Music Modernization Act Transition Period Transfer and Reporting of Royalties to the Mechanical Licensing Collective

2176

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

1

Public Law 115–264, 132 Stat. 3676 (2018).

2

84 FR 32274 (July 8, 2019).

3

As permitted under the MMA, the Office

designated a digital licensee coordinator (‘‘DLC’’) to

represent licensees in proceedings before the

Copyright Royalty Judges (‘‘CRJs’’) and the Office,

to serve as a non-voting member of the MLC, and

to carry out other functions. 17 U.S.C. 115(d)(5)(B);

84 FR 32274 (July 8, 2019); see also 17 U.S.C.

115(d)(3)(D)(i)(IV), (d)(5)(C).

4

See 17 U.S.C. 115(b)(1), (c)(5) (2017).

5

H.R. Rep. No. 115–651, at 10 (2018); S. Rep. No.

115–339, at 10 (2018).

6

17 U.S.C. 115(b)(2)(A), (c)(2)(I); see H.R. Rep.

No. 115–651, at 4; S. Rep. No. 115–339, at 3.

7

17 U.S.C. 115(b)(2)(A), (d)(9)(D)(i), (d)(10)(A)–

(B); see H.R. Rep. No. 115–651, at 4, 10; S. Rep. No.

115–339, at 3, 10, 22.

8

17 U.S.C. 115(d)(10)(B); see H.R. Rep. No. 115–

651, at 4, 10; S. Rep. No. 115–339, at 3, 10.

9

H.R. Rep. No. 115–651, at 14; S. Rep. No. 115–

339, at 14–15; Report and Section-by-Section

Analysis of H.R. 1551 by the Chairmen and Ranking

Members of Senate and House Judiciary

Committees, at 12 (2018), https://

www.copyright.gov/legislation/mma_conference_

report.pdf (‘‘Conf. Rep.’’).

10

H.R. Rep. No. 115–651, at 13; S. Rep. No. 115–

339, at 14; Conf. Rep. at 12.

11

17 U.S.C. 115(d)(10)(B)(iii).

12

Id. at 115(d)(10)(B)(iv).

13

Id.

14

Id. at 115(d)(10)(B)(iv)(II).

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

AGENCY

: U.S. Copyright Office, Library

of Congress.

ACTION

: Final rule.

SUMMARY

: Pursuant to title I of the Orrin

G. Hatch-Bob Goodlatte Music

Modernization Act, and following

extensive solicitation of public

comments, the U.S. Copyright Office is

issuing a final rule addressing digital

music providers’ obligations to transfer

and report accrued royalties for the use

of unmatched musical works (or shares

thereof) to the mechanical licensing

collective for purposes of eligibility for

the Act’s limitation on liability for prior

unlicensed uses.

DATES

: The rule is effective February 10,

2021.

FOR FURTHER INFORMATION CONTACT

:

Regan A. Smith, General Counsel and

Associate Register of Copyrights, by

email at regans@copyright.gov, John R.

Riley, Assistant General Counsel, by

email at jril@copyright.gov, or Jason E.

Sloan, Assistant General Counsel, by

email at jslo@copyright.gov. Each can be

contacted by telephone by calling (202)

707–8350.

SUPPLEMENTARY INFORMATION

:

I. Background

On October 11, 2018, the president

signed into law the Orrin G. Hatch-Bob

Goodlatte Music Modernization Act

(‘‘MMA’’) which, among other things,

substantially modifies the compulsory

‘‘mechanical’’ license for making and

distributing phonorecords of

nondramatic musical works under 17

U.S.C. 115.

1

It does so by switching

from a song-by-song licensing system to

a blanket licensing regime administered

by a mechanical licensing collective

(‘‘MLC’’) that becomes available on

January 1, 2021 (the ‘‘license availability

date’’). In July 2019, the Copyright

Office (the ‘‘Office’’) designated an

entity to serve as the MLC, as required

by the MMA.

2

Digital music providers

(‘‘DMPs’’) can obtain the new blanket

license to make digital phonorecord

deliveries (‘‘DPDs’’) of musical works,

including in the form of permanent

downloads, limited downloads, or

interactive streams (referred to in the

statute as ‘‘covered activity,’’ where

such activity qualifies for a compulsory

license), subject to compliance with

various requirements.

3

As was true

before the MMA, DMPs may enter into

privately negotiated voluntary licenses

with copyright owners in lieu of using

the compulsory license.

