------------------------------------------------------
\33\ Id. at 65917-18.
---------------------------------------------------------------------------
<bullet> A proposal regarding the process and documentation for
termination-
[[Page 56588]]
related disputes initiated with the MLC.\34\
---------------------------------------------------------------------------
\34\ Id. at 65919.
---------------------------------------------------------------------------
<bullet> A proposal regarding the resolution of all types of
disputes initiated with the MLC.\35\
---------------------------------------------------------------------------
\35\ Id. at 65919-20.
---------------------------------------------------------------------------
<bullet> A proposal regarding certain disclosures to be made by the
MLC in connection with disputes and other royalty holds.\36\
---------------------------------------------------------------------------
\36\ Id. at 65919.
---------------------------------------------------------------------------
<bullet> A proposal regarding how the MLC should administer a
corrective royalty adjustment to cure any distributions it previously
made under its since-suspended Termination Policy.\37\
---------------------------------------------------------------------------
\37\ Id. at 65920-21.
---------------------------------------------------------------------------
D. The SNPRM Comments
The Office received over 50 public comments in response to the
SNPRM from a wide variety of interested parties across the music
industry. Some parties supported aspects of the SNPRM,\38\ while others
were critical of certain provisions. The primary criticism addressed
the question of whether the owner at the time of the use or the owner
at the time of the payment should receive distributions of blanket
license royalties from the MLC.\39\ Commenters also took issue with the
Office's proposed expansion of the rule beyond the NPRM, with some
commenters requesting that those new issues be removed from
consideration.\40\ The MLC provided a regulatory proposal that shared
many similarities with the SNPRM and was ``aimed at implementing
certain proposals of the Office concerning statutory terminations,
while omitting language concerning'' various other issues that, in its
view, ``do not need further regulation.'' \41\
---------------------------------------------------------------------------
\38\ See, e.g., MAC et al. SNPRM Initial Comments at 2, 4 (``The
Copyright Office's proposed rules, both initially and as altered
here, accurately, clearly, concisely, and properly addresses the
implementation of the MMA while maintaining and supporting the
significant advances made by the MLC. We continue to
enthusiastically support this proposed rule and remain thankful to
the Copyright Office for addressing this area of great need by
utilizing its oversight and governance authority.''); Howard SNPRM
Initial Comments at 1 (``I support the supplemental rulemaking and
directives proposed by the Office.'').
\39\ See, e.g., MLC SNPRM Initial Comments at 1-16; NMPA SNPRM
Initial Comments at 2-13; NMPA Ex Parte Letter at 1-2 (Jan. 24,
2024); AIMP SNPRM Initial Comments at 1-4; Combustion Music SNPRM
Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1-
2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1-2; Boom
Music SNPRM Initial Comments; Jonas Grp. Publ'g SNPRM Initial
Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music
SNPRM Initial Comments at 1-2; Big Machine Music SNPRM Initial
Comments at 1-2; Legacyworks SNPRM Initial Comments; Me Gusta Music
SNPRM Initial Comments at 1-2; Relative Music Grp. SNPRM Initial
Comments at 1-2; Harding SNPRM Initial Comments; Moore SNPRM Initial
Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM
Initial Comments at 2-5; Big Yellow Dog SNPRM Initial Comments;
Reservoir Media Mgmt. SNPRM Initial Comments at 1-2; SMACKSongs
SNPRM Initial Comments; Sony Music Publ'g SNPRM Initial Comments at
1-5; Spirit Music Grp. SNPRM Initial Comments at 1-3; Turner SNPRM
Initial Comments at 1-2; Wiatr & Assocs. SNPRM Initial Comments;
Jody Williams Songs SNPRM Initial Comments at 1; Concord Music
Publ'g SNPRM Initial Comments at 1-3; ClearBox Rights SNPRM Reply
Comments at 4-5; Creative Nation SNPRM Reply Comments at 1-2; The
Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply
Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA
SNPRM Reply Comments at 2-5; Universal Music Publ'g Grp. SNPRM Reply
Comments at 1-5; Warner Chappell Music SNPRM Reply Comments at 3-8;
DLC SNPRM Reply Comments at 2-4.
\40\ See, e.g., MLC SNPRM Initial Comments at 17-20; NMPA SNPRM
Initial Comments at 3-4; NMPA Ex Parte Letter at 2-3 (Jan. 24,
2024); Kobalt Music SNPRM Initial Comments at 3; Big Machine Music
SNPRM Initial Comments at 2; NSAI SNPRM Initial Comments at 1-2;
North Music Grp. SNRPM Initial Comments at 1, 3-4; MAC et al. SNPRM
Reply Comments at 2-3; MAC Ex Parte Letter at 1-2 (Dec. 29, 2023);
Recording Academy SNPRM Reply Comments at 1-2; Warner Chappell Music
SNPRM Reply Comments at 2-3; ClearBox Rights SNPRM Reply Comments at
3, 10; SONA SNPRM Reply Comments at 5; DLC SNPRM Reply Comments at
1.
\41\ MLC SNPRM Reply Comments at 2 & App. A; MLC SNPRM Initial
Comments at 17 (stating that ``the Office's procedural guidance on
notice and transfer procedures in the terminations context is
helpful'' and that ``much of the proposal with respect to
terminations generally addresses a regulatory need''); see also NMPA
Ex Parte Letter at 3 (Jan. 24, 2024) (conveying ``its desire for the
Office to provide any guidance the MLC has requested'').
---------------------------------------------------------------------------
II. Rulemaking Authority
Having considered all relevant comments, the Office concludes that
we have appropriate statutory authority to adopt the final rule for the
reasons explained in the NPRM and SNPRM, as well as the additional
reasons discussed below.\42\ As previously explained, section 702 of
the Copyright Act specifically grants the Office the authority to
``establish regulations not inconsistent with law for the
administration of the functions and duties made the responsibility of
the Register under [title 17].'' \43\ Implementation of the MMA is one
of those ``functions and duties'' that Congress made the Office's
responsibility. Specifically, the Office has been granted the authority
to ``conduct such proceedings and adopt such regulations as may be
necessary or appropriate to effectuate the provisions of [the MMA
pertaining to the blanket license.]'' \44\ Several commenters
explicitly supported the Office's general rulemaking authority.\45\ The
only commenter to question the Office's authority was NMPA, which
offered various arguments for why the Office lacks authority to issue
this rule.\46\ None are persuasive.
---------------------------------------------------------------------------
\42\ 87 FR 64405, 64407-08; 88 FR 65908, 65910.
\43\ 17 U.S.C. 702.
\44\ Id. at 115(d)(12)(A).
\45\ See, e.g., ClearBox Rights NPRM Initial Comments at 2; SONA
et al. NPRM Initial Comments at 2; SGA et al. NPRM Initial Comments
at 2; Howard NPRM Reply Comments at 3; Recording Academy NPRM Reply
Comments at 2; Promopub NPRM Reply Comments at 2; MCNA et al. Ex
Parte Letter at 2 (Mar. 15, 2024).
\46\ NMPA NPRM Initial Comments at 7-10. Despite its previous
objections, NMPA's SNPRM comments appear to signal a change in its
position on the Office's general rulemaking authority, though this
is not entirely clear. See NMPA SNPRM Initial Comments at 2 & n.2
(stating that ``[t]here is clear industry consensus on the [proposed
rule requiring that all post-termination royalties under the blanket
license be paid to the post-termination copyright owner], and the
[Office] should adopt it immediately,'' but then also noting some of
its previous concerns).
---------------------------------------------------------------------------
NMPA first argued that the Office has no authority under section
702 of the Copyright Act or the MMA to promulgate rules that involve
substantive questions of copyright law.\47\ This is clearly incorrect.
The Office ``has statutory authority to issue regulations necessary to
administer the Copyright Act'' and ``to interpret the Copyright Act.''
\48\ As the NPRM detailed, ``[t]he Office's authority to interpret
title 17 in the context of statutory licenses in particular has long
been recognized.'' \49\
---------------------------------------------------------------------------
\47\ See NMPA NPRM Initial Comments at 7-8.
\48\ Motion Picture Ass'n of Am., Inc. v. Oman, 750 F. Supp. 3,
6 (D.D.C. 1990), aff'd, 969 F.2d 1154 (D.C. Cir. 1992); see also,
e.g., Fox Tel. Stations, Inc. v. Aereokiller, LLC, 851 F.3d 1002,
1011 (9th Cir. 2017) (recognizing that ``the Copyright Office has a
much more intimate relationship with Congress [than the courts] and
is institutionally better equipped than we are to sift through and
to make sense of the vast and heterogeneous expanse that is the
Act's legislative history''); Satellite Broad. & Commc'ns Ass'n of
Am. v. Oman, 17 F.3d 344, 345, 347-48 (11th Cir. 1994), cert.
denied, 513 U.S. 823 (1994) (recognizing the Copyright Office's
authority to issue regulations and ``statutory authority to
interpret the provisions of the compulsory licensing scheme'' found
in 17 U.S.C. 111).
\49\ 87 FR 64405, 64408.
---------------------------------------------------------------------------
Indeed, as the Office has previously explained, ``[t]he Office
exercises its authority under section 702 when it is necessary `to
interpret the statute in accordance with Congress'[s] intentions and
framework.' '' \50\ That is what the Office is doing here, just as we
have done on numerous previous occasions, for example to determine that
satellite carriers are not ``cable systems'' within the meaning of
section 111 and therefore do not qualify for that statutory
license,\51\ to state the meaning of ``digital phonorecord delivery''
under
[[Page 56589]]
the section 115 statutory license,\52\ and to determine that internet
streaming of AM/FM broadcast signals are not exempted ``broadcast
transmissions'' within the meaning of section 114.\53\ The Office has
done this in the termination context as well, adopting a rule
addressing the meaning of ``executed'' under section 203 in the context
of gap grants.\54\
---------------------------------------------------------------------------
\50\ 73 FR 40802, 40806 (July 16, 2008) (quoting 57 FR 3284,
3292 (Jan. 29, 1992)).
\51\ 57 FR 3284, 3290-92, 3296; see Satellite Broad. & Commc'ns
Ass'n of Am., 17 F.3d 344.
\52\ 73 FR 66173, 66174-75 (Nov. 7, 2008).
\53\ 65 FR 77292, 77293-95 (Dec. 11, 2000); see Bonneville Int'l
Corp. v. Peters, 347 F.3d 485 (3d Cir. 2003).
\54\ 76 FR 32316, 32316-20 (June 6, 2011). While the Office has
express authority to regulate the content of notices of termination,
we also referred to our authority under section 702 in adopting the
rule and stated that the focus of the rulemaking was our recordation
practices. Id. at 32319-20. Moreover, the rulemaking required the
Office to opine on a substantive area of copyright law, namely
whether or how the statute's termination provisions apply to gap
grants. Id. at 32316-17; see U.S. Copyright Office, Analysis of Gap
Grants under the Termination Provisions of Title 17 (2010), <a href="https://www.copyright.gov/reports/gap-grant-analysis.pdf">https://www.copyright.gov/reports/gap-grant-analysis.pdf</a>. At least one court
appears to have followed the Office's interpretation. See Mtume v.
Sony Music Ent., 408 F. Supp. 3d 471, 475-76 (S.D.N.Y. 2019).
---------------------------------------------------------------------------
Regarding the Office's specific authority under the MMA, we have
issued several rules that required analyzing substantive provisions of
the statute. For example, the Office determined what constitutes ``the
due date for payment'' under section 115(d)(8)(B)(i),\55\ how the
endorsement criterion for designating the MLC is to be evaluated under
section 115(d)(3)(A)(ii),\56\ the meaning of ``producer'' under section
115(d)(4)(A)(ii)(I)(aa),\57\ and what constitutes minimum ``good-faith,
commercially reasonable efforts'' under section 115(d)(4)(B).\58\
---------------------------------------------------------------------------
\55\ 88 FR 60587, 60590-91 (Sept. 5, 2023).
\56\ 84 FR 32274, 32280-84 (July 8, 2019).
\57\ 85 FR 22518, 22532.
\58\ 85 FR 58114, 58119 (Sept. 17, 2020). We also note that, in
addition to the specific authority granted in section 115 and
general authority granted in section 702, Congress gave the Office
the responsibility to interpret title 17 when questions of law arise
in proceedings before the Copyright Royalty Judges. 17 U.S.C.
802(f)(1)(B)(i), (f)(1)(D) (granting the Office the ability to
``resolve'' any ``novel material question of substantive law
concerning an interpretation of those provisions of [title 17] that
are the subject of [a] proceeding'' before the Copyright Royalty
Judges and to review the Judges' final determinations for ``legal
error . . . of a material question of substantive law under [title
17]'').
---------------------------------------------------------------------------
NMPA also made a series of arguments based on the premise that any
rulemaking authority the Office may have with respect to section 115 or
other statutory licenses does not extend to other areas of the
Copyright Act, like those dealing with termination.\59\ These
arguments, and their underlying premise, are similarly unsupported by
title 17. The MMA and section 702 provide the Office with ample
authority to interpret sections 203 and 304, as well as other
provisions of the Copyright Act, in the context of the blanket license
and the MLC's operations.\60\
---------------------------------------------------------------------------
\59\ NMPA NPRM Initial Comments at 8-10.
\60\ See 17 U.S.C. 115(d)(12)(A), 702; see also, e.g., Motion
Picture Ass'n of Am., Inc., 750 F. Supp. at 6; Aereokiller, LLC, 851
F.3d at 1011; Satellite Broad. & Commc'ns Ass'n of Am., 17 F.3d at
345, 347-48.
---------------------------------------------------------------------------
As explained in the NPRM, despite its focus on termination issues,
``this rulemaking ultimately reflects the Office's oversight and
governance of the MLC's reporting and payment obligations to copyright
owners.'' \61\ The Office has exercised its authority in this area
before. As discussed in the NPRM, the Office previously issued
regulations regarding the MLC's reporting and distribution of royalties
to copyright owners with ``no dispute regarding the propriety or
authority of the Office to promulgate [them].'' \62\ In that prior
proceeding, we concluded that we have ``the authority to promulgate
these rules under the general rulemaking authority in the MMA.'' \63\
---------------------------------------------------------------------------
\61\ 87 FR 64405, 64408.
\62\ Id. at 64408 & n.39 (quoting 85 FR 22549, 22550-52 (Apr.
22, 2020)).
\63\ 85 FR 22549, 22551 (quoting 17 U.S.C. 115(d)(12))
(observing that ``Congress provided general authority to the
Register of Copyrights to `conduct such proceedings and adopt such
regulations as may be necessary or appropriate to effectuate the
provisions of this subsection' '').
---------------------------------------------------------------------------
The final rule in this proceeding is no different. It governs how
the MLC is to report and distribute royalties to copyright owners,
including with respect to identifying the proper royalty payee. The
fact that the final rule addresses that core MLC function in a context
that raises substantive questions of copyright law (like termination)--
and thus requires analysis of various points of substantive copyright
law (such as termination and the Exception)--does not deprive the
Office of its authority to regulate how the MLC reports and pays
royalties. Nor does the fact that parts of the Office's analysis or
reasoning could potentially be applied by others in contexts outside
the scope of this proceeding.\64\
---------------------------------------------------------------------------
\64\ At a minimum, this proceeding has demonstrated that it is
``necessary or appropriate'' to ``adopt . . . regulations'' ``to
effectuate'' section 115(d)(3)(G)(i)(II), requiring the MLC to
``distribute royalties to copyright owners in accordance with . . .
the ownership and other information contained in the records of the
[MLC].'' 17 U.S.C. 115(d)(3)(G)(i)(II), (12)(A); see also, e.g., 87
FR 64405, 64407 (discussing need to revisit the termination issue
more directly, including ``how termination law intersects with the
blanket license''); 88 FR 65908, 65909-10 (explaining that the MLC
sought additional regulatory guidance ``necessary'' and
``essential'' to its operations). Thus, the current rulemaking ``is
consistent with the Office's practice of promulgating regulations to
construe statutory terms that are critical to the administration of
a statutory license administered by the Office.'' 73 FR 66173,
66175.
---------------------------------------------------------------------------
The flaw in NMPA's argument is highlighted by considering its
consequences. If the Office's authority is as limited as NMPA
suggested, it would mean that the MLC would be the one (in the absence
of a lawsuit) to determine the meaning of any questioned statutory
provisions. The Office's oversight of the MLC through regulatory action
cannot be frustrated when such oversight may involve addressing
substantive issues of copyright law. Concluding otherwise would be
contrary to the statute's logic and Congress's intent. Congress
intentionally invested the Office with ``broad regulatory authority''
under the MMA, in part to oversee the MLC, such as by ``thoroughly
review[ing]'' MLC policies ``to ensure the fair treatment of interested
parties.'' \65\
---------------------------------------------------------------------------
\65\ H.R. Rep. No. 115-651, at 5-6 (2018); S. Rep. No. 115-339,
at 5 (2018); Report and Section-by-Section Analysis of H.R. 1551 by
the Chairmen and Ranking Members of Senate and House Judiciary
Committees 4 (2018) (``Conf. Rep.''), <a href="https://www.copyright.gov/legislation/mma_conference_report.pdf">https://www.copyright.gov/legislation/mma_conference_report.pdf</a>.
---------------------------------------------------------------------------
NMPA also specifically challenged the Office's authority to adopt
the corrective royalty adjustment, arguing that it is an impermissible
retroactive rule and an unconstitutional taking.\66\ We disagree with
this characterization and address this topic in Part III.F., below.
---------------------------------------------------------------------------
\66\ NMPA NPRM Initial Comments at 4-6, 12-13; NMPA Ex Parte
Letter at 2 (Feb. 6, 2023); NMPA SNPRM Initial Comments at 2 n.2;
see also CMPA NPRM Initial Comments at 1-2 (arguing against
retroactivity); Warner Chappell Music SNPRM Reply Comments at 2-3
(same).
---------------------------------------------------------------------------
III. Final Rule
Having reviewed and considered all comments, the Office has weighed
the relevant legal, business, and practical implications and equities
raised, and pursuant to its authority under 17 U.S.C. 115 and 702 is
adopting a final rule regarding MLC royalty distributions. The Office
finds it reasonable to adopt much of the SNPRM as final regulations,
but with some significant modifications. As discussed in more detail
below, the Office is adopting a final rule that is a scaled-down
version of the SNPRM and applies a different solution to the issue of
identifying the payee to whom the MLC must distribute royalties.
