U.S. Copyright Office Begins Process to Create Music Modernization Act's Licensing Collective

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With the euphoria of having seen the passage of the Music Modernization Act beginning to die down, attention is turning to the practical realities that it will create. Now, the United States Copyright Office has formally kicked off the process to establish the MMA’s Mechanical Licensing Collective (MLC) by putting out a request for information to help inform its choice for designating both the members of the MLC and Digital Licensee Coordinator (DLC).

In doing so, it is giving interested parties until March 21, 2019 to submit written proposals, and until April 22 for the public to comment on those submissions and related issues. It issued its guidelines for submitting applications in the Dec. 21 edition of the Federal Register. (Here is the link to submit comments.)

What Is The Copyright Office Asking For?

The Music Modernization Act, which creates both a blanket mechanical license for digital on-demand services and the MLC to serve as administrator, gives the Copyright Office until July 8 to select an applicant group to form the MLC. In its request for information, the Copyright Office asks groups making submissions to include their business plans, including an estimated number of employees. When employees are hired, it will require the names of key employees and resumes showing their qualifications. The Copyright Office also notes an officer of the collective may not be an employee or agent of any members of the board of directors, or any entity represented by the board of directors.

The request for information also asks for thoughts on whether the collective should hold reserve funds to meet unexpected costs, and whether the collective should take on debt, and if it does, what collateral may be used to secure that debt. It also wants to know whether unclaimed accrued royalties on an interim basis may be used to defray operating costs, and what guidelines will be used if there is an intent to apply them for that purpose.

It also asks for specific information about how to establish a database that will match compositions to recordings; how to prioritize matching efforts; and what factors -- such as usage, royalty amounts, genre, or music vintage -- would be used to establish priorities. Most importantly, it asks those competing to become the designated group to specify target goals for matching works in each of the first five years, adding that those goals should be expressed in terms of percentage of market share of works, both in covered activities and the percentage of work licenses.

For the built up unmatched royalties that the collective will inherit, the Copyright Office gives instruction to provide adequate opportunity for the new collective to engage in renewed ID and matching efforts, and allow for owners to search and claim ownership of such works. Finally, the request for information asks competitors to propose how their database will address interoperability and how it will interact with existing standards.

What Does This Mean?

In outlining what it is looking for, the Copyright Office is already showing that its interpretation of some elements of the law may differ from those of some of the entities that helped shaped it. And that could affect the differing groups that are hoping to shape the membership of the MLC.

For example, one group working together informally as the industry consensus group -- which consists of the National Music Publishers Assn. (NMPA), the Nashville Songwriters Assn. International (NSAI), the Songwriters of North America (SoNA) and the American Independent Music Publishers (AIMP) -- has sent out its own request for information to technology companies. In doing so, sources say, the group included the condition that if the tech companies make a submission to the group’s request, they are precluded from replying to other groups competing to obtain the Copyright Office’s designation to set up the collective.

As the seeming favorite to win the designation -- the industry consensus group not only includes key trade groups, but the five largest music publishers (the three majors and Kobalt and BMG) are expected to sit on its proposed board -- its move to preclude tech companies from submitting to other competing groups has been interpreted by its potential competitors as a move to block them from most, if not all, of the companies capable of fulfilling the technology infrastructure role. Thus, competitors privately complained, the intention may have been aimed at hobbling others competing for the Copyright Office’s designation from the start.

One such group, which is operating under the name the American Music Licensing Collective (AMLC), and which consists of a group of music publishers and songwriters, say they were concerned by the limitations imposed on the technology companies by the industry consensus group.

Meanwhile, the American Music Licensing Collective (AMLC), a group of music publishers and songwriters, has launched a website and is moving to put together its own board. So far, Police drummer Stewart Copeland, songwriter Rick Carnes and PledgeMusic founder and songwriter Benji Rogers are the songwriter/publishers designated for AMLC’s board; GLVD publishing executive and music business lawyer Henry Gradstein, ClearBox Rights president and CEO John Barker, Audiam founder Jeff Price, Optic Noise president Lisa Klein Moberly, Bluewater Music president/CEO Brownlee Ferguson and Union Music Group president Ricardo Ordonez are filling the publishers seats; while songwriters Phil Galdston and David Wolfert are two of the three needed observers.

