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MCNA, SGA and SCL comments on the Music Modernization Act (August 2020)

US Copyright Letters

Comments of the Songwriters Guild of America, Inc. joined by the Society of Composers and Lyricists and endorsed by Music Creators North America, Inc.


Re: Notice of Proposed Rulemaking and Inquiry Issued by the United States Copyright Office Concerning the Orrin G. Hatch-Bob Goodlatte Music Modernization Act of 2018: Music Modernization Act Transition Period Transfer and Reporting of Royalties to the Mechanical Licensing Collective

I. Introduction and Statement of Interest

These Joint Comments are respectfully submitted by the Songwriters Guild of America, Inc. (SGA), the longest established and largest music creator advocacy and copyright administrative organization in the United States run solely by and for songwriters, composers, and their heirs. Its positions are reasoned and formulated solely in the interests of music creators, without financial influence or other undue interference from parties whose interests vary from or are in conflict with those of songwriters, composers, and other authors of creative works. Established in 1931, SGA has for 89 years successfully operated with a two-word mission statement: “Protect Songwriters,” and continues to do so throughout the United States and the world.

SGA’s organizational membership stands at approximately 4500 members, and through its affiliations with both Music Creators North America, Inc. (MCNA) (of which it is a founding member) and the International Council of Music Creators (CIAM) (of which MCNA is a key Continental Alliance Member), SGA and The Society of Composers & Lyricists (SCL) are part of a global coalition of music creators and heirs numbering in the millions. Of particular relevance to these comments, SGA and SCL are also founding members of the international organization Fair Trade Music, which is the leading US and international advocacy group for the principles of transparency, equitable treatment, and financial sustainability for all songwriters and composers.

The Society of Composers & Lyricists (SCL) (https://thescl.com/), the premier US organization for music creators working in all forms of visual media (including film, television, video games, and musical theatre), and a founding co-member of MCNA along with SGA, joins in submitting these Comments on behalf of its more than 1700 members.

Both SGA and SCL have been deeply involved in the legislative process concerning the Hatch-Goodlatte Music Modernization Act (MMA) from the beginning, and have filed numerous and extensive comments regarding its enactment and implementation with the United States Copyright Office and other US Governmental departments and agencies.

The member organizations of MCNA have endorsed these comments in full. Such organizations are listed at www.musiccreatorsna.org.

II. Comments

SGA and SCL are in general agreement with the comments and conclusions of the US Copyright Office (USCO) concerning the Notice of Proposed Rulemaking (Notice) which is the subject of this submission. By these Joint Comments, we wish to underline our specific endorsement of certain of those comments and conclusions, but more importantly, to note the critical points of contention as described in (B) below concerning the treatment and effect of prior negotiated agreements between digital music distributors and music publishers. With potentially hundreds of millions of dollars in songwriter and composer royalties at stake, the issues raised by the existence of such prior negotiated agreements require serious additional discussion, clarification and consideration with and by the USCO.

A. Cumulative Statement of Account Content and Format

To begin, SGA and SCL are in full accord with the USCO’s ‘‘tentative’’ conclusion set forth in its Notice that:

[I]t is necessary and appropriate to require DMPs to provide additional information to aid the MLC in fulfilling its statutory duty to identify and locate the copyright owners of unmatched works and pay the royalties due to them. The proposed rule employs the MLC’s preferred approach of generally importing the requirements that are eventually adopted for monthly reports of usage under the blanket license …

Moreover, SGA and SCL strongly support both the necessity for and the clear authority of the USCO to create rules that facilitate the fullfilment under the MMA of (i) the duties assigned to the Mechanical Licensing Collective (MLC), and (ii) the statutory and other obligations that must be satisfied by every digital music provider (DMP) and by the Digital Licensing Coordinator (DLC). We therefore urge the USCO to finalize this and other important prerequisites for ensuring that all concerned parties are enabled to properly satisfy their statutory duties, consistent with the Office’s conclusion above. That is especially so in regard to the key MMA objective of ensuring the accurate matching of currently unmatched musical compositions with their proper music creators and copyright owner assignees, so that royalties can be subsequently paid to the proper songwriters, composers, and copyright administrators in a timely and accurate manner 1.

