Fees for Late Royalty Payments Under the Music Modernization Act

CourtCopyright Office,Library Of Congress
Citation88 FR 60587
Published date05 September 2023
Record Number2023-18609
SectionRules and Regulations
Federal Register, Volume 88 Issue 170 (Tuesday, September 5, 2023)
[Federal Register Volume 88, Number 170 (Tuesday, September 5, 2023)]
                [Rules and Regulations]
                [Pages 60587-60591]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2023-18609]
                LIBRARY OF CONGRESS
                Copyright Office
                37 CFR Part 210
                [Docket No. 2023-2]
                Fees for Late Royalty Payments Under the Music Modernization Act
                AGENCY: U.S. Copyright Office, Library of Congress.
                ACTION: Interpretive rule; termination of notification of inquiry
                SUMMARY: The U.S. Copyright Office adopts the following interpretive
                rule regarding fees for late royalty payments under the Music
                Modernization Act's statutory mechanical blanket license and terminates
                its notification of inquiry on this subject that was published on
                February 23, 2023.
                DATES: Effective September 5, 2023.
                FOR FURTHER INFORMATION CONTACT: Rhea Efthimiadis, Assistant to the
                General Counsel, by email at [email protected] or telephone at 202-
                I. Background
                 On February 23, 2023, the Copyright Office (``Office'') published a
                notification of inquiry (``NOI'') in the Federal Register seeking
                public comments regarding when fees for late royalty payments should be
                assessed in connection with reporting by digital music providers
                (``DMPs'') under the Orrin G. Hatch-Bob Goodlatte Music Modernization
                Act's (``MMA's'') statutory mechanical blanket license (the ``blanket
                license'').\1\ The Office opened the February NOI based on interested
                parties' requests for guidance on this matter.
                 \1\ 88 FR 11398 (Feb. 23, 2023).
                 Having carefully considered the comments and thoroughly examined
                the statute and legislative history, the Office is terminating the
                inquiry without issuing any regulations on this subject. Rather, the
                Office is issuing an interpretive rule to provide the mechanical
                licensing collective (``MLC''), DMPs, and other parties with its
                conclusion that the statute's due date provisions are unambiguous.
                Interpretive rules ``advise the public of the agency's construction of
                the statutes and rules which it administers.'' \2\ Under the
                Administrative Procedure Act, interpretive rules are not subject to
                notice and comment procedures and can be published with an immediate
                effective date.\3\ Consequently, the publication of this document
                concludes this proceeding.\4\
                 \2\ Perez v. Mortgage Bankers Ass'n, 575 U.S. 92, 97 (2015)
                (quoting Shalala v. Guernsey Mem. Hosp., 514 U.S. 87, 99 (1995)).
                 \3\ See 5 U.S.C. 553(b)(A), (d)(2).
                 \4\ The Office may issue a notice of proposed rulemaking
                regarding outstanding issues relating to adjustments (e.g.,
                regarding the timing of royalty payments, invoices, and response
                files) at a later date. See 88 FR 6630 (Feb. 1, 2023).
                A. Statutory Background
                 The MMA substantially modified the statutory ``mechanical'' license
                for reproducing and distributing phonorecords of nondramatic musical
                works under 17 U.S.C. 115, including by switching from a song-by-song
                licensing system to a blanket licensing regime that became available on
                January 1, 2021 (the ``license availability date''), administered by
                the MLC designated by the Office.\5\ The Office also designated a
                digital licensee coordinator (the ``DLC'') to represent DMPs in
                proceedings before the Copyright Royalty Judges (``CRJs,'' also
                sometimes referred to as the ``Copyright Royalty Board'' or ``CRB'').
                The DLC also serves as a non-voting member of the MLC and carries out
                other functions.\6\ Under the MMA, DMPs are able to obtain the blanket
                license to make digital phonorecord deliveries of nondramatic musical
                works, including in the form of permanent downloads, limited downloads,
                or interactive streams, subject to various requirements, including
                payment and reporting obligations.\7\
                 \5\ Public Law 115-264, 132 Stat. 3676 (2018).
                 \6\ 84 FR 32274 (July 8, 2019).
                 \7\ 17 U.S.C. 115(d). Alternatively, DMPs have the option to
                engage in these activities, in whole or in part, through voluntary
                licenses with copyright owners.
                 As relevant to this proceeding, the MMA states that with respect to
                DMPs' payment and reporting obligations under the blanket license,
                ``monthly reporting shall be due on the date that is 45 calendar days .
                . . after the end of the monthly reporting period.'' \8\ The MMA also
                states that ``[l]ate fees for past due royalty payments shall accrue
                from the due date for payment until payment is received by the [MLC].''
                \9\ Other reporting and payment deadlines, including regulations
                governing estimates and adjustments, are regulatory in nature. These
                provisions are further discussed below.
