By: Steve Masur and Kristen Kennedy

On September 25, Congress unanimously passed H.R. 1551, the Orrin G. Hatch Music Modernization Act. Called “the biggest update to music legislation in the past 40 years,” the bill  significantly amends the Copyright Act in several ways:

• The Music Licensing Modernization Act creates a blanket license and a collective database for the administration of mechanical licensing of recordings.
• The Classics Protection and Access Act guarantees that artists are compensated for the use of recordings made prior to 1972.
• The Allocation for Music Producers Act improves royalty payouts for producers and engineers when their recordings are used on satellite and online radio.

President of the Recording Industry Association of America (RIAA) Mitch Glazier called H.R. 1551 “a bill that moves us toward a modern music licensing landscape better founded on fair market rates and fair pay for all.” In fact, virtually every sector of the music industry has celebrated the news of the Act’s passing and the critical updates to copyright law that it puts into place. This legislation more closely aligns music copyright law with the current industry, dominated as it is by streaming and satellite radio services, and ensures a fairer and more just licensing system that should benefit all parties.

Title I – Music Licensing Modernization

Section 102 of the Music Modernization Act radically modifies Section 115 of the Copyright Act by establishing a blanket license for digital use and prescribing the creation of a mechanical licensing database. A blanket license allows entities like radio stations, streaming services, and television networks to perform any works in the repertory of a performing rights society, such as ASCAP or BMI, during the term of the license for a negotiated or court set fee. Without blanket licensing, streaming services like Netflix and Hulu would find it difficult to operate, as this system provides easy access to a large body of sound recordings and removes the risk of inadvertent copyright infringement. By comparison, the system of mechanical licensing grants users the right to reproduce compositions in both physical and digital mediums, including compact disks, cassette tapes, downloads, and streaming services. The mechanical licensing system previously in place was particularly cumbersome for streaming services and helped to create a host of problems, including huge amounts of unpaid royalties for mechanical rights holders and massive lawsuits.

Previously, the lack of a centralized database caused problems for both songwriters and streaming services, and lead to many lawsuits against Spotify and other services. The introduction of a blanket license and a licensing collective should streamline the process by which digital streaming services pay mechanical royalties to songwriters. With this update, rightsholders gain access to a transparent, publisher-maintained database, which should guarantee that songwriters will always receive compensation for mechanical licenses when their compositions are streamed on digital and satellite services.

Section 102 also reforms the Copyright Act by ending the time- and paper-intensive Notice of Intent (NOI) process, which required artists to send physical letters of intent to all publishers, and implementing electronic licensing instead.

Title II – Classics Protection and Access

Songs recorded before 1972 were not retroactively covered when Congress created copyrights for sound recordings. Title II of the Act closes this loophole, establishing federal copyright protection for artists who recorded music prior to 1972. Digital services will now be required to give copyright owners notice of their use of any pre-1972 recordings and pay royalties for that use; if they fail to do so, they will be treated as copyright infringers. The Act also clarifies the expiration period for pre-1972 sound recordings, creating a clear timetable for their entrance into the public domain.

Title III – Allocation for Music Producers

Producers and engineers were previously not covered by copyright law, and could only earn royalties via Letters of Direction from artists who wished to share them; furthermore, copyright law failed to take royalties from satellite and online radio into account at all. The lack of an enforcement mechanism in place to force third parties to comply with Letters of Direction constrained producers’ and engineers’ ability to earn royalties. Title III changes that, putting in place a mandate that services such as Spotify and Apple Music must pay royalties to these groups and streamline their licensing processes. Producers and engineers will now be able to submit Letters of Direction to a designated non-profit collective, which will oversee the collection and distribution of royalties earned from compositions played over satellite and online radio. By expanding the scope of copyright law from traditional AM/FM radio to encompass these new forms of radio, the Act significantly modernizes the legal landscape.