Specifically, in response to the comments that the SNPRM was too
broad \67\ and the MLC's own regulatory
[[Page 56590]]
proposal,\68\ the Office has narrowed the scope of the rule to provide
the guidance the MLC sought without expanding the rule to other areas
that do not appear to need regulation at this time based on the current
record.\69\ While some commenters would prefer that the Office not
address any issues beyond those raised in the original NPRM, the Office
disagrees. As discussed above, the MLC and several other commenters had
requested additional guidance from the Office on various related
topics. Consequently, the Office issued the SNPRM seeking public
comments on a supplemental proposed rule focused on providing such
guidance. When the MLC requests guidance from the Office, we will
generally provide it given the oversight role we play under the MMA.
The Office finds that it is reasonable and appropriate to provide such
guidance here.
---------------------------------------------------------------------------
\67\ See, e.g., Kobalt Music SNPRM Initial Comments at 3; Big
Machine Music SNPRM Initial Comments at 2; NSAI SNPRM Initial
Comments at 1-2; North Music Grp. SNRPM Initial Comments at 1, 3-4;
MAC et al. SNPRM Reply Comments at 2-3; MAC Ex Parte Letter at 1-2
(Dec. 29, 2023); Recording Academy SNPRM Reply Comments at 1-2;
Warner Chappell Music SNPRM Reply Comments at 2-3; ClearBox Rights
SNPRM Reply Comments at 3, 10; SONA SNPRM Reply Comments at 5.
\68\ MLC SNPRM Reply Comments at App. A.
\69\ To be clear, the Office reserves the right to regulate
these other areas in the future should it become necessary or
appropriate to do so.
---------------------------------------------------------------------------
To the extent some commenters suggested that the Office is moving
too quickly on some of these issues or has not engaged in a sufficient
administrative process, the Office disagrees.\70\ The Office issued the
SNPRM precisely to solicit substantive comments from interested parties
about these expanded topics. In doing so, the Office provided for both
initial and reply comment periods as well as deadline extensions,
ultimately providing parties with over two months to submit written
comments. The Office also made itself available for ex parte meetings
for several months after the period for written comments ended. Given
this ample opportunity to engage with the Office on these issues, we
see no reason to delay providing the MLC with the guidance it needs to
operate. As always, the Office will continue to monitor the effect of
the rule, and if there are any unforeseen consequences or should
anything not operate as intended, we can consider amending the rule in
the future.
---------------------------------------------------------------------------
\70\ See, e.g., North Music Grp. SNRPM Initial Comments at 1, 3-
4; Recording Academy SNPRM Reply Comments at 1-2; ClearBox Rights
SNPRM Reply Comments at 3, 10.
---------------------------------------------------------------------------
Where parties have objected to certain aspects of the SNPRM, the
Office has considered those comments and addressed these issues, as
discussed below. If not otherwise discussed, the Office has concluded
that the relevant proposed provision should be adopted for the reasons
stated in the NPRM or SNPRM.
A. Termination and the Exception
In the NPRM, the Office engaged in an extensive preliminary
analysis that concluded that ``[w]hether or not the Exception applies
to a DMP's blanket license (and the Office concludes that the Exception
does not), the statute entitles the current copyright owner to the
royalties under the blanket license, whether pre- or post-
termination.'' \71\ We explained that this means that ``the post-
termination copyright owner (i.e., the author, the author's heirs, or
their successors, such as a subsequent publisher grantee) is due the
post-termination royalties paid by the DMP to the MLC.'' \72\
---------------------------------------------------------------------------
\71\ 87 FR 64405, 64410-11.
\72\ Id. at 64411.
---------------------------------------------------------------------------
Based on the MLC's and other commenters' requests for additional
guidance,\73\ the SNPRM contained additional analysis and made further
preliminary conclusions, including that: (1) the Exception does not
apply to matched historical royalties; \74\ (2) with respect to covered
activities, record companies' pre-2021 individual download licenses and
the authority obtained from them by DMPs are the only pre-2021
statutory mechanical licenses to have continued in effect after the
license availability date; \75\ (3) the Exception does not apply to
individual download licenses; \76\ and (4) the Exception may apply to
some voluntary licenses, but not others.\77\
---------------------------------------------------------------------------
\73\ 88 FR 65908, 65909-10.
\74\ Id. at 65910-11.
\75\ Id. at 65911.
\76\ Id.
\77\ Id. at 65911-12.
---------------------------------------------------------------------------
Most comments addressing the Office's termination analysis were in
response to the NPRM, as parties largely did not comment on the
additional analysis from the SNPRM. While many commenters agreed with
the Office's analysis,\78\ others raised some concerns.\79\ Several
commenters, even some who raised concerns with the Office's analysis,
supported its end result that the post-termination copyright owner is
entitled to post-termination royalties under the blanket license.\80\
---------------------------------------------------------------------------
\78\ See, e.g., A2IM & RIAA NPRM Reply Comments at 2; Authors
All. et al. NPRM Initial Comments at 2-3; BMG Rights Mgmt. NPRM
Initial Comments at 2; ClearBox Rights NPRM Initial Comments at 6-7;
Fishman & Garcia NPRM Initial Comments at 1-4; King, Holmes, Paterno
& Soriano LLP NPRM Initial Comments; North Music Grp. NPRM Reply
Comments at 2; Recording Academy NPRM Reply Comments at 2; SGA et
al. NPRM Initial Comments at 2, 5; SONA et al. NPRM Initial Comments
at 2-3; King, Holmes, Paterno & Soriano LLP SNPRM Reply Comments.
\79\ See NMPA NPRM Initial Comments at 2-3; NMPA Ex Parte Letter
at 2-3 (Feb. 6, 2023); MPA NPRM Reply Comments at 2-5; see also A2IM
& RIAA NPRM Reply Comments at 2; A2IM & RIAA SNPRM Initial Comments
at 1-4; Fishman & Garcia NPRM Initial Comments at 4; NMPA SNPRM
Initial Comments at 2 n.2.
\80\ See, e.g., NMPA SNPRM Initial Comments at 1-2 (``NMPA
supported and continues to support the bright-line rule that the
[Office] proposed to establish in the NPRM, requiring that all post-
termination royalties under the Blanket License be paid to the post-
termination copyright owner.''); Universal Music Publ'g Grp. SNPRM
Reply Comments at 5 n.4; Warner Chappell Music SNPRM Reply Comments
at 2; Kobalt Music SNPRM Initial Comments at 1; NSAI SNPRM Initial
Comments at 2; Promopub SNPRM Initial Comments at 2.
---------------------------------------------------------------------------
Having considered all relevant comments, the Office is adopting the
termination-related aspects of the SNPRM's proposal as final for the
reasons discussed below, as well as the reasoning in the NPRM and SNPRM
in relevant part.
1. Blanket Licenses
i. Background
In the NPRM, the Office thoroughly analyzed the Exception in the
context of the blanket license. In that analysis, the Office made two
overarching conclusions that: (1) the Exception does not apply to
blanket licenses; and (2) even if the Exception did apply, under the
terms of the blanket license (i.e., the applicable text of section 115
and related regulations), a terminated publisher still would not be
entitled to post-termination blanket license royalties.\81\
---------------------------------------------------------------------------
\81\ 87 FR 64405, 64410-11.
---------------------------------------------------------------------------
In concluding that the Exception does not apply, the Office made
three further overall conclusions. First, the Office concluded that
``[t]o be subject to termination, a grant must be executed by the
author or the author's heirs,'' and that, ``[a]s a type of statutory
license, the blanket license is `self-executing,' such that it cannot
be terminated'' under section 203 or 304.\82\ The Office explained that
``[i]f a blanket license cannot be terminated, then it cannot be
subject to an exception to termination; the license simply continues in
effect according to its terms.'' \83\
---------------------------------------------------------------------------
\82\ Id. at 64410.
\83\ Id.
---------------------------------------------------------------------------
Second, the Office concluded that ``[s]ection 115's blanket
licensing regime is premised on the assumption that DMPs are not
preparing derivative works pursuant to their blanket licenses,'' and
that ``where no sound recording derivative is prepared pursuant to a
DMP's blanket license,
[[Page 56591]]
that blanket license is not part of any preserved grants that make the
Exception applicable.'' \84\ The Office explained that ``[i]f no
derivative work is prepared `under authority of the grant,' then the
Exception cannot apply,'' but recognized that ``[p]roponents of the
Exception's application to the blanket license might argue that the
blanket license should be construed as being included within a so-
called `panoply' of grants pursuant to which a pre-termination
derivative work of the musical work was prepared.'' \85\ The Office
observed that the ``only panoply to which the blanket license could
theoretically belong would be the grant (or chain of successive grants)
emanating from the songwriter and extending to the record company (or
other person) who prepared the sound recording derivative licensed to
the DMP.'' \86\ After analyzing that possibility, the Office concluded
that ``[t]he Exception, as interpreted by [the Supreme Court in Mills
Music, Inc. v. Snyder],\87\ should not be read as freezing other grants
related to, but outside of, the direct chain of successive grants
providing authority to utilize the sound recording derivative, such as
the musical work licenses obtained by DMPs,'' and the Office discussed
several reasons explaining why.\88\
---------------------------------------------------------------------------
\84\ Id. at 64410-11.
\85\ Id.
\86\ Id.
\87\ 469 U.S. 153 (1985).
\88\ 87 FR 64405, 64410-11.
---------------------------------------------------------------------------
Third, the Office concluded that applying the Exception to the
blanket license in the manner the MLC had done previously, whereby the
payee would be frozen in time, would lead to an ``extreme result''
because it would also freeze all other aspects of the license in
time.\89\ For example, ``it would freeze in time everything from DMP
reporting requirements and MLC royalty statement requirements to the
rates and terms of royalty payments for using the license set by the
[Copyright Royalty Judges].'' \90\
---------------------------------------------------------------------------
\89\ Id. at 64411.
\90\ Id.
---------------------------------------------------------------------------
The SNPRM addressed this analysis as well.\91\ There, the Office
described the NPRM's conclusions about the Exception as
``preliminary,'' making clear that we ``welcome[d] further comments and
legal discussion.'' \92\ The Office has considered all comments,
including those raising concerns with aspects of this analysis. For the
reasons discussed below, we find those concerns unpersuasive.
Therefore, the Office is adopting the termination analysis from the
NPRM and SNPRM as final for the reasons discussed in the NPRM and
SNPRM, subject to the further discussion below.
---------------------------------------------------------------------------
\91\ 88 FR 65908, 65910.
\92\ Id. at 65912 n.69.
---------------------------------------------------------------------------
ii. Comments and Discussion
The principal critics of the NPRM's analysis were NMPA and the
Motion Picture Association (``MPA''). NMPA asserted that ``[t]he
Exception has historically been interpreted by many industry
stakeholders to permit the pre-termination musical composition
copyright owner to continue to receive mechanical royalties post-
termination for uses of those compositions in derivative sound
recordings, including in interactive streaming, provided that the
mechanical license was issued pre-termination and the recording was
prepared pre-termination.'' \93\ NMPA said that ``[t]his interpretation
was based on, inter alia, the Supreme Court's decision in Mills Music,
Inc. v. Snyder, and the Second Circuit's decision in Woods v. Bourne
Co.,'' \94\ and that ``[b]ased on this interpretation, before the MMA
was enacted, [DMPs], along with other Section 115 statutory licensees,
continued to pay mechanical royalties to the pre-termination rights
owner for uses of recordings prepared pre-termination pursuant to pre-
termination mechanical licenses.'' \95\ NMPA stated that it ``never
understood the MMA to change or resolve the law of statutory
termination or to provide a new or different rule applicable to Blanket
Licenses.'' \96\ It explained its view that ``the MMA addresses the
termination issue in Section 115(d)(9)(A),'' which was intended to
``preserve the status quo.'' \97\
---------------------------------------------------------------------------
\93\ NMPA NPRM Initial Comments at 2-3; see also NMPA Ex Parte
Letter at 2 (Feb. 6, 2023).
\94\ 60 F.3d 978 (2d Cir. 1995).
\95\ NMPA NPRM Initial Comments at 3; see also NMPA Ex Parte
Letter at 2 (Feb. 6, 2023).
\96\ NMPA NPRM Initial Comments at 3.
\97\ Id. at 3 n.5.
---------------------------------------------------------------------------
After a full review and analysis, the Office is not persuaded by
NMPA's argument. We do not dispute NMPA's assertion that certain
publishers may have adopted a different approach to termination, but
this approach is not supported by the law in the context of the blanket
license. As discussed further below in Part III.F., the Office is not
adopting a new position, or changing the law as it relates to
termination or the Exception. Nor are we contending that the MMA or
blanket license altered the law as it relates to the Exception. The
Office is merely stating what the law is and has always been.
In support of its approach, NMPA suggested that its view of the
Exception was universally relied on as the status quo. The comments,
however, reveal otherwise. For example, ClearBox Rights said that
``there has not been consistency in the history of how these royalties
have been paid [with respect to the Exception], so such past practices
should not be interpreted as any kind of precedent or guidance into how
they should be paid in the future, or adjusted for any given period of
time.'' \98\ NMPA even described its views with qualifying language,
stating that its interpretation of Mills Music has been followed by
``some'' copyright owners and that ``legal interpretations of this
holding and views as to the applicability of the [Exception] to the
[blanket license] may differ.'' \99\
---------------------------------------------------------------------------
\98\ ClearBox Rights NPRM Reply Comments at 1-2 (further stating
that performing rights organizations ``fairly consistently pass
through to the post-termination rights holder the performance side
of these very same [DMP] interactive streams''); see also, e.g.,
King, Holmes, Paterno & Soriano LLP NPRM Initial Comments at 1 (``We
have been concerned for years about some music publishers' claims
that the [Exception] entitles the original publisher of a
composition to continue to collect indefinitely on mechanical
licenses issued pursuant to the compulsory license provisions of the
U.S. Copyright Act. Such claims do not comport with the language of
the [Exception] itself or the legislative history surrounding
it.''); McAnally & North Ex Parte Letter at 2 (Mar. 14, 2023)
(asserting that views like NMPA's are ``inconsistent with our
understanding of how terminations have been treated in the industry
regarding payments of mechanical royalties under Section 115'').
\99\ NMPA Ex Parte Letter at 2 (Feb. 6, 2023).
---------------------------------------------------------------------------
Further, NMPA's claim that section 115(d)(9)(A) supports its
position is misplaced. That provision does not speak to the Exception
or the preservation of any pre-MMA status quo (outside the narrow
context of individual download licenses). As explained in the SNPRM,
that provision, read together with section 115(d)(9)(B), provides, with
respect to covered activities, that ``only record companies' pre-2021
individual download licenses and the authority obtained from them by
DMPs survived the license availability date.'' \100\ The Office
explained that ``[b]ecause all other pre-2021 statutory mechanical
licenses to engage in covered activities are no longer in effect
pursuant to their own terms (i.e., the statutory text), any application
the Exception may or may not have had while they were in force seems to
have no bearing on the MLC's distribution of royalties for post-2021
usage.'' \101\
---------------------------------------------------------------------------
\100\ 88 FR 65908, 65911.
\101\ Id.
---------------------------------------------------------------------------
The statute plainly states that the blanket license was
``automatically substituted for and supersede[d] any existing
compulsory license previously obtained under [section 115].'' \102\ The
[[Page 56592]]
language NMPA highlighted--that this substitution happened ``without
any interruption in license authority enjoyed by [a DMP]''--simply
means that the substitution did not cause there to be any gap in a
DMP's licensing authority, between the old pre-2021 statutory license
and the new blanket license, that could potentially subject the DMP to
an infringement claim.\103\ If this language meant that all previous
licensing authority remains intact indefinitely after the license
availability date, then it would render the rest of the provision
superfluous. There would be no need to have the blanket license
substitute for and supersede the pre-2021 license because the authority
provided by the pre-2021 license would continue in effect. It would
also directly contradict section 115(d)(9)(B), which states that
``licenses other than individual download licenses obtained under
[section 115] for covered activities prior to the license availability
date shall no longer continue in effect.'' \104\ Thus, the Office
disagrees with NMPA's reading of the statute.\105\
---------------------------------------------------------------------------
\102\ See 17 U.S.C. 115(d)(9)(A).
\103\ See id.
\104\ See id. at 115(d)(9)(B).
\105\ See also 85 FR 58114, 58118 (discussing how ``the
statutory provisions regarding notices of [blanket] license and the
transition to the blanket license must be read together, such that
DMPs transitioning to the blanket license must still submit notices
of license to the MLC'').
---------------------------------------------------------------------------
NMPA next argued that ``the phrase `terminated grant' in the
statutory text appears to refer to the original grant from the author
to the publisher that is being terminated, and not to subsequent grants
made by the publisher under the authority of that original grant.''
\106\ It asserted that ``[s]ubsequent grants of the right to prepare
and use derivative works made by the publisher are not the terminated
grant under Sections 203 and 304 and are instead part of the `panoply'
of licenses preserved by the [Exception].'' \107\ Thus, in NMPA's view,
``the terminable grant that must be executed by the author is the
original license from author to publisher; therefore, whether Section
115 licenses are `self-executing' would be inapposite to the relevant
analysis'' because ``[t]he subsequent grants of the right to prepare
derivative works are in virtually all cases not `executed by the author
or the author's heirs.' '' \108\
---------------------------------------------------------------------------
\106\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA
NPRM Initial Comments at 11 n.27.
\107\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also NMPA
NPRM Initial Comments at 11 n.27.
\108\ NMPA NPRM Initial Comments at 11 n.27.
