House Judiciary Hearing on Copyright Office Reviews Music Modernization Act, Black Box Royalty Concerns

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Register of copyrights Karyn Temple says black box distributions won't occur before 2023.

With many indie songwriters concerned about how the Mechanical Licensing Collective (MLC) created by the Music Modernization Act (MMA) will handle the buildup of black box royalties from 2014-2019, it was announced that distributions will not occur before 2023. 

That news came during the House Judiciary Committee hearing on the Copyright Office Wednesday morning (June 26) and was reported by register of copyrights Karyn Temple, who was seeking to clear up misunderstandings around new laws concerning black box royalties. Those are monies due to songwriters and publishers where digital music services -- and the companies they hire to help process such payments -- are unable to match compositions to recordings, either due to poor or inadequate metadata or a lack of registration by DIY indie artists and songwriters with the Copyright Office. 

Specifically, this announcement helps clarify wording in the law that says "the first such distribution shall occur on or after January 1 of the second full calendar year to commence after the license availability date." Other parts of the law say money can be distributed three years after unmatched royalties are built up and one year further after it’s turned over to the MLC. So with the MLC slated to launch on Jan. 1, 2021, and with black box streaming royalties having built up since before 2014, when that money is turned over to the MLC, the question emerged: Would it be eligible for distribution at the start of 2022, or 2023? 

In reporting the 2023 date, Temple said both applicants hoping to form the MLC have said they will wait until receiving the 2023 data before considering a royalty disbursement, which according to the law must happen once a year.

This issue of black box monies was brought up repeatedly, with Rep. Sheila Jackson Lee, D-Cal. at one point quoting Audiam founder Jeff Price as saying there might be as much as $4 billion to $5 billion to be doled out by the MLC. (This is apparently a going-forward estimate Price has made, not how much black box money will be initially turned over to the MLC).

But Temple repeatedly assured the committee that the MMA gives the Copyright Office responsibility to distribute the black box money appropriately, noting that in addition to the agreement not to distribute before 2023, the Copyright Office has the responsibility to review the processes that the MLC is engaging to reduce black box money. 

In other news, Rep. Zoe Lofgren, D-Cal., wants the Copyright Office to study if the ASCAP and BMI consent decrees should be modernized. Lofgren noted that the Department of Justice had reviewed the decrees just a couple of years ago and wondered, "What has changed since the last time?"

She also appeared concerned that broadcasters have to buy a blanket license from all four performance rights organizations -- SESAC and Global Music Rights, besides ASCAP and BMI. Temple responded, "If the Congress wants us to look at this issue, the Copyright Office is willing and able." Moreover, she noted that in a 2015 paper the Copyright Office suggested that instead of having the ASCAP and BMI rate determinations reside in federal court if negotiations fail, that rate setting should fall on the Copyright Royalty Board to produce "more consistent" rulings.

Another member of the House Judiciary Committee expanded the hearing's topic to address his concerns about so-called "safe harbor" as laid out in section 512 of the Digital Millennium Copyright Act. Rep. Ben Cline, R-Va., noted that with the 20-year anniversary of that law a lot has changed, including many technological advancements that were not anticipated, with pirated video costing those creative industries $20 billion to $70 billion a year, by some estimates. Temple said the Copyright Office has been studying that issue and will release a report by the end of the year. 

One thing that needs to happen in order to address piracy, Temple added, is that the "law should provide parity so that the DOJ has effective tools to help fight piracy." Currently, infringement by reproduction and distribution are felonies but unauthorized copying is not, she added. 

In opening the hearing, House Judiciary Committee chairman Jerrold Nadler, D-N.Y., noted, "This Committee held its last Copyright Office Oversight hearing in 2015, and a lot has changed since then," according to his prepared statement sent to Billboard. In addressing the committee, Nadler said core copyright industries employ 5.5 million workers, contribute $1.2 trillion in economic activity and generate roughly $180 billion in foreign sales. "The Copyright Office plays a vital role in helping to uphold this system, and in helping to ensure that works are effectively protected by copyright," he said. "Maintaining this vibrant copyright ecosystem depends on having an effective Copyright Office to oversee it."

He noted that "the Committee is also closely monitoring the Copyright Office’s much-needed efforts to modernize its IT systems. In recent years, we have heard a consistent message with respect to the Copyright Office -- that the Office must be modernized to meet the needs of the public and the copyright community, and to reduce the backlog of pending registrations."

During the hearing, Temple elaborated on the Copyright Office plans to upgrade and modernize its systems so that it will become more efficient in its record keeping and also become more transparent and comprehensive to the public seeking such information.

She said that currently the Copyright Office counted a backlog of over 150,000 registration claims and added that in the past two years, the office's staff had reduced the processing time by 40% so that it now stands at 5 months, with efforts ongoing to reduce that further. One of the reasons for the backlog is that during 2010–2014, the Copyright Office had a 30% staff reduction, which means it lost many registration specialists. Fortunately, the Copyright office did get additional resources in recent years. 

Temple added that the Copyright Office had laid out a plan to upgrade its IT functions and once they are modernized, it should help reduce the backlog further. In the meantime, after registration, the process of recordation is still paper based. The Copyright Office hopes to have a pilot of a digital recordation process available to a small sample of registrants in the early spring 2020, which will provide feedback to make the system more effective for its wide rollout. Also, the Copyright Office is working on getting all of its record keeping data in one system, and Temple said they are hopeful to have a pilot available to some members of the public by late 2020.

The hearing also touched upon the CASE Act, which, if passed, will create a copyright small claims court, allowing for arbitration. Currently, Copyright Law requires that all copyright infringement cases be brought in Federal Court, which can be a costly process -- as much as $200,000 in legal fees, Temple estimated. That price tag is "beyond the ability of most creators and small businesses," Temple said. "A right without a remedy means you have no right at all."

Getting back to the MMA, Rep. Veronica Escobar, D-Tex., expressed concern that the role of Digital Licensing Coordinator (DLC) only has one applicant and its group is dominated by the big services like Apple, Spotify and Amazon. She wondered if smaller digital services had been overlooked. 

But Temple noted that if smaller services wanted to be involved, they could have made a submission to become the DLC. As it is, she noted that the Copyright Office will ensure that the sole applicant meets the requirements to serve in that role, as set out by the MMA.

Two members of the Judiciary Committee quoted another observation from Audiam's Price that previous copyright law required the digital services had to find the songwriters and pay them; now with the MMA, the songwriters will have to know about the MLC to get paid. As such, both pressed Temple on how the Copyright Office would address that issue. She responded by noting the education provisions in the law and also said that would be addressed when the Copyright Office writes the regulations of how the MLC operates. 

Finally, near the end of the hearing, Rep. Karen Bass, D-Cal., noted that hip-hop has surpassed rock as the largest genre and Latin has also grown in size. "Its critical that the thought leadership driving this process reflects every type of copyright owners," Bass said. 

Temple responded that one of the comments submitted about the MLC process was about making the Copyright Office aware of racial diversity. She added that both applicants to become the MLC have committed to ensure diverse representation on their boards and committees.


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