Prior to the MMA, DMPs obtained a

section 115 compulsory license on a

per-work, song-by-song basis, by serving

a notice of intention to obtain a

compulsory license (‘‘NOI’’) on the

copyright owner (or filing it with the

Office if the Office’s public records did

not identify the copyright owner) and

then paying applicable royalties

accompanied by accounting

statements.

4

The MMA includes a

‘‘transition period’’ covering the period

following its October 2018 enactment

and before the blanket license becomes

available in January 2021.

5

During this

transition period, anyone seeking to

obtain a compulsory license to make

DPDs must continue to do so on a song-

by-song basis by serving NOIs on

copyright owners ‘‘if the identity and

location of the musical work copyright

owner is known,’’ and paying them

applicable royalties accompanied by

statements of account.

6

If the musical

work copyright owner is unknown, a

DMP can no longer file an NOI with the

Office, but instead may rely on a

limitation on liability that requires the

DMP to, among other things,

‘‘continue[ ] to search for the musical

work copyright owner’’ using good-

faith, commercially reasonable efforts

and bulk electronic matching

processes.

7

The DMP must either

account for and pay accrued royalties to

the relevant musical work copyright

owner(s) when found or, if they are not

found before the end of the transition

period, account for and transfer accrued

royalties to the MLC at that time.

8

Congress believed that the liability

limitation, which limits recovery in

lawsuits commenced on or after January

1, 2018 to the statutory royalty that

would be due, would ‘‘ensure that more

artist royalties will be paid than

otherwise would be the case through

continual litigation,’’

9

and also viewed

this provision as a ‘‘key component that

was necessary’’ to ensure support for

legislative change.

10

With respect to reporting and

payment requirements for eligibility for

the limitation on liability, the statute

details three scenarios. First, if the DMP

is successful in identifying and locating

a copyright owner of a musical work (or

share) by the end of the calendar month

in which the DMP first makes use of the

work, it must provide statements of

account and pay royalties to that

copyright owner in accordance with

section 115 and applicable

regulations.

11

The second and third

scenarios apply if the copyright owner

is not identified or located by that

date.

12

In such cases, the DMP must

accrue and hold applicable statutory

royalties in accordance with usage of

the work, from the initial use of the

work until the royalties can be paid to

the copyright owner or are required to

be transferred to the MLC at the end of

the transition period.

13

If a copyright

owner of an unmatched musical work

(or share) is identified and located

before the license availability date, the

DMP must pay the copyright owner all

accrued royalties accompanied by a

cumulative statement of account that

includes the information that would

have been provided had the DMP been

providing monthly statements of

account to the copyright owner from its

initial use of the work in accordance

with section 115 and applicable

regulations.

14

If a copyright owner of an

unmatched musical work (or share) is

not identified and located by the license

availability date, the DMP must, among

other things, transfer, no later than 45

calendar days after the license

availability date, ‘‘all accrued royalties’’

to the MLC ‘‘accompanied by a

cumulative statement of account that

includes all of the information that

would have been provided to the

copyright owner had the [DMP] been

serving monthly statements of account

on the copyright owner from initial use

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2177

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

15

See 37 CFR 210.6(f)(1)(v).

16

17 U.S.C. 115(d)(10)(B)(iv)(III).

17

83 FR 63061 (Dec. 7, 2018).

18

See 37 CFR 210.10.

19

See 84 FR 10685 (Mar. 22, 2019).

20

84 FR 49966 (Sept. 24, 2019).

21

Id. at 49971.

22

See MLC Initial NOI Comment at 22–23; MLC

Reply NOI Comment at 27–30, App. D at 19; MLC

Ex Parte Letter at 2–4 (June 17, 2020).

23

See DLC Initial NOI Comment at 18–19; DLC

Reply NOI Comment at 24–25, Add. A–24.

24

85 FR 43517 (July 17, 2020) (‘‘NPRM’’). All

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.

Comments received in response to the September

2019 notification of inquiry are available at https://

www.regulations.gov/docket?D=COLC-2019-0002,

comments received in response to the NPRM and

supplemental notice of proposed rulemaking

(‘‘SNPRM’’) are available at https://

www.regulations.gov/docket?D=COLC-2020-0011.

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.

References to these comments are by party name

(abbreviated where appropriate), followed by

‘‘Initial NOI Comment,’’ ‘‘Reply NOI Comment,’’

‘‘NPRM Comment,’’ ‘‘SNPRM Comment,’’ or ‘‘Ex

Parte Letter,’’ as appropriate.