                 \8\ Id. at 115(d)(4)(A)(i).
                 \9\ Id. at 115(d)(8)(B)(i).
                1. Statutory Division of Responsibility
                 The Copyright Act, as amended by the MMA, assigns different
                responsibilities to the CRJs and Office with respect to the blanket
                license. Congress granted the CRJs the responsibility to set the
                blanket license's royalty rates and terms.\10\ As part of this
                ratesetting authority, the CRJs' determinations ``may include terms
                with respect to late payment[s].'' \11\ These ``late fees'' are a
                consequence of late royalty payments. While the CRJs' authority to set
                such late fees predated the MMA, the MMA added a provision stating
                that, with respect to the blanket license, ``[l]ate fees for past due
                royalty payments shall accrue from the due date for payment until
                payment is received by the [MLC].'' \12\
                 \10\ Id. at 115(c)(E)-(F), (d)(8)(B)-(D); id. at 801(b)(1).
                 \11\ Id. at 803(c)(7); see also id. at 115(d)(8)(B).
                 \12\ Id. at 115(d)(8)(B)(i).
                 The Office's responsibilities under the MMA include overseeing the
                administration of the blanket license, including by promulgating
                various regulations specifically required by Congress, such as those
                governing reporting and payment requirements for DMPs.\13\ Relevant to
                this proceeding, Congress directed the Office to adopt regulations
                ``regarding adjustments to reports of usage by digital music providers,
                including mechanisms to account for overpayment and underpayment of
                royalties in prior periods.'' \14\ Additionally, Congress granted the
                Office ``broad regulatory authority'' \15\ to ``conduct such
                [[Page 60588]]
                proceedings and adopt such regulations as may be necessary or
                appropriate to effectuate the provisions of [the MMA pertaining to the
                blanket license].'' \16\
                 \13\ Id. at 115(d)(4)(A)(ii)(III), (iii), (iv).
                 \14\ Id. at 115(d)(4)(A)(iv)(II).
                 \15\ H.R. Rep. No. 115-651, at 5-6 (2018); S. Rep. No. 115-339,
                at 5 (2018); Staff of S. and H. Comms. On the Judiciary, 115th
                Cong., Report and Section-by-Section Analysis of H.R. 1551 by the
                Chairmen and Ranking Members of Senate and House Judiciary
                Committees, at 4 (Comm. Print 2018), https://www.copyright.gov/legislation/mma_conference_report.pdf.
                 \16\ 17 U.S.C. 115(d)(12)(A).
                B. Regulatory Background
                 On September 17, 2020, the Office issued an interim rule adopting
                regulations concerning reporting and payment requirements under the
                blanket license (the ``September 2020 Rule'').\17\ The September 2020
                Rule addressed the ability of DMPs to make adjustments to monthly and
                annual reports and related royalty payments, including to correct
                errors and replace estimated royalty calculation inputs (e.g., the
                amount of applicable public performance royalties) with finally
                determined figures.\18\ The interim regulations permit DMPs to make
                adjustments in other situations as well, such as in exceptional
                circumstances, following an audit, or in response to a change in the
                applicable statutory rates or terms adopted by the CRJs.\19\
                 \17\ 85 FR 58114 (Sept. 17, 2020). That proceeding involved
                multiple rounds of public comments through a notification of
                inquiry, 84 FR 49966 (Sept. 24, 2019), a notice of proposed
                rulemaking (``NPRM''), 85 FR 22518 (Apr. 22, 2020), and an ex parte
                communications process. Guidelines for ex parte communications,
                along with records of such communications, including those
                referenced herein, are available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. All
                Office rulemaking activity, including public comments, as well as
                educational material regarding the MMA, can currently be accessed
                via navigation from https://www.copyright.gov/music-modernization.
                References to public comments in the Office's proceedings are either
                cited in full or are by party name (abbreviated where appropriate),
                followed by ``NPRM Comments,'' ``Initial Comments,'' ``Reply
                Comments,'' or ``Ex Parte Letter,'' as appropriate.
                 \18\ 37 CFR 210.27(d)(2)(i), (f), (g)(3)-(4).
                 \19\ Id. at 210.27(k).
