Fees for Late Royalty Payments Under the Music Modernization Act
| Court | Copyright Office,Library Of Congress |
| Citation | 88 FR 60587 |
| Published date | 05 September 2023 |
| Record Number | 2023-18609 |
| Section | Rules 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]
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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
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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-
707-8350.
SUPPLEMENTARY INFORMATION:
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.
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\1\ 88 FR 11398 (Feb. 23, 2023).
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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\
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\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).
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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\
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\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.
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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.
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\8\ Id. at 115(d)(4)(A)(i).
\9\ Id. at 115(d)(8)(B)(i).
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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\
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\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).
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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\
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\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).
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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\
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\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).
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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\
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\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.'').
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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
triggered.
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\23\ 88 FR 54406 (Aug. 10, 2023).
\24\ 87 FR 80448 (Dec. 30, 2022).
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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\
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\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.
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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.
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\31\ 37 CFR 385.21 (covering the Phonorecords IV period); id. at
pt. 385, App. A, 385.21 (covering the Phonorecords III period).
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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\
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\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).
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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\
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\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.
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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\
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\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.
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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\
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\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)).
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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\
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\43\ NMPA Initial Comments at 4.
\44\ Id. (citing 17 U.S.C. 115(d)(10)(B)(v)).
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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\
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\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
songwriters.'').
\47\ NSAI Reply Comments at 2.
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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\
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\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.
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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\
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\52\ DLC Reply Comments at 8-9.
\53\ DLC Initial Comments at 5.
\54\ DLC Reply Comments at 6.
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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
Statute
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.
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\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).
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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\
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\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'').
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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
adopt.
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\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.
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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
itself.
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\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.'').
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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\
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\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.
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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.
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\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).
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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\
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\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.
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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.
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\68\ NMPA Initial Comments at 4 (citing 17 U.S.C.
115(d)(10)(B)(v)).
\69\ Bittner v. United States, 598 U.S. 85, 94 (2023).
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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\
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\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.'').
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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.
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\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.
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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
