Copyright Office Proposed Rule Requires Payment of Music Royalties to Licensed Songwriters | Arent Fox Schiff

On October 25, 2022, the U.S. Copyright Office proposed a new rule that would end and reverse the actions of the Mechanical Licensing Collective (MLC) that deprived songwriters and their heirs of U.S. copyright royalties after taking over the ownership of their musical works after exercise. of their statutory termination rights.

The new rule would resolve an ongoing dispute between songwriters (or their heirs) and the MLC – the entity selected by the Copyright Office pursuant to the Music Modernization Act (MMA) – to administer a “global” mechanical license available from January 1st. 2021, to digital music service providers (DSPs), such as Spotify, YouTube Music and Pandora. The new rule would require the MLC to distribute the royalties to the party that owns the US copyright in a musical composition at the end of the month for which the MLC calculates the royalties due. As a result, songwriters (or their heirs) who regain ownership, rather than music publishers prior to termination, will receive royalties from MLC. The proposed rule is significant because the MLC, in almost all circumstances, treated music publishers prior to termination as perpetually entitled to royalty payments, despite the publishers no longer owning the U.S. copyrights in the works. applicable music.

This significant development follows a year-long effort by a team of attorneys at ArentFox Schiff (and a handful of others), on behalf of their songwriting clients and the songwriting community at large. The groups worked to persuade the Copyright Office, which has oversight authority over the MLC, to remedy the MLC’s inability to distribute post-termination royalties to the rightful owners: post-termination owners musical works. If the published final rule is the same as the proposed one, songwriters and their heirs who have waited patiently for many decades will finally be able to enjoy their proverbial “second bite of apple” from songs attributed to third parties ago. many years.

The Copyright Office has published a Notice of Proposed Rulemaking seeking comments from interested parties on the proposed rule by November 25, 2022. Responses are expected by December 27, 2002. Unless the comment period is extended, this is a “relatively fast track” for the Proposed Rule, possibly an indication by the Copyright Office that it considers adoption of the Rule to be d immediate importance. In light of the nearly $700 million in royalties already paid out by MLC to members[1]the resilient parties could probably not agree more.

Cancellation rights

For your information, termination rights were made available to songwriters and other creators in the Copyright Revision Act 1976, which came into force on January 1, 1978. These rights were associated with copyright term extensions designed to “harmonize” the US regime with longer copyright terms. by much of the rest of the world. Specifically, the old US copyright term of 56 years (from an initial term of 28 years and a so-called “renewal” term also of 28 years) has been extended to 75 years for works created until December 31, 1977. The term of protection for works created after January 1, 1978, was the lifetime of the author (or the lifetime of the last surviving author in the case of multiple creators) plus 50 years, reflecting the usual duration of protection abroad. In 1998, these copyright terms were extended for an additional 20 years – 95 years for works before 1978 and life plus 70 years for works after 1977.

This drastic change in copyright term has raised a host of issues and questions. Indeed, now that copyright on pre-1978 works was to be extended by 19 years (from 56 to 75 years), who would benefit from these additional years of protection? With works created after January 1, 1978, which parties would be entitled to benefit from the benefits resulting from the significant increase in copyright and for how long?

The legislative history of this major revision of the Copyright Act has made it clear that Congress enacted the termination provisions largely in an effort to redress the unequal bargains between creators and third parties they usually ceded their works upon creation. Congress sought “to protect authors from unpaid transfers and to get rid of the complexity, clumsiness, and unfairness of the renewal clause” that typically resulted from creators’ inability to exploit themselves their works. For example, upon creation, assignees such as music publishers usually acquired the rights for the entire existing 56-year term, making it virtually impossible for authors to recover US copyrights for the term of renewal.

Under the new law at the time, creators had the option of reclaiming their U.S. copyright after 56 years for works transferred before 1978 and, generally, after 35 years for works transferred on or after January 1, 1978. . These retrieval rights and the dates within which these rights must be exercised are set forth in Sections 203 (for transfers after January 1, 1978) and 304 (for transfers before January 1, 1978) of Title 17 U.S.C. United States copyright.

