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The Music Modernization Act of 2018 and Its Burgeoning Impact Jeffrey G

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The Music Modernization Act of 2018 and Its Burgeoning Impact Jeffrey G The Music Modernization Act of 2018 and its Burgeoning Impact Jeffrey G. Knowles, Partner, Coblentz Patch Duffy & Bass LLP Lisa M. Schreihart, Attorney Abstract The Music Modernization Act of 2018 (“MMA”), enacted October 11, 2018, is the most significant reform of music copyright law in decades. As the first major legislation since the Copyright Act of 1976 to affect music royalties, the MMA has made major strides in improving compensation and to level the playing field for all music creators, including songwriters, legacy artists, and music producers. The MMA modernizes the musical works licensing scheme for today’s digital music environment, provides federal copyright protection for pre-1972 sound recordings, and ensures that music producers can get a piece of the royalty pie. The MMA may also have some shortcomings that allow room for legislative growth in the modern music era. This paper describes the key parts of the MMA and eXamines the benefits and criticisms of the Act that have surfaced in the Act’s first year as law. An Overview of the Music Modernization Act The Music Modernization Act (MMA), proposed as H.R. 1551 by Representatives Orrin G. Hatch and Bob Goodlatte, combined the Music Modernization Act of 2018 (S. 2334), the Classics Protection and Access Act (S. 2393), and the Allocation for Music Producers Act (S. 2625). The MMA, an amended version of S. 2823, passed unanimously both in the House as H.R. 5447 on April 25, 2018 and in the Senate on September 18, 2018. The MMA was enacted October 11, 2018. The MMA is intended to: 1) increase compensation to songwriters and streamline licensing of their music; 2) enable artists who recorded music before 1972 to be paid royalties when their music is played on digital services; and 3) enable music producers (e.g., record producers, sound engineers, and other studio professionals) to receive royalties for their creative contributions to recorded music. The MMA is the first major legislation to affect music royalties passed since the Copyright Act of 1976. Title I: The Musical Works Modernization Act (MWMA) Title I of the MMA, the Musical Works Modernization Act (or MWMA, formerly the Music Modernization Act of 2018), amends §115 of the Copyright Act to create a blanket license for digital music providers to engage in certain “covered activities,” specifically “digital phonorecord delivery” via a permanent download, a limited download, and interactive Page 1 of 15 streaming of musical works embodied in sound recordings.1 Before enactment of the MMA, musical works were subject to varying statutory licensing requirements under §115 of the Copyright Act depending on whether they were being reproduced/distributed or whether they were being publicly performed (e.g., streamed or played on the radio).2 But under the MWMA, most digital delivery of musical works may be accomplished on the basis of a statutory "blanket" license. The MWMA also amends §114 of the Copyright Act regarding the compulsory license for the “digital audio transmission” of sound recordings. Under §114(d)(2) of the Copyright Act, compulsory license fees for the non-interactive streaming3 of sound recordings were collected and distributed as digital performance royalties to copyright owners by SoundEXchange.4 However, interactive streaming was subject to a negotiated license under §114(d)(3) of the Copyright Act.5 Now, under the MMA, interactive streaming may be performed under a blanket license, while non-interactive streaming is still subject to the eXisting statutory licensing scheme.6 Under the MMA, SoundEXchange still administers the remaining statutory license under the new §114(d)(2) for non-interactive streaming, which allows streaming services to deliver sound recordings while paying a fiXed rate for each play.7 Under the MWMA, in addition to the new blanket license for covered activities, parties may also participate in such covered activities by voluntary negotiated licensing through a publisher or by obtaining authority to make and distribute a permanent download of a musical work from a record label subject to an individual download license.8 Before the MMA, such negotiated licenses could only be obtained on a song-by-song basis.9 Under the MWMA, absent a voluntary agreement, the royalty rates and terms for a new blanket license are to be determined through a uniform market-based standard, set by the Copyright Royalty Board (CRB) consisting of Copyright Royalty Judges.10 That is, the CRB must set rates and terms that “most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”11 Before the MMA, 1 See 17 U.S.C. §§ 115(a)(1)(A), (e)(10) (2018). 2 See 17 U.S.C. § 115(a)(1) (2006). 