Together, these provisions provide a critical update to the previous patchwork system of licensing, which was difficult to apply to the modern-day digital streaming business model. By establishing a centralized system of mechanical licensing, this legislation ensures that copyright owners will receive fair payment for the use of their works, and reduces the risk of litigation that streaming services and broadcasting companies currently face. The Act also provides much-needed protection for legacy artists, producers, and engineers. It’s an ambitious piece of legislation, and its unanimous passage speaks to the fact that the antiquated system previously in place was not effectively serving anyone. Virtually all players in the music industry stand to benefit from this dramatic modernizing of copyright law, and by creating a more transparent and just system of copyright enforcement, Congress and the recording industry have both achieved a remarkable victory. Ensuring that it is not pyrrhic will be about how its many parts move from paper to implementation.

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We would like to thank our intern Kristen Kennedy for her contribution to this article.

By: Jon Avidor

On December 29, 2017, Wixen Music Publishing, Inc. filed a $1.6 billion lawsuit against Spotify USA Inc. The complaint alleges that Spotify willfully infringed copyrights in thousands of songs, including songs from artists Tom Petty, Neil Young, and The Doors. The timing of the lawsuit is particularly problematic since Spotify plans to go public on April 3, 2018. But the suit also brings up another issue: the inadequacy of music licensing laws in the digital age.

How Music Licensing Works

Music is protected by copyright law. The Copyright Act of 1976 protects two types of copyrights in a recorded song: the musical composition and subsequent sound recordings. The composition consists of the music, together with any accompanying lyrics. The sound recording occurs when an artist records the performance of the musical composition. The Copyright Act grants certain exclusive rights, such as the right to reproduce, distribute, and perform publicly or by digital transmission, to the copyright holders, such the the composer and/or lyricist or a publisher and recording artist or its recording label.

An interactive streaming service, such as Spotify, must obtain a license for both the sound recording and underlying musical composition in order to reproduce and distribute songs. Revenue from the  recording license is paid to the owner or licensor of the sound recording, usually the artist or, more commonly, the artist’s label. Revenue from the composition license, known as a mechanical license, is paid to the owner or licensor of the composition, i.e., the composer and/or lyricist or music publisher, and allows the licensee to reproduce and distribute songs on CDs, records, permanent digital downloads (e.g., through iTunes), or interactive streaming services. To obtain a mechanical license, a licensee can negotiate directly with the copyright owner/licensor or get a compulsory license under which, in certain circumstances, the owner/licensor must grant permission to use the work either in a cable television rebroadcast, by PBS, in jukeboxes, for performance of master recordings on digital radio, and in phonorecords or digital downloads. The compulsory mechanical licensee must provide a Notice of Intention and remit a predetermined mechanical royalty, referred to as the statutory rate, to the copyright owner/licensor, again most commonly the publisher.

Wixen v. Spotify

Wixen Music Publishing, Inc., an independent music publisher that administers the copyrights of more than 50,000 songs, filed a lawsuit on December 29, 2017 in the U.S. District Court for the Central District of California against interactive music streaming service Spotify (Spotify USA Inc.). The complaint alleges that Spotify obtained the sound recording rights, but did not obtain the composition rights, to the songs available for streaming to its more than 140 million active users and, as a result, Spotify illegally profited off of songwriters and publishers without obtaining and paying for a license.

Wixen alleges that Spotify relied on the Harry Fox Agency (HFA), a music licensing and royalty service, to obtain the required mechanical licenses but failed to do so as HFA “did not possess the infrastructure to obtain the required mechanical licenses.” Wixen stated that Spotify knew of HFA’s inability to secure the licenses but continued to exploit the unlicensed songs anyway thereby committing copyright infringement by making “unauthorized reproductions and engag[ing] in unauthorized distribution of the copyrighted musical compositions of Wixen’s client.”

Wixen requests $1.6 billion in damages, or $150,000 per composition, which is the maximum amount of statutory damages for willful copyright infringement, for each of the 10,784 musical compositions Wixen claims were infringed. Wixen also requested an injunction against Spotify’s continued unlicensed use of the songs and demanded Spotify establish procedures to enable it to comply with the Copyright Act.