25

See MLC NPRM Comment at 1 (‘‘The Proposed

Regulation considers the aims and goals of the

MMA in creating the new mechanical licensing

system, and works to empower the MLC to improve

the matching of DMP usage to musical works and

the owners thereof and thereby reduce unmatched

and unclaimed royalties. The MLC agrees with the

bulk of the language in the Proposed Regulation.’’).

26

See DLC NPRM Comment at 2–3.

27

See, e.g., Artist Rights Alliance (‘‘ARA’’), Music

Artists Coal. (‘‘MAC’’), Nashville Songwriters Ass’n

Int’l (‘‘NSAI’’), Google Ex Parte Letter (Oct. 23,

2020); MediaNet Ex Parte Letter (Oct. 28, 2020);

MLC Ex Parte Letter (Oct. 16, 2020); Nat’l Music

Publishers’ Ass’n (‘‘NMPA’’) Ex Parte Letter (Nov.

3, 2020); Recording Acad. & Songwriters of N. Am.

(‘‘SONA’’) Ex Parte Letter (Sept. 22, 2020); DLC Ex

Parte Letter (Oct. 14, 2020); Songwriters Guild of

Am. (‘‘SGA’’), Soc’y of Composers & Lyricists

(‘‘SCL’’), All. for Women Film Composers

(‘‘AWFC’’) & Music Creators N. Am. (‘‘MCNA’’) Ex

Parte Letter (Sept. 15, 2020); SATV Music Publ’g

(‘‘SATV’’) Ex Parte Letter (Oct. 28, 2020); Spotify

Ex Parte Letter (Oct. 9, 2020); Universal Music

Publ’g Grp. (‘‘UMPG’’) Ex Parte Letter (Oct. 30,

2020); Warner Music Grp. (‘‘WMG’’) Ex Parte Letter

(Oct. 21, 2020).

28

85 FR 70544, 70546 (Nov. 5, 2020) (‘‘SNPRM’’).

29

Id. at 70545–46; Letter from Senator Lindsey O.

Graham, Chairman, Senate Committee on the

Judiciary, to U.S. Copyright Office 1 (Sept. 30,

2020); Johnson v. Copyright Royalty Bd., 969 F.3d

363 (D.C. Cir. 2020).

30

SNPRM at 70547.

31

Id. at 70546–47.

32

See DLC SNPRM Comment at 12–13; MLC

SNPRM Comment at 15–17; DLC & MLC Ex Parte

Letter (Dec. 9, 2020).

of the work in accordance with [section

115] and applicable regulations,’’

including the certification that would

have been provided to an identified

copyright owner

15

as well as an

additional certification attesting to the

DMP’s matching efforts during the

transition period.

16

In December 2018, the Office

published an interim rule and requested

comments to address payment and

reporting obligations during the

transition period.

17

That interim rule

specified that DMPs must pay royalties

and provide cumulative statements of

account to copyright owners and the

MLC in compliance with the Office’s

preexisting regulations regarding

monthly statements of account.

18

The

Office received no comments in

response to this public rulemaking and

finalized the rule in March 2019.

19

In

September 2019, the Office issued a

notification of inquiry regarding various

topics related to MMA

implementation.

20

Observing the

‘‘persistent concern about the ‘black

box’ of unclaimed royalties, including

its amount and treatment by digital

music providers and the MLC,’’ this

notice provided additional opportunity

for public comment on, among other

things, ‘‘any issues that should be

considered relating to the transfer and

reporting of unclaimed royalties by

digital music providers to the MLC.’’

21

Both the MLC and DLC provided

comments in response to this later

inquiry, as discussed further below. The

MLC generally sought to expand the

reporting and formatting requirements

in a manner that approximated its

requests for monthly reporting by

blanket licensees on a prospective basis,

to better facilitate its matching activities

(which the DLC opposed).

22

The DLC

specifically sought regulatory certainty

to ensure that monies previously paid

by DMPs to copyright owners pursuant

to privately negotiated, pre-MMA

agreements need not also be paid a

second time to the MLC to maintain

DMP eligibility for the limitation on

liability (which the MLC opposed).

23

In July 2020, the Office issued a

notice of proposed rulemaking

(‘‘NPRM’’) to address these comments.

24

It proposed expanding the reporting

requirements to accommodate the

MLC’s request for additional

information. The NPRM also offered

initial guidance regarding the potential

relationship of pre-MMA agreements to

the cumulative statement reporting

obligations, but did not propose specific

regulatory language concerning the

issue of potential ‘‘double payments’’ in

connection with such agreements; the

Office invited further comment on the

issue. The MLC’s comments to the

NPRM were largely supportive of the

NPRM’s proposed approach.