---------------------------------------------------------------------------
The Office disagrees. The phrase ``terminated grant'' in the
statutory text is not limited solely to the original grant from the
songwriter to the publisher. In Mills Music, the Supreme Court
concluded that all three references to the word ``grant'' in the text
of the Exception should be given a ``consistent meaning,'' and that
each reference encompasses both the original grant and subsequent
grants.\109\ That lack of distinction between the original grant and
subsequent grants was central to the Court's holding that the Exception
preserved ``the total contractual relationship.'' \110\ The cornerstone
of the Court's opinion was its conclusion that the successive grants
were connected to each other in such a way that they both needed to be
preserved under the Exception in the context at issue.\111\
---------------------------------------------------------------------------
\109\ Mills Music, 469 U.S. at 164-67 (concluding that the
phrase ``under the terms of the grant after its termination'' ``as
applied to any particular licensee would necessarily encompass both
the 1940 grant [from the songwriter to the publisher] and the
individual license [from the publisher to the record company to
prepare a sound recording derivative] executed pursuant thereto'');
see id. at 164 (explaining that the Exception is ``defined by
reference to the scope of the privilege that had been authorized
under the terminated grant and by reference to the time the
derivative works were prepared'') (emphasis added); id. at 173
(explaining that ``[p]retermination derivative works--those prepared
under the authority of the terminated grant--may continue to be
utilized under the terms of the terminated grant'') (emphasis
added); see also Howard B. Abrams & Tyler T. Ochoa, 2 The Law of
Copyright sec. 12:44 (2023) (``[T]he term ``grant'' is read to
include the entire chain of authority for the preparation of a
derivative work.'').
\110\ Mills Music, 469 U.S. at 163-69 (``We are not persuaded
that Congress intended to draw a distinction between authorizations
to prepare derivative works that are based on a single direct grant
and those that are based on successive grants.'').
\111\ Id. at 166-69 (explaining that, with respect to the
particular facts in the case, defining the relevant ``terms of the
grant'' as ``the entire set of documents that created and defined
each licensee's right to prepare and distribute derivative works''
meant preserving not only the record companies' right to prepare and
distribute the derivative works, but also their corresponding duty
to pay the publisher any due royalties and the publisher's duty to
pay the songwriter's heirs any due royalties, and that if it were
otherwise, then there would be no contractual or statutory
obligation on the publisher or record companies to pay the
songwriter's heirs any royalties).
---------------------------------------------------------------------------
In asserting that the NPRM's conclusions about the application of
the Exception to the blanket license must be wrong because the
subsequent grants of the right to prepare derivative works are almost
always not executed by the author or the author's heirs, NMPA
misapprehends how the subsequent grants are connected to the original
grant. Outside the context of a statutory license, where a songwriter
makes a grant to a publisher and the publisher then makes subsequent
grants to third parties (e.g., to a record company to prepare a sound
recording derivative, to a DMP to make and distribute phonorecords, or
an assignment of the full copyright to a different publisher), each of
those subsequent grants, despite not being executed by the songwriter
or the songwriter's heirs, can still be terminated. This is because the
authority for each of those subsequent grants derives from and is
dependent upon the authority conveyed by the original grant from the
songwriter to the publisher. Thus, when the original grant is
terminated, it also terminates the subsequent grants (subject to the
possible preservation of certain contractual terms governing the
utilization of pre-termination derivative works under the
Exception).\112\ It is a foundational legal principle that one cannot
give what one does not have.\113\ In this context, what the publisher
possesses with respect to the original grant, and can therefore
subsequently convey to third parties, is encumbered by the songwriter's
termination rights.\114\ This concept is plainly embodied in the
statute, which makes reference not only to ``the grantee,'' but also
``the grantee's successor in title.'' \115\
---------------------------------------------------------------------------
\112\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright
sec. 11.02[C][2] (2023) (``When A terminates the original grant to
B, it follows that B's license to C will also terminate.'').
\113\ Legal Maxims, Black's Law Dictionary (11th ed. 2019)
(``Nemo dat quod non habet. No one gives what he does not have; no
one transfers (a right) that he does not possess.'').
\114\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright
sec. 11.02[A][4][b] (2023) (``If the original grant from A to B had
by its terms provided for a reversion to A thirty-five years after
execution, B would lack the power to convey rights to C beyond such
thirty-five-year period. The fact that reversion from B to A occurs
by operation of law rather than by the express terms of the grant to
B does not enlarge the rights that B can convey to C.''); see also
Int'l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 325 NE2d 137, 139
(N.Y. 1975) (``It is elementary ancient law that an assignee never
stands in any better position than his assignor. He is subject to
all the equities and burdens which attach to the property assigned
because he receives no more and can do no more than his
assignor.'').
\115\ See 17 U.S.C. 203(a)(4), (b)(4); id at 304(c)(4), (6)(D).
---------------------------------------------------------------------------
The blanket license, however, operates differently. Unlike
voluntary licenses, the authority a DMP has to make and distribute
phonorecords of musical works under a blanket license does not derive
from and is not dependent upon any authority granted by a songwriter or
publisher. The blanket license is self-executing,\116\ and a DMP's
authority under it is established by Congress.\117\ Therefore, if the
original grant from the songwriter to the publisher is terminated, it
has no effect on the DMP's blanket license
[[Page 56593]]
(other than the transfer of copyright ownership causing the royalty
payee to change). Unlike a voluntary license, the grant of authority
provided to the DMP under its blanket license was never encumbered by
the songwriter's termination rights, so exercising those rights has no
impact on the continuation of the DMP's authority. As a blanket license
cannot be terminated under section 203 or 304, whether directly or
indirectly, ``it cannot be subject to an exception to termination; the
license simply continues in effect according to its terms.'' \118\
---------------------------------------------------------------------------
\116\ Mills Music, 469 U.S. at 168 n.36; see Melville B. Nimmer
& David Nimmer, 3 Nimmer on Copyright sec. 11.02 n.121 (2023); Paul
Goldstein, Goldstein on Copyright sec. 5.4.1.1.a (3d ed. 2023).
\117\ See also Mills Music, 469 U.S. at 168 n.36 (referring to
section 115 statutory licenses as ``a statutory right'' belonging to
the licensee) (emphasis added).
\118\ 87 FR 64405, 64410. As noted in the NPRM, this ``does not
mean that entitlement to royalties is fixed. It travels with
ownership of the copyright.'' Id. at 64410 n.70.
---------------------------------------------------------------------------
MPA's criticism of the NPRM focused on a different issue, namely
its concerns that the Office's legal analysis ``could be read as
narrowing the holdings [of Mills Music and Woods] by injecting a
`direct chain' limitation on the pre-termination grants preserved under
the [Exception].'' \119\ MPA argued that:
---------------------------------------------------------------------------
\119\ MPA NPRM Reply Comments at 2.
To the extent that the Office's discussion of Mills [Music]
could be read to limit the [Exception] solely to a ``direct chain''
of grants, such a reading would appear to be in tension not only
with the [Exception]--which provides that a derivative work prepared
under authority of a grant ``may continue to be used under the terms
of the grant,'' . . .--but also the Supreme Court's interpretation
of that language in Mills [Music], as well as the Second Circuit's
further explication of the [Exception] in Woods v. Bourne. Mills
[Music] held that, as used in the [Exception], ``the terms of the
grant'' means the ``entire set of documents that created and defined
each licensee's right to prepare and distribute derivative works.''
469 U.S. at 167. The [Exception] thus encompasses the original grant
from author to publisher, as well as the succeeding grants derived
therefrom, potentially involving multiple licensees. See id. at 165-
67 (emphasis added).\120\
---------------------------------------------------------------------------
\120\ Id. at 4 (citing 17 U.S.C. 203(b)(1), 304(c)(6)(A)).
MPA further said that ``[i]n some cases, an initial grant by an
author to a movie studio or music publisher, and that entity's
subsequent grants to third parties to for the use and distribution of
derivative works, will generate `branches' of licensing authority
rather than a simple linear chain.'' \121\ According to MPA, ``[t]here
is nothing in the [Exception] or Mills [Music] . . . to suggest that a
pre-termination publisher is entitled to royalties only if the pre-
termination license falls within a single `direct chain' to the party
that prepared the derivative.'' \122\
---------------------------------------------------------------------------
\121\ Id.
\122\ Id.
---------------------------------------------------------------------------
MPA then pointed to Woods for confirmation that ``Mills [Music] is
not so limited.'' \123\ It stated that ``[a]s further explicated in
Woods, the Supreme Court's holding in Mills [Music] established that
`where multiple levels of licenses govern use of a derivative work, the
``terms of the grant'' encompass the original grant from author to
publisher and each subsequent grant necessary to enable the particular
use at issue,' '' and that ``[t]he effect of Mills [Music] is to
preserve during the post-termination period the panoply of contractual
obligations that governed pre-termination uses of derivative works by
derivative work owners or their licensees.'' \124\ MPA asserted that
``[c]onsistent with its understanding of Mills [Music], the Woods court
upheld the pre-termination publisher's right to collect public
performance royalties from [the performing rights organization,] ASCAP
for post-termination performances in movies and television programs
even though ASCAP's licensing relationship was outside of the `direct
chain' of authority by which the original publisher had granted synch
rights to the producers of those shows.'' \125\ MPA highlighted that
the Second Circuit said that ``the `terms of the grant' included `the
provisions of the grants from [the publisher] to ASCAP and from ASCAP
to the television stations' in place at the time of termination,'' and
that `` `[t]he fact that the performance right in the Song [was]
conveyed separately through ASCAP [was] simply an accommodation' that
did not negate the applicability of the [Exception].'' \126\ It
concluded that ``[n]either the [Exception], nor Mills [Music] or Woods,
limits post-termination utilization of a derivative based on the
particular configuration of the relevant pre-termination grants'' and
that ``[i]n considering the applicability of the [Exception], the
correct question is not whether the user prepared the derivative
pursuant to some `direct chain' of authority, but whether the use is
permitted under the entire `set' or `panoply' of grants emanating from
the original grant by the author.'' \127\
---------------------------------------------------------------------------
\123\ Id. at 4-5.
\124\ Id. (quoting Woods, 60 F.3d at 987).
\125\ Id. at 5 (citing Woods, 60 F.3d at 984).
\126\ Id. (all alterations, except the last one, in original)
(quoting Woods, 60 F.3d at 987-88).
\127\ Id.
---------------------------------------------------------------------------
The Office disagrees with these assertions to the extent they
relate to the blanket license. The blanket license is not part of any
so-called ``panoply,'' regardless of whether a panoply is limited to a
``direct chain'' of successive grants or can include ``branches'' of
related grants outside of that chain. As discussed above, the blanket
license, as a type of statutory license, is fundamentally different
from voluntary licenses. Because the authority provided by a blanket
license is supplied by law and is divorced from any authority deriving
from an author or any terminated grant, it is an intervening grant. It
sits outside of any potential panoply of grants authorized by the
author and the author's successors, assignees, licensees, and the like
that form the overall transaction involving the relevant derivative
work and which is subject to termination and possibly the Exception.
The blanket license simply is not part of that contractual
transaction.\128\
---------------------------------------------------------------------------
\128\ See also 17 U.S.C. 115(d)(2) (explaining how a DMP may
obtain a blanket license based on its unilateral actions).
---------------------------------------------------------------------------
Neither Mills Music nor Woods holds otherwise, as neither involved
a statutory license. In both cases, all of the grants at issue were
contractual and emanated from a songwriter's copyright and the
authority initially conveyed by the original grant from the songwriter
to a publisher.\129\ Thus, neither case's holding is directly
applicable to the operation of the Exception to a non-contractual
intervening grant, like the blanket license. The Supreme Court, in
Mills Music, noted that statutory licenses are different and were not
at issue in the case.\130\ And key language in Woods specifically
refers to ``the panoply of contractual obligations.'' \131\
---------------------------------------------------------------------------
\129\ Mills Music, 469 U.S. at 154-58; Woods, 60 F.3d at 981-84,
987-88.
\130\ Mills Music, 469 U.S. at 168 n.36; see also id. at 185
n.12 (White, J. dissenting).
\131\ Woods, 60 F.3d at 987 (emphasis added).
---------------------------------------------------------------------------
The Office's conclusions about the Exception are fully consistent
with Mills Music, both as described here and in the NPRM. Neither MPA
nor any other commenter addressed the specific points made in the NPRM
regarding how the Exception operates with respect to panoplies of
grants,\132\ other than to assert that the overall conclusion was at
odds with Mills Music and Woods.
---------------------------------------------------------------------------
\132\ See 87 FR 64405, 64410 (``The Exception, as interpreted by
Mills Music, should not be read as freezing other grants related to,
but outside of, the direct chain of successive grants providing
authority to utilize the sound recording derivative, such as the
musical work licenses obtained by DMPs.'').
---------------------------------------------------------------------------
Relying on a single out-of-context quote, MPA argued that, because
Mills Music said that `` `the terms of the grant' means the `entire set
of documents that created and defined each licensee's right to prepare
and distribute derivative works,' '' it must mean that the
[[Page 56594]]
Exception ``thus encompasses the original grant from author to
publisher, as well as the succeeding grants derived therefrom,
potentially involving multiple licensees.'' \133\ The Office is not
persuaded. Read in its proper context, the Court's reference to ``each
licensee'' is not referring to multiple licensees across different
branches of grants involved in the preparation and utilization of a
single derivative work. Rather, it is plainly referring to a single
licensee for each derivative work; specifically, each record company
that prepared one of the sound recording derivatives at issue in the
case (which involved over 400 voluntary mechanical licenses and the
preparation of over 400 sound recording derivatives).\134\ This
conclusion is apparent not only from reading the opinion as a whole,
but from the sentence immediately preceding the one quoted by MPA,
which states that ``a fair construction of the phrase `under the terms
of the grant' as applied to any particular licensee would necessarily
encompass both the 1940 grant [from the songwriter to the publisher]
and the individual [voluntary mechanical] license [from the publisher
to the record company] executed pursuant thereto.'' \135\
---------------------------------------------------------------------------
\133\ MPA NPRM Reply Comments at 4 (quoting Mills Music, 469
U.S. at 165-67).
\134\ See Mills Music, 469 U.S. at 158, 167, 168 n.36.
\135\ See id. at 166-67 (emphasis added).
---------------------------------------------------------------------------
Other language in the Court's opinion similarly reflects that it
was only addressing direct chains of successive grants providing
authority to prepare derivative works.\136\ For example, the Court was
``not persuaded that Congress intended to draw a distinction between
authorizations to prepare derivative works that are based on a single
direct grant and those that are based on successive grants.'' \137\ The
Court found it to be ``a matter of indifference . . . whether the
authority to prepare the work had been received in a direct license
from an author, or in a series of licenses and sublicenses.'' \138\
According to the Court, ``Congress saw no reason to draw a distinction
between a direct grant by an author to a party that produces derivative
works itself and a situation in which a middleman is given authority to
make subsequent grants to such producers.'' \139\ It makes sense that
the Court's opinion was limited to discussing a direct chain of
successive grants because that is what was at issue in the case. We
continue to believe that our reading of the statute and Mills Music, as
well as our analysis and conclusions regarding panoplies and direct
chains of successive grants, are correct.\140\
---------------------------------------------------------------------------
\136\ See Howard B. Abrams & Tyler T. Ochoa, 2 The Law of
Copyright sec. 12:44 (2023) (explaining that ``the Supreme Court
seemed to be using the concept that the series of documents running
from the author to the ultimate preparer of the derivative work
should best be treated as a single transaction although it was
spread over several documents executed at different times'').
\137\ Mills Music, 469 U.S. at 163-64 (emphasis added).
\138\ Id. at 173-74 (emphasis added).
\139\ Id. at 172 (emphasis added).
\140\ See 87 FR 64405, 64410-11; see also, e.g., Fishman &
Garcia NPRM Initial Comments at 1-4 (agreeing with the Office's
analysis and conclusions); SONA et al. NPRM Initial Comments at 2-3
(same).
---------------------------------------------------------------------------
With respect to Woods, even if the discussion in that case could be
read in the broad manner that MPA suggested, it is not clear that the
court's reasoning was correct or involved the same circumstances at
issue here. Among other concerns, Woods did not speak to all the issues
identified in the NPRM.\141\ For example, nothing in Woods appears to
address the fact that if the word ``grant'' is given a consistent
meaning within the text of the Exception--which, according to Mills
Music, it should--it cannot be referring to a grant that did not
provide authority to prepare the derivative work at issue.\142\
---------------------------------------------------------------------------
\141\ See 87 FR 64405, 64410-11.
\142\ See id. at 64411 (explaining that because ``[t]he
Exception's first use of `grant' is to a `derivative work prepared
under authority of the grant,' '' it ``cannot be referring to the
DMP's musical work licenses pursuant to which no derivative work was
prepared'').
---------------------------------------------------------------------------
The Woods court did not engage in this level of textual analysis.
Instead, it reviewed Mills Music and cited a law review article for the
proposition that the Exception applies to ``each subsequent grant
necessary to enable the particular use at issue.'' \143\ As discussed
above, the Office does not believe Mills Music is so expansive. Nor
does the cited law review article appear to support such a broad
reading.\144\ In any event, we emphasize that because Woods is
distinguishable with respect to section 115 statutory licenses, it is
not necessary for the Office to resolve these disagreements to adopt
the final rule.
---------------------------------------------------------------------------
\143\ See Woods, 60 F.3d at 986-88 (emphasis added).
\144\ Woods quotes from a law review article ``describing [the]
holding in Mills Music as `preserving the entire paper chain that
defines the entire transaction.' '' Woods, 60 F.3d at 987 (quoting
Howard B. Abrams, Who's Sorry Now? Termination Rights and the
Derivative Works Exception, 62 U. Det. L. Rev. 181, 234-35 (1985)
(``Abrams'')). But a few sentences earlier, that article explained
that the ``transaction'' being referred to was the ``set of
transfers and licenses that ran from the author to a record
company.'' Abrams at 234.
---------------------------------------------------------------------------
Lastly, Professors Fishman and Garcia, while supportive of most of
the Office's analysis, believed that the NPRM overestimated what would
happen if the Exception did apply to blanket licenses.\145\ They said
that the NPRM's suggestion that all of the blanket license's terms
``would be frozen indefinitely'' under the Exception, such as ``the
royalty rate to be paid,'' ``would contradict the plain terms
established in [section] 115, which explicitly contemplate a variable
rate to be determined by the [Copyright Royalty Judges].'' \146\ They
explained that ``[t]hat variability is a term of the grant,'' and that
to conclude otherwise ``would read into the terms of the blanket
license a permanently fixed royalty rate that does not exist.'' \147\
The professors then noted that the NPRM ``correctly rejected the
possibility of freezing the payee on the same basis.'' \148\
---------------------------------------------------------------------------
\145\ Fishman & Garcia NPRM Initial Comments at 4.
