Music Modernization Act Transition Period Transfer and Reporting of Royalties to the Mechanical Licensing Collective: Request for Additional Comments
| Citation | 85 FR 70544 |
| Record Number | 2020-24528 |
| Published date | 05 November 2020 |
| Court | U.s. Copyright Office |
Federal Register, Volume 85 Issue 215 (Thursday, November 5, 2020)
[Federal Register Volume 85, Number 215 (Thursday, November 5, 2020)]
[Proposed Rules]
[Pages 70544-70551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24528]
=======================================================================
-----------------------------------------------------------------------
LIBRARY OF CONGRESS
U.S. Copyright Office
37 CFR Part 210
[Docket No. 2020-12]
Music Modernization Act Transition Period Transfer and Reporting
of Royalties to the Mechanical Licensing Collective: Request for
Additional Comments
AGENCY: U.S. Copyright Office, Library of Congress.
ACTION: Supplemental notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This supplemental notice of proposed rulemaking (``SNPRM'')
updates the Copyright Office's July 17, 2020 proposed rule concerning
the Music Modernization Act transition period transfer and reporting of
royalties to the mechanical licensing collective. Specifically, this
SNPRM provides an alternate approach to requirements concerning the
content of cumulative statements of account to be submitted by digital
music providers to the mechanical licensing collective at the
conclusion of the statutory transition period and proposes estimate and
adjustment provisions with respect to payment of accrued royalties to
the mechanical licensing collective in connection with this reporting.
DATES: Written comments must be received no later than 11:59 p.m.
Eastern Time on November 25, 2020.
ADDRESSES: For reasons of government efficiency, the Copyright Office
is using the regulations.gov system for the submission and posting of
public comments in this proceeding. All comments are therefore to be
submitted electronically through regulations.gov. Specific instructions
for submitting comments are available on the Copyright Office's website
at https://www.copyright.gov/rulemaking/mma-transition-reporting. If
electronic submission of comments is not feasible due to lack of access
to a computer and/or the internet, please contact the Office using the
contact information below for special instructions.
FOR FURTHER INFORMATION CONTACT: Regan A. Smith, General Counsel and
Associate Register of Copyrights, by email at [email protected],
John R. Riley, Assistant General Counsel, by email at
[email protected], or Jason E. Sloan, Assistant General Counsel, by
email at [email protected]. Each can be contacted by telephone by
calling (202) 707-8350.
SUPPLEMENTARY INFORMATION:
I. Background
This SNPRM is issued subsequent to a notification of inquiry
published in the Federal Register on September 24, 2019 and a notice of
proposed rulemaking (``NPRM'') published on July 17, 2020 relating to
implementation of the Music Modernization Act (``MMA'').\1\ In its
NPRM, the Office proposed regulations pertaining to cumulative
statements of account, which digital music providers (``DMPs'') are
required to provide to the mechanical licensing collective (``MLC'')
for such DMPs to be eligible for the statutory limitation on liability
for unlicensed uses of musical works prior to the license availability
date.\2\ This SNPRM generally assumes familiarity with the prior NPRM
and notification of inquiry, as well as the public comments and
summaries of ex parte meetings received in response to those documents,
all of which are publicly accessible from the Copyright Office's
website.\3\
---------------------------------------------------------------------------
\1\ 85 FR 43517 (July 17, 2020); 84 FR 49966 (Sept. 24, 2019).
All rulemaking activity, including public comments, as well as
legislative history and educational material regarding the Music
Modernization Act, can currently be accessed via navigation from
https://www.copyright.gov/music-modernization/. Comments received in
response to the September 2019 notification of inquiry are available
at https://www.regulations.gov/docketBrowser?rpp=25&po=0&dct=PS&D=COLC-2019-0002&refD=COLC-2019-0002-0001. Comments received in response to the July 2020 notice of
proposed rulemaking are available at https://beta.regulations.gov/document/COLC-2020-0011-0001/comment. Related ex parte letters are
available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. References to these
comments and letters are by party name (abbreviated where
appropriate), followed by ``Initial Comment,'' ``Reply Comment,''
``NPRM Comment,'' or ``Ex Parte Letter'' as appropriate.
\2\ See 17 U.S.C. 115(d)(10).
\3\ Guidelines for ex parte communications, along with records
of such communications, are available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. As
stated in the guidelines, ex parte meetings with the Office are
intended to provide an opportunity for participants to clarify
evidence and/or arguments made in prior written submissions, and to
respond to questions from the Office on those matters.
---------------------------------------------------------------------------
As relevant here, the NPRM considered whether to propose
regulations with respect to the ability of DMPs to rely upon estimates
and subsequently adjust their cumulative statements of account. The
NPRM tentatively declined to propose broad language given the ``one-
time nature'' of cumulative statements of account, but did propose that
DMPs could estimate applicable performance royalties, and that ``any
overpayment (whether resulting from an estimate or otherwise) should be
credited to the DMP's account, or refunded upon request.'' \4\
---------------------------------------------------------------------------
\4\ 85 FR at 43520.
---------------------------------------------------------------------------
[[Page 70545]]
The NPRM also considered comments from the Digital Licensee
Coordinator (``DLC'') asking for regulatory language to clarify the
relationship between this reporting obligation and pre-existing private
agreements between a large number of music publishers and certain
digital services that the DLC characterized as providing for the
liquidation of accrued royalties for unmatched works through payments
based on market share to publishers signing releases.\5\ At the time,
the Office tentatively declined to propose regulatory language.
Instead, the Office provided initial guidance regarding the statutory
obligation to transfer and report information related to accrued
royalties for unlicensed uses under the MMA and noted that it remained
available to dialogue further.\6\
---------------------------------------------------------------------------
\5\ Id. at 43522-23; see also DLC Ex Parte Letter at 1 (Aug. 11,
2020); NMPA Ex Parte Letter at 5 (Aug. 25, 2020).
\6\ 85 FR at 43523 (noting that because ``voluntary licenses''
``remain in effect'' by law, ``by implication, DMPs would not retain
accrued royalties (as defined in the MMA) for works licensed under
private agreements'').