                 During the rulemaking proceeding that culminated in the September
                2020 Rule, the MLC and DLC raised differing views about when a payment
                should be considered ``late,'' thus triggering the obligation to pay a
                late fee, in the context of the MMA, the Office's adjustments to
                reports of usage regulations, and the CRJs' late fee regulations. The
                MLC's view was that the MMA requires a DMP's payment to be considered
                ``late'' if not received by the 45th calendar day after the end of the
                monthly reporting period.\20\ The DLC took an opposing view and
                contended that late fees should not be due for any timely adjustments
                to good faith estimates made pursuant to the Office's regulations or in
                response to a change in rates and terms made by the CRJs.\21\ At the
                time of the September 2020 Rule, the Office declined to address the
                interplay between the statute, the CRJs' late fee regulation, and the
                Office's provisions for adjustments, in part, because it believed that
                ``the CRJs may wish themselves to . . . update their operative
                regulation in light of the [September 2020 Rule].'' \22\
                 \20\ MLC NPRM Comments at 36-37, App. C at xiv; MLC Ex Parte
                Letter at 7-8 (Feb. 26, 2020); see also AIMP NPRM Comments at 4-5
                (``[L]ate royalty payments have been a significant problem for
                copyright owners, and the implementation of a late fee for any
                royalty amounts paid late was a significant step forward. The
                regulations as proposed, should remove any doubt that might
                interfere with those late fee payments.''); Peermusic NPRM Comments
                at 5 (``[W]e appreciate the Copyright Office's rejection of the DLC
                request that underpayments, when tied to `estimates,' should not be
                subject to the late fee provision of the CRJ regulations governing
                royalties payable under Section 115, and we would request that the
                regulations be clear on this point.'' (citation omitted)).
                 \21\ DLC NPRM Comments at 14.
                 \22\ 85 FR 58114, 58137; see also 85 FR 22518, 22530 (``Any
                applicable late fees are governed by the CRJs, and any clarification
                should come from them.'').
                 Since the Office issued the September 2020 Rule, the CRJs published
                two ratesetting determinations applicable to the blanket license: the
                Phonorecords III Remand determination (covering the 2018-2022 rate
                period) \23\ and the Phonorecords IV determination (covering the 2023-
                2027 rate period).\24\ Neither determination addressed the competing
                views within the industry on when the CRJ's late fee provisions are
                 \23\ 88 FR 54406 (Aug. 10, 2023).
                 \24\ 87 FR 80448 (Dec. 30, 2022).
                 The Phonorecords IV determination, which adopted the terms of the
                participants' settlement,\25\ contains the current late fee regulation,
                which states that, ``[a] Licensee shall pay a late fee of 1.5% per
                month, or the highest lawful rate, whichever is lower, for any payment
                owed to a Copyright Owner and remaining unpaid after the due date
                established in 17 U.S.C. 115(c)(2)(I) \26\ or 17 U.S.C.
                115(d)(4)(A)(i),\27\ as applicable and detailed in part 210 of [the
                Office's regulations governing reporting and payments under the
                statutory mechanical license].'' \28\ It further provides that ``[l]ate
                fees shall accrue from the due date until the Copyright Owner receives
                payment.'' \29\ In approving the parties' settlement, the CRJs found
                that the late fee provision was ``not unreasonable.'' \30\
                 \25\ Before participants settled the Phonorecords IV proceeding,
                DMPs Spotify and Amazon each proposed a version of what the DLC
                proposes here--that late fees would not be owed for most types of
                permitted adjustments to monthly or annual reports of usage.
                Corrected Written Direct Statement of Spotify USA Inc. at Tab B, 10-
                11, Determination of Royalty Rates and Terms for Making and
                Distributing Phonorecords (Phonorecords IV), No. 21-CRB-0001-PR
                (2023-2027) (CRB Oct. 29, 2021), https://app.crb.gov/document/download/25899; Amazon's Am. Written Direct Statement, Ex. A.1 at
                10, Determination of Royalty Rates and Terms for Making and
                Distributing Phonorecords (Phonorecords IV), No. 21-CRB-0001-PR
                (2023-2027) (CRB Mar. 8, 2022), https://app.crb.gov/document/download/26286. These proposals were not included in the final
                settlement, as approved by the CRJs.
                 \26\ This provision states that, except as provided in section
                115(d)(4)(A)(i), ``royalty payments shall be made on or before the
                twentieth day of each month and shall include all royalties for the
                month next preceding.'' 17 U.S.C. 115(c)(2)(I).
                 \27\ This provision states that ``[a] digital music provider
                shall report and pay royalties to the [MLC] under the blanket
                license on a monthly basis in accordance with . . . subsection
                (c)(2)(I), except that the monthly reporting shall be due on the
                date that is 45 calendar days, rather than 20 calendar days, after
                the end of the monthly reporting period.'' Id. at 115(d)(4)(A)(i).
                 \28\ 37 CFR 385.3.