\146\ Id.
\147\ Id.
\148\ Id.
---------------------------------------------------------------------------
Considering this comment, the Office wishes to clarify this point
from the NPRM. We meant to illustrate the problems with the MLC's
previous view of how the Exception would apply--that the Exception
would freeze the royalty payee.\149\ This portion of the NPRM was
intended to explain that if the MLC were correct that the Exception
applied in such a manner as to freeze the royalty payee, then the
Exception would have to freeze everything else too, which would lead to
the ``extreme result.'' \150\
---------------------------------------------------------------------------
\149\ See 87 FR 64405, 64411 (premising the discussion on the
observation that if the Exception applies to the blanket license,
``then it is not clear why it would only apply to the payee, as the
MLC's prior rulemaking comments seem to suggest'') (emphasis added).
\150\ See id.
---------------------------------------------------------------------------
2. Individual Download Licenses
The Office received few comments responding to the SNPRM's analysis
regarding individual download licenses. The American Association of
Independent Music and the Recording Industry Association of America
(``A2IM & RIAA'') sought ``to clarify ambiguity in [the sections of the
proposed rule about individual download licenses and voluntary
licenses] and to ensure that the proposed rule will not affect the
status quo as it applies to record companies' mechanical licensing and
payment practices.'' \151\ They stated that ``the broadened scope of
the current SNPRM in fact could have unintended consequences for record
company practices in ways that are contrary to both the law and
established industry practice, and in a manner that is not
[[Page 56595]]
necessary to the Office's regulation of the [MLC].'' \152\
---------------------------------------------------------------------------
\151\ A2IM & RIAA SNPRM Initial Comments at 1.
\152\ Id.
---------------------------------------------------------------------------
Regarding individual download licenses, A2IM & RIAA agreed with
parts of the Office's legal analysis of the Exception, but said that
``in a regulation about the MLC's recognition of deductions from
royalties that would otherwise be due under the blanket license, [the]
proposed language is opaque and potentially confusing.'' \153\ They
said that:
---------------------------------------------------------------------------
\153\ Id. at 2-3.
[T]he main point is that a termination pursuant to Section 203
or 304 does not affect an individual download license, so a blanket
license royalty deduction for usage pursuant to an individual
download license that was appropriate prior to termination remains
so after termination. The regulations should state that plainly,
rather than the language that is currently proposed. In any event,
it should be clear that [this provision] does not mean that a record
company that relied on an individual download license for the
creation of a sound recording cannot continue to rely on that
license for distribution of the recording (in download form or
otherwise) after termination of the author's publishing
agreement.\154\
---------------------------------------------------------------------------
\154\ Id. at 3.
The Office disagrees that the language is confusing. The provision
clearly provides that the Exception does not apply to an individual
download license, and further states that, for avoidance of doubt, no
one may be understood to be the copyright owner or royalty payee of a
work used under an individual download license based on an
interpretation or application of the Exception. A2IM & RIAA's statement
that a termination ``does not affect an individual download license''
is accurate.\155\ But it is important to recognize that, as explained
in the NPRM and SNPRM, even though ``the license simply continues in
effect according to its terms,'' under those terms, ``entitlement to
royalties . . . travels with ownership of the copyright.'' \156\
``[W]henever a change is effectuated, whether via a contractual
assignment or by operation of a statutory termination, the new owner
becomes the proper payee entitled to royalties under the [individual
download] license.'' \157\ This provision is meant to clarify the
Exception's correct operation in light of the MLC's prior views.\158\
---------------------------------------------------------------------------
\155\ See id.
\156\ 87 FR 64405, 64410-11 & n.70; 88 FR 65908, 65911 & n.67.
\157\ 87 FR 64405, 64411; 88 FR 65908, 65911 & n.67.
\158\ See 87 FR 64405, 64406-07.
---------------------------------------------------------------------------
3. Voluntary Licenses
The Office also received few comments regarding the SNPRM's
discussion of voluntary licenses. A2IM & RIAA agreed with the SNPRM's
description of the complexities involved, noting that ``record
companies regularly obtain voluntary mechanical licenses rather than
compulsory licenses, and generally pass through download rights to
DMPs.'' \159\ They asserted that the ``[r]ights that the record company
obtains from the pre-termination copyright owner are clearly preserved
by the [Exception] when the record company relies on its voluntary
mechanical license for the creation of either a first use recording or
a cover.'' \160\ Based on this, A2IM & RIAA ``question the treatment of
voluntary licenses in the proposed rule.'' \161\ They said that
``[n]either the pre-termination nor post-termination copyright owner
would be motivated to provide the required notice, when the effect of
failing to give notice is that the DMP would in effect pay twice--once
to the pre-termination copyright owner through the record company and
once to the post-termination copyright owner through the MLC.'' \162\
They believed that ``[r]oyalty payments would more often be handled
appropriately if the default assumption were that the [Exception] will
apply to rights obtained by a record company under a voluntary license
and passed through to a DMP.'' \163\
---------------------------------------------------------------------------
\159\ A2IM & RIAA SNPRM Initial Comments at 3.
\160\ Id.
\161\ Id.
\162\ Id. at 4.
\163\ Id.
---------------------------------------------------------------------------
The Digital Licensee Coordinator (``DLC'') raised similar concerns
about potentially paying twice, stating that ``in no event can DMPs be
in the position of double-paying the royalties at issue, potentially
being subject to late fees as a result of any delay in payment to the
correct rightsholder.'' \164\ In the DLC's view, ``the most sensible
approach'' to dealing with disputes over the application of the
Exception to voluntary licenses ``would be to not require any payment
from the DMP to the MLC until the dispute is resolved.'' \165\
---------------------------------------------------------------------------
\164\ DLC SNPRM Initial Comments at 3-4.
\165\ Id. at 4.
---------------------------------------------------------------------------
In subsequent comments, the DLC clarified that its ``concern arises
with respect to the MLC's ability to demand payment when there is a
dispute related to termination that involves one or more voluntary
licensors.'' \166\ It explained that ``the circumstances where a
voluntary license partner has a right to demand royalties
notwithstanding who the MLC's records show is entitled to payment is
ultimately a matter of private contract between the parties, and there
is no industry standard approach to that issue.'' \167\ The DLC also
said that it did not believe the statute requires the MLC to hold
royalties pending the resolution of disputes over the application of
the Exception to voluntary licenses because such disputes are not
ownership disputes within the meaning of the statute.\168\ Based on
these comments, the DLC does not appear to take issue with the
possibility of double payments under the proposed rule where no dispute
is initiated with the MLC.
---------------------------------------------------------------------------
\166\ DLC Ex Parte Letter at 2 (Mar. 4, 2024).
\167\ Id.
\168\ Id. at 2-3.
---------------------------------------------------------------------------
The Office does not believe that these comments warrant any
substantive changes to the provision governing voluntary licenses.
First, this provision does not embody a presumption or a default rule
about the Exception as A2IM & RIAA suggested. Rather, it is a
regulatory application of legal precedent establishing that the pre-
termination copyright owner bears the burden of proving that the
Exception applies.\169\ The Office continues to believe that ``it would
not be prudent to attempt to craft a rule trying to account for how the
Exception may or may not apply in every possible situation'' and that
``the MLC should not exercise independent judgment regarding the
application of the Exception to a voluntary license or its underlying
grant of authority.'' \170\
---------------------------------------------------------------------------
\169\ 88 FR 65908, 65912.
\170\ Id.
---------------------------------------------------------------------------
If the Office were to adopt the default assumption A2IM & RIAA
requested, it would open the door to default assumptions in other
voluntary license contexts. Moreover, doing so would require the MLC to
determine, at minimum, whether the licenses at issue were indeed relied
upon ``for the creation of either a first use recording or a cover.''
\171\ That is precisely the type of fact-finding and independent
judgment the Office does not believe the MLC should be required to
undertake in this context.
---------------------------------------------------------------------------
\171\ See A2IM & RIAA SNPRM Initial Comments at 3-4.
---------------------------------------------------------------------------
Second, given that the DLC does not appear to share A2IM & RIAA's
concern about DMPs potentially double paying, the Office does not
believe that any change to this aspect of the rule is warranted. The
DLC made clear that this issue is one of private contract between the
relevant parties.\172\ Even if that were
[[Page 56596]]
not the case, the possibility of making double payments in this context
does not appear to be any different than in other contexts where a DMP
may be caught in the middle of a dispute between purported copyright
owners. Any time someone claims to be the owner of a copyright
purportedly licensed to a DMP by someone else, it will need to decide
which party to pay. Depending on the relevant contract's terms, the DMP
may well decide to pay both parties to limit its potential liability
for failing to pay the party who ultimately prevails in the dispute.
Thus, the situation that could arise under the rule does not appear to
be a special one necessitating a regulatory solution.
---------------------------------------------------------------------------
\172\ DLC Ex Parte Letter at 2 (Mar. 4, 2024).
---------------------------------------------------------------------------
With respect to the DLC's request that DMPs not be required to pay
royalties to the MLC to be held pending the resolution of a dispute
initiated with the MLC, the Office disagrees. As the Office explained
in the SNPRM, even though ``a dispute as to the application of the
Exception is not a dispute over ownership,'' ``a pre-termination
copyright owner [should] be able to initiate a dispute with the MLC
over the application of the Exception to a particular voluntary license
or its underlying grant of authority, and . . . the MLC should hold
applicable royalties pending resolution of such a dispute.'' \173\
---------------------------------------------------------------------------
\173\ 88 FR 65908, 65919.
---------------------------------------------------------------------------
Even if such a royalty hold is not required by the statute, the
Office nevertheless finds it to be a reasonable and prudent approach to
the administration of such disputes, as it ensures that the relevant
funds will be available upon the resolution of the dispute. As between
allowing a DMP to hold the relevant royalties versus the MLC, the more
appropriate approach is for them to be held by the MLC, rather than a
DMP with whom the purported copyright owner may have no relationship.
Moreover, even if the Office did not require this, a DMP would risk
late fees, or even default and termination of its blanket license, if
it declined to pay the applicable royalties to the MLC and the
voluntary licensor does not prevail in the dispute. Thus, the final
rule has been clarified to state that the MLC shall invoice the
relevant DMP for the applicable royalties.
The DLC asked that if the Office adopts this approach, we ``provide
guidance on how any interest accrued by the MLC during the pendency of
a termination dispute is handled.'' \174\ Specifically, it requested
that ``where resolution of the dispute results in a service paying the
voluntary licensor, the interest should be paid back to the service
(with any requirement to pay that interest onto the voluntary licensor
dictated by the terms of the voluntary license).'' \175\ The DLC
further said that ``where resolution of the dispute results in payment
being made by the MLC to a blanket licensor, then any interest earned
should be used to offset the MLC's administrative costs.'' \176\
---------------------------------------------------------------------------
\174\ DLC Ex Parte Letter at 3 (Mar. 4, 2024).
\175\ Id. at 3 n.10.
\176\ Id.
---------------------------------------------------------------------------
The Office had proposed that royalties held in connection with
these kinds of disputes accrue interest, but did not elaborate
further.\177\ Our intent was for the MLC to hold royalties in the same
manner as any other held royalties under section 115(d)(3)(H)(ii).\178\
---------------------------------------------------------------------------
\177\ 88 FR 65908, 65926.
\178\ 17 U.S.C. 115(d)(3)(H)(ii)(I).
---------------------------------------------------------------------------
The final rule makes three clarifications regarding the funds held
due to a termination-related dispute involving a voluntary license.
First, the applicable funds shall be held by the MLC in the same manner
and at the same interest rate as any other held funds. Second, where
the resolution of the dispute results in payment being made by the MLC
pursuant to a blanket license, that payment must include accrued
interest. In that situation, the Office sees no reason why the MLC or
DMPs (through an offsetting of the MLC's costs) should profit from the
fact that there was a dispute. Third, where the resolution of the
dispute results in a DMP paying royalties to a voluntary licensor, the
MLC must promptly return the held funds, including accrued interest, to
the DMP, who then may or may not be required to pass that interest on
to the voluntary licensor depending on the terms of their agreement.
The Office disagrees with the MLC that ``under the explicit
language of [section 115(d)(3)(H)], interest earned . . . can only be
for the benefit of copyright owners,'' such that ``such accrued
interest cannot be transmitted to [DMPs] for their own benefit (or to
be disposed of in their discretion), even where royalties are
ultimately refunded to [DMPs] as associated with voluntary licenses.''
\179\ Section 115(d)(3)(H) does not apply in the context of funds held
during disputes over the application of the Exception to voluntary
licenses.
---------------------------------------------------------------------------
\179\ MLC Ex Parte Letter at 5-6 (Mar. 22, 2024).
---------------------------------------------------------------------------
First, section 115(d)(3)(H) provides requirements for the holding
of royalties and accrual of interest with respect to ``unmatched''
works.\180\ As discussed above, disputes over the application of the
Exception are not ownership disputes.\181\ Since ownership is not in
question, and the owner would need to already be registered with the
MLC for there to even be a dispute of this kind, the works at issue in
such a dispute would not be ``unmatched'' within the meaning of the
statute.\182\
---------------------------------------------------------------------------
\180\ See 17 U.S.C. 115(d)(3)(H).
\181\ 88 FR 65908, 65919.
\182\ See 17 U.S.C. 115(e)(35) (``The term `unmatched', as
applied to a musical work (or share thereof), means that the
copyright owner of such work (or share thereof) has not been
identified or located.'').
---------------------------------------------------------------------------
Second, section 115(d)(3)(H) does not apply through section
115(d)(3)(G)(i)(III)(bb), which provides that the MLC shall ``deposit
into an interest-bearing account, as provided in subparagraph (H)(ii),
royalties that cannot be distributed due to . . . a pending dispute
before the dispute resolution committee of the [MLC].'' \183\ Such
disputes are described in section 115(d)(3)(K)(i) as ``disputes
relating to ownership interests in musical works licensed under this
section.'' \184\ The Office reiterates that a dispute over the
application of the Exception is not an ownership dispute. It is a
dispute over the legal effect of a valid termination.\185\
---------------------------------------------------------------------------
\183\ See id. at 115(d)(3)(G)(i)(III)(bb).
\184\ Id. at 115(d)(3)(K)(i).
\185\ 88 FR 65908, 65919.
---------------------------------------------------------------------------
For these reasons, the Office is regulating how the MLC should
handle these types of disputes and the associated royalties and
interest. With respect to the interest issue, we believe the most
equitable approach is for the MLC to pay the interest along with the
royalties, regardless of to whom such royalties are paid. The reason
for requiring the accrual of interest is to make the applicable party
whole for the time-value of money while the dispute is pending
resolution. The Office is requiring the interest rate to be the same as
for funds held under section 115(d)(3)(H)(ii) because that is a rate
that Congress, by enacting it as part of the MMA, has found to be
reasonable. Where there is a voluntary license at issue, whether the
DMP or the voluntary licensor is to be made whole is up to the relevant
agreement. Therefore, depending on the terms of the agreement, either
the DMP will be permitted to retain the interest for itself or will be
required to pay it through to the voluntary licensor. A voluntary
licensor should not gain a benefit beyond the terms of its agreement
simply because the Office is requiring the disputed funds to be held at
the MLC rather than at the DMP.
[[Page 56597]]
B. The Copyright Owner at the Time of the Use Versus the Copyright
Owner at the Time of the Payment
In both the NPRM and SNPRM, the Office proposed that the copyright
owner at the time of the use is legally entitled to royalty
distributions from the MLC unless the MLC is directed otherwise. In
response to the SNPRM, the Office received numerous comments from
publishers, songwriters, and other industry stakeholders expressing
concern with that approach. As discussed below, their concerns related
to whether the Office's understanding of the law conflicted with
current music industry royalty administration practices or would cause
administrative challenges for the MLC. In this final rule, the Office
is adopting our earlier proposal with some modifications to address
these operational concerns.
1. Background
In addressing whether the owner at the time of the use or the owner
at the time of the payment is entitled to blanket license royalties,
the NPRM stated that a copyright owner is entitled to blanket license
royalties at the moment in time when the use of the relevant musical
work by a DMP occurs.\186\ The Office refers to this understanding as
the ``owner at the time of the use'' approach.
---------------------------------------------------------------------------
\186\ 87 FR 64405, 64412.
---------------------------------------------------------------------------
The SNPRM provided further analysis of this approach, concluding
that ``it appears that, absent an agreement to the contrary, the
copyright owner who can sue a DMP for infringement due to non-payment
of royalties under the blanket license is the copyright owner at the
time the infringement was committed--i.e., at the time of the use. It,
therefore, seems reasonable to the Office for that owner to be the one
to whom such royalties are paid by the MLC.'' \187\ The Office's
conclusion that the owner at the time of the use is entitled to the
royalty distribution was based on both the MMA and broader copyright
law principles.\188\ The SNPRM proposed regulatory text identifying the
owner at the time of the use as the legally entitled party.
---------------------------------------------------------------------------
\187\ 88 FR 65908, 65913.
\188\ See id. at 65912 (reflecting the Office's statutory
analysis).
---------------------------------------------------------------------------
The Office, recognizing the importance of giving effect to private
contracts that may call for different payment arrangements, also
proposed that the rule ``would only establish the owner at the time of
the use as the default payee--i.e., the proper payee to whom the MLC
must distribute royalties and any other related amounts under the
blanket license in the absence of an agreement to the contrary.'' \189\
We then proposed additional provisions to govern notification of the
MLC about alternative payee designations, such as through letters of
direction, ``to accommodate and give effect to contractual payment
arrangements that deviate from this default rule.'' \190\
---------------------------------------------------------------------------
\189\ Id. at 65913.
\190\ Id. at 65913-14, 65916-17.
---------------------------------------------------------------------------
Finally, the NPRM also proposed that the MLC should use the last
day of the relevant monthly reporting period to identify the proper
copyright owner for that month's royalty distribution. The Office
suggested that doing so would be in line with the monthly reporting and
royalty distribution process created by the MMA and our regulations and
would make the rule reasonably administrable for the MLC, compared to
requiring the MLC to identify the copyright owner entitled to royalties
on a day-to-day basis.\191\ The Office sought comments on this proposed
approach, including whether some other point in time might be
appropriate.\192\
---------------------------------------------------------------------------
\191\ 87 FR 64405, 64412.