25

The DLC

supported some aspects of the proposed

rule, but expressed concern with some

of the proposed reporting requirements

and urged the Office to promulgate

regulations addressing privately

negotiated pre-MMA agreements and

their interaction with the limitation on

liability requirements.

26

Through the

Office’s permitted ex parte meeting

option, those parties, as well as

individual DMPs, music publishers, and

songwriter groups provided additional

views regarding these issues, as

summarized on the Office’s ex parte

communications web page.

27

In November 2020, the Office issued

an SNPRM after determining that the

public process would benefit from

soliciting comments on alternative

regulatory language to ensure that

further views could be duly considered

on the issues raised in the proceeding.

28

The Office noted that the SNPRM

resulted from then-received public

comments, a letter from Senate Judiciary

Committee Chairman Lindsey O.

Graham specifically raising the issue of

pre-MMA agreements between DMPs

and music publishers and the payment

of unclaimed accrued royalties, and the

D.C. Circuit’s partial vacatur and

remand of the Copyright Royalty Judges’

(‘‘CRJs’’) Phonorecords III

determination.

29

The Office explained

that although it had not reached any

final conclusions, it was issuing the

SNPRM to provide interested parties

with adequate notice and opportunity to

comment in advance of the February

2021 deadline for DMPs to be able to

submit cumulative statements of

account to the MLC.

The SNPRM presented two main

potential modifications to the NPRM.

First, to address the DLC’s comments,

the requirements governing reporting of

sound recording and musical work

information would more closely track

existing regulations, with an added

requirement that DMPs report certain

additional information if requested by

the MLC.

30

Second, the circumstances

under which a DMP may estimate and

adjust the computation of its accrued

royalties would be expanded where

such computation depends upon an

input that is unable to be finally

determined at the time the cumulative

statement of account is due.

31

In

response to the SNPRM, the MLC and

DLC largely reached consensus on the

data reporting issue, except with respect

to partially matched works.

32

On the

second issue, the MLC and DLC both

supported the SNPRM’s approach to

more closely track the December 2018

interim rule on estimates and

adjustments adopted for reports of usage

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2178

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

33

See DLC SNPRM Comment at 2; MLC SNPRM

Comment at 13–14, App. A at v, ix–x.

34

See DLC SNPRM Comment at 1–12.

35

See MLC SNPRM Comment at 2–13.

36

See ARA, Future of Music Coal. (‘‘FMC’’) &

MusicAnswers SNPRM Comment at 2–4

(supporting); MAC, Recording Acad. & SONA

SNPRM Comment at 2–3 (opposing); SGA, SCL &

MCNA SNPRM Comment at 5–6 (declining ‘‘to

speak directly in these Comments regarding the

USCO’s proposed Supplemental USCO Rules’’ due

to underlying concerns with DMP and publisher

transparency surrounding pre-MMA agreements).

37

See Letter from Senator Lindsey O. Graham,

Chairman, Senate Committee on the Judiciary, to

U.S. Copyright Office 1 (Sept. 30, 2020).

38

See H.R. Rep. No. 115–651, at 14; S. Rep. No.

115–339, at 15; Conf. Rep. at 12 (‘‘The Copyright

Office has the knowledge and expertise regarding

music licensing through its past rulemakings and

recent assistance to the Committee[s] during the

drafting of this legislation.’’); 17 U.S.C.

115(d)(12)(A) (‘‘The Register of Copyrights may

conduct such proceedings and adopt such

regulations as may be necessary or appropriate to

effectuate the provisions of this subsection.’’);

Alliance of Artists & Recording Cos. v. DENSO Int’l

Am., Inc., 947 F.3d 849, 863 (D.C. Cir. 2020) (‘‘[T]he

best evidence of a law’s purpose is the statutory

text, and most certainly when that text is the result

of carefully negotiated compromise among the

stakeholders who will be directly affected by the

legislation.’’) (internal quotation marks, brackets,

and citations omitted); 84 FR at 49967–68.

39

H.R. Rep. No. 115–651, at 5–6, 14; S. Rep. No.

115–339, at 5, 15; Conf. Rep. at 4, 12

(acknowledging that ‘‘it is to be expected that

situations will arise that were not contemplated by

the legislation,’’ and that ‘‘[t]he Office is expected

to use its best judgement in determining the

appropriate steps in those situations’’); see 17

U.S.C. 115(d)(12)(A); Nat’l Cable & Telecomms.