B. Treatment of Negotiated Agreements

Of even greater immediate importance, however, SGA and SCL are also deeply concerned over the issues raised in the Notice concerning the potential effect of prior negotiated agreements as they may pertain to the disposition of unmatched royalties.

As the USCO is aware from the numerous prior filings of our organizations, SGA and SCL have been actively attempting for the past five years or more to determine the exact amount of unmatched royalties being held by DMPs, without success. This lack of positive results has been uniformly due to a lack of cooperation by various potential sources of accurate distribution information. Meanwhile, estimates from other purportedly reliable sources within the music industry have ranged from a few hundred million dollars to over $1.5 billion2, an enormous and inexplicable gulf the reasons for which we have been unable to explain or rectify. As a result, however, of information gleaned from the Notice and contained in an Ex-parte letter sent to the USCO just last week on behalf of the DLC3, it is now the fact-based apprehension of SGA SCL that the failure or refusal of DMPs and their representatives to reveal this data, and the apparent reluctance of the music publishing community to demand it, is likely linked to the unsettled “prior negotiated agreement” conflict that is currently brewing.

As reported by the USCO in its Notice, it turns out that several such negotiated agreements and settlements were purportedly executed and carried out between music publishers (sometimes represented by the National Music Publishers Association (NMPA)) and various DMPs prior to enactment of the MMA, some of which agreements apparently may be intended to continue in effect well into the future concerning the disposition of unmatched royalties. That future may now include periods following the enactment and effective dates of the MMA.

By combining information contained in Comments, Reply Comments and Ex-parte letters filed by the MLC and DLC, the USCO’s Notice sets forth the scope of the issues raised by this set of circumstances, and the conflicts that have arisen as a result. Thus, the positions of the DLC and DMPs are outlined therein as follows:

The DLC proposed that DMPs not be ‘required to accrue any royalties that are required to be paid to copyright owners of musical works pursuant to any agreements entered into prior to the effective date of the [MMA]’ and that those royalties not be treated as ‘accrued royalties’ under the statute….4

[T]he DLC [further] asked for a ‘regulatory clarification’ related to negotiated agreements that predate the MMA’s enactment. In its words, certain music publishers ‘negotiated agreements with several of the major digital music providers to liquidate accrued royalties for unmatched works through payments based on market share, or other mechanisms not based on matching to specific compositions that generated the royalties,’ and some of these agreements have continued in force through the MMA’s enactment date such that ‘some digital music providers will continue to be obligated to pay some amount of accrued unmatched royalties to publishers with whom they have direct deals.’ [Emphasis added] According to the DLC, ‘[t]his creates a conflict between the terms of those preexisting agreements and the MMA’s directions in section 115(d)(10) regarding the accrual of unmatched royalties.’ To address this, and the DLC’s overarching concern that ‘[i]n no event should digital music providers be made to pay double,’ the DLC proposed adding the following regulatory language:

Notwithstanding anything in this section to the contrary, digital music providers are not required to accrue any royalties that are required to be paid to copyright owners of musical works pursuant to any agreements entered into prior to the effective date of the Music Modernization Act, and such royalties shall not be treated as ‘‘accrued royalties’’ for purposes of this section or 17 U.S.C. 115(d)(10).5

The MLC’s counter-position, as characterized by the USCO, is in sharp contrast to the assertions of the DLC and DMPs. According to the Notice:

The MLC objected, stating that this proposed regulation would both ‘conflict with the statute’s requirement that all royalties accrued from initial use of the unmatched work be transferred’ to the MLC and ‘exceed the Copyright Office’s authority.’ The MLC stated that ‘[w]hile prior to the enactment of the MMA, certain DMPs entered into settlement agreements with certain music publishers in connection with disputes arising from their failure to license, match and/or pay royalties due, such settlement payments were definitively not the proper payment of royalties to copyright owners of unmatched uses,’ and were ‘more likely consideration for releases from liability for copyright infringement or covenants not to sue.’ [Emphasis added]. The MLC further argued that royalties lose their ‘unclaimed’ status only when they are matched.6

For its part, the USCO goes on to explain in the Notice why it has determined not to acquiesce to the rule proposed by the DLC and DMPs set forth above, but also that it views itself as unable to judge whether and how such prior negotiated agreements should be given effect as to the accrual and disposition of unmatched royalties under the MMA.