\192\ Id.
---------------------------------------------------------------------------
2. Comments
Comments from publishers, songwriters, and other industry
stakeholders expressed concern with the owner at the time of the use
approach.\193\ Many of these parties favored an approach where
royalties would be distributed to the copyright owner identified in the
MLC's records as of the date of each monthly royalty distribution. The
Office refers to this as ``the owner at the time of the payment''
approach.
---------------------------------------------------------------------------
\193\ See, e.g., MLC SNPRM Initial Comments at 1-16; NMPA SNPRM
Initial Comments at 2-13; NMPA Ex Parte Letter at 1-2 (Jan. 24,
2024); AIMP SNPRM Initial Comments at 1-4; Combustion Music SNPRM
Initial Comments; Endurance Music Grp. SNPRM Initial Comments at 1-
2; Farris, Self & Moore, LLC SNPRM Initial Comments at 1-2; Boom
Music SNPRM Initial Comments; Jonas Grp. Publ'g SNPRM Initial
Comments; Kobalt Music SNPRM Initial Comments at 2; Liz Rose Music
SNPRM Initial Comments at 1-2; Big Machine Music SNPRM Initial
Comments at 1-2; Legacyworks SNPRM Initial Comments; Me Gusta Music
SNPRM Initial Comments at 1-2; Relative Music Grp. SNPRM Initial
Comments at 1-2; Harding SNPRM Initial Comments; Moore SNPRM Initial
Comments; North Music Grp. SNPRM Initial Comments at 2; NSAI SNPRM
Initial Comments at 2-5; Big Yellow Dog SNPRM Initial Comments;
Reservoir Media Mgmt. SNPRM Initial Comments at 1-2; SMACKSongs
SNPRM Initial Comments; Sony Music Publ'g SNPRM Initial Comments at
1-5; Spirit Music Grp. SNPRM Initial Comments at 1-3; Turner SNPRM
Initial Comments at 1-2; Wiatr & Assocs. SNPRM Initial Comments;
Jody Williams Songs SNPRM Initial Comments at 1-2; Concord Music
Publ'g SNPRM Initial Comments at 1-3; ClearBox Rights SNPRM Reply
Comments at 4-5; Creative Nation SNPRM Reply Comments at 1-2; The
Greenroom Resource SNPRM Reply Comments at 1; MAC et al. SNPRM Reply
Comments at 2; Recording Academy SNPRM Reply Comments at 3; SONA
SNPRM Reply Comments at 2-5; Universal Music Publ'g Grp. SNPRM Reply
Comments at 1-5; Warner Chappell Music SNPRM Reply Comments at 3-8;
DLC SNPRM Reply Comments at 2-4.
---------------------------------------------------------------------------
At a high level, commenters' primary concerns with the owner at the
time of the use approach were practical ones. Specifically, they
asserted that this approach is not a standard practice in the music
industry and is contrary to how industry contracts generally work, that
it will be burdensome and disruptive across the industry (including to
the MLC), and that it will result in inaccurate and delayed payments
(including to songwriters).\194\
---------------------------------------------------------------------------
\194\ Examples of other issues raised by the comments include
that: it may upset commercial expectations and cause problems with
financial modeling and reporting; it may lead to an increase in
fraudulent claims; implementation would require the development of
new data and processing systems and new reporting formats and
standards across the entire industry that will be costly and time-
consuming to create; once a publisher's or administrator's rights
period expires, they should not be burdened with the expense and
liability of needing to ensure that any future income they receive
flows through to the current owner to whom rights have been
transferred; former publishers and administrators are not set up to
distribute royalties to former songwriter partners, and practically
would not have current contact or banking information available to
make such distributions to their former songwriters; the choice of
songwriters to change publishers or administrators should be
honored, and they should not be forced to continue a relationship
with their former representative with respect to these royalties
that may be inefficient or lack transparency and accountability; it
will lead to lower match rates and more unmatched royalties at the
MLC, especially for pre-2021 periods.
---------------------------------------------------------------------------
A few commenters supported the Office's legal conclusions regarding
the proper copyright owner who is entitled to blanket license
royalties.\195\ Others suggested a bifurcated approach to addressing
the issue. For example, the Music Artists Coalition (``MAC'') said
that, in the termination context, the payee should be the owner at the
time of the use, but for everything else, it should be the owner at the
time of the payment.\196\ Similarly, NMPA, as a ``compromise,''
proposed regulatory text based on the NPRM that ``applies a time of use
rule solely in the termination context.'' \197\ It argued, however,
``that a rule providing for payment to the owner at the time of
distribution in all contexts is the more appropriate one.'' \198\
---------------------------------------------------------------------------
\195\ See, e.g., Howard SNPRM Initial Comments at 1-2; King,
Holmes, Paterno & Soriano LLP SNPRM Reply Comments.
\196\ MAC Ex Parte Letter at 2 (Dec. 29, 2023).
\197\ NMPA Ex Parte Letter at 2 (Jan. 24, 2024).
\198\ Id.
---------------------------------------------------------------------------
3. Legal Entitlement to Blanket License Royalties
Despite the lack of support from commenters, few addressed the
[[Page 56598]]
statutory text or the Office's legal analysis. Only NMPA and the MLC
provided substantive arguments that the MMA's statutory language and
legislative history support the MLC distributing royalties to the owner
at the time of the payment.\199\
---------------------------------------------------------------------------
\199\ NMPA SNPRM Initial Comments at 11-13; MLC SNPRM Initial
Comments at 4-11. NMPA also made an argument based on language used
by the Office in the NPRM's analysis of the Exception which stated
that the ``current copyright owner'' is entitled to blanket license
royalties, that owner ``can change over time'' and, after such a
change, ``the new owner becomes the proper payee.'' NMPA SNPRM
Initial Comments at 11 (citing 87 FR 64405, 64411; 88 FR 65908,
65912). To clarify, the Office's use of the term ``current'' was
intended to identify that the proper payee is the copyright owner
concurrent with the time the work was used. While the last copyright
owner in time may be the proper payee, we were not suggesting that
this is necessarily always the case.
---------------------------------------------------------------------------
NMPA conceded that the Office's proposal ``is not based on an
unreasonable legal interpretation.'' At the same time, it asserted that
``unless the statute is clear, a legal interpretation of relevant
statutory provisions should not cause disruption in a private,
functioning market.'' \200\ It also disagreed with the Office's
statutory analysis and proposed a different reading. NMPA's statutory
arguments referred to sections 115(d)(3)(G)(i)(II) and 115(d)(3)(J)(i)
(provisions governing royalty distributions), stating that they must be
read together with sections 115(d)(3)(E)(i) and 115(d)(3)(E)(ii)(II)-
(III) (provisions governing the MLC's ownership database). Relying on
those provisions, NMPA stated:
---------------------------------------------------------------------------
\200\ NMPA SNPRM Initial Comments at 11.
The MLC is . . . not directed by statute to maintain . . .
historical copyright ownership or chain of title information within
its musical works database. Because the MLC does not maintain in the
musical works database records that would enable it to identify the
``copyright owner'' at the precise time of use, and the ``copyright
owner'' as identified in the musical works database is always the
then-current copyright owner (and not the owner at the time of use
or at some other prior time), the direction to pay ``copyright
owners in accordance with . . . the ownership and other information
contained in the records of [the MLC]'' should be read as a
direction to pay the owner at the time of payment.\201\
---------------------------------------------------------------------------
\201\ Id. at 12 (second and third alterations in original).
NMPA then referred to section 115(d)(3)(I), asserting that ``once a
match is made, all the accrued royalties with respect to such
previously unmatched work are paid to the then-current copyright owner
to which the work has been matched. There is no requirement for the MLC
to determine which portion of those royalties may relate to uses made
at a time when a different (potentially not yet identified) copyright
owner owned the work.'' \202\ NMPA concluded by stating that it ``does
not believe that the sections referred to by the [Office] support a
different conclusion,'' as those provisions ``do not address the issue
of who has the statutory right to receive Blanket License royalty
payments.'' \203\
---------------------------------------------------------------------------
\202\ Id. at 12-13.
\203\ Id. at 13.
---------------------------------------------------------------------------
The MLC made similar statutory arguments, referencing some of the
MMA's same sections,\204\ as well as its legislative history.\205\
Similar to NMPA, the MLC asserted that ``[t]he MMA directive to
distribute royalties based on the `information in [its] records' is
most appropriately read to mean that The MLC is to distribute royalties
to the copyright owners' current registered payee.'' \206\
---------------------------------------------------------------------------
\204\ MLC SNPRM Initial Comments at 4-7 (referencing 17 U.S.C.
115(d)(3)(G)(i)(II), 115(d)(3)(J)(i), 115(d)(3)(E)(i)-(ii), and
115(d)(3)(I)).
\205\ Id. at 4-11. Regarding legislative history, the MLC
primarily pointed to there being ``no mention or contemplation of
the creation of a database that includes temporal histories of past
ownership'' and that a description of the provisions concerning
market share-based distributions of unclaimed royalties ``conveys an
understanding that royalties would be paid to the entities that
currently represent songwriters, not to an entity that may have
represented the songwriter in the past but is no longer authorized
to do so.'' Id. at 8-9 (citing H.R. Rep. No. 115-651, at 7-9, 13 and
S. Rep. No. 115-339, at 8-9, 14).
\206\ Id. at 5-6.
---------------------------------------------------------------------------
The Office acknowledges the practical consequences of our analysis
in the SNPRM. However, those practicalities do not create legal
entitlements or change the terms of title 17, absent contractual or
other arrangements. While sections 115(d)(3)(G)(i)(II) and 115(d)(3)(I)
provide the ``copyright owner'' with legal entitlement to the
royalties, neither they nor the other cited provisions speak to which
copyright owner possesses such entitlement between the owner at the
time of the use or the owner at the time of the payment.\207\ That is
why the Office engaged in the analysis it did in the NPRM and
SNPRM.\208\
---------------------------------------------------------------------------
\207\ Nor do these provisions necessarily require that there be
only a single payee contained in the MLC's records for each work (or
share). At best, these provisions are silent on that issue. The
MLC's reliance on legislative history is similarly misplaced, as
their cited references also do not appear to directly speak to this
issue. In particular, market share-based distributions of unclaimed
royalties are a unique feature of the MMA, and whatever the meaning
of the specific provisions governing that special type of
distribution--which is a matter beyond the scope of this
proceeding--they do not speak to the legal entitlement to or
distribution requirements for blanket license royalties that have
not yet become ``unclaimed'' within the meaning of the statute. See
17 U.S.C. 115(d)(3)(J), (e)(34).
\208\ 88 FR 65908, 65912 (explaining that the analysis regarding
the owner at the time of the use versus the owner at the time of the
payment issue concerned the Office's proposal ``[t]o codify its
preliminary conclusion that the statute entitles the `current
copyright owner' to the royalties under the blanket license'').
---------------------------------------------------------------------------
The MMA's references to the MLC's records do not resolve this
issue. They merely provide instructions as to how the MLC shall
distribute royalties to legally entitled copyright owners. Such
distributions must be made to such copyright owners ``in accordance
with . . . the ownership and other information contained in the records
of the [MLC].'' \209\ Those records contain important information about
how to make the distribution, including contact, banking, and other
information about the owner, as well as whether payment is to be made
to an administrator or other representative or designee.\210\
---------------------------------------------------------------------------
\209\ See 17 U.S.C. 115(d)(3)(G)(i)(II).
\210\ See, e.g., 37 CFR 210.31(b)(1)(iii), (b)(1)(v)(D).
---------------------------------------------------------------------------
Of course, the statute's direction to the MLC to make distributions
based on the information in its records does not resolve any underlying
dispute regarding who is entitled to the royalty distribution. Clearly,
the MLC can only distribute royalties based on known information. But
what the MLC ``knows,'' based on its records, could turn out to be
wrong, for example, if an imposter managed to successfully register a
fraudulent ownership claim, or a legitimate copyright owner
accidentally but erroneously claimed a work in good faith. If the
statute is understood to confer entitlement to the royalties on
whomever is identified in the MLC's records, it creates a conflict with
the rest of the statutory text that confers this entitlement on the
copyright owner. Moreover, such a reading would provide perverse
incentives for parties to race to submit as many fraudulent claims to
the MLC as possible in the hope of gaining such legal entitlement.
Congress did not intend to create such an absurd scheme, whereby
claimants who may be intentionally lying can obtain legal entitlement
to royalties for uses of copyrighted works instead of the actual
copyright owners.
Thus, while the individual or entity legally entitled to the
royalties and the individual or entity actually receiving the
distribution from the MLC will, in most cases, be the same, this will
not always be the case. If they are not the same, being identified in
the MLC's records alone will not alter or prejudice the true copyright
owner's legal entitlement to those royalties. The Office concludes that
this is the only reasonable way to read the MMA's
[[Page 56599]]
instructions to the MLC regarding distributions.
With respect to the Office's further analysis contained in the NPRM
and SNPRM, to the extent NMPA or the MLC is suggesting that Congress
meant to establish a special exception regarding copyright ownership or
royalty entitlement in connection with the blanket license, the Office
disagrees. As explained in the SNPRM, reading section 501(b) in
conjunction with section 115(d)(4)(E)(ii)(II) (which directly
references section 501), ``it appears that, absent an agreement to the
contrary, the copyright owner who can sue a DMP for infringement due to
non-payment of royalties under the blanket license is the copyright
owner at the time the infringement was committed--i.e., at the time of
the use.'' \211\ This is the best reading of the statute: that Congress
expected the party who is legally entitled to the royalties and the
party who is legally permitted to sue a DMP for infringement for the
nonpayment of such royalties to be one and the same. That understanding
is best reflected in section 115(d)(4)(E)(ii)(II)'s cross reference to
section 501. If Congress had intended an exception to the operation of
section 501(b) for infringement cases related to the blanket license,
it would have articulated one. The Office recognizes that legal
entitlements can be varied by contract, but that variation is not
relevant to understanding how the statute works absent any such
agreement's terms.
---------------------------------------------------------------------------
\211\ 88 FR 65908, 65913.
---------------------------------------------------------------------------
Some commenters suggested to the Office that potential concerns
over the time of use approach are addressed through contract.\212\ But
contract terms stating that acquiring publishers will be paid royalties
for pre-acquisition uses of musical works imply agreement with the
Office's conclusions about default royalty entitlement in the absence
of a relevant agreement. Additionally, most of the comments addressing
the time of use approach focused on concerns related to business
practices (e.g., paperwork, royalty processing, data tracking) rather
than the law. While such concerns are relevant to the practical
administrability of the rule, and support certain changes the Office
ultimately made to the final rule (which are discussed below), they
have no bearing on the statutory analysis discussed above or in the
NPRM or SNPRM.
---------------------------------------------------------------------------
\212\ See, e.g., MLC SNPRM Initial Comments at 11; NMPA SNPRM
Initial Comments at 4-5 & n.4, 10; Kobalt Music SNPRM Initial
Comments at 2; Reservoir Media Mgmt. SNPRM Initial Comments at 1;
Sony Music Publ'g SNPRM Initial Comments at 1-2; Spirit Music Grp.
SNPRM Initial Comments at 1; Concord Music Publ'g SNPRM Initial
Comments at 2; Universal Music Publ'g Grp. SNPRM Reply Comments at
2.
---------------------------------------------------------------------------
Based on the foregoing, as well as the relevant discussion in the
NPRM and SNPRM, the Office is adopting the owner at the time of the use
rule as final, but only with respect to identifying who is legally
entitled to blanket license royalties under the statute as a default
matter. Unlike the SNPRM, the final rule does not mandate that the MLC
may only make distributions to either the owner at the time of the use
or an alternative payee specifically designated by such owner.\213\
Rather, it contains a new provision (detailed in the section below)
governing how the MLC is to make royalty distributions based on the
information in its records.
---------------------------------------------------------------------------
\213\ Despite this change, the final rule still provides that
the relevant owner is the owner as of the last day of the monthly
reporting period in which the work is used pursuant to a blanket
license. While the Office's original reasoning for that was
partially based on concerns about requiring the MLC to manage day-
to-day ownership changes occurring mid-month, it also rested on the
fact that the MMA established a monthly-based reporting scheme for
DMPs. 87 FR 64405, 64412. The Office relies on the latter in
adopting the final rule. See 17 U.S.C. 115(d)(4)(A).
---------------------------------------------------------------------------
As discussed above, the MLC's records are not determinative with
respect to who is legally entitled to royalties. At the same time, the
Office agrees with NMPA and the MLC that section 115(d)(3)(G)(i)(II)
directs the MLC to make distributions in accordance with the
information in its records.\214\ The Office has therefore decided to
adopt two provisions--one that describes who is legally entitled to the
royalties and another that directs to whom the MLC shall distribute
royalties. The two provisions avoid confusion, making clear that the
MLC's distribution does not mean that the recipient is legally entitled
to those royalties, but instructing the MLC regarding the distributions
that it should make. Adopting regulations directing the MLC to act,
unaccompanied by regulations identifying who is legally entitled to the
royalties, could create a misunderstanding regarding proper application
of the law. But, as discussed below, aligning the legal entitlement
with the directive to the MLC in all cases would be administratively
infeasible. The new distribution provision instead enables the MLC to
make royalty distributions to the owner at the time of the payment in
accordance with the standard industry practice for which commenters
expressed virtually universal support.
---------------------------------------------------------------------------
\214\ 17 U.S.C. 115(d)(3)(G)(i)(II).
---------------------------------------------------------------------------
Some commenters continued to voice concerns with the Office
articulating who is legally entitled to the royalties as a default
matter, even when coupled with the new distribution provision discussed
below.\215\ The Office has considered these concerns, but declines to
remove the entitlement provision from the final rule. Especially
considering the new distribution provision discussed below, the Office
believes it is important to provide a clear statement of the party who
is legally entitled to blanket license royalties as a default matter.