                 \29\ Id. Parties in the most recent section 115 ratesetting
                proceeding recognized that this language ``does not acknowledge that
                the [MLC] has responsibility for collecting payment under the
                blanket license for digital uses'' and moved to add the following
                language to the end of the quoted language: ``except that where
                payment is due to the mechanical licensing collective under 17
                U.S.C. 115(d)(4)(A)(i), late fees shall accrue from the due date
                until the mechanical licensing collective receives payment.'' Mot.
                to Req. Issuance of Amendment to Determination of Royalty Rates and
                Terms for Making and Distributing Phonorecords (Phonorecords IV)
                Pursuant to 17 U.S.C. [sec.] 803(C)(4) at 1-2, Determination of
                Royalty Rates and Terms for Making and Distributing Phonorecords
                (Phonorecords IV), No. 21-CRB-0001-PR (2023-2027) (CRB Jan. 10,
                2023), https://app.crb.gov/document/download/27417.
                 \30\ 87 FR 80448, 80452 n.20.
                 Both the Phonorecords III Remand and Phonorecords IV determinations
                resulted in rate calculations that use multiple steps to ultimately
                determine royalties due under the blanket license.\31\ These
                calculations require inputs that may not be known at the time a DMP's
                reporting is due under the MMA, including the amounts expensed by DMPs
                for sound recording licenses and for musical works' public performance
                licenses as a factor in the calculation to determine mechanical
                royalties due under the blanket license.
                 \31\ 37 CFR 385.21 (covering the Phonorecords IV period); id. at
                pt. 385, App. A, 385.21 (covering the Phonorecords III period).
                 In late 2022, before the CRJs' Phonorecords III Remand and
                Phonorecords IV determinations were finalized, the MLC and DLC
                submitted comments to the Office following a May 2022 amendment \32\ to
                the September 2020 Rule and again raised the issue of late fees,
                confirming their continued disagreement on the subject.\33\ Both the
                [[Page 60589]]
                MLC and DLC requested the Office provide guidance and regulatory
                amendments.\34\ The DLC requested that the Office ``specify that when
                both the initial estimated payments and the later adjustment of such
                payments to account for the updated and finalized information are made
                according to the timelines established in the regulations, such
                payments are proper and have been made by the `due date for payment' as
                set forth in 17 U.S.C. [sec.] 115(d)(8)(B)(i).'' \35\ The MLC opposed
                the DLC's position \36\ and instead proposed regulatory language
                providing that nothing in the adjustment provisions ``shall change a
                blanket licensee's liability for late fees, where applicable.'' \37\
                 \32\ 87 FR 31422 (May 24, 2022).
                 \33\ MLC Ex Parte Letter at 8 (Oct. 17, 2022); MLC Ex Parte
                Letter at 2-5 (Dec. 21, 2022); Comments of DLC to Suppl. Interim
                Rule Concerning Reports of Adjustment and Annual Reports of Usage at
                3, MMA Notice of License, Notices of Nonblanket Activity, Data
                Collection and Delivery Efforts, Reports of Usage and Payment, No.
                2020-5 (U.S. Copyright Office July 8, 2022) (``DLC July 2022
                Comments''), https://www.regulations.gov/comment/COLC-2020-0005-0029.
                 \34\ See 85 FR at 58136-37; MLC Ex Parte Letter at 8 (Oct. 17,
                2022); MLC Ex Parte Letter at 2-5 (Dec. 21, 2022); DLC July 2022
                Comments at 3.
                 \35\ DLC July 2022 Comments at 3.
                 \36\ MLC Ex Parte Letter at 2-5 (Dec. 21, 2022).
                 \37\ MLC Ex Parte Letter at 8 (Oct. 17, 2022).
                II. Discussion
                 The Office's February NOI sought public comments on this
                disagreement and explained that, while it ``typically does not offer
                interpretations of the CRJs' regulations,'' the Office is squarely
                within its authority to advise the public on the construction of the
                Copyright Act.\38\ Interested parties, including the MLC, National
                Music Publishers' Association (``NMPA''), DLC, publishers, groups
                representing songwriters, and others submitted comments responding to
                the Office's NOI.\39\
                 \38\ See 17 U.S.C. 115(d)(8)(B)(i) (``Late fees for past due
                royalty payments shall accrue from the due date for payment until
                payment is received by the mechanical licensing collective.'').
                 \39\ The Office also received letters from members of Congress
                reflecting their views that any late fees for underpayments begin to
                accrue starting 45 days after the end of a monthly reporting period.
                Letter from Ted W. Lieu, Ben Cline, Jerrold Nadler, Henry C.
                ``Hank'' Johnson, Laurel M. Lee, Adam B. Schiff & Harriet M.
                Hageman, Members of Congress to Shira Perlmutter, Register of
                Copyrights (May 9, 2023), https://www.copyright.gov/rulemaking/mma-late-fees/mma-late-fee-letter-house.pdf; Letter from Thom Tillis,
                Chris Coons, Marsha Blackburn, Bill Hagerty & Mazie Hirono, Members
                of Congress to Shira Perlmutter, Register of Copyrights (May 9,
                2023), https://www.copyright.gov/rulemaking/mma-late-fees/mma-late-fee-letter-senate.pdf.