Moreover and quite importantly, according to the USCO, ‘‘[t]he Office has not been provided copies of these settlement agreements.’’7 Neither, it should be noted, have such agreements to our knowledge been provided to members of the music creator community (or the organiztions such as SGA and SCL that represent them), who may be totally unaware of payments having been received by their affiliated music publishers purportedly connected to the unmatched royalties that were being withheld at the time by DMPs. The answer to the question of whether songwriters, composers and lyricists were paid a share of such funds received by their publishers remains murky at best, an issue that is currently being researched by our organizations.

As further stated by the USCO in the Notice regarding its own proposed rule-making:

The proposed rule does not include regulatory language specifically addressing the relationship between private settlement agreements and whether works are required to be reported on cumulative statements of account (with accompanying payment of accrued royalties). The statute is somewhat instructive to this issue. Provisions regarding the treatment of voluntary licenses and accrued, unclaimed royalties were carefully negotiated during the legislative process. To maintain eligibility for the limitation on liability, when making available a sound recording of a musical work via a covered activity, a digital music provider must accrue and hold royalties for each musical work for which a copyright owner has not been identified or located. At the end of this current holding period, all accrued royalties for which ‘a copyright owner of an unmatched musical work (or share
thereof) is not identified and located’ must be transferred to the MLC along with associated reporting. Works are considered ‘matched’ when ‘the copyright owner of such work (or share thereof) has been identified and located.’ The law further states that ‘[v]oluntary license[s]’ will ‘remain in effect’ by their respective terms notwithstanding the license availability date, and by implication, DMPs would not retain accrued royalties (as defined in the MMA) for works licensed under private agreements.

The Office understands the DLC’s concerns to center around whether payments made pursuant to various private settlement agreements can extinguish the obligation to deliver accrued royalties to the MLC. In light of the statutory language, these questions may be best resolved by determining whether a given agreement constitutes a valid license to the work(s) at issue (and if so, the scope of the license). In such cases, the work(s) licensed under such agreements could be considered ‘matched’ and may not need to be reported at the close of the transition period. In the case of jointly authored works, a further potential wrinkle may be determining whether any license extended pursuant to a settlement agreement was conveyed to the entirety of the work, or only to a partial interest in a co-owned work.

The Office appreciates the DMPs’ motivation for further guidance on this important issue, but must be careful to avoid speaking over either the statue or private transactions. It would seem that the specific terms of each agreement would be highly relevant to addressing this issue, and that questions regarding the interpretation of various private contracts may be better resolved by the relevant parties rather than a blanket rule by the Copyright Office. To the extent that preexisting settlement agreements may be, as the DLC asserts, in ‘conflict’ with ‘the MMA’s directions in section 115(d)(10) regarding the accrual of unmatched royalties,’ the statutory directive could not yield to such agreements, but the Office offers no opinion as to whether this is indeed the case. [Emphasis added] Additionally, if a DMP is unsure about its obligations under the statute vis-a-vis a given agreement (or with respect to a particular musical work or share of a work) and inadvertently transfers royalties later determined to have indeed been properly matched and paid by the DMP, the Office has proposed a provision that, as noted, would require the MLC to credit or refund any overpayment back to the DMP.