---------------------------------------------------------------------------
In response to a request from the MLC, the NPRM also proposed
expanding the present cumulative statement of account regulations,
which require providing ``all of the information that would have been
provided to the copyright owner had the digital music provider been
serving Monthly Statements of Account,'' \7\ to requirements for
reporting information that would ``largely mirror the requirements
proposed for reports of usage.'' \8\ While the DLC initially contended
that such a proposal was ``impractical,'' \9\ it now describes such a
requirement as ``impossible'' given the business practicalities of how
this information was or was not compiled and stored over time.\10\
Similarly, the Digital Media Association (``DiMA'') stated that the
NPRM's expanded reporting requirements would create ``massive
operational hurdles'' and would ``jeopardize[ ] every [DMP's]
eligibility for the limitation on liability.'' \11\
---------------------------------------------------------------------------
\7\ 37 CFR 210.10(b)(3)(i); see also 17 U.S.C.
115(d)(10)(B)(iv)(III)(aa).
\8\ 85 FR at 43519.
\9\ DLC Reply Comment at 24.
\10\ DLC NPRM Comment at 2, 8-9 (explaining that some of the
additional information was not collected by DMPs in the past and
cannot be collected in time to include in cumulative statements of
account); DLC Ex Parte Letter at 2 (Aug. 11, 2020) (``[S]ervices
have been compiling reporting under the regulatory regime that the
Office put in place shortly after the enactment of the MMA. We
explained the impossibility--mere months before license availability
date--of completely revamping royalty accounting systems to
accommodate the Office's new proposed rules.'').
\11\ DiMA NPRM Comment at 6-7 (``digital music providers have
maintained usage information . . . with the existing statement of
account regulations in mind'').
---------------------------------------------------------------------------
II. Supplemental Proposed Regulatory Provisions
As discussed further below, while the Copyright Office continues to
consider the proposed rule described in the NPRM, it is now also
providing alternative regulatory language for public comment. As with
other MMA rulemakings to date, the Office has received robust
engagement from interested parties in this proceeding, as reflected in
the administrative record.\12\ Since issuing its NPRM, the Office has
reviewed many written comments and conducted several ex parte meetings
with various parties on these matters, which have further informed its
thinking.\13\ In addition, the D.C. Circuit partially vacated and
remanded the Copyright Royalty Judges' ``Phonorecords III''
determination, which was intended to set rates and terms for the
section 115 mechanical license for the period from January 1, 2018
through December 31, 2022,\14\ which provides an additional ground for
the Office to establish a mechanism for DMPs to estimate the amount of
royalties due and subsequently adjust payments (since the ultimate
rates for this time period have not yet been finalized).
---------------------------------------------------------------------------
\12\ See 85 FR at 43523 (``The Office . . . remains available to
dialogue further, in accordance with the public process for written
comments and/or ex parte meetings.''); 84 FR at 49968 (noting that
the Office is willing to ``utilize informal meetings to gather
additional information . . . [and would] establish[ ] guidelines for
ex parte communications'' to be issued on its website).
\13\ See, e.g., DiMA NPRM Comment at 2-5; DLC NPRM Comment at 3-
6, 11-18; MLC NPRM Comment at 8-9; Songwriters Guild of America &
Society of Composers and Lyricists NPRM Comment at 3-8; Artist
Rights Alliance Ex Parte Letter at 2-3 (Sept. 22, 2020); DLC Ex
Parte Letter at 1 (Aug. 11, 2020); DLC Ex Parte Letter at 1-3 (Oct.
14, 2020); NMPA Ex Parte Letter at 1-2 (Aug. 25, 2020); MediaNet Ex
Parte Letter at 2 (Oct. 28, 2020); MLC Ex Parte Letter at 2-6 (Oct.
5, 2020); MLC Ex Parte Letter at 2-5 (Oct. 16, 2020); Songwriters
Guild of America et al. Ex Parte Letter at 1-2 (Sept. 14, 2020);
Sony/ATV Music Pub. Ex Parte Letter at 1-2 (Oct. 28, 2020); Spotify
Ex Parte Letter at 1 (Sept. 1, 2020); Spotify Ex Parte Letter at 1-5
(Oct. 9, 2020); Warner Music Grp. Ex Parte Letter at 1 (Oct. 21,
2020).
\14\ Johnson v. Copyright Royalty Bd., 969 F.3d 363, 381 (D.C.
Cir. 2020).
---------------------------------------------------------------------------
The Office also received guidance from Senate Judiciary Chairman
Graham regarding the issue of certain industry agreements between
publishers and DMPs that predate the MMA's enactment and required the
payment of unmatched accrued royalties to copyright owners by market
share, stating:
Since the intent of the MMA was to provide legal certainty for
past, present, and future usage, it is critical that this issue be
resolved in a manner that protects copyright owner interests while
ensuring that songwriters are paid their splits and services are not
burdened with double payments. . . . If the parties are unable to
address this current dispute on their own in the immediate future, I
urge the Copyright Office to bring them together in order to prevent
a return to the inefficient litigation that featured prominently in
the prior licensing regime.\15\
---------------------------------------------------------------------------
\15\ Letter from Senator Lindsey O. Graham, Chairman, Senate
Committee on the Judiciary, to U.S. Copyright Office 1 (Sept. 30,
2020).
Since receiving the letter, the Office understands that the parties
have continued to communicate on other aspects of the proposed rule,
but have not on their own resolved their disagreement over the proper
interpretation of the relevant statutory provisions.