Ass’n v. Brand X internet Servs., 545 U.S. 967, 980

(2005) (‘‘[A]mbiguities in the statutes within an

agency’s jurisdiction to administer are delegations

of authority to the agency to fill the statutory gap

in reasonable fashion.’’) (citing Chevron, U.S.A.,

Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837

(1984)).

40

NPRM at 43519; see 37 CFR 210.20.

41

NPRM at 43519; the interim rule regarding

monthly reports of usage was published in 85 FR

58114 (Sept. 17, 2020).

42

NPRM at 43519 (quoting DLC NPRM Reply at

24).

43

Id. at 43525.

44

DLC NPRM Comment at Add. 21; DLC Ex Parte

Letter at 2 (Aug. 11, 2020).

45

DLC NPRM Comment at 8 (‘‘This uncertainty

and ambiguity undermines the central bargain of

the statute by eroding DMPs’ confidence in their

ability to rely on the limitation on liability, thus

decreasing their incentive to pay accrued royalties

to the MLC if they cannot provide certain data

included in the new rules.’’); see also DiMA NPRM

Comment at 6–7 (saying the NPRM’s reporting

amendments would create ‘‘massive operational

hurdles’’ and would ‘‘jeopardize[] every [DMP’s]

eligibility for the limitation on liability’’).

46

SNPRM at 70547.

under the blanket license.

33

They

disagreed, however, on the SNPRM’s

proposed approach to address reporting

with respect to any applicable pre-MMA

agreements. The DLC supported the

SNPRM’s approach

34

while the MLC

did not,

35

and songwriter groups were

split.

36

At Chairman Graham’s request, the

Office also convened a joint meeting to

discuss their views on the treatment of

certain pre-MMA agreements in

connection with the limitation on

liability requirements. Although it

became clear that no significant

consensus had emerged, the Office

found it helpful for the parties to engage

with each other directly, and believes

that the record has benefited from the

input of a variety of perspectives, each

of which the Office has carefully

considered in moving forward with a

rule regarding cumulative statements

consistent with the MMA’s statutory

deadline.

37

Having reviewed and considered all

relevant comments received in response

to the notification of inquiry, NPRM,

and SNPRM, including through a

number of permitted ex parte

communications as detailed under the

Office’s procedures, the Office has

weighed the legal, business, and

practical implications and equities that

have been raised. Pursuant to its

authority under 17 U.S.C. 115 and 702,

it is adopting final regulations with

respect to DMP obligations to transfer

and report accrued royalties for

unmatched musical works (or shares) to

the MLC for purposes of eligibility for

the MMA’s limitation on liability for

prior unlicensed uses, which it believes

best reflect the statutory language and

its animating goals in light of the

rulemaking’s record.

38

In doing so, the

Office has exercised its ‘‘broad

regulatory authority’’ and ‘‘use[d] its

best judgement in determining the

appropriate steps’’ as Congress

directed.

39

II. Final Rule

Several aspects of the proposed rule

were not opposed. Where parties

objected to other aspects of the

proposed rule, the Office has considered

those comments and resolved the issues

as discussed below. If not otherwise

discussed, the Office has concluded that

the relevant proposed provision should

be adopted as final for the reasons stated

in the NPRM (though in some such

cases, the adopted language reflects

minor technical edits). In promulgating

this rule, the Office has endeavored to

ensure that the MLC receives the

information and royalties it needs to

fulfill its statutory duties, that copyright

owners and songwriters are accurately

paid any royalties they are owed, and

that DMPs can realistically and

practicably obtain the limitation on

liability by complying with the statutory

requirements.

A. Cumulative Statements of Account

Content and Format

This section of the preamble discusses

the final rule’s content and format

requirements for cumulative statements

of account delivered to the MLC, except

with respect to requirements connected

to the reliance upon estimates,

adjustments, and reconciliation of

statements, which are addressed below.

1. Sound Recording and Musical Work

Information

The NPRM proposed requiring DMPs

to provide additional information

concerning sound recording and

musical work metadata beyond what is

required by existing regulations

governing cumulative statements of

account.

40

The proposed requirements

largely mirrored the content

requirements the Office had proposed in

a parallel rulemaking (and has recently

adopted) for monthly reports of usage

under the blanket license.

41

This general

approach was recommended by the

MLC but disfavored by the DLC, which

called it ‘‘impractical’’ and explained

that ‘‘digital music providers have

maintained usage information . . . with

the existing statement of account

regulations in mind.’’