For these reasons, based on the current record, the Office tentatively declines the DLC’s suggestion to offer regulatory language regarding the interaction of preexisting settlement agreements and cumulative reporting obligations. The Office recognizes that the DLC’s comments arise out of a complicated and nuanced treatment of private transactions and remains available to dialogue further in accordance with the public process for written comments and/or ex parte meetings. [Emphasis added]

For many of the same reasons stated by the USCO, SGA and SCL believe that the USCO is exactly correct in not including in its own proposed rules the language or principles suggested by the DLC and the DMPs regarding accruals of unmatched royalties, and should continue on a permanent basis to reject such language and principles whether modified by certain concepts set forth in the Notice or not.8 Nevertheless, urgent problems persist in regard to these matters.

As such, SGA, SCL, and their independent music creator colleagues affiliated with MCNA are also especially thankful to the USCO for recognizing in its Notice comments the desirability of further dialog concerning these crucial matters. We therefore intend to immediately and respectfully request the scheduling of an Ex-parte meeting with the USCO, hopefully to be convened as soon as possible, in order to further discuss the following questions of crucial importance to the independent music creator community represented by SGA, SCL and MCNA:

1. Regarding Communications: Is the USCO able to assist in the process of informing the US and global music creator community that its members should contact their respective music publishers regarding payments that may be due to them under negotiated agreements reached between such publishers and DMPs prior to the enactment and/or effective date of the MMA?

2. Regarding Accruals, Offsets, and Guaranteed Songwriter/Composer Splits Under the MMA: In the event that any such agreement referred to in 1 above is deemed to represent payment by a DMP of unmatched royalties to a music publisher that may now be excluded from MMA accrual rules or offset against the amount of unmatched royalties mandated to be accrued and paid to the MLC by such DMP pursuant to the statute, is it within the purview of the USCO to mandate that such unmatched royalties previously, currently and in the future paid to music publishers under such agreements be treated as subject to the distribution rules and split guarantees that protect music creator rights and interests under the MMA?

If the answer to either of those questions is “no,” the result may well be the retention by certain music publishers of potentially tens if not hundreds of millions of dollars in windfall revenues, to the grave detriment of their uncompensated songwriters and composers. As SGA warned in a telephone conference with the USCO and representatives of NMPA on March 15, 2018, most if not all music publishing agreements tie payments of royalties to music creators to the ability of the music publisher to identify such royalties as matched to a particular musical composition and/or creator.

For that reason, SGA urged strenuously and successfully to have included in both the Senate and House Reports accompanying the MMA, statements of Congressional intent elucidating the fact that the mandated, market-share-based payments of royalties to songwriters and composers by music publishers of no less than fifty percent of all permanently unmatched distributions received shall be regarded as deriving from usage of individual musical works by digital music providers during the relevant, market share periods. In addition, such royalties are to be rendered to music creators at the rates
specified in their publishing agreements, with the MMA mandatory fifty percent share for music creators being regarded as a floor and not a cap. As the Senate and House Reports clearly state:

It is the intent of Congress to ensure that songwriters receive their fair share of monies distributed to copyright owners under subsection (d)(3)(J), while at the same time respecting contractual relationships. To that end, payments and credits to songwriters shall be allocated in proportion to the reported usage of individual musical works by digital music providers during the relevant periods. The 50% payment or credit to a songwriter referenced in subsection (d)(3)(J)(iv)(II) is intended to be treated as a floor, not a ceiling, and is not meant to override any applicable contractual arrangement providing for a higher payment or credit of such monies to a songwriter. (Emphasis added).9

Thus, the horrendous conundrum for songwriters and composers created by the current issues concerning pre-MMA negotiated agreements is that both the DMPs and the music publishers with whom the DMPs have executed such deals concerning unmatched royalties, very likely stand to benefit by having those agreements determined to be outside the scope of the MMA mandates. Such a result would mean that the payments made under such arrangements –possibly including distributions required long into the future– would not be subject to the accrual rules of the MMA or the MMA requirements for music publishers to equitably share such payments with their affiliated songwriters and composers (as if they were matched to specific compositions and/or creators pursuant to Congressional stipulations).

