Why The U.S. Copyright Office Chose The Mechanical Licensing Collective
The Copyright Office said it chose the Mechanical Licensing Collective over the American Music Licensing Collective because the former fulfilled all the qualifications required by the Music Modernization Act to receive the designation, while the latter fell short on some of the qualifications.
The Mechanical Licensing Collective (MLC) is a new entity created by that statute and slated to begin operations on Jan. 1, 2021 to manage a blanket mechanical license and to collect royalty payments from digital services and in turn pay the royalties to the correct copyright owners. In order to insure that occurs, the MLC will build a database matching compositions to recorded masters.
In a 86-page ruling, the Copyright Office laid out the reasons why it designated the group led by the National Music Publishers Association (NMPA), the Nashville Songwriters International Association and the Songwriters of North America instead of the American Music Licensing Collective (AMLC) to build and operate the Mechanical Licensing Collective created by the Music Modernization Act.
According to that document, "the Office concludes that while both candidates meet the statutory criteria to be a nonprofit created to carry out its statutory responsibilities, only MLCI satisfies the endorsement criteria, and MLCI also has made a better showing as to its prospective administrative and technological capabilities. The Register is thus designating MLCI, including its individual board members, with the Librarian’s approval."
The Copyright Office Ruling on the designation of the MLC was made by Register of Copyrights Karyn Temple and approved by Librarian of Congress Carla D. Hayden.
One of the key arguments that the AMLC made as to why it should receive the designation concerned its interpretation of the marketplace as worded in the MMA. The AMLC argues that the statute’s wording, "the greatest percentage of the licensor market for uses of such works in covered activities, as measured over the preceding 3 full calendar years," referred to the number of copyright owners. Meanwhile, the NMPA and its supporters argued that wording referred to market share by royalties.
Up until this ruling, the Copyright Office hadn’t ruled specifically which interpretation it favored, but it now says it agrees with the NMPA. But even if it had ruled in the AMLC's favor on that issue, that group still would have lost out on that requirement because the NMPA lined up more copyright owners than the AMLC, according to the Copyright Office. In specific, it noted that the AMLC did not provide market share data for its endorsing copyright owners while the MLC showed that it had the support of 85%-90% of the marketplace.
Even by the numbers, MLC counted 132 musical copyright owners with well over 7 million musical works, and it was endorsed by over 2,400 songwriters, according to the Copyright Office ruling. Consequently, it said that the MLC is the entity that most nearly fulfills the market share requirement while also noting that "even under the metric for which the AMLC provides evidence—number of copyright owners, AMLC would not be the candidate that satisifies the endorsement provision…AMLC still would have substantially fewer endorsements than MLC", about 1000 endorsements versus about three times that for the MLC.
The Copyright Office noted that in the end the Recording Academy, which initially withheld endorsing either candidate, ultimately endorsed the MLC. "Thus, under both the proper metric of market share, and the alternative metric of number of copyright owners, MLCI is the candidate that satisfies the endorsement requirement," the ruling stated.
Finally, the Copyright Office questioned the AMLC's budgeting process and questioned whether the AMLC considered the full range of the MLC's necessary operational costs. For example, it said that AMLC projected licensing and legal activities to cost $600,000 to $730,000, but the Copyright Office wondered if the AMLC failed to consider that it would have to participate in CRB assessment proceedings and engage in other activities to enforce rights, including possibly commencing actions for damages and injunctive relief in federal court.
The Copyright Office also said it had concerns about the lack of specific information provided by the AMLC on its board membership selection process, saying the AMLC's submission described a somewhat ad hoc decision-making process in this area.
And it specifically said it was unsure that all the AMLC board members fulfilled the statutory requirements needed to be a board member. For example, while Clearbox president John Barker demonstrates relevant experience, if his company merely administers licenses on behalf of copyright owners but has not itself been assigned copyrights, he would not constitute a publisher representative within the meaning of the statute. While noting that Barker could have been replaced if needed, the Copyright Office said that issue did not factor into its overall assessment so it didn’t require resolution.
"While many of the proposed AMLC board members demonstrate commendable experience to perform the relevant duties, the Office appreciates MLCI’s more comprehensive approach to identifying and selecting potential members, who themselves each appear highly experienced and able to perform the required duties," the ruling stated.