                A. Responsive Comments
                1. Commenters Supporting the MLC's Interpretation
                 The Copyright Alliance, Dina LaPolt, NMPA, Nashville Songwriters
                Association International (``NSAI''), Songwriters of North America
                (``SONA''), Songwriters Guild of America, Society of Composers &
                Lyricists, and Music Creators North America supported the MLC's
                position that the MMA's plain language indicates that the due date for
                payment is 45 calendar days after the end of a monthly reporting period
                and that late fees begin accruing after that point in time or that
                equitable policy considerations dictate the same result.\40\
                 \40\ See Copyright Alliance Reply Comments at 2; Dina LaPolt
                Initial Comments at 3-4; MLC Initial Comments at 2-3; NMPA Initial
                Comments at 2; NSAI Reply Comments at 2; SONA Initial Comments at 2;
                Songwriters Guild of Am., Inc., Soc'y of Composers & Lyricists, and
                Music Creators N. Am. Initial Comments at 3.
                 These parties generally argued that the MMA's plain language is
                conclusive with respect to the blanket license's ``due date for
                payment.'' The NMPA reasoned that ``Congress was clear and unambiguous
                in establishing precisely when late fees shall begin to accrue,'' as
                ``the date that is 45 calendar days . . . after the end of the monthly
                reporting period.'' \41\ The Copyright Alliance echoed this reasoning,
                adding that there is language in the MMA's legislative history stating
                that a DMP must provide the MLC certain data ``along with its royalty
                payments due 45 calendar days after the end of a monthly reporting
                period.'' \42\
                 \41\ NMPA Initial Comments at 2; see also MLC Initial Comments
                at 10-11 (calling the provisions at issue ``unambiguous'' and
                ``detailed'' and identifying that ``[f]or the blanket license, the
                MMA specifically changes the due date from 20 days to 45 days after
                the end of the month''), 11-12 (``Neither the ability to use
                estimates, nor the requirement to follow up to correct those
                estimates, changes the fact that DSPs are responsible for the
                payment of `all royalties' by the statutory due date, and that late
                fees `shall accrue' from that mandated due date.''); NSAI Reply
                Comments at 1-2 (noting that Congress's intention was ``clear'' when
                it passed the late fee provisions).
                 \42\ Copyright Alliance Reply Comments at 2, n.2 (citing H.R.
                Rep. No. 115-651, at 27 (2018)).
                 The NMPA added that the statute does not contain any exceptions for
                underpayments, including for those ``caused by an error, a misestimate,
                or any other reason,'' including ``where the DMP later corrects its
                underpayment through an adjustment.'' \43\ It noted that Congress could
                have created an exemption to when late fees accrue, as it did for
                royalty payments under the optional statutory limitation on liability
                for certain unlicensed uses prior to the license availability date, but
                it did not do so.\44\
                 \43\ NMPA Initial Comments at 4.
                 \44\ Id. (citing 17 U.S.C. 115(d)(10)(B)(v)).
                 These parties also made policy arguments supporting their view that
                late fees should begin to accrue starting after 45 calendar days after
                the end of a monthly reporting period. For example, they argued that
                their approach would incentivize DMPs to pay the MLC--and, in turn,
                songwriters and publishers--accurately and on time and that the DLC's
                opposing interpretation, discussed below, would disincentivize accurate
                and timely royalty payments.\45\ Some argued that the harm to
                songwriters under the DLC's position would be significant, while the
                MLC's position would not cause significant harm to DMPs.\46\ As NSAI
                explained, ``[a]n underpayment of even a few hundred dollars for a few
                months can mean meaningful life decisions for a songwriter. The gravity
                of that must be considered against the inconsequential burden a minimal
                late fee imposes on a DMP.'' \47\
                 \45\ See, e.g., Copyright Alliance Reply Comments at 2; NSAI
                Reply Comments at 2 (``Because DMPs are permitted to make good-faith
                estimates when reporting and paying royalties, there must be a
                safeguard in place to hold them accountable.''); SONA Initial
                Comments at 2 (``If late fees were to apply only after the
                adjustment due date, DMPs will have latitude to underestimate
                amounts due and make more gains at the expense of songwriters and
                copyright holders by continuing to have those additional funds in
                their possession for as long as possible without incentive to change
                their royalty reporting practices.''); Songwriters Guild of Am., the
                Soc'y of Composers & Lyricists, and Music Creators N. Am. Initial
                Comments at 3 (adding that the ``Congressional resort to late fees
                as a motivator was necessary in light of the fact that the MMA
                limits the ability of music creators and copyright owners to utilize
                copyright infringement litigation as an alternative means to compel
                accurate and timely royalty compliance'').