In other words, under such a scenario regarding prior negotiated agreements, music creators might receive absolutely nothing, while music publishers make millions of dollars and DMPs save millions of dollars. That would be an untenable and grossly unjust result, to say the very least.

This situation is of the exact nature that the MMA was intended to address in a fair and equitable manner for the benefit of US and international music creators, again pursuant to the mandates of Article I, Section 8 of the US Constitution. SGA and SCL will continue to seek results consistent with that principle, and respectfully look forward to discussing potential resolutions of this very distressing scenario with the USCO.

3. Regarding Potential Appointment of an Independent Ombudsperson to Assist the Copyright Office on Music Creator Issues: SGA and SCL are likewise concerned that the USCO is expected to oversee and effectively manage alone the vast and growing number of issues affecting the rights and fair treatment of songwriters and composers in relation to the MMA (and in connection therewith, the MLC, the DLC, the DMPs and the music publishers). This oversight and management includes the particularly drastic dangers related to the prior negotiated agreements issues described in Question 2 above. Further, it is essential to the purpose of the USCO’s role in overseeing the MLC that the Office receive real-time feedback from songwriters and composers regarding the administration of unmatched royalties and the MLC’s operations in general. SGA and SCL note that other commenters have suggested that the USCO may wish to consider appointment of an independent Ombudsperson to assist the Office in its oversight of MMA implementation and operations as they pertain particularly to music creators.10 Has this proposal been given serious consideration by the USCO and the Librarian of Congress?

SGA and SCL would welcome the opportunity to explore this potentially constructive step. That is particularly the case in light of the facts that songwriters and composers are drastically under-represented given the supermajority of music publishers on The MLC’s board of directors. SGA and SCL also ask that the USCO consider that whistleblower protections may be necessary to ensure the protection of those wishing to report important irregularities on an anonymous basis concerning MMA-related activities or expenses—especially by those who believe they may be constrained by non-disclosure agreements.

III. Conclusion

SGA and SCL thank the US Copyright Office and the Librarian of Congress for their careful concern regarding protection of the rights and interests of songwriters and composers under the MMA, and for the opportunity to respectfully submit these Comments. A formal request for an Ex-parte meeting will follow shortly.

Respectfully submitted,

 

Rick Carnes
President, Songwriters Guild of America, Inc.
Officer, Music Creators North America.

Ashley Irwin
President, Society of Composers & Lyricists,
Co-Chair, Music Creators North America

cc:

Charles J. Sanders, SGA Outside Counsel
Members of the SGA Board of Directors
Members of the SCL Board of Directors
Members of the MCNA Board of Directors
Eddie Schwartz, President, CIAM