While the AMLC didn’t get the Copyright Office designation to run the mechanical licensing collective, its impact on the black box issue reverberates throughout the ruling. But in contrast to what the AMLC claimed, the Copyright Office said that the MMA makes sure that those royalties will be distributed appropriately.
"With respect to the purported conflicts of interest of individual board members, although these claims raise serious issues, they ultimately have little impact on the Office’s evaluation of the candidates’ proposals," the Copyright Office ruling said. "Regarding MLCI’s board composition, the Office agrees that the unclaimed royalties oversight committee will help mitigate potential conflicts. As discussed below, the Office expects ongoing regulatory and other implementation efforts to further extenuate the risk of self-interest with respect to the distribution of unclaimed accrued royalties."
The Copyright Office said that the statute addresses these issues and protects smaller independent songwriters, including the part that says a songwriter should receive no less than 50% of payment. Secondly, the statute requires the MLC to undertake a number of duties with respect to unclaimed royalties. including maintaining a public online list of unmatched musical works through which ownership can be claimed. The MLC must engage in diligent, good-faith efforts to publicize, throughout the music industry the existence of the MLC and procedures to claim unclaimed royalties.
In general, the statute requires the MLC to ensure that its policies and practices are transparent and accountable, including issuing a detailed annual report describing how royalties are collected and distributed, and its efforts to locate and identify copyright owners of unmatched music.
Moreover, every five years, the MLC must retain an independent auditor to examine the books, records and its operations and prepare a report addressing "the implementation and efficacy of procedures" "for the receipt, handling, and distribution of royalty funds, including any amounts held as unclaimed royalties," and "to guard against fraud, abuse, waste, and the unreasonable use of funds," according to the ruling.
And the Copyright Office adds that the stature requires the MLC, the Copyright Office and the Digital Licensing Coordinator to publicize the unclaimed royalties and in general educate songwriters about the MLC.
Furthermore, it notes that Congress has asked the Copyright Office to study the issue of unclaimed royalties and provide a report by July 2021 that recommends the best practices to identify and locate copyright owners with unclaimed royalties, and the MLC must give substantial weight to these recommendations.
Finally, the MLC must be re-designated every five years, and if the Copyright Office believes that the MLC made unreasonable distributions of unclaimed royalties, that could be grounds for concern and may call into question whether the MLC has the capabilities to perform the required functions. In other words, the re-designation might not be forthcoming.
While the MLC received the designation, the group headed by NMPA, NSAI and SONA didn’t get everything it wanted. In particular, it wanted the Copyright Office to address whether the presidential signing decree was in according with the MMA. When signing the MMA into law, President Trump added a new requirement to the Copyright Office, ensuring it would have a continuing role in maintaining oversight in the subsequent selection of replacement board members. The NMPA had argued that the collective is not a government entity and thus its board of directors and committee members are not officers of the government so that neither the register nor the Librarian has the authority to accept, reject or appoint them. But the Copyright Office’s ruling is completely silent on this issue.
In another matter, the Copyright Office weighed in completely noting that it took the comments from the Institute of Intellectual Property and Social Justice (IIPSJ) seriously. It pointed out that the MLC draft by-laws "contain a diversity provision that calls for a biannual report on the diversity of the board, including diversity as to gender/race/ethnicity, income, musical genre, geography and expertise/experience." It said it would work with the MLC to help it achieve these goals and said it believes the MLC can play a role in helping to advance these goals within the music industry.
Overall, the Copyright Office said the submissions suggest that both MLC and AMLC will have the basic administrative and technological capabilities to perform the required functions under the statute, but the former demonstrated a greater capacity to carry out several of these responsibilities. "MLC’s proposal as a whole reflects a more realistic understanding of the [collective’s] responsibilities under this new system and indicates that it is better positioned to undertake and execute the full range of administrative functions required of the [collective] within these critical first five years."
While the Copyright Office didn’t chose AMLC, it said its "goals and principles are laudable, and its submission includes a number of ideas that should be given further consideration." It added, "the Register expects that the designated MLC will endeavor to equally represent the interests of those who did not endorse it, and that interested sides will continue to come together to make the implementation of this historic new licensing scheme a success, building upon the cooperative spirit that facilitated the MMA's passage."