But others say that was not the consensus industry group’s intention when they included the guideline. Instead, the industry consensus group wants to be meticulous in trying to safeguard against conflicts of interest invading the process to set up its collective. So not only did it not want technology groups bidding to others competing to set up the MLC, it also didn’t want applicants for seats on its board of directors also trying to land a spot on the boards of other proposed collectives.

What Did The Copyright Office Say?

Whatever their intention, it looks like the Copyright Office is weighing in on those moves. Within whichever group is designated to form the collective, it notes in the Dec. 21 edition of the Federal Register that the MMA statute does not address whether board members may also serve on any of the collective’s Operations Advisory Committee, Unclaimed Royalties Oversight Committee, or Dispute Resolution Committee, or whether anyone can sit on multiple committees.

Furthermore, in its request for information, the Copyright Office said “the statute does not preclude prospective board members, vendors, or other affiliates of a prospective MLC from being included in submissions from multiple competing entities. Indeed, based on the statutory criteria requiring representative of certain publisher or songwriter associations to serve as non-voting board members, there may be some representatives that might logically serve on the board of any proposed MLC. Similarly, while the statutory language authorizes the MLC to arrange for services of outside vendors, nothing suggests that such a vendor must offer exclusive services to that MLC candidate (let alone one that is yet-to-be designated).”

With the Copyright Office voicing these opinions, it remains to be seen if the industry consensus group will drop its guidelines concerning whether technology companies can also make submissions to competing groups. If it doesn’t, it’s unclear if the technology companies will abide by that guideline.

The Copyright Office also addressed another issue: specific wording in the MMA causing disagreements in the industry over a key section’s interpretation. The passage says the collective must be “endorsed by, and enjoy ... substantial support from musical work copyright owners that together represent the greatest percentage of the licensor market for uses of such works in covered activities, as measured over the preceding three full calendar years.”

Now What?

Now, the question emerges: Does the greatest percentage of the licensor market mean market share based on overall revenue from mechanical royalties, as in the number of consumer plays? Or does it mean the number of licensed copyright owners and the number of song licenses they issue and control?

The industry executives working with Congress in shaping the initial version of the law --before it was combined with the CLASSICS Act and the AMP  Act-- insist that it means revenue market share as counted by paid streams. If that turns out to be so, it means the collective that plans to have representatives from the five largest music publishers on its board is a shoo-in to win the designation.

But others, including the group behind the AMLC, are hoping that the interpretation of the wording in the law refers not to marketshare by plays, but rather market share of the number of song licenses issued to digital services, which is quite a distinction. If it’s the latter interpretation, that means collectives will be lobbying to align support from publishers in order to gather the most amount of song licenses.

While its comment implying that technology companies can apply to various groups hoping to win the music licensing collective could be interpreted as a win for the competitors of the industry consensus group, in its request for information, the Copyright Office shows it’s not clear as to what that “greatest share of licensor market” passage refers. The Copyright Office is asking that a proposed MLC address how it interprets and satisfies this endorsement criteria, including an explanation of how the proposed MLC has calculated and documented the endorsement and substantial support of the requisite number of copyright owners.

In doing so, the Copyright Office ruled that copyright owners located outside the U.S. can endorse an MLC so long as they control relevant rights to works played or otherwise distributed in the U.S. But in another move, it precluded pure administrators from weighing in with endorsements, saying that only “parties who have a relevant interest in the copyright of musical works" may weigh in, and that copyright owners can endorse more than one proposed collective.

Last But Not Least

Finally, in its request for information, the Copyright Office asks all groups submitting applications to form the collective to include the identities of the board members and their background information, warning that these positions are not a role for past services to the industry but must be fulfilled by executives with experience to handle the responsibilities to help govern the operation of the collective.

It also ask how the applicants plan to address issues relating to the succession of board and committee members, noting that terms should be staggered. And once the initial board is established, the Copyright Office observed in its request for information that the presidential signing statement ensures that the Librarian of Congress retains the ultimate authority to appoint and remove all directors. That comes from an 11th hour addition to the law, which was made for President Trump; in signing the law, he noted that the collective’s board of directors are “inferior officers under the Appointments Clause of the Constitution.”

Consequently, he said, “the Librarian [of Congress] must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.”