Indeed, subsequent information provided to the Office in this
proceeding confirms that the underlying dispute remains. Specifically,
the DLC has clarified that its reference to prior negotiated agreements
centers around agreements between four specific DMPs and the National
Music Publishers' Association (``NMPA'') (and subsequent agreements
with participating publishers), and both the DLC and individual DMPs
have provided additional views regarding those agreements.\16\ The
Office also heard from multiple songwriter groups, all of which
stressed the importance of royalties for uses of works being paid over
by DMPs in a manner that results in payments to songwriters, and
expressed uncertainty over whether payments under such agreements had
indeed been passed through to songwriters.\17\ The MLC confirmed that
it believes its role to be a ``trusted party to receive unmatched
royalties and ensure that they are paid to the right parties, with
interest (for the period that
[[Page 70546]]
the MLC held such royalties).'' \18\ The MLC also offered its view that
the proper statutory read would require DMPs to transfer payment for
all unmatched uses, regardless of whether a valid agreement previously
resulted in the liquidation of a portion of associated royalties or
whether there have been related voluntary releases.\19\ The Office has
also heard from the NMPA as well as individual publishers on this
issue, with the NMPA urging the Office to avoid a regulation that might
interfere with private agreements.\20\ While publisher perspectives
varied, significantly, some noted that they consider claims settled
pursuant to these agreements to be closed, and to date, all publishers
the Office has heard from confirmed that their associated songwriters
have already participated in unclaimed royalties received by those
publishers pursuant to the agreements at issue.\21\ Overall, the
comments, in particular as between the MLC on the one hand, and the DLC
or individual services, on the other, reveal competing statutory
interpretations regarding the provision requiring DMPs to transfer over
accrued royalties that have been maintained in accordance with
generally accepted accounting principles.\22\
---------------------------------------------------------------------------
\16\ DLC NPRM Comment at 12-14; DLC Initial Comment at 3-4 n.11,
U.S. Copyright Office Dkt. No. 2019-6, https://beta.regulations.gov/comment/COLC-2020-0007-0012 (citing Paul Resnikoff, Exclusive: This
Is the Contract Songwriters Are Signing With Spotify, Digital Music
News (Apr. 27, 2016), https://www.digitalmusicnews.com/2016/04/27/exclusive-spotify-establishing-direct-publisher-contracts-to-solve-mechanicals-issues/); DLC Ex Parte Letter at 1-2 (Oct. 14, 2020);
Google Ex Parte Letter at 1-3 (Oct. 23, 2020); MediaNet Ex Parte
Letter at 2 (Oct. 28, 2020); Spotify Ex Parte Letter at 1-3, 5 (Oct.
9, 2020); see also NMPA Ex Parte Letter at 1-2 (Aug. 25, 2020).
\17\ See Artist Rights Alliance et al. Ex Parte Letter (Sept.
22, 2020); Songwriters Guild of America et al. Ex Parte Letter
(Sept. 15, 2020).
\18\ MLC Ex Parte Letter at 5 (Oct. 5, 2020).
\19\ MLC NPRM Comment at 8; MLC Ex Parte Letter at 5 (Oct. 5,
2020); MLC Ex Parte Letter at 2-4 (Oct. 16, 2020).
\20\ See NMPA Ex Parte Letter (Aug. 25, 2020).
\21\ Sony/ATV Music Pub. Ex Parte Letter at 1-2 (Oct. 28, 2020)
(noting that ``distribution of unmatched funds, whether title bound
or not, are always paid through to [Sony/ATV's] songwriters'');
Warner Music Grp. Ex Parte Letter at 1 (Oct. 21, 2020) (noting that
songwriters were paid portions of royalties received by publishers
pursuant to pre-enactment agreements with certain DMPs that
liquidated unclaimed royalties).
\22\ See DLC NPRM Comment at 16-18; MLC Reply Comment at 28-30;
Spotify Ex Parte Letter at 3-4 (Oct. 9, 2020); MLC Ex Parte Letter
at 2-4 (Oct. 5, 2020); MLC Ex Parte Letter at 2-4 (Oct. 16, 2020);
see also 17 U.S.C. 115(d)(10)(B)(iv).
---------------------------------------------------------------------------
For its part, the Office is carefully analyzing the statutory text
and will give appropriate weight to the legislative history and
consideration of these public comments when promulgating a final rule.
At this point, however, the Office has determined that the public
process would benefit from providing supplemental, alternative
regulatory language, to ensure that further stakeholder views can be
duly considered as the Office evaluates these important issues.
Although the Office has not made any final conclusions on these
matters, this SNPRM is being issued so that interested parties have
adequate notice and an opportunity to comment specifically on these
potential alternatives sufficiently in advance of the February 2021
deadline to submit cumulative statements of account to the MLC.
While the NPRM outlined in detail several considerations with
respect to these and other issues, and while the Office continues to
seriously consider the insightful comments it has received to date, in
light of those comments, Chairman Graham's letter, and the Phonorecords
III remand, the Office now provides regulatory language regarding the
following topics.\23\ This regulatory language is largely additive to
the language proposed in the NPRM, and also includes potential
substitutes for certain provisions included in the NPRM. Interested
commenters may wish to review that earlier NPRM and the public comments
received to date offering varying perspectives on factual and legal
issues underlying this proposal.
---------------------------------------------------------------------------
\23\ See 17 U.S.C. 115(d)(12)(A), 702. The Copyright Office
considers this additional proposed regulatory language to be a
logical outgrowth of the NPRM, including comments received from a
wide variety of ex parte meeting participants. Nevertheless, to
ensure that all interested parties have fair notice and an
opportunity to participate in the rulemaking with respect to these
issues in a meaningful and informed manner, the Office is inviting
further written comments on these issues. See 5 U.S.C. 553(b)(3);
Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 174 (2007).
---------------------------------------------------------------------------
Estimates and adjustments, including previously released claims.
The Office is providing proposed provisions that would allow DMPs to
rely upon certain estimates and subsequently submit adjustments to
cumulative statements of account where the computation of accrued
royalties depends upon an input that is unable to be finally determined
at the time the cumulative statement of account is due.
One set of estimate and adjustment provisions would address
situations where a DMP cannot calculate a necessary input in a royalty
calculation (e.g., performance royalties, sound recording-related
consideration) or needs to make a future adjustment under other
specified circumstances (e.g., in response to a change in the statutory
royalty rates or terms). Statements of adjustment adjusting cumulative
statements of account would be required to detail the changes to
facilitate accurate reporting. The Office understands that both the DLC
and MLC now generally support this type of rule.\24\
---------------------------------------------------------------------------
\24\ DLC NPRM Comment at 5-6; MLC Ex Parte Letter at 2 (Oct. 5,
2020).