Notes:
1. In joint comments filed with the USCO on August 3, 2020, SGA and SCL answered the USCO request to ‘‘[p]lease identify any special issues with respect to the MLC’s matching and distribution policies for musical works with identified, but unlocated copyright owners, or works for which only a partial amount of ownership information is available,’’ as follows: ‘‘Royalties connected to such works should be held indefinitely until identified parties or their bona fide representatives can be located, with the hiring of special investigators to track down such parties under necessary and appropriate circumstances (subject to privacy safeguards).’’ The organizations may expand on this answer in Reply Comments related to Docket No. 2019-6 later this month.
2. By way of background, it is important to note the following statement by SGA in its comments to the USCO dated December 20, 2019:On December 6, 2019, the USCO held a full day MMA symposium in Washington, DC billed as the “Unclaimed Royalties Study Kickoff. ” The event was attended by several dozen copyright experts and other interested parties, some of whom represented the MLC and the DLC, and many of whom participated on one or more of several organized discussion panels. At the end of the event, a representative of SGA took the opportunity to note from the podium that in the approximately seven hours of discussion, not one panelist or participant had raised a single question concerning the aggregate size of the unmatched royalty pool being held by the major digital distributors of music (the very subject of the event). The answer to that question, SGA noted, is certainly a key factor in determining the best practices for scoping the size of the problem, and for identifying and distributing such monies to their proper owners. It is concerning why this question was not asked, SGA asserted, let alone not answered.SGA has time and again over the past several years posed this same question to representatives of both digital distributors and music publishers (including in private discussions that took place at the Kickoff event), and even to the USCO. Not once has the question of aggregate unmatched amounts been answered, generally because the information appears to be either willfully undetermined or is purposely being withheld by the digital distributors. Estimates have ranged from several hundred million dollars (based upon extrapolations derived from the past experiences of organizations such as Sound Exchange) to a high of $1.6 billion discussed at an Austin, Texas SXSW panel in 2017 that featured representatives of NMPA and a legal representative of one of its affiliated creator groups, who appeared to quote that number.As the MLC and DLC are well aware, the MMA requires demonstrative actions by each that will “ensure that the policies and practices of the collective are transparent and accountable.” See, Section 102(d)(3)(D)(ix)(I)(aa). SGA suggests that consistent with this requirement, the time has come to at last address the issue of how much money in unmatched royalties is being held by the digital distributors, so that the scope of this daunting problem is publicly disclosed and can be fully and effectively addressed. The community of songwriters and composers has the right to know this information, and a USCO regulation requiring its public disclosure by a date certain in the very near future is clearly warranted. SGA respectfully requests that the USCO issue such a regulation as soon as possible concerning this most basic issue of transparency and accountability as required under the MMA, regarding disclosure of unmatched withholdings both now and in the future.
3. See, https://www.copyright.gov/rulemaking/mma-implementation/ex-parte/digital-licensee-coordinator-4.pdf, Ex-parte letter of Sarang V. Damle to General Counsel Regan A. Smith of the USCO dated August 11, 2020, which reads in pertinent part:This letter is to follow up on the ex parte meeting held with Digital Licensee Coordinator, Inc. (“DLC”) to discuss issues raised by the Office’s July 17, 2020 rulemaking on the transition period transfer and reporting of royalties to the Mechanical Licensing Collective….We discussed industry-wide agreements between certain digital services (Spotify, Google, MediaNet, and Napster/Rhapsody) and the National Music Publishers’ Association (“NMPA”) that predated the enactment of the Music Modernization Act (“MMA”) and facilitated distribution of historic and accrued royalties to copyright owners. As we explained, those agreements were the model for the MMA. We noted that it is common ground that copyright owners who had received a share of accrued royalties related to unmatched usage under those agreements should not receive any further payments of such royalties, while copyright owners that had not participated in those agreements should receive royalties they may still be owed. We explained the need for a regulatory framework to facilitate those royalty payments to that latter group of copyright owners, while ensuring that the services do not double pay participating copyright owners. We discussed the Office’s proposal to update the revised rules related to the cumulative statements of account that must be served with accrued royalties. As we explained, services have been compiling reporting under the regulatory regime that the Office put in place shortly after the enactment of the MMA. We explained the impossibility—mere months before license availability date—of completely revamping royalty accounting systems to accommodate the Office’s new proposed rules …
4. Federal Register / Vol. 85, No. 138 / Friday, July 17, 2020 at 43518.
5. Id. at 43522.
6. Id. at 43522.
7. Id. at 43523 (Ft nt 102).
8. Id. at 43523 (Ft. nt 104): ‘‘Further, while the Office appreciates the DLC’s view that enactment of the MMA was not intended to result in services ‘pay[ing] double’ to the same parties for the same activities, its specific proposed regulatory language may conflict with the statutory definition of ‘accrued royalties’ and lack precision with respect to scenarios where a payment does not extinguish royalty entitlements for all copyright owners for the relevant works; that is, where usage remains fully or partially ‘unmatched’ within the meaning of the statute.’’
9. S. Rept. 115-339 at 14 https://congress.gov/115/crpt/srpt339/CRPT-115srpt339.pdf;
H. Rept. 115-651 at 1 https://www.congress.gov/115/crpt/hrpt651/CRPT-115hrpt651.pdf .
10. See, for example, Letter of Dr. David Lowery to USCO General Counsel Regan Smith filed on December 20, 2019.
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