The Derivative Works Exception

Notably, the new termination provisions provided a key “exception” to recovery, the so-called derivative works exception (17 USC §203(3)(b)(1) and §304(c)(5)( HAS)). In the event of recovery, a derivative work – or a work based on a work, or a recording of a song or a film based on a book, for example – licensed under the terminated original license may continue to be used. under the terms of the original agreement, even after its termination.

The derivative works exception was first interpreted in Mills Music, Inc. v. Snyder, 469 US 153, 172–73 (1985), a case concerning post-termination royalty entitlement. There, a songwriter assigned his copyright in a song to a publisher, who, in turn, issued voluntary mechanical licenses to record companies to create derivative works—recordings of the song.

Years later, when the songwriter’s heirs terminated the original grant of U.S. copyright to the publisher, the heirs claimed they were entitled to royalties generated by record labels through the continued sale of new copies of the recordings after termination. However, the Supreme Court ruled that the original publisher—not the songwriter’s heirs—had the right to continue collecting the royalties. According to the Court, the publisher originally issued a voluntary mechanical license and the Copyright Act must be interpreted “so as to preserve the entire contractual relationship”, including the record companies’ obligation to pay to the publisher the royalties, and the obligation of the publisher to pay the songwriter or his heirs or successors the royalties due.

The opinion was heavily criticized by dissent as inconsistent with Section 115 of the Copyright Act, which provides that statutory mechanical license royalties must be paid to the current owner of a copyright. . The majority responded that the licenses in question were voluntary and not statutory. To date, no court has ruled on the applicability of the derivative works exception to a statutory license. This gap therefore sheds light on the dispute the Agency is seeking to resolve with its proposed new rule.

Statutory General License from MMA

With the passage of the recent MMA, a new Statutory General License was created to permit a single entity, selected and overseen by the Copyright Office, to authorize mechanical uses: the MLC. This made obsolete the old, inefficient system in which thousands of music publishers individually assigned voluntary licenses to a vast array of music users. The Copyright Office has chosen the MLC to administer the General License and, after study and feedback, establish the rules for the operation of the fledgling entity which will be in place on January 1, 2021, when the General License becomes available.

In accordance with the new general licensing regime, soon after the MLC began operations, the terminated songwriters filed claims for the right to receive mechanical license royalties after streaming music was terminated. Initially, royalty disputes between songwriters and publishers were suspended in accordance with the provisions of the MLC Dispute Resolution Policy. The policy was, in effect, to give disputing parties the option of voluntarily settling their differences or asking a competent court to decide the matter. This is the path followed by all the other “collecting” organizations that authorize, collect and distribute royalties. For example, in the event of a royalty entitlement dispute, ASCAP and BMI remain neutral and hold the royalties until the dispute is resolved, one way or another.

Nevertheless, the MLC waived neutrality and adopted a new termination policy in which, by default, terminated publishers would continue to receive post-termination royalties due to the MLC’s view of the applicability of the exception of derivative works and participation in Mills. The MLC did so despite the Copyright Office rejecting virtually the same default rule in September 2020, when it was proposed by the MLC to be part of the organization’s initial operating rules.

The MLC’s legal interpretation was immediately challenged by the songwriters, but the MLC refused to change its policy. The proposed rule makes it clear that the Copyright Office strongly believes that the MLC’s interpretation of the derivative works exception does not apply in the context of a statutory general license. No derivative works are created under the General License and a terminated publisher is not the copyright holder of the work when such royalties are generated.

Implications of the proposed rule

The proposed rule, if passed, would consider the original reprising songwriter (or his or her heirs or successors) to be the appropriate beneficiary for all royalties after termination under the general scheme. Equally important, the MLC would be required to immediately repeal its hastily adopted statutory termination dispute policy and, within 90 days of the adoption of the Copyright Office rule, adjust all royalties previously distributed in accordance with its erroneous policy.

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Elaine R. Knight