More on proposed 21st Century Music Licensing Reform Act
Register of Copyrights Marybeth Peters proposed legislation yesterday titled the “21st Century Music Licensing Reform Act” in her testimony at a House oversight hearing, which would repeal the compulsory licenses under Section 115 of the Copyright Act.
The legislation could be called the “MRO Empowerment Act of 2005”, as it benefits the music rights organizations (MROs) by legislatively entrenching them in the role of collective licensing bodies and eliminating their antitrust constraints. Licensees of music rights would benefit from one-stop shopping for licenses of digital audio transmissions, but they are severely disadvantaged by the elimination of the compulsory license and statutory rate ceiling.
In her comments, Peters indicates that on-going discussions among stakeholder organizations representing publishers, songwriters, performing rights societies, record companies, online music services, and record retailers have not reached consensus on reform of Section 115 but have made separate proposals to Congress on how to reform Section 115.
The proposed legislation contains a number of distinct elements:
1. Repeal of Compulsory License. It would repeal the compulsory mechanical license under Section 115 to reproduce and distribute copies of nondramatic musical works in CDs and other physical media, as well as by digital phonorecord deliveries (DPDs), by replacing existing Section 115 with the new legislation. The effect of this is that there would be no statutory rate for mechanical licenses, and no assurance that a license could be obtained, except in connection with digital audio transmissions. Under the current law, a mechanical license can be obtained once a song has been publicly released under the authority of the copyright owner.
2. Expansion of MRO Rights. It would expand the rights of a “music rights organization” such as ASCAP or BMI (or HFA, if it gets into this business) that controls licensing of public performance rights to automatically include authorize them to license mechanical rights (reproductions and distributions).
The proposed text states that:
“A lawful authorization to a music rights organization to license the right to perform a nondramatic musical work includes the authorization to license the non-exclusive right to reproduce the work in phonorecords and the right to distribute phonorecords of the work to the public.”
According to Peters’ comments,
“As a result, a music rights organization shall be empowered to license all rights relating to performance of the musical compositions in its repertoire and relating to the making and the distribution of phonorecords of those musical compositions.”
The effect of this would seem to be that the MROs automatically acquires these rights by legislative fiat, without having to obtain consent from their music publisher constituency – if this is not the intent then this ambiguity should be clarified.
3. MRO Licenses for Digital Audio Transmissions. The proposed legislation provides that if an MRO grants a public performance license for digital audio transmissions, the grant also includes a mechanical license:
“to the extent that the exercise of such rights facilitates the public performance of the musical work”.
The MRO is required to grant this license for its entire repertoire. This does not mean, however, that an MRO or the copyright owner is required to grant a mechanical license for “cover songs” on CDs and other non-Internet media.
According to Peters:
"Moreover, any MRO would have to offer, as part of its license to perform publicly a nondramatic musical work by means of a digital audio transmission (e.g., an on-demand stream), a non-exclusive license to make phonorecords of that work (including server and other transient copies) and to distribute phonorecords of that work (e.g., downloads) to the extent that the exercise of such rights facilitates the public performance of the nondramatic musical work. This “uni-license” type of approach solves one of the major problems affecting the music industry today, namely whether certain types of digital transmissions (e.g., “pure” streams, on-demand streams, tethered downloads, and “pure” downloads) implicate the public performance right and/or the reproduction and distribution right and if so in what proportions.”
However she goes on to note that all other mechanical licenses would be at the election of the MRO or copyright owner:
“A music rights organization may also choose to offer other types of licenses involving the reproduction and distribution rights, such as a traditional mechanical license to make and distribute phonorecords or a license to offer “downloads” of phonorecords of nondramatic musical works.”
Her justification is that this collective licensing structure addresses issues in the marketplace over when a mechanical license and/or public performance license is required for Internet transmissions. However whether a DPD also implicates a public performance right should ultimately be decided by a court, and the fact that the performance rights societies have not pursued litigation over this probably reflects their own concerns over the strength of their legal position.
Peters indicates that the scope of this collective licensing scheme is limited to digital audio transmissions, but does not indicate why the entire compulsory licensing regime, which has been relied upon by the marketplace for nearly a decade, except for her philosophical antipathy to compulsory licenses. It is also no where made clear why this MRO scheme needs to be mandated by law – ASCAP, BMI and HFA all exist by voluntary private contract – and it would appear that only the antitrust issue discussed below would need governmental intervention.
4. Antitrust Constraints Lifted. The public performance societies currently operate under antitrust consent decrees which prohibit them from engaging in mechanical licensing. The rights of MROs under the legislation would apply:
“[N]otwithstanding the antitrust laws or any judicial order which, in applying the antitrust laws to any entity including a music rights organization, would otherwise prohibit any licensing activity contemplated by this subsection.”
At least it should be clear that the MRO activities authorized by the legislation would need to be subject to on-going antitrust review to avoid abuse of market power from collective licensing activities.
Peter’s comments reflect that this is indeed the intent:
"However, it is anticipated that all other provisions of the existing consent decrees will remain in place, and it is possible that the consent decrees will be modified to take into account the new functions of the music rights organizations. For example, it may be that the music rights organizations' setting of royalty rates for reproduction and distribution will be subject to the same type of review by the ASCAP and BMI “rate courts” as is currently the case with respect to royalty rates for public performances.”
5. Abrogation of Existing Licenses. Perhaps the most breathtaking aspect of the proposed legislation is that it would abrogate all existing mechanical licenses, whether a compulsory license or obtained by private contract:
“Any license existing as of [effective date] between a copyright owner of a nondramatic musical work or its agent and a licensee with respect to the right to make and distribute phonorecords of such work shall expire according to its terms or on [effective date plus 1 year], whichever is earlier.”These contracts would have a one-year sunset period. After that, presumably all former licensees would now be infringers unless they obtain a new license. This would disturb existing contracts which have been relied upon for obtaining needed mechanical license, for no reason apparently other than to give music publishers and their MROs a blank slate to start from, or a second bite at the apple, depending on your view point.
While courts may decline to enforce private contracts for public policy and other reasons, when has Congress taken this extreme measure of abrogating private contract? Imagine the leverage situation in terms of negotiations during the sunset period – exercise of distribution rights previously cleared would now be infringing unless a new license were obtained. And clearly the implication is that the statutory rate would no longer be a ceiling. If anything, pre-existing contracts should be clearly grandfathered.
Peters does not provide us any logic for this – she merely states that such licenses “should terminate” and:
“It is anticipated that all licensees under existing reproduction and distribution licenses will obtain new licenses either from music rights organizations or directly from publishers or their agents.”
6. Restrictions on Copyright Owners. The proposed legislation permits individual copyright owners to still make direct mechanical license grants. It does restrict copyright owners by prohibiting them from using more than one MRO, and prohibiting them from using any licensing agent other than an MRO for digital audio transmissions. As discussed above, a license to an MRO for performance rights is deemed to include mechanical rights. These restrictions reflect that the legislation is defined to empower MROs and ensure an orderly market for them, ostensibly, in Peter’s view, with residual benefits upstream and downstream.
7. Restrictions on Statutory Damages. The one salutary aspect of the proposed legislation is that it limits an award of statutory damages to MROs to the situation where the MRO has published on its web site the name of the song as being available for licensing. However it would need to be clarified that the other requirements for statutory damages also apply, and that an MRO must have proper legal standing to bring suit.
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