---------------------------------------------------------------------------
Related provisions would address situations where a DMP has accrued
and maintained royalties in reasonable good-faith belief as to the
impact of negotiated agreements upon the computation of accrued
royalties required to be transferred to the MLC and it is necessary to
estimate such amount at the time the cumulative statement of account is
delivered to the MLC because of the unmatched status of the relevant
musical works. They would clarify that the statutory obligation to
maintain accrued royalties in accordance with generally accepted
accounting principles includes maintenance in accordance with such
principles concerning derecognition of liabilities.\25\ They would
accordingly accommodate situations where a DMP has made good-faith
estimates where the DMP has used unmatched works in covered activities
prior to the license availability date and the DMP has determined that
accrued liability for an amount of otherwise attributable royalties has
been extinguished due to negotiated agreements (whether considered a
voluntary agreement, liquidation agreement, settlement, or release,
etc.) executed on a catalog or participating party basis, rather than a
matched-work basis.\26\ In such a circumstance, the DMP could report
based upon its good-faith estimate of accrued royalties for unmatched
uses when reporting to the MLC, and would be required to make an
adjustment to retain the limitation on liability if that estimate ends
up being incorrect. Under no circumstances could this provision be used
to shortchange payment of accrued royalties for musical work copyright
owners who did not
[[Page 70547]]
participate in such agreements. A DMP relying upon such an estimate
would be required to provide a list of such agreements to the MLC to
use in connection with matching against musical work information
provided by copyright owners and to provide an avenue for copyright
owners to dispute the fact or effect of such agreements. As the DLC has
requested, the proposal includes a requirement for such a DMP to cover
any deficit through prompt payment of an invoice issued by the MLC.\27\
Under the proposed rule, unreasonable or bad-faith withholding of
accrued royalties by a DMP may result in loss of the limitation on
liability.
---------------------------------------------------------------------------
\25\ See Accounting Standards Codification 405-20-40-1 (stating
a debtor ``shall derecognize a liability if and only if it has been
extinguished. A liability has been extinguished if either of the
following conditions is met: a. The debtor pays the creditor and is
relieved of its obligation for the liability[, or] b. The debtor is
legally released from being the primary obligor under the liability,
either judicially or by the creditor.''); see also Black's Law
Dictionary (11th ed. 2019) (defining ``accrued liability'' as ``[a]
debt or obligation that is properly chargeable in a given accounting
period but that is not yet paid'').
\26\ Again, it has been represented to the Office that for
certain DMPs, for certain periods of time, the overwhelming majority
of the music publishing industry participated in such agreements and
has settled relevant claims for those periods. This proposed
mechanism is intended to allow DMPs who believe that these
agreements impact the calculation of their accrued royalties to
transfer over their reasonable estimation of accrued royalties
remaining, including royalties accrued for non-participating
publishers during the relevant periods, subject to a later true-up
to maintain eligibility for the limitation on liability. In this
regard and without opining on the substance of these private
agreements, the proposal is intended to further congressional intent
to ``protect[ ] copyright owner interests'' without burdening
services with ``double payments,'' and avoid incentivizing
inefficient litigation. Letter from Senator Lindsey O. Graham,
Chairman, Senate Committee on the Judiciary, to U.S. Copyright
Office 1 (Sept. 30, 2020).
\27\ See DLC NPRM Comment at 16. The Office understands the DMPs
believe that their estimates err on the side of overpayment.
Nonetheless, to ensure prompt payment, the Office notices a rule
requiring ``true-up'' of underpayments within 14 business days of
being invoiced, rather than the 45 days proposed by the DLC. Cf. 17
U.S.C. 512(g)(2)(C) (setting out 14-day deadline for copyright
owners to institute court action).
---------------------------------------------------------------------------
Sound Recording and Musical Work Information and Format. In
addition to continuing to consider the requirements proposed in the
NPRM, the Copyright Office is now considering whether to instead
potentially adopt language closer to existing regulations for reporting
sound recording and musical work information,\28\ to reflect the DLC's
comments and incentivize optional participation in this transition
period reporting for cumulative statements of account.\29\ To ensure
the MLC receives additional information potentially valuable to reduce
the amount of unmatched uses, the Office, however, also proposes adding
a requirement that DMPs report information referenced in 17 U.S.C.
115(d)(10)(B)(i)(I)(aa) or (bb) that was acquired by the DMP in
connection with its efforts to obtain such information under 17 U.S.C.
115(d)(10)(B)(i)(I), or a DMP-assigned identifier, if such information
is requested by the MLC. The Office proposes that the requirement to
provide a DMP identifier, at a separate time from the February 2021
deadline to submit a cumulative statement of account, may aid the MLC
by providing a unique identifier that can easily link up with the
robust usage data the MLC will be receiving on an ongoing basis in
monthly reporting for blanket uses. The Office requests comments on the
feasibility and adequacy of this proposal, including whether there are
additional categories of information that DMPs should be required to
provide, and whether establishing set time periods by which a DMP is
obligated to submit such supplementary information may be preferable to
the request-based format of the proposed provision. The Office further
seeks comment on other methods to facilitate supplemental reporting,
such as bifurcating the timing required for reporting each of the
fields proposed in the July NPRM but otherwise retaining that proposed
structure; parties advocating an alternate approach are encouraged to
submit proposed regulatory language to that effect in their comments.
In providing such language to ensure ample opportunity for public
input, the Office does not wish to discourage continued dialogue
between the MLC and DLC as to this aspect of the reporting regulations,
as well as submission of any joint proposals that may result from
discussions.
---------------------------------------------------------------------------
\28\ See Long Island Care at Home, Ltd., 551 U.S. at 175
(suggesting that it is ``reasonably foreseeable'' that an agency may
withdraw a proposed rule).
\29\ See DLC NPRM Comment at 2, 7-10.
---------------------------------------------------------------------------
Additionally, MediaNet recently voiced its concern with being able
to report its pre-2013 royalty and usage data in cumulative statements
of account, stating that such data is not in its possession and may not
have been maintained by its former vendors.\30\ Noting that it is one
of the oldest digital services, it asked for a regulatory exemption to
address these concerns.\31\ Given the timing of MediaNet's request, the
Office is not proposing its own regulatory language, but requests
comments on MediaNet's proposal.
---------------------------------------------------------------------------
\30\ MediaNet Ex Parte Letter at 2-3 (Oct. 28, 2020).
\31\ Id. MediaNet proposes a new 37 CFR 210.20(c)(4)(iii) of the
proposed rule: ``The digital music provider shall be excused from
providing the information set forth in paragraphs (i) and (ii) where
the usage is from a period of time more than five years prior to
license availability date, and the digital music provider certifies
the following: that the information was solely held by a vendor with
whom the digital music provider no longer has a business
relationship, the digital music provider has requested that
information from such vendor, and the vendor has informed the
digital music provider that it cannot or will not provide that
information.'' Id. at 3 (Oct. 28, 2020).
