Would abolish the compulsory mechanical license.

The Copyright Office offered a proposed bill June 21 to House subcommittee leaders that would abolish the compulsory mechanical license for cover recordings and could transform performing right organizations and the Harry Fox Agency into competing one-stop license shops.

The “working draft” stems from a number of hearings on music licensing beginning in March 2004 before the House Committee on the Judiciary, Subcommittee on Courts, the Internet and Intellectual Property, which led participants to conclude that the mechanical license provision of the Copyright Act (section 115) needs to be fixed.

Under the proposed 21st Century Music Licensing Reform Act, the compulsory mechanical license is repealed and royalty rates become negotiable. Publishers could offer labels or online services an exclusive license, which could not be offered previously.

“A fundamental principle of copyright law is that the author should have the exclusive right to exploit the market for his work, except where doing so would conflict with the public interest,” Register of Copyrights Marybeth Peters testified.

Except for non-interactive webcasts, sound recordings are not subject to a compulsory license under current U.S. law.

Existing mechanical license agreements would expire no later than one year after the effective date of the Act, and any label or service that had previously made phonorecords (audio recordings and digital audio deliveries) under a compulsory license could continue distributing the records only for another year.

Peters testified that virtually all other countries have eliminated similar licenses in favor of private negotiations and collective administration.

She also noted that the transactional costs and time delays that digital music services face to secure licenses for compositions inhibit the music industry’s ability to combat piracy. When legal online music services cannot obtain all the rights, they cannot offer a broad selection of music. This makes them less attractive to the listening public than the unlicensed services.

To create a more streamlined licensing process, the proposal essentially merges performance and mechanical licenses for certain purposes.

It replaces all references to a performing rights society in the Copyright Act with “music rights organization.” ASCAP, BMI and SESAC automatically become MROs because their members have authorized them to license public performance rights. HFA and other entities may also become MROs if they obtain necessary rights from publishers.

Publishers may authorize only one MRO to be their agent to license public performance and mechanical rights, the proposal states. They may also elect not to authorize an MRO to act on their behalf, thus retaining the right to prohibit others from performing, recording or distributing their compositions, or to grant licenses directly to third parties as they wish.

If a publisher elects to authorize an MRO to grant public performance licenses (for radio/television broadcasting, webcasting, live venue performances and so on), then that MRO also has the right to grant mechanical licenses at a negotiated rate. While the MRO is not required to grant a mechanical license to everyone, if it grants a performance license for a digital audio transmission (such as an online stream to webcast), the MRO must also grant a mechanical license for that use (to “facilitate” the performance).

While open to new paradigms in the industry, SESAC president/COO Pat Collins says the proposal, if adopted, “may result in a proliferation of MRO’s, which may introduce unintended inefficiencies into music licensing.” ASCAP and BMI say they are analyzing the proposal and declined to comment at this time.

Digital Media Assn.’s Jonathan Potter shares a similar concern. “Our companies are most concerned that this proposal could result in 40 or 400 or 4000 MROs”

The law would not cover rights in audiovisual works.

"We support the proposal in concept, if adapted to the marketplace properly,” says Recording Industry Assn. of America general counsel Steve Marks. “However, important components that will help consumers gain access to new products they desire in the marketplace -- including how to resolve rate disputes and assist in licensing compositions for combined audio/audiovisual products such as DualDiscs and DVD-Audio -- need to be addressed."

“As always, my focus is primarily on the author,” Peters said. While intermediaries such as the PROs and HFA serve a useful function, “it is the author -- and not the middlemen -- whose interest should be protected.”

It is unclear who would set rates, what the rates would be and whether there would be a minimum royalty due for compositions. The NMPA is very concerned about anything that would diminish the negotiating capacity of publishers and songwriters, CEO/president David Israelite says.

The participating parties are expected to respond by June 28 to the draft.