                 \46\ See, e.g., Copyright Alliance Reply Comments at 3; Dina
                LaPolt Initial Comments at 7 (``[B]y the valuation and market
                capitalization of the DMPs noted, they could conceivably make an
                overestimation on their monthly royalty payments to avoid paying a
                late fee and would not be burdened, whereas making an
                underestimation severely impacts the daily lives of songwriters
                forcing them to wait for their adjusted income.''); SONA Initial
                Comments at 5 (``[P]aying late fees or otherwise making an
                overestimation on the DMPs' monthly royalty payments is not a severe
                burden to these companies, whereas making an underestimation
                significantly and negatively impacts the daily lives of
                 \47\ NSAI Reply Comments at 2.
                2. The DLC's Interpretation
                 The DLC contends that ``the clear text of the statute and relevant
                regulations, unbroken historical precedent, and interests of efficiency
                and equity'' support its position that late fees are not due for
                payments that are compliant with the Office's estimate and adjustment
                reporting regulations.\48\ The DLC explained that because the MMA
                states that monthly payments must ``comply with requirements that the
                Register of Copyrights shall prescribe by regulation'' and because the
                CRJs referenced the Office's section 115
                [[Page 60590]]
                regulations in their late fee provision,\49\ ``[t]aken together, these
                provisions compel the conclusion that when a payment is made on or
                before the due date, and is made in compliance with the regulatory
                requirements, it is not `late' or otherwise legally deficient, even if
                it is based on estimated inputs, or is an adjustment to a payment made
                earlier.'' \50\ It asserts that ``estimates and adjustments are a
                necessary consequence of the CRB's . . . rate structure'' because the
                required inputs under the rate structure (e.g., royalties for sound
                recordings or the public performance of musical works) may not be final
                or known when reporting is due to the MLC, therefore DMPs must be
                allowed to rely on estimates and adjustments and not incur late fees
                when doing so.\51\
                 \48\ DLC Initial Comments at 1.
                 \49\ I.e., the Office's ``reporting regulations in part 210 of
                title 37 of the CFR.'' DLC Reply Comments at 7.
                 \50\ DLC Initial Comments at 4-5.
                 \51\ Id. at 2-3.
                 The DLC also offered policy-based reasons in support of its
                position. For example, it claimed that ``[i]f DMPs are threatened with
                late fees for every routine royalty payment, one can reasonably expect
                that at least some [DMPs] will systematically over pay royalties'' and
                subsequent ``clawback[s]'' would cause operational challenges for the
                MLC and harm to songwriters and publishers.\52\ Finally, the DLC
                claimed that ``[i]t defies common sense that failing to guess at and
                pay royalties at not-yet-determined rates would trigger late fees,''
                \53\ and suggested that Congress would not have intended such a
                ``facially illogical result.'' \54\
                 \52\ DLC Reply Comments at 8-9.
                 \53\ DLC Initial Comments at 5.
                 \54\ DLC Reply Comments at 6.
                B. Statutory Analysis
                1. Monthly Royalty Payments Made to the MLC More Than 45 Days After the
                End of the Applicable Monthly Reporting Period Are Late Under the
                 The Office has reviewed the MMA's text, context, and statutory
                scheme along with cannons of statutory construction in its
                consideration of whether the statute is ambiguous.\55\ It concludes
                that the statute's (i) due date provisions, (ii) direction to the
                Office to adopt regulations governing adjustments, and (iii) delegation
                of authority to the CRJs to promulgate late fee provisions are
                compatible and unambiguous. The Office, therefore, declines to issue
                any associated regulations.
                 \55\ Courts commonly review a statute's text, context, statutory
                scheme, and cannons of statutory construction when considering
                whether a statute is ambiguous. See, e.g., Household Credit Servs.,
                Inc. v. Pfennig, 541 U.S. 232, 239-42 (2004); Zuni Pub. School Dist.
                No. 89 v. Dept. of Ed., 550 U.S. 81, 98-99 (2007); FDA v. Brown &
                Williamson Tobacco Corp., 529 U.S. 120, 133 (2000); Dole v. United
                Steelworkers of Am., 494 U.S. 26, 36 (1990).
                 Starting with the statute's text, section 115(d)(8)(B)(i) states
                that CRJ-adopted ``[l]ate fees for past due royalty payments [under
                blanket licenses] shall accrue from the due date for payment until
                payment is received by the mechanical licensing collective.'' \56\ The
                phrase ``due date for payment'' is undefined and, therefore, these
                words must ``be interpreted as taking their ordinary, contemporary,
                common meaning.'' \57\ Black's Law Dictionary defines ``due date'' as
                ``[t]he date on which something is supposed to happen, esp. as a matter
                of requirement.'' \58\
                 \56\ 17 U.S.C. 115(d)(8)(B)(i).