---------------------------------------------------------------------------
The SNPRM also proposes imposing a records of use provision on
DMPs, and allowing the MLC and a DMP flexibility to agree to alter non-
substantive procedures, for example reporting formats, provided that
any such alteration does not materially prejudice copyright owners owed
royalties required to be transferred to the MLC or for the DMP's
eligibility for the 17 U.S.C. 115(d)(10) limitation on liability. The
SNPRM further proposes a modified version of the provision concerning
partially matched works.
In addition, at the DLC's request, the SNPRM proposes that if a DMP
is unable to report cumulative statements of account in the MLC's
preferred formats, a DMP may report in an alternative format, but must
always report in a flat-file or other machine-readable format (e.g.,
Excel, comma-separated values (CSV)) if the data exists in such
format.\32\ The Office invites comments on this subject, including
joint comments as appropriate. Finally, the Office invites comments on
whether to adopt a harmless error provision, similar to the provision
adopted for reporting by significant nonblanket licensees.\33\
---------------------------------------------------------------------------
\32\ Id. at 10, 23; DLC Ex Parte Letter at 3 (Aug. 27, 2020).
\33\ See 37 CFR 210.28(k); see also id. at Sec. 210.9 (pre-MMA
harmless error rule pertaining to Monthly and Annual Statements of
Account). No harmless error provision was adopted for blanket
licensee reports of usage in light of the statutory default
provision, which requires reporting to be ``materially deficient.''
See 17 U.S.C. 115(d)(4)(E)(i)(III).
---------------------------------------------------------------------------
III. Additional Comments and Timing
While the Copyright Office is interested in comments regarding the
above issues, it welcomes public comment on all aspects of the NPRM and
submitted comments, including comments contained in ex parte meeting
summary letters. In light of the statutory deadline related to the
submission of cumulative statements of account, the Office is providing
twenty days' notice for comment on this issue, and will continue to be
available for ex parte meetings with attendant disclosures concurrently
with the comment submission period.
List of Subjects in 37 CFR Part 210
Copyright, Phonorecords, Recordings.
Proposed Regulations
For the reasons set forth in the preamble, the Copyright Office
proposes amending 37 CFR part 210 as follows:
PART 210--COMPULSORY LICENSE FOR MAKING AND DISTRIBUTING PHYSICAL
AND DIGITAL PHONORECORDS OF NONDRAMATIC MUSICAL WORKS
0
1. The authority citation for part 210 continues to read as follows:
Authority: 17 U.S.C. 115, 702.
0
2. Amend Sec. 210.2 by revising paragraph (k) and removing paragraphs
(l) through (o) to read as follows:
Sec. 210.2 Definitions.
* * * * *
(k) Any terms not otherwise defined in this section shall have the
meanings set forth in 17 U.S.C. 115(e).
0
3. Amend Sec. 210.10 by revising paragraphs (b) introductory text,
(b)(1), (b)(2) introductory text, and (b)(3)(i) and
[[Page 70548]]
adding paragraphs (c) through (m) to read as follows:
Sec. 210.10 Statements required for limitation on liability for
digital music providers for the transition period prior to the license
availability date.
* * * * *
(b) If the copyright owner is not identified or located by the end
of the calendar month in which the digital music provider first makes
use of the work, the digital music provider shall accrue and hold
royalties calculated under the applicable statutory rate in accordance
with usage of the work, from initial use of the work until the accrued
royalties can be paid to the copyright owner or are required to be
transferred to the mechanical licensing collective, as follows:
(1) Accrued royalties shall be maintained by the digital music
provider in accordance with generally accepted accounting principles,
including those concerning derecognition of liabilities. Accrued
royalties can cease being accrued royalties within the meaning of 17
U.S.C. 115(e)(2) if the digital music provider's payment obligation is
extinguished, such as pursuant to a voluntary license or other
agreement whereby the digital music provider is legally released from
the liability by the relevant creditor copyright owner.
(2) If a copyright owner of an unmatched musical work (or share
thereof) is identified and located by or to the digital music provider
before the license availability date, the digital music provider shall,
unless a voluntary license or other relevant agreement entered into
prior to the time period specified in paragraph (b)(2)(i) of this
section applies to such musical work (or share thereof)--
* * * * *
(3) * * *
(i) Not later than 45 calendar days after the license availability
date, transfer accrued royalties to the mechanical licensing collective
(as required by paragraph (i)(2) of this section), such payment to be
accompanied by a cumulative statement of account that:
(A) Includes all of the information required by paragraphs (c)
through (e) of this section covering the period starting from initial
use of the work;
(B) Is delivered to the mechanical licensing collective as required
by paragraph (i)(1) of this section; and
(C) Is certified as required by paragraph (j) of this section; and
* * * * *
(c) Each cumulative statement of account delivered to the
mechanical licensing collective under paragraph (b)(3)(i) of this
section shall be clearly and prominently identified as a ``Cumulative
Statement of Account for Making and Distributing Phonorecords,'' and
shall include a clear statement of the following information:
(1) The period (months and years) covered by the cumulative
statement of account.
(2) The full legal name of the digital music provider and, if
different, the trade or consumer-facing brand name(s) of the
service(s), including any specific offering(s), through which the
digital music provider engages, or has engaged at any time during the
period identified in paragraph (c)(1) of this section, in covered
activities. If the digital music provider has a unique DDEX identifier
number, it must also be provided.
(3) The full address, including a specific number and street name
or rural route, of the place of business of the digital music provider.
A post office box or similar designation will not be sufficient except
where it is the only address that can be used in that geographic
location.
(4) For each sound recording embodying a musical work that is used
by the digital music provider in covered activities during the period
identified in paragraph (c)(1) of this section and for which a
copyright owner of such musical work (or share thereof) is not
identified and located by the license availability date, a detailed
cumulative statement, from which the mechanical licensing collective
may separate reported information for each month and year for each
applicable activity or offering including as may be defined in part 385
of this title, of all of:
(i) The royalty payment and accounting information required by
paragraph (d) of this section; and
(ii) The sound recording and musical work information required by
paragraph (e) of this section.