---------------------------------------------------------------------------
\215\ See NMPA Ex Parte Letter at 1-2 (Jan. 24, 2024); MLC Ex
Parte Letter at 3 (Feb. 5, 2024); MAC & NSAI Ex Parte Letter at 1
(Feb. 12, 2024).
---------------------------------------------------------------------------
First, the Office is always mindful of potential unintended
consequences that may stem from its rules. To the extent the Office's
legal conclusions may differ from the practices of certain industry
participants, those differences seem to be based on expectations
arising out of contracts or business norms, not title 17. Moreover,
failure to explain that entitlement to royalties is based on the time
of the use could lead to confusion and the mistaken impression that the
MLC's royalty distributions, which are based on information in its
records at the time of the payment--principally for administrative
convenience--reflects a determination of entitlement. On balance, the
best way to minimize confusion is for the Office to articulate our
interpretation of the statute.
Second, the Office disagrees with the argument that the rule is
unnecessary because private agreements will govern anyway. That
argument presupposes that every private agreement will speak to this
issue. Nothing in the record indicates that this is universally true,
indicating there is at least some subset of contracts as to which this
provision will be applicable.\216\ Moreover, this argument presupposes
that all transfers are contractual, which is incorrect.
---------------------------------------------------------------------------
\216\ The Office, of course, does not mean to suggest that this
provision should in any way override the intent of contracting
parties if an agreement is ambiguous. If the parties disagree as to
whether an agreement conveyed the entitlement to the applicable
royalties, the usual standards under applicable state law for
construing private contracts would still apply. The MLC should treat
any such disagreement like an ownership dispute.
---------------------------------------------------------------------------
Finally, the Office disagrees that the existence of non-contractual
transfers, like intestate succession or bankruptcy, weigh against this
rule, as their existence does not change the statutory analysis
discussed above and in the SNPRM. The Office has, however, clarified in
the final rule that the entitlement to royalties can be
[[Page 56600]]
transferred and that the default royalty entitlement provided for is
subject to any such transfer.
4. The MLC's Distribution of Royalties Based on Its Records
As mentioned above, the final rule includes a new provision to
address the MLC's royalty distributions based on the information in its
records, as required by section 115(d)(3)(G)(i)(II). The new regulation
has four main parts summarized here.
i. Default Royalty Distribution Practices Regarding Ownership and the
MLC's Records
The first part of the regulation provides that, when making a
distribution, the MLC shall treat the individual or entity identified
in its records as of the date of the payee snapshot used for the
applicable distribution as legally authorized to receive the
distribution (e.g., meaning that such party is the owner at the time of
the use (or such owner's representative or designee) or a successor in
interest to such owner's entitlement to the royalties (or such
successor's representative or designee)). In other words, the MLC is to
distribute royalties based on its records and to assume that whoever is
in its records is legally entitled to the distribution, subject to the
additional provisions below. By making royalty distributions to the
owner reflected in the MLC's records on the date of the payee snapshot
(i.e., at the time of the payment), the MLC will be acting in
accordance with widespread industry practice without contravening the
statute. One commenter called it ``an elegant solution.'' \217\
---------------------------------------------------------------------------
\217\ MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024); see also
MCNA et al. Ex Parte Letter at 1-2 (Mar. 15, 2024) (articulating
qualified support for this solution in the termination context and
subject to other various caveats, calling it ``a reasonable and
practical solution that accounts for both business considerations
and the protection of creators' rights under the law in termination
rights situations'').
---------------------------------------------------------------------------
This default distribution provision is both consistent with the
language of the statute and responsive to the MLC's request for the
``inclusion of a provision confirming that [it] can distribute
royalties for a musical work to the current payee registered in its
database.'' \218\ The Office concludes that the new provision is a
reasonable and appropriate approach which facilitates the MLC's
administration of royalty distributions. Moreover, this result was
overwhelmingly supported by commenters. The comments made clear that
the party identified in the MLC's records at the time of the payee
snapshot (or its representative or designee) will be the party who is
legally entitled to the distribution in the vast majority of
cases.\219\ Permitting the MLC to act on the information in its records
will lead to accurate payments without overburdening copyright owners
and the MLC with new, potentially significant, data, reporting, and
payment requirements, which could result in a delay in royalty
distributions.\220\
---------------------------------------------------------------------------
\218\ MLC Ex Parte Letter at 3-4 (Feb. 5, 2024); see also MLC Ex
Parte Letter at 1 (Feb. 21, 2024); MLC Ex Parte Letter at 1 (Mar.
22, 2024); Warner Chappell Music SNPRM Reply Comments at 5-6 (``[I]n
light of the undisputed comments to the SNPRM detailing how and why
the U.S. and international music publishing industry is universally
built on maintaining current information for--and paying--the then-
current owner or administrator, Warner Chappell advocates for
adopting that as a default rule.''); NMPA SNPRM Initial Comments at
10 (``[A] `default rule' should be the rule that applies in the vast
majority of cases, and should not be the rule that applies only in
exceptional cases.'').
\219\ See, e.g., MLC SNPRM Initial Comments at 11 (``[I]n most
industry agreements the current payee typically has the right to
receive royalties for all periods (both prospective and historical).
Thus, a default rule that provides for payments to be made to the
current payee (a result that is consistent with most industry
agreements) would produce more accurate results than a default rule
that provides for payments to be made to a historical payee (a
result that does not align with most industry agreements.''); NMPA
SNPRM Initial Comments at 4-5 (``[T]he custom and practice in the
music industry is for royalties to be paid to the owner of the
copyright at the time of payment rather than at the time of use,
unless a different arrangement is agreed to between that copyright
owner and a different payee, e.g., the prior owner/assignor of the
copyright. This custom and practice is memorialized in industry
contracts and the royalty and administration systems of publishers,
administrators, and CMOs are built around that custom and practice.
In other words, the industry `default rule' is the opposite of the
`default rule' proposed in the SNPRM.''); Kobalt Music SNPRM Initial
Comments at 2 (``The administrator who is registered at the time of
a distribution is nearly always the entity that all royalties should
be paid to, and this is how industry contracts and CMOs generally
operate. Any exceptions to this practice would be the distinct
minority.''); Sony Music Publ'g SNPRM Initial Comments at 1-2 (``The
Prior Owner Rule is inconsistent with the contracts around which the
music publishing industry is built. . . . When music catalogues are
bought and sold, the terms of the acquisition documents generally
provide that the acquiring party has the right to collect all income
after the date of sale.''); Universal Music Publ'g Grp. SNPRM Reply
Comments at 2 (``Under industry contracts, where rights are
transferred or revert, the right to receive royalties (including
those previously earned but not yet paid) generally follows the
rights. . . . The Time of Use Rule will therefore . . . usually
result in payment to the wrong party under the relevant contractual
arrangements.''); Warner Chappell Music SNPRM Reply Comments at 5
(``[A]ny rule that would establish the `default payee' as anyone
other than the current rightsholder at the time of the payment will,
by definition, carry a real and inherent risk of compelling payment
to someone not entitled to received it. . . . [T]he U.S. and
international music publishing industry is universally built on
maintaining current information for--and paying--the then-current
owner or administrator.''); Big Machine Music SNPRM Initial Comments
at 2 (``I have never seen a copyright transfer that doesn't include
a letter of direction to effectively set out the process for the new
owner to receive all future income.''); Reservoir Media Mgmt. SNPRM
Initial Comments at 2 (``There is nothing to gain from some of these
changes beyond a mirage of accuracy that is not in alignment with
actual collection rights.''); SONA SNPRM Reply Comments at 3
(``Songwriters, publishers, and other third parties acquiring and/or
licensing publishing rights in the music industry transfer rights,
including the right to administer and collect royalty income, as of
a specific date of transfer so that the party that is newly entitled
to administer, collect and receive income in connection with the
particular works will do so as of that specific effective date
regardless of when those monies were earned.''). Other commenters
also noted that this practice is not completely universal, and that
there may be exceptions. See, e.g., MLC SNPRM Initial Comments at
11; NMPA SNPRM Initial Comments at 4-5; Kobalt Music SNPRM Initial
Comments at 2; Sony Music Publ'g SNPRM Initial Comments at 1-2;
Universal Music Publ'g Grp. SNPRM Reply Comments at 2; Warner
Chappell Music SNPRM Reply Comments at 6 (``In the rare instance
where parties actually intend for someone other than the current
owner or administrator to receive an MLC distribution, those parties
are best positioned to so notify the MLC.'').
\220\ The Office acknowledges that this default distribution
provision could lead to the ``wrong'' result with respect to the
narrow category of post-termination royalties paid for pre-
termination uses. In such cases, the pre-termination copyright owner
remains entitled to those royalties absent a contrary agreement
because the reversion of the copyright by operation of law does not
encompass the additional entitlement to those royalties. The Office
nevertheless finds the default distribution provision to be
reasonable in these cases in light of the reduced burden it places
on the MLC, the various exceptions to the default distribution
provision discussed below, as well as comments from publishers
suggesting agreement with the end-result of having the MLC
distribute post-termination royalties for pre-termination uses to
the post-termination owner. See, e.g., NMPA NPRM Initial Comments at
6; CMPA NPRM Initial Comments at 2 (``Although it may not be in the
financial interest of the pre-termination owner, . . . it would be
CMPA's recommendation that any and all adjustments of this nature be
paid to the current copyright owner (that being the post-termination
owner) at the time of the payment, and not at the time when the
usage was made.''); see also NMPA SNPRM Initial Comments at 5
(``[I]t is the custom and practice in the industry for the new owner
or the songwriter to whom rights have been assigned or reverted to
be paid all unpaid royalties regardless of when they were
earned.'').
Additionally, the comments suggested that at least some
publishers do not wish to receive such royalties due to the
administrative burdens involved in sharing those royalties with
former songwriter partners. See, e.g., NMPA SNPRM Initial Comments
at 8; Kobalt Music SNPRM Initial Comments at 3 (``In our experience,
former administrators in general are not set up to distribute
royalties to their former songwriters, and almost no one--not even
the former administrators themselves--wants them to continue to
receive those royalties once all rights periods expire.''); Big
Machine Music SNPRM Initial Comments at 1-2 (``The collection and
re-distribution of this income to the new owner creates an
additional administrative burden for our company, taxes the human
resources of my team and creates an unwanted liability for us
without any benefit.''); Me Gusta Music SNPRM Initial Comments at 2;
Relative Music Grp. SNPRM Initial Comments at 1. By including these
royalties within the MLC's default distribution provision, it allows
publishers to choose for themselves how they would like to handle
these situations. They can do nothing, and the royalties will be
distributed to the post-termination owner. Or, if they wish to
assert their entitlement to the royalties, they can defeat the
default distribution provision and obtain them by simply notifying
the MLC, as discussed below.
---------------------------------------------------------------------------
[[Page 56601]]
However, the Office recognizes that there may be instances where
the MLC's distribution of royalties to the owner at the time of the
payment under the default distribution provision would result in an
improper party being paid. Therefore, the Office has included
clarifications and limitations. First, any distribution made by the MLC
is not a determination of a party's legal entitlement to the royalties
and does not prejudice any such party's legal claim. The purpose of the
default distribution provision is to reduce burdens, gain efficiencies,
and enhance accuracy by applying industry practice to the MLC's
distributions. It does not alter anyone's underlying legal rights--
especially if the MLC, in relying on this provision, ends up
distributing royalties to an individual or entity who is not legally
entitled to them. The MLC specifically supported the inclusion of such
a provision.\221\
---------------------------------------------------------------------------
\221\ MLC Ex Parte Letter at 2 (Feb. 21, 2024).
---------------------------------------------------------------------------
Second, the default distribution provision does not apply where
there is a dispute between parties or an investigation by the MLC
covering the applicable works (or shares) or payees. The reference to
an investigation is meant to include situations where the MLC may be
looking into, for example, a potentially fraudulent registration or
claim. The purpose is to make clear that where the MLC has knowledge
that there is a cloud over the ownership of the relevant work (or
share), it must continue holding royalties until that cloud has
cleared.
Third, the default distribution provision does not apply if the MLC
has been ``notified otherwise.'' This language is meant to cover
circumstances where the MLC receives information that would indicate to
a reasonable person that the payee identified in its records is not in
fact entitled to the royalty distribution. In enacting the statutory
requirement for the MLC to distribute royalties pursuant to its
records, Congress did not intend for the MLC to knowingly make
inaccurate payments after being expressly informed otherwise.\222\
Whether particular information received is sufficient, or whether any
such information is adequately substantiated, for the MLC to actually
be ``notified'' is a matter the Office leaves to the MLC's reasonable
discretion based on its experience, practices, and policies, subject to
the Office's guidance.\223\
---------------------------------------------------------------------------
\222\ See H.R. Rep. No. 115-651, at 9 (referring to ``the
efficient and accurate collection and distribution of royalties'' as
the MLC's ``highest responsibility''); S. Rep. No. 115-339, at 9
(same); Conf. Rep. at 7 (same).
\223\ While the MLC suggested that such notifications will
always take the form of disputes, the Office cautions that this
might not always be the case. See MLC Ex Parte Letter at 1-2 (Mar.
22, 2024). That is why the final rule provides separate explicit
provisions for both disputes and where the MLC is notified
otherwise. The notification provision is meant to be broader to
encompass other possible scenarios outside of a formal dispute.
While the degree of overlap between the two provisions may be
substantial, it is not necessarily total.
---------------------------------------------------------------------------
ii. The Default Distribution Provision Does Not Change the MLC's Duty
To Verify the Accuracy of Royalty Distributions
The next part of the provision states that despite the default
distribution provision, the MLC must continue to engage in reasonable
efforts to verify the information provided to it and to combat against
fraudulent registrations and claims. This provision is not intended to
require the MLC to engage in additional efforts beyond those it
currently undertakes, but rather to ensure that it continues to engage
in such efforts after the rule is enacted.\224\ An examination of the
MLC's current such efforts and their sufficiency is beyond the scope of
this proceeding.
---------------------------------------------------------------------------
\224\ See MLC Ex Parte Letter at 5 (Feb. 21, 2024) (explaining
that the MLC ``has substantial review processes in place to prevent
fraudulent or improper claiming and diversion of royalties''); see
also U.S. Copyright Office, Unclaimed Royalties: Best Practice
Recommendations for the Mechanical Licensing Collective iii, 60
(2021), <a href="https://copyright.gov/policy/unclaimed-royalties/unclaimed-royalties-final-report.pdf">https://copyright.gov/policy/unclaimed-royalties/unclaimed-royalties-final-report.pdf</a> (``[T]he MLC should have mechanisms in
place to help review, verify, and quality-check information, and
recognize problems like conflicts, inconsistencies, inaccuracies,
and potential fraud.'').
---------------------------------------------------------------------------
iii. The MLC Must Still Correct Its Own Errors
The final part of the provision is meant to codify and clarify a
point made in the SNPRM that ``[w]here the MLC distributes royalties to
the wrong payee due to an error on the MLC's part . . . , the MLC must
correct its error in a timely fashion.'' \225\ The regulation makes
clear that the applicable type of error is one caused by the MLC's
actions, as opposed to where the MLC acts in accordance with the
default distribution provision or otherwise reasonably relies on
information provided to it by others that turns out to be
inaccurate.\226\ The reference to the MLC's actions encompasses the
actions of its employees, but the Office also intends for it to cover
actions of others acting on its behalf.
---------------------------------------------------------------------------
\225\ 88 FR 65908, 65918 n.137.
\226\ See MLC Ex Parte Letter at 2 (Mar. 22, 2024).
---------------------------------------------------------------------------
C. Matched Historical Royalties
Outside the context of the owner at the time of the use versus the
owner at the time of the payment issue, the Office received few
comments regarding our proposal that the MLC report and distribute
matched historical royalties in the same manner and subject to the same
requirements that apply to the reporting and distribution of blanket
license royalties.\227\ Notably, the MLC supported this proposal by
including it in its own regulatory proposal and no commenters appear to
have objected.\228\ The Office is, therefore, adopting this portion of
the SNPRM as final for the reasons stated in the SNPRM.\229\
---------------------------------------------------------------------------
\227\ See 88 FR 65908, 65914.
\228\ See MLC SNPRM Reply Comments, App. A. at iii-iv.
\229\ 88 FR 65908, 65914.
---------------------------------------------------------------------------
D. Ownership Transfers and Royalty Payee Changes
The final rule retains the overall framework and structure from the
SNPRM with respect to the provisions governing notice to and
implementation by the MLC of ownership transfers and other royalty
payee changes.\230\ The Office, however, has made several changes from
the SNPRM.
---------------------------------------------------------------------------
\230\ See id.
---------------------------------------------------------------------------
1. Notice of a Change to the MLC
The SNPRM contained detailed and tailored notice requirements based
on the type of payee change at issue. It proposed such requirements for
the following circumstances: (1) transfers of copyright ownership other
than by will or operation of law; (2) transfers of copyright ownership
by statutory termination; (3) other transfers of copyright ownership;
and (4) designations of alternative royalty payees.\231\
---------------------------------------------------------------------------
\231\ Id. at 65914-17.
---------------------------------------------------------------------------
In response to the SNPRM, several commenters criticized the non-
termination-related notice requirements, including on the ground that
the Office does not need to regulate standard operational processes,
like those concerning contractual transfers and letters of direction,
for which the MLC has well-functioning systems in place.\232\
Commenters also contended
[[Page 56602]]
that the SNPRM's requirements were unworkable or unduly
burdensome.\233\
---------------------------------------------------------------------------
\232\ See e.g., Kobalt Music SNPRM Initial Comments at 3; Spirit
Music Grp. SNPRM Initial Comments at 2; Reservoir Media Mgmt. SNPRM
Initial Comments at 2; ClearBox Rights SNPRM Reply Comments at 10.
\233\ See e.g., NMPA SNPRM Initial Comments at 4, 14-15; Spirit
Music Grp. SNPRM Initial Comments at 2; Farris, Self & Moore, LLC
SNPRM Initial Comments at 1; Warner Chappell Music SNPRM Reply
Comments at 7-8; Universal Music Publ'g Grp. SNPRM Reply Comments at
2 n.1; Reservoir Media Mgmt. SNPRM Initial Comments at 2.