                 \57\ Perrin v. United States, 444 U.S. 37, 42 (1979).
                 \58\ Date, Black's L. Dictionary (11th ed. 2019) (defining ``due
                date'' in the definition of ``date'').
                 In the Office's view, ``due date for payment'' unambiguously refers
                to the ``date on which'' monthly royalty payments are required to be
                delivered to the MLC. Section 115(d)(4)(A)(i) provides that ``[a]
                digital music provider shall report and pay royalties to the mechanical
                licensing collective under the blanket license on a monthly basis in
                accordance with . . . subsection (c)(2)(I), except that the monthly
                reporting shall be due on the date that is 45 calendar days, rather
                than 20 calendar days, after the end of the monthly reporting period.''
                \59\ Section (c)(2)(I), in turn, states that monthly ``royalty payments
                . . . shall include all royalties for the month next preceding.'' \60\
                Taken together, the plain and natural meaning of the statute is that
                ``all royalties'' for a given monthly reporting period are ``due'' no
                later than 45 days after the end of the monthly reporting period. Thus,
                any royalties received by the MLC for such reporting period after this
                ``due date for payment'' are late. They are ``past due royalty
                payments'' that are subject to such ``late fees'' as the CRJs may
                 \59\ 17 U.S.C. 115(d)(4)(A)(i) (emphasis added).
                 \60\ Id. at 115(c)(2)(I) (emphasis added). The Office previously
                addressed the interaction between sections 115(c)(2)(I) and
                115(d)(4)(A)(i), concluding that ``both provisions must be read as
                referring to both reporting and payment.'' 85 FR 22518, 22527.
                 The DLC argues that this construction of the statute yields an
                absurd result.\61\ While a statutory ambiguity can be found if clear
                statutory text would produce an absurd result,\62\ that is not the case
                here. Rather, the Office understands that the DLC's concerns are really
                aimed at the potential effect of the CRJs' regulations, not the statute
                 \61\ DLC Reply Comments at 6.
                 \62\ Pub. Citizen v. U.S. Dep't of Just., 491 U.S. 440, 454
                (1989) (quoting Green v. Bock Laundry Machine Co., 490 U.S. 504, 509
                (1989)) (``Where the literal reading of a statutory term would
                `compel an odd result,' we must search for other evidence of
                congressional intent to lend the term its proper scope.'').
                 The fact that the final amount due on the statutory due date may
                not be known to a DMP on that date is a product of the rate structure
                adopted by the CRJs, which involves calculating royalties using inputs
                that may not be finally determined at the time the royalty is due,
                necessitating the use of estimates and adjustments.\63\
                 \63\ For example, one such input is the amount paid for the
                public performance of musical works. It is common for those public
                performance rates to be set on an interim basis, with final rates
                set later and applying retroactively. U.S. Copyright Office,
                Copyright and the Music Marketplace 41-42 (2015), https://www.copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf.
                 To the extent Congress disapproved of this result, and instead
                intended the result advocated for by the DLC, Congress either would not
                have adopted the version of section 115(d)(8)(B)(i) that it did or it
                would have made other changes to the statute. A version of the CRJs'
                current rate structure has been in place since the Phonorecords I
                settlement,\64\ which predated the MMA's enactment by nine years.
                Congress would have been aware of the CRJs' longstanding rate structure
                in passing the MMA, including with respect to the operation of
                estimates and adjustments, therefore the decision to enact section
                115(d)(8)(B)(i) and the rest of the MMA against that backdrop must be
                understood as intentional.
                 \64\ See 37 CFR 385.12(b)(1), (b)(2) (2009) (using both
                percentage of service revenue and royalties for the public
                performance of musical works as inputs to determine a DMPs'
                mechanical royalty rate); 74 FR 4510, 4531 (Jan. 26, 2009).
                 This understanding is not incompatible with the MMA's direction, in
                section 115(d)(4)(A)(iv)(II), for the Office to adopt regulations
                regarding adjustments. First, while the MMA requires the Office to
                establish regulations regarding adjustments, it does not require the
                CRJs to set royalty rates and terms using inputs that are not final at
                the time the royalties are due. For example, the CRJs could have set a
                per-stream rate that did not use any such inputs.\65\ Second, while
                DMPs who take advantage of the Office's estimate
                [[Page 60591]]
                and adjustment regulations \66\ may have to pay late fees under the
                CRJs' regulations for any underpayments, that has no bearing on whether
                the statutory text is ambiguous. As the MLC points out, the estimate
                and adjustment regulations adopted by the Office pursuant to that
                provision allow DMPs ``to use estimates where appropriate without
                violating the law[,] . . . but not the ability to pay royalties later
                than the statutory due date.'' \67\
                 \65\ A group representing copyright owners proposed ``a unitary
                rate structure for all interactive streaming and limited downloads''
                in the Phonorecords III proceeding. Johnson v. Copyright Royalty
                Bd., 969 F.3d 363, 371 (D.C. Cir. 2020) (citing 84 FR 1918, 1924,
                1930-1931 (Feb. 5, 2019)).