(5) The total accrued royalty payable by the digital music provider
for the period identified in paragraph (c)(1) of this section, computed
in accordance with the requirements of this section and part 385 of
this title, and including detailed information regarding how the
royalty was computed, with such total accrued royalty payable broken
down by month and year and by each applicable activity or offering
including as may be defined in part 385 of this title.
(i) Where a digital music provider has a reasonable good-faith
belief that the total accrued royalties payable are less than the total
of the amounts reported under paragraph (c)(4)(i) of this section, and
the precise amount of such accrued royalties cannot be calculated at
the time the cumulative statement of account is delivered to the
mechanical licensing collective because of the unmatched status of
relevant musical works embodied in sound recordings reported under
paragraph (c)(4)(ii) of this section, a reasonable estimation of the
total accrued royalties may be reported and transferred, determined in
accordance with GAAP and broken down by month and year and by each
applicable activity or offering including as may be defined in part 385
of this title. Any such estimate shall be made in good faith and on the
basis of the best knowledge, information, and belief of the digital
music provider at the time the cumulative statement of account is
delivered to the mechanical licensing collective, and subject to any
additional accounting and certification requirements under 17 U.S.C.
115 and this section. In no case shall the failure to match a musical
work by the license availability date be construed as prohibiting or
limiting a digital music provider's entitlement to use such an estimate
if the digital music provider has satisfied its obligations under 17
U.S.C. 115(d)(10)(B) to engage in required matching efforts.
(ii) A digital music provider reporting and transferring estimated
accrued royalties must provide a description of any voluntary license
or other agreement containing an appropriate release of royalty claims
relied upon by the digital music provider in making its estimation that
is sufficient for the mechanical licensing collective to engage in
efforts to confirm uses of musical works subject to any such agreement.
Such description shall be sufficient if it includes at least the
following information:
(A) An identification of each of the digital music provider's
services, including by reference to any applicable types of activities
or offerings that may be defined in part 385 of this title, relevant to
any such agreement. If such an agreement pertains to all of the digital
music provider's applicable services, it may state so without
identifying each service.
(B) The start and end dates of each covered period of time.
(C) Each applicable musical work copyright owner, identified by
name and any known and appropriate unique identifiers, and appropriate
contact information for each such musical work copyright owner or for
an administrator or other representative who has entered into an
applicable agreement on behalf of the relevant copyright owner.
(D) A satisfactory identification of any applicable catalog
exclusions.
[[Page 70549]]
(E) At the digital music provider's option, and in lieu of
providing the information listed in paragraph (c)(5)(ii)(D) of this
section, a list of all covered musical works, identified by appropriate
unique identifiers.
(F) A unique identifier for each such agreement.
(iii) After receiving the information required by paragraph
(c)(5)(ii) of this section, the mechanical licensing collective shall,
among any other actions required of it, engage in efforts to confirm
uses of musical works embodied in sound recordings reported under
paragraph (c)(4)(ii) of this section that are subject to any identified
agreement, and may notify relevant copyright owners of the digital
music provider's reliance on such identified agreement(s). Where the
mechanical licensing collective confirms a reported use of a musical
work to be subject to an identified agreement, the mechanical licensing
collective shall presume that the digital music provider has
appropriately relied upon the agreement, including during the pendency
of a dispute between a digital music provider and copyright owner over
the digital music provider's reliance on an identified agreement.
During the pendency of such a dispute, the mechanical licensing
collective shall not make a corresponding distribution to the relevant
copyright owner(s) or treat the amount at issue as an overpayment
unless it is directed to do so pursuant to the mutual agreement of the
relevant parties or by order of an adjudicative body with appropriate
authority.
(iv) Subject to paragraph (c)(5)(iii) of this section, if the
amount transferred to the mechanical licensing collective is
insufficient to cover any required distributions to copyright owners,
the mechanical licensing collective shall deliver an invoice and/or
response file to the digital music provider consistent with paragraph
(h) of this section that includes the amount outstanding (which shall
include the interest that would have accrued on such amount had it been
held by the mechanical licensing collective pursuant to 17 U.S.C.
115(d)(3)(H)(ii) from the original date of transfer) and the basis for
the mechanical licensing collective's conclusion that such amount is
due. No later than 14 business days after receipt of such notice, the
digital music provider must either pay the invoiced amount or notify
the mechanical licensing collective that it is disputing that
additional amounts are owed (whether in whole or in part). If disputed,
the mechanical licensing collective shall notify the relevant copyright
owner(s) and shall act in accordance with paragraph (c)(5)(iii) of this
section. In the event a digital music provider is found by an
adjudicative body with appropriate authority to have erroneously, but
not unreasonably or in bad faith, withheld accrued royalties, the
digital music provider may remain in compliance with this section for
purposes of retaining its limitation on liability if the digital music
provider has otherwise satisfied the requirements for the limitation on
liability described in 17 U.S.C. 115(d)(10) and if the additional
amount due is paid in accordance with a relevant order.
(v) Any overpayment of royalties based upon an estimate permitted
by paragraph (c)(5)(i) of this section shall be handled in accordance
with paragraph (k)(5) of this section.
(vi) Any underpayment of royalties shall be remedied by a digital
music provider without regard for the adjusted statute of limitations
described in 17 U.S.C. 115(d)(10)(C). By using an estimate permitted by
either paragraph (c)(5)(i) or (d)(2) of this section, a digital music
provider agrees to waive any statute-of-limitations-based defenses with
respect to any asserted underpayment of royalties connected to the use
of such an estimate.
(6) If the total accrued royalty reported under paragraph (c)(5) of
this section does not reconcile with the royalties actually transferred
to the mechanical licensing collective, or if the royalties reported
include use of an estimate as permitted under paragraph (c)(5)(i) of
this section, a clear and detailed explanation of the difference and
the basis for it.
(d) The royalty payment and accounting information called for by
paragraph (c)(4)(i) of this section shall consist of the following:
(1) A detailed and step-by-step accounting of the calculation of
attributable royalties under applicable provisions of this section and
part 385 of this title, sufficient to allow the mechanical licensing
collective to assess the manner in which the digital music provider
determined the royalty and the accuracy of the royalty calculations,
including but not limited to the number of payable units, including, as
applicable, permanent downloads, plays, and constructive plays, for
each reported sound recording.
