THE MUSIC MODERNIZATION ACT: A PRIMER FOR COPYRIGHT HOLDERS

Background

On October 11, 2018, the Music Modernization Act (MMA) was signed into law resulting in one of the most significant legislative changes to the copyright law in the United States in the last 50 years. The bipartisan legislation, which was written by Congress to address a number of deficiencies in the law with respect to the digital distribution of music, was supported by a wide number of rights holders and interest groups across the music industry, including the Digital Media Association (whose members include Apple, Spotify, Amazon, and Google), the Recording Academy and the National Music Publishers Association.¹

In the run up to the passage of the legislation, the growth of music streaming services had pushed down the revenue artists collected from their recordings in comparison to traditional forms of distribution such as mechanical sales and terrestrial radio plays. Moreover, artists faced challenges relating to the inefficient and complicated process of collecting royalties and revenue from these services. Thus, the MMA was passed to help ensure that artists received a more equitable share of the revenue generated from digital streaming and to create greater efficiency and simplification in how royalties are distributed.

The Music Modernization Act

The Music Modernization Act has established the following provisions:

• Creates the Mechanical Licensing Collective, which is designed to result in more efficient and timely payments of mechanical royalties to songwriters by digital music providers
• Implements changes to enable legacy artists (pre-1972) and record producers and engineers, who were previously excluded, to collect royalties under federal law
• Updates the legal process in setting royalty rates involving disputes between Performance Rights Organizations (PRO)s such as ASCAP and BMI and songwriters

The Mechanical Licensing Collective

The MMA has created a new entity called a Mechanical Licensing Collective tasked with licensing and administering rights of mechanical rights holders. The “mechanical” right is the right to produce a piece of music onto a physical medium and is owned by the songwriter and/or the music publisher. Therefore, whenever an artist or record company releases a sound recording of a song, a mechanical license is issued which requires payment of a mechanical royalty to the publisher or songwriter. Under the MMA, a blanket license was created so as to avoid the need for individual licenses whenever digital music providers stream and provide downloads of musical recordings.²

The Mechanical Licensing Collective will be a nonprofit entity, whose operational costs will be paid for by digital music providers, tasked with administering the blanket license. The collective will comprise a centralized body of publishers and songwriters that will receive notices and reports from digital music providers, collect and distribute royalties, and identify musical works and their owners for payment.³ Currently, there is no centralized means for music streaming companies to identify rights holders and to ensure that royalties are paid to them. With the Collective, a publicly accessible database will be created which will contain information on any musical works including the name and location of the copyright holders, to enable streaming services to properly identify and pay the royalties to the owner. In cases where the copyright holder cannot be identified and royalties go unpaid, the MMA authorizes the Collective to distribute the royalties based on the market shares of such copyright holders determined by the extent of their streaming activity.

On July 5, 2019, the U.S. Copyright Office appointed the first board of the Mechanical Licensing Collective and authorized the group to formally launch operations by January 2021.⁴

Enabling previously excluded artists to collect royalties

The MMA contains two sections designed to enable previously excluded artists to collect royalties under federal law.

The first section, known as the “Classics Act” extends the federal law to musical artists whose sound recordings were fixed before February 15, 1972. Prior to the Act, sound recordings made before this date were not covered by federal copyright protection and artists were forced to rely on state copyright law which only provided them with a piecemeal level of protection since some states did not provide copyright protection for older recordings. Under the change, artists and songwriters will now be able to receive royalties under federal law.⁵ In addition, royalties will now be distributed to artists differently. Prior to the “Classics Act” royalties were first sent to the record label and determined according to whatever contract was signed with the artist. The MMA has changed this distribution scheme and royalties will now be distributed 50/50 to the record company and to SoundExchange, which administers the statutory license to digital music providers, who will then pay the royalties to the artists.⁶

The second section, known as the AMP Act, creates a legal procedure for producers and engineers to receive direct payments from the streaming services via SoundExchange without relying on the artist to file a “Letter of Direction” (directing payment of a share of the royalties to the producer/sound engineer) or to voluntarily distribute a share of the royalties to them. In addition, it establishes a procedure for producers and engineers who worked on any recordings before November 1, 1995 (previously excluded from any statutory protection) to be paid royalties directly.⁷

Updates to the legal process for setting rates and handling royalty rates disputes

The MMA has also reformed the way rates are determined for obtaining compulsory licenses for reproductions of musical works.

The change includes the creation of the “Wheel” Approach for appointing rate court judges and a repeal of Section 114(i) which forbade federal rate courts from considering certain evidence when setting performance royalty rates for songwriters and composers.

Before the MMA, performance rights organizations (PROs) such as ASCAP and BMI often had access to the same rate court judges who appeared to set favorable rates to the PROs over the interests of songwriters. The new “Wheel” Approach is designed to prevent this favoritism by creating a mechanism whereby judges in the Southern District of New York will be randomly assigned from a “wheel” of rotating district judges to oversee disputes regarding rate settings with the PROs.

The MMA also repeals Section 114(i) which forbade the federal rate courts from considering certain evidence when setting royalty rates. As a result, songwriters will now be able to present previously excluded evidence such as external market conditions to enable rate court judges to make a fairer determination in setting rates.

Looking Forward

While the MMA was initially hailed, in the wake of its signing, as a landmark achievement resulting in a fairer market for artists, songwriters, and producers⁸, many questions remain as to its actual implementation and long-term effects.

Chief among these is exactly how the Mechanical Licensing Collective, charged with the administration of the “largest blanket license ever created”, will actually accomplish its stated mission in partnering with tech companies to create a functioning mechanical licensing database and in setting up a new administrative body, with oversight by the U.S. Copyright Office, to execute its mandate⁹.

While these questions are being addressed, the law is also facing challenges on constitutional grounds as evidenced by a lawsuit recently brought by the rap artist, Eminem’s publishing company, Eight Mile Style against Spotify for not properly licensing its songs and paying the company its publishing royalties.

In the lawsuit, Eight Mile Style alleges that Spotify did not hold a license to stream Eminem’s compositions and relied on a false notion that it could not identify the owner of the copyright by placing several of Eminem’s hit songs, such as “Lose Yourself” in a category called “Copyright Control”, which is reserved for those songs for which the owner is unknown, to avoid paying royalties on the streams which numbered in the billions.

Eight Mile Style has also challenged the provision of the MMA that shields streaming services from liability for any copyright infringement that took place before the cutoff date of December 31, 2017, on grounds that the provision violates due process and Eight Mile Style’s property rights under the Takings Clause of the Fifth Amendment, by eliminating the right of the plaintiff to receive profits, statutory damages, and attorneys’ fees in a successful litigation. The MMA provision was originally included as part of a compromise to secure the cooperation of the streaming services in paying for the set up and operation of the Mechanical Licensing Collective¹⁰.

Regardless of the actual long-term impact the law will have on the music streaming landscape, it is now more important than ever to ensure that musical works are properly registered at the U.S. Copyright Office and that the correct and most current owners are identified with the work.

In addition, since the Mechanical Licensing Collective database is expected to draw from numerous sources in identifying the claimants entitled to a share of the royalties from the blanket license, it is also important that the work be properly documented with companies already tasked with distributing such royalties including the Harry Fox Agency, Music Reports, Inc. and SoundExchange¹¹. Therefore, you may wish to seek the opinion of legal counsel who can review your rights and ensure that your work is properly protected.

The author wishes to thank Akhianne Wanliss for her contributions to the research and editing of this article.