This isn’t the first lawsuit of this type that Spotify has faced. In June 2017, Spotify reached a $43.5 million settlement in an unpaid royalty class action in Ferrick v. Spotify USA Inc. Maybe Taylor Swift was right when she knew Spotify was trouble when she walked in.

The Need for Music Copyright Reform

Whether Spotify’s alleged copyright infringement was knowing or willful or not, streaming services can only really be commercially successful if it maintains an extensive catalog of music and that poses a logistical compliance nightmare that copyright statutes have not adequately addressed in the digital age of music. Forbes estimates that, under the current licensing regime, interactive streaming services, like Spotify, Apple Music, and Google Play, have to file over 10,000 Notices of Intention per day. The volume of Notices of Intention, coupled with unreliable, missing, or conflicting data as to ownership and rights in many songs, deteriorates this anachronistic licensing framework.

However, there’s a bill working its way through Congress that might just shine bright like a diamond. Introduced in the House of Representatives by Rihanna Rep. Doug Collins (R-GA) on December 21, 2017, the Music Modernization Act (MMA) is meant to “provide clarity and modernize the licensing system for musical works” under Section 115 of the Copyright Act, which relates to compulsory licensing, and to establish fair rates and fees for mechanical royalties for that purpose. An identical bill was introduced in the Senate by Senators Orrin Hatch (R-UT), Lamar Alexander (R-TN), and Sheldon Whitehouse (D-RI) on January 24, 2018. The bills provide for:

• Blanket Licenses: The proposed legislation eliminates the requirement under Section 115 for digital music providers to notify each copyright owner in exercising a compulsory license and instead provides for a blanket license from copyright owners through a mechanical licensing collective that will establish a database of musical works and the identity and address of the copyright owners or licensors. The MMA would provide certain protections against infringement actions for digital services who comply with the terms of the blanket license.
• Standards for Determining Mechanical Royalty Rates: Currently, the Copyright Royalty Board sets the statutory rate for compulsory licensing, but the current legal standard does not consider market value. Under the proposed legislation, the legal standard will be replaced with one accounts for free-market conditions.
• Random Assignment of Rate Court Proceedings: Instead of each performing rights organization (i.e., ASCAP, BMI) being assigned to a single federal rate court in New York to determine reasonableness of rates, the MMA proposes to have a district judge in proper jurisdiction be randomly assigned to settle rate disputes.
• Evidence for Public Performance Royalties: The current Section 114(i) prohibits rate court judges from taking into account recording royalty rates as a benchmark when setting performance royalty rates. Under the proposed legislation, performing right organizations and songwriters would be able to present this evidence to obtain fairer rates.

The U.S. Copyright Office conducted a study in 2016 titled “Copyright and the Music Marketplace” that provided recommendations for reforming the existing licensing framework, many of which have been integrated into the Music Modernization Act.

The National Music Publishers Association (NMPA) released a statement of support, alongside me than 20 music industry organizations including RIAA, the Recording Academy, ASCAP, BMI, and SAG-AFTRA, endorsing the Music Modernization Act, the CLASSICS Act, the AMP Act, and a market-based rate standard for artists from satellite radio. These bills have not come without criticism, namely concerns that they would give more power to the already powerful music publishers to the determent of songwriters. The flip side of this argument, as The Verge notes, is that the MMA “prevents lawsuits like Wixen v. Spotify. If a streaming service sets aside the money it’s trying to allocate to a songwriter it can’t find, it can’t be sued later on for not finding the songwriter.” Whether the MMA is flawed or not, the music industry has been sitting, waiting, wishing for a copyright law that reflects how digital music is distributed and consumed, and if you believed in superstitions then maybe the MMA is a sign.
 
 *We would like to thank our intern Torie Levine for her contribution to this article.