(2) Where computation of the attributable royalties depends on an
input that is unable to be finally determined at the time the
cumulative statement of account is delivered to the mechanical
licensing collective and where the reason the input cannot be finally
determined is outside of the digital music provider's control (e.g.,
the amount of applicable public performance royalties and the amount of
applicable consideration for sound recording copyright rights), a
reasonable estimation of such input, determined in accordance with
GAAP, may be used or provided by the digital music provider. Royalty
payments based on such estimates shall be adjusted pursuant to
paragraph (k) of this section after being finally determined. A
cumulative statement of account containing an estimate permitted by
this paragraph (d)(2) should identify each input that has been
estimated, and provide the reason(s) why such input(s) needed to be
estimated and an explanation as to the basis for the estimate(s).
(3) All information and calculations provided pursuant to paragraph
(d) of this section shall be made in good faith and on the basis of the
best knowledge, information, and belief of the digital music provider
at the time the cumulative statement of account is delivered to the
mechanical licensing collective, and subject to any additional
accounting and certification requirements under 17 U.S.C. 115 and this
section.
(e)(1) The following information must be provided for each sound
recording embodying a musical work required to be reported under
paragraph (c)(4)(ii) of this section:
(i) The information referenced in Sec. 210.6(c)(3) that would have
been provided to the copyright owner had the digital music provider
been serving Monthly Statements of Account as a compulsory licensee in
accordance with this subpart on the copyright owner from initial use of
the work.
(ii) Any additional information requested in writing by the
mechanical licensing collective that either is referenced in 17 U.S.C.
115(d)(10)(B)(i)(I)(aa) or (bb) and that was acquired by the digital
music provider in connection with its efforts to obtain such
information under 17 U.S.C. 115(d)(10)(B)(i)(I), or, if available, is a
unique identifier assigned by the digital music provider to a reported
sound recording. The digital music provider must respond to such a
request within a reasonable period of time and may deliver any such
requested supplemental information to the mechanical licensing
collective outside of its cumulative statement of account in a
commercially reasonable manner of the digital music provider's
choosing. Providing such supplemental information shall not be
construed as an adjustment to a cumulative statement of account under
paragraph (k) of this section.
[[Page 70550]]
(2) For each track for which a share of a musical work has been
matched and for which accrued royalties for such share have been paid,
but for which one or more shares of the musical work remains unmatched
and unpaid, the digital music provider must provide a clear
identification of the total aggregate percentage share that has been
matched and paid and the owner(s) of the aggregate matched and paid
share (including any unique party identifiers for such owner(s) that
are known by the digital music provider), provided that, in the event
such information is maintained by a third-party vendor, that
information is made available to the digital music provider on
commercially reasonable terms.
(f) The information required by paragraphs (c), (d), (e), and (k)
of this section requires intelligible, legible, and unambiguous
statements in the cumulative statements of account, without
incorporation of facts or information contained in other documents or
records.
(g) References to part 385 of this title, as used in paragraphs
(c), (d), and (k) of this section, refer to the rates and terms of
royalty payments as in effect as to each particular reported use based
on when the use occurred.
(h) If requested by a digital music provider, the mechanical
licensing collective shall deliver an invoice and/or a response file to
the digital music provider within a reasonable period of time after the
cumulative statement of account and related royalties are received. The
response file shall contain such information as is common in the
industry to be reported in response files, backup files, and any other
similar such files provided to digital music providers by applicable
third-party administrators.
(i)(1) To the extent practicable, each cumulative statement of
account delivered to the mechanical licensing collective under
paragraph (b)(3)(i) of this section shall be delivered in a machine-
readable format that is compatible with the information technology
systems of the mechanical licensing collective as reasonably determined
by the mechanical licensing collective and set forth on its website,
taking into consideration relevant industry standards and the potential
for different degrees of sophistication among digital music providers.
The mechanical licensing collective must offer at least two options,
where one is dedicated to smaller digital music providers that may not
be reasonably capable of complying with the requirements of a reporting
or data standard or format that the mechanical licensing collective may
see fit to adopt for larger digital music providers with more
sophisticated operations. Nothing in this section shall be construed as
prohibiting the mechanical licensing collective from adopting more than
two reporting or data standards or formats. If it is not practicable
for a digital music provider to deliver its cumulative statement of
account in the manner specified by the mechanical licensing collective,
such digital music provider must deliver its cumulative statement of
account in a flat-file or other machine-readable format (e.g., Excel,
comma-separated values (CSV)) to the extent such digital music
provider's applicable data exists in such a format.
(2) To the extent practicable, royalty payments shall be delivered
to the mechanical licensing collective in such manner and form as the
mechanical licensing collective may reasonably determine and set forth
on its website. A cumulative statement of account and its related
royalty payment may be delivered together or separately, but if
delivered separately, the payment must include information reasonably
sufficient to allow the mechanical licensing collective to match the
cumulative statement of account to the payment.
(j) Each cumulative statement of account delivered to the
mechanical licensing collective under paragraph (b)(3)(i) of this
section shall be accompanied by:
(1) The name of the person who is signing and certifying the
cumulative statement of account.
(2) A signature, which in the case of a digital music provider that
is a corporation or partnership, shall be the signature of a duly
authorized officer of the corporation or of a partner.
(3) The date of signature and certification.
(4) If the digital music provider is a corporation or partnership,
the title or official position held in the partnership or corporation
by the person who is signing and certifying the cumulative statement of
account.
(5) One of the following statements:
(i) Statement one:
I certify that (1) I am duly authorized to sign this cumulative
statement of account on behalf of the digital music provider, (2) I
have examined this cumulative statement of account, and (3) all
statements of fact contained herein are true, complete, and correct to
the best of my knowledge, information, and belief, and are made in good
faith.
(ii) Statement two:
I certify that (1) I am duly authorized to sign this cumulative
statement of account on behalf of the digital music provider, (2) I
have prepared or supervised the preparation of the data used by the
digital music provider and/or its agent to generate this cumulative
statement of account, (3) such data is true, complete, and correct to
the best of my knowledge, information, and belief, and was prepared in
good faith, and (4) this cumulative statement of account was prepared
by the digital music provider and/or its agent using processes and
internal controls that were subject to an examination, during the past
year, by a licensed certified public accountant in accordance with the
attestation standards established by the American Institute of
Certified Public Accountants, the opinion of whom was that the
processes and internal controls were suitably designed to generate
monthly statements that accurately reflect, in all material respects,
the digital music provider's usage of musical works, the statutory
royalties applicable thereto, and any other data that is necessary for
the proper calculation of the statutory royalties in accordance with 17
U.S.C. 115 and applicable regulations.