---------------------------------------------------------------------------
The MLC echoed these comments and submitted a regulatory proposal
that largely retained the Office's proposed requirements for
termination-related transfers, but replaced the other notice
requirements with a catch-all provision providing that such notice be
made in accordance with requirements established by the MLC.\234\ Few
commenters supported the Office's proposal with respect to non-
termination-related notices.\235\
---------------------------------------------------------------------------
\234\ MLC SNPRM Reply Comments at 3-5, App. A at iv-xii; MLC
SNPRM Initial Comments at 18-20; MLC Ex Parte Letter at 2 (Mar. 22,
2024) (explaining ``the need for flexibility to incorporate evolving
industry practices into processes to effectuate the various types of
transfers and payee changes that occur in the normal course of
business for rightsholders'').
\235\ See, e.g., Promopub SNPRM Initial Comments at 5.
---------------------------------------------------------------------------
Based on these comments, the Office has scaled back the notice
requirements, generally in line with the MLC's proposal. Outside of the
termination context, it does not appear that regulation is currently
necessary. Instead, the Office is issuing a rule directing the MLC to
adopt a written policy reflecting its practices and requirements for
non-termination-related notices. The Office will monitor this area and
will consider potentially adopting regulations in the future if
presented with a record reflecting a need to intervene.
i. Non-Termination-Related Transfers of Copyright Ownership and Royalty
Payee Changes
As discussed above, the final rule omits the previously proposed
requirements for non-termination-related notices and replaces them with
a directive for the MLC to adopt and publish requirements for such
notices. More specifically, the final rule provides that parties
seeking to make payee changes outside the context of a termination must
notify the MLC pursuant to such reasonable requirements as it
establishes and makes publicly available on its website. To the extent
the MLC does not already have such a policy on its website as of the
date this final rule is published in the Federal Register, the MLC will
have 60 days to adopt one and make it public, unless the Office permits
an extension.
Additionally, there is one aspect of the SNPRM regarding non-
termination-related notices that the final rule retains. In response to
the NPRM, the Songwriters Guild of America et al. (``SGA et al.'')
proposed specific requirements to apply where the MLC is asked by the
terminating party to implement an agreement directing it to pay post-
termination royalties to the pre-termination copyright owner.\236\ SGA
et al. was concerned about contractual overreach by publishers
requiring the execution of anticipatory letters of direction as part of
publishing deals.\237\ The Office included the proposal as part of the
SNPRM, explaining that ``[b]ased on the current record, the proposal
seems to be a reasonable safeguard, even if there is no such overreach
at present.'' \238\ No commenter specifically opposed this proposal,
and the MLC included it in its regulatory proposal.\239\ The Office
has, thus, retained most of the proposal in the final rule with some
minor conforming edits.\240\
---------------------------------------------------------------------------
\236\ 88 FR 65908, 65917.
\237\ Id.
\238\ Id.
\239\ MLC SNPRM Reply Comments, App. A. at vi-vii.
\240\ The final rule does not include the requirement that such
a notice must include ``a clear statement stipulating that neither
the notice nor the distribution of royalties by the mechanical
licensing collective in accordance with the notice prejudices the
rights of either party'' as such a requirement would be unnecessary,
considering that the regulations also require the notice to be
signed after the effective date of termination.
---------------------------------------------------------------------------
ii. Transfers of Copyright Ownership by Statutory Termination
In contrast to the Office's proposal on non-termination-related
notices, commenters generally did not oppose the Office's proposal on
notices to the MLC about payee changes resulting from statutory
terminations. Indeed, multiple commenters affirmatively supported
it.\241\ For example, MAC et al. said that they ``fully support the
Office's proposal,'' calling it ``simple, practical and efficient.''
\242\ The MLC ``welcome[d] regulatory clarity from the Office'' on this
topic \243\ and said that ``[m]uch of the provisions concerning
termination procedure are consistent with MLC practice, or could be
implemented.'' \244\ The MLC and other commenters, however, proposed
modifications to the Office's proposal to address discrete concerns.
---------------------------------------------------------------------------
\241\ See, e.g., MLC SNPRM Initial Comments at 20; MLC SNPRM
Reply Comments at 3; MAC et al. SNPRM Initial Comments at 2-3;
Promopub SNPRM Initial Comments at 5. Despite its general support,
Promopub also expressed concern that ``[i]f the terminating party
has already been subjected to a dispute process at the MLC, the pre-
termination copyright owner/prior payee should not have another
opportunity to add salt to the wound by way of the proposed Rule
creating another notification and dispute cycle.'' Promopub SNPRM
Initial Comments at 5. To clarify, these notice requirements and the
dispute mechanism contained within them are only effective
prospectively. This means that if a terminating party previously
notified the MLC about an effective termination and the MLC
acknowledged the sufficiency of that notice, then nothing in the
final rule would require the terminating party to submit a new
notice to the MLC.
\242\ MAC et al. SNPRM Initial Comments at 2-3.
\243\ MLC SNPRM Reply Comments at 3.
\244\ MLC SNPRM Initial Comments at 20.
---------------------------------------------------------------------------
Based on the comments and the discussion in the SNPRM, the Office
is adopting as final the proposed notice requirements regarding payee
changes resulting from statutory terminations with the modifications
discussed below.
a. Whether the Notice Requirements Should Be a Floor
The Office disagrees with the MLC's proposal to turn the notice
requirements into a floor.\245\ While the Office acknowledged in the
SNPRM that the proposed information that must be submitted to the MLC
might not provide sufficient information to process and implement the
ownership change in some cases, the Office also proposed a means by
which the MLC could obtain the minimum necessary information to
implement the change.\246\ In doing so, the Office explained that
``[t]his may be a better approach than requiring terminating parties to
provide additional information to the MLC at the outset that they may
not readily have and which may not be needed to implement the change.''
\247\
---------------------------------------------------------------------------
\245\ See MLC SNPRM Reply Comments, App. A at v.
\246\ 88 FR 65908, 65915-16.
\247\ Id. at 65916.
---------------------------------------------------------------------------
The Office continues to believe that this is the most appropriate
approach. Turning the requirements into a floor would allow the MLC to
request additional and potentially unnecessary information that may be
challenging to produce up front, which was precisely the concern that
led to the Office's proposal.\248\ As further discussed below, if the
initial submission to the MLC lacks what it needs, the MLC can request
additional information at that point.
---------------------------------------------------------------------------
\248\ Id. at 65915-16.
---------------------------------------------------------------------------
b. Treatment of Notices Containing Multiple Works
The Office agrees with Linda Edell Howard that the rule should be
clarified to recognize that a single notice--whether a change notice to
the MLC or a statutory notice of termination submitted to the Office
for recordation--may identify more than one musical
[[Page 56603]]
work, and that the relevant statuses of those works may be
different.\249\ The final rule makes clear that, in such cases, any
implication as to one work does not affect another listed in the same
notice. Each work must be treated independently. This is clarified
throughout the final rule, including in the notice, implementation, and
dispute provisions.
---------------------------------------------------------------------------
\249\ See Howard SNPRM Initial Comments at 4, 6, 8.
---------------------------------------------------------------------------
For example, if there is a dispute as to one work, but not another
in the same change notice submitted to the MLC, the MLC must still
implement and give effect to the change with respect to the work that
is not in dispute (assuming that there are no other issues). The same
is true where the MLC has sufficient information to implement the
change as to one work, but not for another from the same notice. As
another example, if a notice of termination identifying multiple
musical works is timely recorded in the Office as to some works but not
others, assuming that there are no other issues, the MLC should
implement the termination of those as to which the notice is timely
recorded, even though the works with untimely recorded notices cannot
be terminated.
c. Requirement To Provide the Statutory Notice of Termination
Linda Edell Howard asserted that it can sometimes be difficult or
expensive to obtain a copy of the notice of termination submitted to
the Office for recordation.\250\ She did not, however, make any
alternative suggestions. The Office continues to believe that providing
a copy of the actual notice of termination is reasonable and not unduly
burdensome.
---------------------------------------------------------------------------
\250\ Id. at 4.
---------------------------------------------------------------------------
d. Requirement To Provide Proof of Recordation or Proof of Submission
to the Office for Recordation
The Office agrees with the MLC's proposal to clarify that the proof
of submission of the statutory notice of termination to the Office must
reflect that it was submitted before the effective date of
termination.\251\ For a notice of termination to be timely recorded, it
must be received by the Office before the effective date.\252\
---------------------------------------------------------------------------
\251\ See MLC SNPRM Reply Comments, App. A at v.
\252\ See 37 CFR 201.10(f)(1)(ii)(A), (f)(3).
---------------------------------------------------------------------------
The Office disagrees with ClearBox Rights that the proof of
recordation requirement should be dropped because it is ``cumbersome
and potentially not necessary.'' \253\ ClearBox Rights made three
arguments to support its position. First, it contended that it ``would
prove to be an administrative burden on the MLC to maintain a schedule
of such notices to be delivered.'' \254\ This argument is unpersuasive
given that the MLC did not object to this requirement and included it
in its regulatory proposal.\255\ Moreover, the rule does not require
the MLC to maintain any such schedule.
---------------------------------------------------------------------------
\253\ See ClearBox Rights SNPRM Reply Comments at 9-10.
\254\ Id. at 9.
\255\ See MLC SNPRM Reply Comments, App. A at v.
---------------------------------------------------------------------------
Second, ClearBox Rights asserted that ``there may be instances
where the Copyright Office has not yet recorded such documents for
various reasons, including that perhaps one copyright out of many on
the notice is under review or possibly not valid.'' \256\ It argued
that the ``lack of recordation or delay of recordation of one document
with many copyrights because one or more copyrights is in question for
further review should not negatively impact the other copyrights on
that document.'' \257\ The Office does not believe that these concerns
are grounds for eliminating the proof of recordation requirement. While
the Office agrees, as discussed above, that the rule should accommodate
notices identifying multiple works and that each work should be handled
individually, timely recordation is still required by the statute ``as
a condition to [the termination] taking effect.'' \258\ Thus, the MLC
should not implement a change as to a particular work until proof of
recordation of the relevant notice of termination for that work is
delivered.
---------------------------------------------------------------------------
\256\ ClearBox Rights SNPRM Reply Comments at 10.
\257\ Id.
\258\ See 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A).
---------------------------------------------------------------------------
Third, ClearBox Rights noted that ``recordation of the termination
at the Office may never happen.'' \259\ It said that it has ``seen
instances where a notice of termination was filed, and the pre-
termination owner acknowledges the termination to be effective even
though there was an issue in the notice filing or recordation.'' \260\
ClearBox Rights explained that ``[s]ometimes the pre-termination owner
will simply overlook the technical issues of the termination process
and grant the rights back to the post-termination party.'' \261\ Linda
Edell Howard made similar statements, noting that sometimes the pre-
termination copyright owner ``waives the recordation requirement.''
\262\
---------------------------------------------------------------------------
\259\ ClearBox Rights SNPRM Reply Comments at 10.
\260\ Id.
\261\ Id.
\262\ Howard SNPRM Initial Comments at 4.
---------------------------------------------------------------------------
The Office does not believe that these possible problems provide
any basis to not require proof of recordation. As noted above, timely
recordation is a statutory condition for the termination to be
effective.\263\ If the termination is not effective, no rights change
hands pursuant to section 203 or 304. To the extent the pre-termination
copyright owner nevertheless acquiesces to the attempted termination,
that may simply result in an ordinary transfer of copyright ownership
from the pre-termination copyright owner to the terminating party. As
such, it would be subject to the requirements for notifying the MLC
about a non-termination-related change, rather than a termination-
related change.
---------------------------------------------------------------------------
\263\ 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A).
---------------------------------------------------------------------------
Based on the foregoing discussion, however, the Office concludes
that the final rule should clarify that a termination-related payee
change notice submitted to the MLC can be withdrawn or converted into a
non-termination-related payee change notice pursuant to such reasonable
requirements as the MLC establishes and makes publicly available on its
website. The scenarios raised by the commenters demonstrate a need for
flexibility.
Regarding Ms. Howard's question about what proof will qualify if
notices of termination are recorded with the Office though electronic
means,\264\ the Office reiterates that ``[a]dequate proof of timely
recordation could be demonstrated by either providing the MLC with a
copy of the certificate of recordation or the record as reflected in
the Office's online public catalog,'' and that ``[a]dequate proof of
submission to the Office for recordation could take the form of courier
tracking or a delivery confirmation, a return receipt from the Office,
or some other communication from the Office confirming receipt.'' \265\
The eventual ability to submit notices of termination through the
Office's online Recordation System will not impair the availability of
adequate proof. For example, while courier tracking or delivery
confirmation would not be available, the remitter would instead have
such proof in the form of an electronic communication from the Office
confirming receipt.
---------------------------------------------------------------------------
\264\ Howard SNPRM Initial Comments at 4.
\265\ 88 FR 65908, 65915.
---------------------------------------------------------------------------
e. Requirement To Identify the Relevant Works
The Office declines the MLC's proposal to add a requirement to
[[Page 56604]]
provide ``[a] satisfactory identification of all musical works subject
to the notice of termination identified by appropriate unique
identifiers.'' \266\ The MLC said that this is needed because it
``cannot implement a change in ownership of musical works without
knowing which musical works are subject to the change in ownership.''
\267\ As the Office previously explained in the SNPRM, the regulations
governing the content of statutory notices of termination (which must
be submitted to the MLC as part of the change notice) already provide
for an identification of each work.\268\ While the Office acknowledged
in the SNPRM that such identification might not provide the MLC with
sufficient information to process and implement the ownership change in
some cases, the Office also proposed a means, further discussed below,
by which the MLC could obtain the minimum necessary information.\269\
The Office agrees with other commenters ``that the default position
should be to make it as easy as possible for a terminating songwriter
to comply with processes to effect their right.'' \270\ Thus, we
decline to include a requirement that unique identifiers for all
musical works must be provided up front. As further discussed below, if
the MLC ultimately needs them for certain works, it can request them
after attempting to implement the change based on the information in
the notice.
---------------------------------------------------------------------------
\266\ MLC SNPRM Reply Comments, App. A at v.
\267\ Id. at 3.
\268\ 88 FR 65908, 65915 & n.112 (citing 37 CFR
201.10(b)(1)(iii), (b)(2)(iv)).
\269\ Id. at 65915-16.
\270\ MAC & NSAI Ex Parte Letter at 1 (Feb. 12, 2024).
---------------------------------------------------------------------------
f. The MLC's Duty To Request Additional Necessary Information
In the SNPRM, the Office proposed that where a compliant
termination-related change notice does not provide the MLC with
sufficient information to process and implement the ownership change,
the MLC should engage in best efforts to identify the minimum necessary
information, including through correspondence with both the terminating
party and pre-termination copyright owner (or their respective
representatives).\271\ The MLC expressed concern with this proposal,
stating that it is ``not clear if this reference to `best efforts' is
meant to imply a responsibility to make findings as to what works are
subject to termination.'' \272\ The MLC said that the requirement to
correspond with the relevant parties ``is a reasonable step'' and that
it ``does not object to making reasonable efforts to reach out to
parties where paperwork is incomplete.'' \273\ It said, however, that
it ``cannot itself identify the `relevant musical works,' make
decisions itself about what is contained in private contracts that may
be subject to termination, or determine what works are, or are not,
subject to termination in any particular disputed case.'' \274\
---------------------------------------------------------------------------
\271\ 88 FR 65908, 65915-16.
\272\ MLC SNPRM Initial Comments at 20.
\273\ Id. at 20-21.
\274\ Id. at 21.
---------------------------------------------------------------------------
The Office is clarifying this portion of the rule in light of the
MLC's comments. To eliminate any confusion, the ``best efforts''
language has been eliminated in the final rule, while the requirement
to correspond has been retained. In doing so, the Office emphasizes
that the final rule's reference to information that is ``insufficient
to enable the [MLC] to implement and give effect to the termination''
is meant to be interpreted narrowly. In some cases, submitted
information can be sufficient to enable the MLC to act, even if it must
undertake certain reasonable efforts. For example, even if the
identification of the works in the notice of termination does not
appear sufficient on its face, perhaps lacking unique identifiers, the
information is nevertheless considered sufficient if the MLC can act on
the information after undertaking reasonable efforts to attempt to
match the works identified in the notice of termination with the
corresponding works in its records. The Office is not mandating that
the MLC engage in exhaustive efforts or do this in all cases, but in
the termination context, it should provide assistance within reason.
Additionally, Promopub noted that there is no time limit on the MLC
in this provision and said that ``delay should be assiduously
avoided.'' \275\ It proposed that ``the MLC give notice of receipt of
an appropriately documented claim within 15 calendar days of receipt''
and that, ``[i]f more information is required to process the claim,
that explanatory notice should be given within 30 calendar days of
receipt.'' \276\ It also wanted the MLC to establish a ``hot line'' and
dedicated web pages that terminating parties can access for
assistance.\277\ The Office agrees that the MLC should have dedicated
web pages and other member support for terminating parties, and
strongly encourages it to provide such support as soon as reasonably
possible. The final rule adds the word ``promptly'' to signal that the
MLC should move expeditiously, since, as discussed above, the Office
expects the MLC to undertake some reasonable efforts in addition to
correspondence. Should the Office become aware of widespread
unreasonable delays, we can reconsider a specific timing requirement at
a later date.
---------------------------------------------------------------------------
\275\ Promopub SNPRM Initial Comments at 5-6.
\276\ Id. at 6.
\277\ Id.
---------------------------------------------------------------------------
Lastly, the Office understands that this approach may lead to
longer lead times before the MLC ends up implementing a change than if
additional information were required to be submitted at the outset. As
discussed above and in the SNPRM,\278\ the Office continues to believe
that this is the better approach. However, we wish to encourage
terminating parties to voluntarily provide additional useful
information to the MLC, such as unique identifiers, as part of their
initial notice submission if it is possible to do so. To that end, in
amending its form for submitting termination-related payee change
notices based on the final rule, the MLC could include fields for
additional information it believes would be helpful in implementing the
change, provided that the form clearly identifies those non-required
fields as being optional.
---------------------------------------------------------------------------
\278\ 88 FR 65908, 65915-16.
---------------------------------------------------------------------------
g. The Meaning of ``Terminating Party''
The final rule clarifies the definition of ``terminating party.''