3 Non-interactive streaming of digital sound recordings does not allow a user to select which song to stream (e.g., Pandora). Digital phonorecord delivery by interactive streaming allows a user to choose a specific song to stream and when to stream it (e.g., Spotify). 4 See www.soundeXchange.com. 5 See 17 U.S.C. § 114(d)(3) (2006). 6 See 17 U.S.C. § 115(d)(2) (2018). 7 See SoundExchange General Faqs, https://www.soundeXchange.com/about/general-faqs/ (last visited October 19, 2019). SoundEXchange’s services are now focused on the licensing of digital audio transmissions over non- interactive Internet applications, such as Pandora, satellite radio, such as SiriusXM, and cable radio, such as Music Choice. 8 See 17 U.S.C. §§ 115(c)(2)(A), (d)(1)(C) (2018). 9 See 17 U.S.C. § 115(c)(3)(E)(i) (2006). 10 See 17 U.S.C. § 115(c)(1)(F) (2018). 11 17 U.S.C. § 115(c)(1)(F) (2018). Page 2 of 15 the rates were set using a separate standard regardless of what would have been negotiated in a free market. The MWMA also authorizes the Register of Copyrights to designate a nonprofit mechanical licensing collective (MLC), comprised of publishers and songwriters, to issue and administer the blanket and voluntary licenses for digital downloads and reproductions.12 The Register of Copyrights must review the MLC designation every five years.13 The MLC is to be funded by administrative assessment fees, which are to be paid out by blanket licensees and “significant non-blanket licensees”14 and which are to be based on usage of musical works.15 A significant non-blanket licensee is a licensee who engages in covered activities outside the blanket license by either (i) making 5,000 sound recordings available on a single day, or (ii) having revenue eXceeding $50,000 in a single month, or $500,000 in a preceding 12-month period.16 The MLC is responsible for: 1) collecting, distributing, and auditing the royalties generated from blanket and voluntary licenses to and for the respective musical work owners;17 2) creating and maintaining a free public database that identifies musical works with their copyright owners along with ownership share information;18 3) providing information to help with matching unmatched (or “orphan”) musical works with their respective sound recordings, and engaging in such matching;19 and 4) holding unclaimed royalties for at least three years20 before distributing them on a market-share basis to copyright owners as reflected by royalty payments made by digital music providers for the applicable covered activities.21 Musical work copyright owners are required to pay at least fifty percent of these distributed unclaimed royalties to songwriters.22 The MLC streamlines the identification of a copyright owner and makes it easier for a potential copier to connect with the owner. Before the MMA, a person could not duplicate a sound recording fiXed by another without authorization of the copyright owner, the authorization achieved by serving the copyright owner with a thirty-day notice of intention to duplicate.23 If the copyright owner could not be identified, the person could file a notice of 12 17 U.S.C. § 115(d)(3)(B)(i) (2018). 13 17 U.S.C. § 115(d)(3)(B)(ii) (2018). 14 17 U.S.C. §§ 115(d)(3)(C)(i)(VI), (d)(7)(A) (2018). 15 17 U.S.C. § 115(d)(7)(D)(ii)(III) (2018). 16 17 U.S.C. § 115(e)(31) (2018). 17 See 17 U.S.C. §§ 115(d)(3)(G),(L) (2018). 18 See 17 U.S.C. § 115(d)(3)(E) (2018). 19 See 17 U.S.C. § 115 (d)(3)(I) (2018). 20 17 U.S.C. § 115 (d)(3)(H)(i) (2018). 21 See 17 U.S.C. § 115 (d)(3)(J) (2018). 22 17 U.S.C. § 115 (d)(3)(J)(iv) (2018). 23 See 17 U.S.C. §§ 115 (a)(1), (b)(1) (2006). Page 3 of 15 intention with the Copyright Office.24 Under the MMA, a person cannot file this notice of intention to duplicate a digital phonorecord with the Copyright Office,25 but the MLC provides a streamlined means to identify ownership of the digital phonorecords or a process if one is not identified. Certain burdens of this inefficient notice of intention system are thus removed under the MMA, with the MLC aiming to fill the gaps. Lastly, the MWMA improves royalty rate proceedings. Before the MMA, the performance rights organizations (PROs) ASCAP (The American Society of Composers, Authors and Publishers26) and BMI (Broadcast Music, Inc.27) were each assigned a judge to oversee rate proceedings required by consent decrees that govern these organizations.28 Under §104(b) the MWMA, a district court judge from the Southern District of New York is to be randomly assigned to oversee the public performance royalty rate proceedings for ASCAP and BMI.29 The assigned judge is to continue to oversee non-rate proceedings, such as consent decree interpretation.30 Title II: The Classics Protection and Access Act (CPAA) Title II of the MMA, The Classics Protection and Access Act (or CPAA, formerly the Compensating Legacy Artists for Their Songs, Service, and Important Contributions to Society Act (CLASSICS Act)), provides a new eXclusive federal right for sound recordings fiXed before February 15, 1972 (“pre-72 sound recordings”).
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