(6) A certification by a duly authorized officer of the digital
music provider that the digital music provider has fulfilled the
requirements of 17 U.S.C. 115(d)(10)(B)(i) and (ii) but has not been
successful in locating or identifying the copyright owner.
(k)(1) A digital music provider may adjust its previously delivered
cumulative statement of account, including related royalty payments, by
delivering to the mechanical licensing collective a statement of
adjustment.
(2) A statement of adjustment shall be clearly and prominently
identified as a ``Statement of Adjustment of a Cumulative Statement of
Account.''
(3) A statement of adjustment shall include a clear statement of
the following information:
(i) The previously delivered cumulative statement of account,
including related royalty payments, to which the adjustment applies.
(ii) The specific change(s) to the previously delivered cumulative
statement of account, including a detailed description of any changes
to any of the inputs upon which computation of the royalties payable by
the digital music provider depends. Such description shall include the
adjusted royalties payable and all information used to compute the
adjusted royalties payable, in accordance with the requirements of this
section and part 385 of this title, such that the mechanical licensing
collective can provide a detailed and step-by-step accounting of the
calculation of the adjustment under
[[Page 70551]]
applicable provisions of this section and part 385 of this title,
sufficient to allow each applicable copyright owner to assess the
manner in which the digital music provider determined the adjustment
and the accuracy of the adjustment. As appropriate, an adjustment may
be calculated using estimates permitted under paragraph (d)(2) of this
section.
(iii) Where applicable, the particular sound recordings and uses to
which the adjustment applies.
(iv) A description of the reason(s) for the adjustment.
(4) In the case of an underpayment of royalties, the digital music
provider shall pay the difference to the mechanical licensing
collective contemporaneously with delivery of the statement of
adjustment or promptly after being notified by the mechanical licensing
collective of the amount due. A statement of adjustment and its related
royalty payment may be delivered together or separately, but if
delivered separately, the payment must include information reasonably
sufficient to allow the mechanical licensing collective to match the
statement of adjustment to the payment.
(5) In the case of an overpayment of royalties, the mechanical
licensing collective shall appropriately credit or offset the excess
payment amount and apply it to the digital music provider's account, or
upon request, issue a refund within a reasonable period of time.
(6)(i) A statement of adjustment must be delivered to the
mechanical licensing collective no later than 6 months after the
occurrence of any of the scenarios specified by paragraph (k)(6)(ii) of
this section, where such an event necessitates an adjustment. Where
more than one scenario applies to the same cumulative statement of
account at different points in time, a separate 6-month period runs for
each such triggering event.
(ii) A statement of adjustment may only be made:
(A) Except as otherwise provided for by paragraph (c)(5) of this
section, where the digital music provider discovers, or is notified of
by the mechanical licensing collective or a copyright owner, licensor,
or author (or their respective representatives, including by an
administrator or a collective management organization) of a relevant
sound recording or musical work that is embodied in such a sound
recording, an inaccuracy in the cumulative statement of account, or in
the amounts of royalties owed, based on information that was not
previously known to the digital music provider despite its good-faith
efforts;
(B) When making an adjustment to a previously estimated input under
paragraph (d)(2) of this section;
(C) Following an audit of a digital music provider that concludes
after the cumulative statement of account is delivered and that has the
result of affecting the computation of the royalties payable by the
digital music provider (e.g., as applicable, an audit by a sound
recording copyright owner concerning the amount of applicable
consideration paid for sound recording copyright rights); or
(D) In response to a change in applicable rates or terms under part
385 of this title.
(7) A statement of adjustment must be certified in the same manner
as a cumulative statement of account under paragraph (j) of this
section.
(l)(1) Subject to the provisions of 17 U.S.C. 115, a digital music
provider and the mechanical licensing collective may agree in writing
to vary or supplement the procedures described in this section,
including but not limited to pursuant to an agreement to administer a
voluntary license, provided that any such change does not materially
prejudice copyright owners owed royalties required to be transferred to
the mechanical licensing collective for the digital music provider to
be eligible for the limitation on liability described in 17 U.S.C.
115(d)(10). The procedures surrounding the certification requirements
of paragraph (j) of this section may not be altered by agreement. This
paragraph (l)(1) does not empower the mechanical licensing collective
to agree to alter any substantive requirements described in this
section, including but not limited to the required royalty payment and
accounting information and sound recording and musical work
information.
(2) The mechanical licensing collective shall maintain a current,
free, and publicly accessible online list of all agreements made
pursuant to paragraph (l)(1) of this section that includes the name of
the digital music provider (and, if different, the trade or consumer-
facing brand name(s) of the services(s), including any specific
offering(s), through which the digital music provider engages, or has
engaged at any time during the period identified in paragraph (c)(1) of
this section, in covered activities) and the start and end dates of the
agreement. Any such agreement shall be considered a record that a
copyright owner may access in accordance with 17 U.S.C.
115(d)(3)(M)(ii). Where an agreement made pursuant to paragraph (l)(1)
of this section is made pursuant to an agreement to administer a
voluntary license or any other agreement, only those portions that vary
or supplement the procedures described in this section and that pertain
to the administration of a requesting copyright owner's musical works
must be made available to that copyright owner.
(m) Each digital music provider shall, for a period of at least
seven years from the date of delivery of a cumulative statement of
account or statement of adjustment to the mechanical licensing
collective, keep and retain in its possession all records and documents
necessary and appropriate to support fully the information set forth in
such statement (except that such records and documents that relate to
an estimated input permitted under paragraph (d)(2) of this section
must be kept and retained for a period of at least seven years from the
date of delivery of the statement containing the final adjustment of
such input).
Dated: October 30, 2020.
Regan A. Smith,
General Counsel and Associate Register of Copyrights.
[FR Doc. 2020-24528 Filed 11-4-20; 8:45 am]
BILLING CODE 1410-30-P