Throughout the rule, this term is used to refer to parties entitled to
royalties from the MLC based on an effective termination and who may
notify the MLC of such entitlement. This term is not defined by
reference to who singed and served the statutory notice of termination.
The SNPRM defined the term as ``the new musical work copyright
owner.'' \279\ That language did not, however, account for the fact
that the termination may not yet be effective at the time the payee
change notice is submitted to the MLC, meaning that the relevant party
is not the new owner at that point in time. The SNPRM's definition also
did not clearly provide that a successor in interest to a terminating
author or heir (e.g., their new publisher or administrator) can also be
a ``terminating party'' within the meaning of the rule. Including
successors in interest is necessary because there may be times where
the termination becomes effective and reverted rights are re-granted
before the MLC is notified. The final rule makes these clarifications.
---------------------------------------------------------------------------
\279\ Id. at 65924.
---------------------------------------------------------------------------
The Office disagrees with Linda Edell Howard that the term
``terminating party'' ``should include only those who signed the notice
of termination, not
[[Page 56605]]
those non-signatory heirs or authors,'' because ``[t]he non-signatory
statutory heirs or authors are represented by those who signed and
served the notice of termination.'' \280\ As noted above, this
misunderstands the way the term ``terminating party'' is used
throughout the rule.
---------------------------------------------------------------------------
\280\ See Howard SNPRM Initial Comments at 6.
---------------------------------------------------------------------------
The Office also disagrees that ``[i]nformation concerning non-
signatories should not be required to implement a change in copyright
ownership and payee status, or reduce the percentage to be paid out.''
\281\ Each terminating party must be treated independently, just like
any other copyright owner when there is more than one. That is why the
MLC is only required to implement a change as to those terminating
parties whose information is provided in the notice of change. That
being said, to the extent a particular terminating party is in fact
represented by another terminating party, as Ms. Howard suggested, or
by someone else, then the information provided to the MLC would be for
that representative.\282\
---------------------------------------------------------------------------
\281\ See id.
\282\ The Office further declines Ms. Howard's proposal to make
the identification of the terminating party plural throughout the
rule because ``[r]arely is the terminating party one individual.''
Howard SNPRM Initial Comments at 4. There are already specific
provisions in the rule speaking to the case of multiple terminating
parties (e.g., 37 CFR 210.30(c)(2)(v)), which means that the rest of
the rule contemplates the possibility of there being more than one.
Moreover, ``[i]n determining the meaning of any Act of Congress,
unless the context indicates otherwise,'' ``words importing the
singular include and apply to several persons, parties, or things.''
1 U.S.C. 1.
---------------------------------------------------------------------------
h. Verification Obligations
In the SNPRM, the Office proposed that where the MLC has good
reason to doubt the authenticity of the information submitted, such as
the statutory notice of termination or proof of recordation, it should
seek verification from the Office.\283\ The MLC proposed instead to
require the submitter to seek verification from the Office and deliver
documentation of such verification to the MLC.\284\ The MLC asserted
that ``it would be inappropriate to shift to The MLC the role of
monitoring and obtaining ownership documentation,'' and that
``[m]embers must remain primarily responsible for the completeness and
accuracy of their works registrations and claims, and it would be
inefficient to shift this task to The MLC.'' \285\
---------------------------------------------------------------------------
\283\ 88 FR 65908, 65915.
\284\ MLC SNPRM Reply Comments at 3-4, App. A at v.
\285\ Id. at 4.
---------------------------------------------------------------------------
The Office agrees with the MLC's position. While we have endeavored
to minimize the burden on a terminating party to have their termination
implemented by the MLC, on reflection, it is more appropriate for the
submitter to obtain whatever verification may be necessary. Therefore,
the final rule provides that where authenticity is in doubt, the MLC
shall either seek verification from the Office or request that the
submitter provide such verification.
i. Dispute-Related Issues
In the SNPRM, the Office proposed that where the MLC receives a
payee change notice from the terminating party, it must inform the pre-
termination copyright owner within 15 days of receiving either the
notice or the last piece of information necessary to implement the
change, whichever is later.\286\ After being so notified, a pre-
termination copyright owner who disputes the termination would have 30
days to initiate its dispute with the MLC before the MLC must implement
the change.\287\ The Office agrees with Linda Edell Howard that the
terminating party should be contemporaneously alerted when the MLC
informs the pre-termination copyright owner.\288\ This way, the
terminating party will know when the 30-day dispute period commences.
We disagree, however, with Ms. Howard's proposal to shorten the 30-day
period to 15 days.\289\ While the pre-termination copyright owner
should already be on notice about the termination generally, the Office
believes that 30 days is a reasonable amount of time after being
notified that a change is being sought at the MLC, in case they wish to
initiate a dispute, which requires providing specific documentation to
the MLC that may take time to assemble.
---------------------------------------------------------------------------
\286\ 88 FR 65908, 65916.
\287\ Id.
\288\ See Howard SNPRM Initial Comments at 5.
\289\ See id.
---------------------------------------------------------------------------
2. Implementation of a Change by the MLC
The SNPRM proposed various requirements to govern how the MLC
implements and gives effect to a payee change, both in termination and
non-termination contexts.\290\ Commenters generally did not oppose
these requirements, though some raised discrete questions.\291\ The MLC
generally supported the proposed requirements, including those for non-
termination-related changes.\292\ Based on the comments and the
discussion in the SNPRM, the Office is adopting the proposed
implementation requirements as final with the modifications discussed
below.
---------------------------------------------------------------------------
\290\ 88 FR 65908, 65917-18.
\291\ See, e.g., MAC et al. SNPRM Initial Comments at 3; Howard
SNPRM Initial Comments at 8-9.
\292\ MLC SNPRM Reply Comments at 5, App. A at vii-ix, xi-xii;
MLC SNPRM Initial Comments at 18 n.25.
---------------------------------------------------------------------------
i. Prospective Versus Retroactive Implementation
In the SNPRM, the Office proposed that, where a relevant change is
effective prior to the MLC's implementation, the MLC should be
permitted, but not required, to implement it going back to its
effective date, if requested in the notice to the MLC.\293\ In
response, MAC et al. said that ``the MLC can and should implement payee
changes going back to the date of the change, regardless of when
implemented,'' and disagreed that it is too burdensome for the MLC to
do so.\294\ Linda Edell Howard raised concerns about lag times in
notifying the MLC in the termination context.\295\ The MLC
``welcome[d]'' the Office's proposal.\296\
---------------------------------------------------------------------------
\293\ 88 FR 65908, 65918.
\294\ MAC et al. SNPRM Initial Comments at 3.
\295\ Howard SNPRM Initial Comments at 9.
\296\ MLC SNPRM Reply Comments at 5.
---------------------------------------------------------------------------
The Office is not persuaded to alter the rule. In the SNPRM, the
Office considered similar comments and weighed them against the MLC's
concerns about such a requirement being overly burdensome.\297\ We were
``inclined to agree with the MLC that retroactive implementation may be
too administratively burdensome to require for every payee change,''
and noted that our regulations require only prospective implementation
by the MLC in processing DMP voluntary licenses.\298\ The Office also
``welcome[d] further comments on this issue,'' including on ``what is
standard in the industry.'' \299\ The minimal comments received in
response to the SNPRM do not meaningfully grow the record in a way that
persuades the Office to impose this requirement on the MLC at this
time.
---------------------------------------------------------------------------
\297\ 88 FR 65908, 65918.
\298\ Id.
\299\ Id.
---------------------------------------------------------------------------
ii. Timing
In its regulatory proposal, the MLC proposed to soften the
implementation deadlines the Office proposed, by replacing requirements
to implement a change within a specified period of time with language
requiring only ``reasonable efforts to'' do so.\300\ While the MLC's
comments do not explain why they requested this change,
[[Page 56606]]
presumably it is to avoid technical violations of the regulations, such
as due to circumstances beyond its control or where it inadvertently
makes a mistake without realizing it (e.g., where an employee
accidentally fails to enter the change into the system).\301\
---------------------------------------------------------------------------
\300\ MLC SNPRM Reply Comments, App. A at vii.
\301\ If the MLC wanted more time for all implementations, the
Office believes it would have made that request more specifically.
Notably, the SNPRM proposed to give the MLC at least 30 days to
implement all changes, which was in line with an earlier request
from the MLC. See MLC NPRM Initial Comments at 10-11. The proposal
was also in line with the Office's rules governing the MLC's
processing of DMP voluntary licenses. See 37 CFR 210.24(f).
---------------------------------------------------------------------------
The Office declines to adopt the MLC's proposal, but has modified
the final rule to address this issue. The provision's purpose is to set
expectations for how the MLC will act, and that entails meaningful
deadlines that parties to a payee change can rely on in conducting
their business. The Office has imposed deadlines on the MLC's actions
in other contexts and sees no reason not to do so here. We are not
opposed, however, to providing the MLC with some leeway if an
implementation deadline is accidentally missed.
Under the final rule, in such a situation, the MLC must implement
the change as soon as reasonably practicable, but no later than the
next regular monthly royalty distribution that occurs either: (1) after
the original implementation deadline; or (2) at least 30 days after the
date that the MLC learns that the change was not implemented on time--
whichever is later. The Office believes that this solution gives the
MLC reasonable flexibility without being so open-ended that the parties
to a change have no idea when their change will be implemented.
Importantly, the rule further provides that if the MLC is late in
implementing the change, it must do so retroactively to the date of the
original implementation deadline. The rule does not provide a separate
deadline for making any corrective royalty adjustment. Rather, the
Office expects the MLC to make any such adjustments in accordance with
its regular practices. Regardless of any associated burdens, we believe
this is a fair burden to place on the MLC when it fails to meet the
rule's deadlines, even if that failure is accidental.
iii. Additional Provisions for Termination-Related Changes
In the SNPRM, the Office proposed that where a compliant notice is
accompanied by proof that the statutory notice of termination was
submitted to the Office for recordation, but not proof that it was
timely recorded, the MLC should hold applicable royalties pending
receipt of proof of timely recordation.\302\ After the MLC receives
proof of timely recordation, it would need to implement the change,
which would include distributing the held funds to the terminating
party.\303\ If, on the other hand, the Office refuses to record the
notice or it is recorded on or after the effective date of termination,
the MLC would need to release the funds to the pre-termination
copyright owner.\304\ The Office further proposed that if proof of
timely recordation is not received within 6 months, the MLC should
contact the Office to confirm the status of the relevant recordation
submission.\305\
---------------------------------------------------------------------------
\302\ 88 FR 65908, 65917-18.
\303\ Id. at 65918.
\304\ Id.
\305\ Id.
---------------------------------------------------------------------------
No commenter objected to this proposal, but the MLC took exception
to the part requiring it to contact the Office to confirm the status of
the recordation submission.\306\ For the same reasons discussed above
in Part III.D.1.ii.h., it proposed instead that the submitter be
required to check the status with the Office and provide the MLC with
documentation of the confirmed status.\307\ The MLC proposed that if
the submission still remains pending, the submitter should provide
monthly updates to the MLC.\308\ It further proposed that if the
submitter fails to provide a monthly status confirmation, the MLC must
then act in accordance with the other implementation provisions.\309\
---------------------------------------------------------------------------
\306\ MLC SNPRM Reply Comments at 3-4, App. A. at viii-ix.
\307\ Id.
\308\ Id. at App. A at viii-ix.
\309\ Id.
---------------------------------------------------------------------------
On reflection, as with the provision discussed above in Part
III.D.1.ii.h., the Office agrees with the MLC's general position that
the obligation to confirm the status of the submission is more
appropriately placed on the submitter. The Office, however, disagrees
with the MLC's specific proposal. It would be unnecessary and overly
burdensome for the terminating party to be required to contact the
Office and provide the MLC with monthly updates. Instead, the final
rule provides that the MLC may request periodic updates at its
discretion.
Additionally, the Office disagrees that if the terminating party
fails to provide an update, the MLC should simply act in accordance
with the rest of the implementation regulations. That would result in
the funds being released to the pre-termination copyright owner. The
Office does not believe the MLC should release the funds while the
recordation status remains pending. Instead, the final rule provides
that the MLC must hold the funds until it is informed of the notice of
termination's final recordation status and then act accordingly. The
rule purposefully does not specify who must provide that final status
to the MLC. Where the result is a timely recordation, the terminating
party will be incentivized to provide confirmation of the final status,
but in other situations (e.g., where recordation is refused), the pre-
termination copyright owner would be incentivized to provide it so that
the royalties do not remain on hold. Additionally, nothing prevents the
MLC from contacting the Office directly, if it chooses to.
Though not raised by commenters, the final rule also clarifies that
the royalty hold should be lifted where the recordation submission to
the Office is withdrawn by the remitter. There is no reason to hold
royalties pending recordation where the recordation submission has been
resolved. The omission of that scenario from the SNPRM was an
unintentional oversight.
E. Disputes
1. Process and Documentation for Termination-Related Disputes
The Office received few comments on our proposal for the handling
of termination-related disputes. The MLC generally supported this
aspect of the SNPRM.\310\ Another commenter, Linda Edell Howard took
issue with the idea that the MLC could substantiate a dispute claim
without hearing from the terminating party, and raised concerns about
the power imbalance between the pre-termination copyright owner and
terminating party in this context.\311\ While the Office appreciates
these concerns, we decline to address these broader issues in the
current proceeding for the reasons discussed in Part III.E.2. below.
Moreover, some of Ms. Howard's concerns are connected to a subject of
inquiry in a separate, open proceeding reviewing the MLC's statutory
designation.\312\
---------------------------------------------------------------------------
\310\ Id. at 5, App. A at ix-x.
\311\ Howard SNPRM Initial Comments at 5-6 & n.3, 8 (discussing,
among other things, how there is a one-sided ability to hold up
royalties in a dispute to give the pre-termination copyright owner
leverage over the terminating party).
\312\ See 89 FR 5940, 5943 (Jan. 30, 2024) (requesting
``information regarding: (1) any steps that the [MLC] is taking to
protect against the incidence of fraudulent ownership claims and
frivolous ownership disputes; and (2) whether these steps have been
successful'').
---------------------------------------------------------------------------
Based on the comments and the discussion in the SNPRM, the Office
is adopting the proposed requirements
[[Page 56607]]
pertaining to termination-related disputes as final. In doing so, and
as discussed above in Part III.A.3., we have added language to clarify
the operation of the provision in the context of disputes concerning
the application of the Exception to voluntary licenses.
In adopting the final rule, the Office requests that the MLC's
dispute resolution committee, which the MMA tasks with establishing the
MLC's dispute policies, promptly establish a new policy for
termination-related disputes that adheres to the requirements adopted
in this final rule. The final rule sets certain key requirements based
on the issues raised by commenters, but it is not a substitute for a
comprehensive dispute policy.
2. Dispute Resolution
The Office has decided to omit the proposed provisions about how
disputes should be resolved from the final rule.\313\ Instead, unless
and until the Office regulates in this area, disputes are to be
resolved pursuant to the MLC's dispute policies. No one specifically
supported the SNPRM proposal, and some commenters raised concerns with
it.\314\ Other commenters raised other concerns and sought various
regulations to address them. For example, North Music Group asked for
the MLC to ``be prohibited from creating disputes on its own motion,''
or for there to at least be ``some process and constraints applicable
to its actions.'' \315\ The record on these issues, however, is thin.
---------------------------------------------------------------------------
\313\ See 88 FR 65908, 65919-20.
\314\ See, e.g., MLC Ex Parte Letter at 5 (Feb. 5, 2024); Kobalt
Music SNPRM Initial Comments at 3; Spirit Music Grp. SNPRM Initial
Comments at 2; MAC et al. SNPRM Initial Comments at 3; Howard SNPRM
Initial Comments at 8-9.
\315\ North Music Grp. SNPRM Initial Comments at 3; see also,
e.g., Howard SNPRM Initial Comments at 6, 8-9 (discussing concerns
with power imbalances and how disputes could affect litigation with
respect to ripeness and the statute of limitations).
---------------------------------------------------------------------------
We do not take these dispute-related concerns lightly, but given
the record of the proceeding, we decline to take up these issues at
this time. The Office may, however, consider addressing them in a
future proceeding where they can be more fully explored to determine
whether any regulatory action may be needed. In the meantime, the
Office requests that the MLC's dispute resolution committee consider
the concerns raised by commenters, as well as the SNPRM's proposal to
require ongoing active dispute resolution. In doing so, the Office asks
the committee to: (1) examine whether such issues are arising in
connection with disputes initiated with the MLC; (2) evaluate how these
issues are addressed elsewhere in the industry; and (3) determine
whether the MLC's dispute policies should be amended to address any of
them.
3. Disclosure and Confidentiality
In responding to the NPRM, the MLC asked for guidance about whether
it ``should be required to disclose information about the royalties
being held to the parties involved'' and stated that it ``typically
does not disclose the amount of royalties on hold to the parties in a
dispute pending agreement or resolution of a dispute.'' \316\ ClearBox
Rights stated that the MLC should disclose the royalties on hold to
parties involved in a dispute.\317\
---------------------------------------------------------------------------
\316\ MLC NPRM Initial Comments at 13-14.
\317\ ClearBox Rights NPRM Reply Comments at 6.
---------------------------------------------------------------------------
Based on these comments, the SNPRM proposed amending the Office's
confidentiality regulations to require that the MLC ``disclose the
amount being held and reason for the hold to any individual or entity
with a bona fide legal claim to such funds or a portion thereof.''
\318\ The Office reasoned that this requirement would put the parties
``on equal footing in developing a strategy for resolving the dispute,
including the negotiation of a settlement.'' \319\ The Office also
proposed that the MLC ``provide the equivalent of monthly royalty
statements for the amounts held along with monthly updates concerning
the status of the hold.'' \320\ These proposed disclosure requirements
were not exclusive to termination-related disputes.
---------------------------------------------------------------------------
\318\ 88 FR 65908, 65919, 65927.
\319\ Id. at 65919.
\320\ Id.
---------------------------------------------------------------------------
Commenters on this provision generally supported it, recognizing
the value of disclosing the amount of royalties on hold to parties
involved in the dispute.\321\ The MLC, however, voiced concerns over
administrability and potential misuse.
----------------------------
[…truncated; see source link]Indexed from Federal Register on July 9, 2024.
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.