                 \66\ It appears that not all DMPs use the adjustment provisions.
                MLC Ex Parte Letter at 4 (Dec. 21, 2022) (noting that ``over half of
                the blanket licensees submitted annual reports of usage for 2021
                without any concurrent adjustment'').
                 \67\ MLC Initial Comments at 8.
                 Further, as the NMPA noted, Congress knows how to exempt certain
                types of royalty payments from incurring late fees, as it did with the
                optional statutory limitation on liability for certain unlicensed uses
                prior to the license availability date.\68\ Under the negative-
                implication cannon of statutory construction, ``[w]hen Congress
                includes particular language in one section of a statute but omits it
                from a neighbor, we normally understand that difference in language to
                convey a difference in meaning,'' \69\ i.e., that textual difference is
                presumed to be intentional.
                 \68\ NMPA Initial Comments at 4 (citing 17 U.S.C.
                 \69\ Bittner v. United States, 598 U.S. 85, 94 (2023).
                2. Distinguishing the Phonorecords III Remand Determination
                 Commenters appear to be in agreement that late fees do not apply to
                adjustments resulting from the change in rates and terms following the
                CRJs' Phonorecords III Remand determination. For example, the MLC
                reasoned that where applicable royalty rates are changed, as with the
                Phonorecords III Remand proceeding, there would be no underpayment to
                trigger late fees, as the ``rates were not in effect at those times.''
                \70\ Similarly, the NMPA states that ``where rates have not yet been
                determined, payment under the not-yet determined rates are not `due' ''
                and ``[payment] only become[s] `due' when [the rates] are determined.''
                \71\ The DLC believes that it would be illogical and inconsistent for
                DMPs' ``true-up'' payments made after the Phonorecords III Remand
                determination to be considered ``late.'' \72\
                 \70\ MLC Initial Comments at 6 n.1.
                 \71\ NMPA Initial Comments at 8.
                 \72\ DLC Initial Comments at 6; DLC Reply Comments at 6 (``It is
                entirely unclear why that is true for interim section 115 rates but
                not true for interim rates or payments to PROs or labels.'').
                 The Office concurs that no late fees are owed in connection with
                any Phonorecords III Remand adjustments. Under section 115(c)(1)(C),
                for digital phonorecord deliveries (including uses under the blanket
                license), ``the royalty payable shall be the royalty prescribed under
                subparagraphs (D) through (F), paragraph (2)(A), and chapter 8.'' \73\
                Therefore, what constitutes ``all royalties'' \74\ that are ``due'' for
                any given monthly reporting period \75\ are the royalties
                ``prescribed'' under the rates and terms that are in effect at that
                time.\76\ By definition, the newer rates and terms, despite having
                retroactive effect, were not ``the royalty prescribed'' at the time the
                previous payment was due, and therefore did not constitute ``the
                royalty payable'' at that time.\77\ Previously timely payments cannot
                subsequently be rendered late because of a retroactive change in the
                rates and terms adopted by the CRJs.
                 \73\ 17 U.S.C. 115(c)(1)(C).
                 \74\ See id. at 115(c)(2)(I).
                 \75\ See id. at 115(d)(4)(A)(i).
                 \76\ See id. at 115(c)(1)(C).
                 \77\ See id.
                C. The CRJs' Authority To Set Late Fees
                 As noted above, the Copyright Office concludes that the MMA's
                provisions are not ambiguous or silent on the issue of when royalty
                payments are due; therefore our inquiry ends here. To the extent that
                interested parties have competing policy concerns about when or how
                late fees should be incurred, such concerns must be addressed either to
                Congress or the CRJs, as Congress delegated authority over the
                substance of late fees to the CRJs and not the Office.
                 While we offer no views regarding what late fee regulations should
                be adopted by the CRJs, if any, the Office does take the position that
                the CRJs have broad and flexible authority under section 803(c)(7) to
                adopt late fee terms, including by adopting differentiated or variable
                late fees (e.g., where the amounts can change over time), if the CRJs
                see fit to do so and such regulations are otherwise consistent with
                title 17 and based on an appropriate record. Nothing in title 17
                suggests that the CRJs cannot adopt different late fees (whether with
                respect to their amount(s) or how they operate) based on competing
                policy concerns.
                 Dated: August 23, 2023.
                Suzanne V. Wilson,
                General Counsel and Associate Register of Copyrights.
                [FR Doc. 2023-18609 Filed 9-1-23; 8:45 am]
                BILLING CODE 1410-30-P

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