42

The Office sought to address the

DLC’s concerns by including a

practicability standard: DMPs would

only be required to report information

that would not have been reported to

copyright owners in monthly statements

of account, ‘‘to the extent

practicable.’’

43

In response, the DLC

‘‘emphatically opposed’’ the NPRM, and

described the requirement to report

additional information as ‘‘impossible,’’

explaining that some of the information

had not been collected by DMPs in the

past and could not be collected in time

to include in cumulative statements of

account.

44

The DLC further stated that

the addition of a ‘‘practicability’’

standard did not alleviate its concerns,

and implied that the reporting

requirement as proposed might cause

DMPs to forgo taking advantage of the

limitation on liability.

45

The SNPRM sought additional

comments on this issue, stating the

Office was considering adopting

alternative language ‘‘to reflect the

DLC’s comments and incentivize

optional participation in th[e] transition

period reporting for cumulative

statements of account.’’

46

The Office

proposed a baseline reporting

requirement for sound recording and

musical work information that was

closer to the existing requirements for

transition period cumulative statements

of account, but added a requirement that

DMPs additionally ‘‘report information

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2179

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

47

Id.; see also 17 U.S.C. 115(d)(10)(B)(i)(I)(aa)

(‘‘Sound recording name, featured artist, sound

recording copyright owner, producer, international

standard recording code, and other information

commonly used in the industry to identify sound

recordings and match them to the musical works

they embody.’’); id. at 115(d)(10)(B)(i)(I)(bb) (‘‘Any

available musical work ownership information,

including each songwriter and publisher name,

percentage ownership share, and international

standard musical work code.’’).

48

SNPRM at 70547.

49

Id.

50

DLC & MLC Ex Parte Letter at 1 (Dec. 9, 2020).

51

Id.

52

Id. at 2. The MLC and DLC’s proposed

regulations do not require reporting of publisher or

copyright owner information in the supplemental

metadata report. This absence makes sense given

that the data applies to unmatched royalties.

Reporting requirements for partially matched tracks

are discussed below.

53

Id. The Office presumes that the DLC’s support

of this joint proposal moots any concerns it voiced

regarding the NPRM.

54

In an ex parte meeting subsequent to the

publication of the DLC & MLC joint proposal, Music

Reports (a vendor of various DMPs) raised concerns

regarding the introduction of new reporting

requirements for cumulative statements of account

so close to the required delivery date. Music

Reports Ex Parte Letter at 2 (Dec. 15, 2020). While

the Office does not discount the validity of these

concerns, it notes that it is the DMPs, not Music

Reports, who bear the risk, since they are subject

to this requirement to maintain the statutory

limitation on liability. Given that the DLC, which

represents DMP interests, believes the reporting

requirements are appropriate, the Office declines to

deviate from the proposal.

55

DLC & MLC Ex Parte Letter at 2 (Dec. 9, 2020).

56

Id. The proposed language states, inter alia,

that in the event injunctive relief is granted, ‘‘the

court shall award, notwithstanding anything to the

contrary in section 505, reasonable attorney’s fees

and costs, as well as such other relief as the court

determines appropriate,’’ or, in the event the court

finds that the DMP acted unreasonably or in bad

faith, ‘‘damages in the amount of 1.5% per month

on the amount of royalties transferred pursuant to

subsection (b)(3)(i), or the highest lawful rate,

whichever is lower, for the period from June 15,

2021 until the supplemental metadata report is

provided to the mechanical licensing collective.’’

Id. at 10.

57

Id. at 3.

58

Id.

59

Id.

60

Id. at 2–3 (‘‘As an initial matter, DLC and MLC

agree that loss of the limitation of liability or the

blanket license would be an inappropriate means of

enforcing the format and supplemental metadata

report requirements proposed herein.’’).

61

17 U.S.C. 115(d)(10)(B)(iv)(II)(aa).

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.’’

47

It sought comment on the feasibility and

adequacy of this proposal or whether, as

an alternative to DMPs providing such

information upon the MLC’s request, the

regulations should require submission

of such supplementary information by a

set date.

48

The Office encouraged

‘‘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.’’

49

The MLC and DLC did engage in

continued discussions on this issue,

which proved fruitful. In a December

2020 ex parte meeting, the organizations

reported that they had reached

agreement ‘‘on an operational

framework that ensures the MLC obtains

all reasonably available metadata for

unmatched works via a simplified

format that DLC members are well-

prepared to operationalize,’’ along with

proposed regulatory language.

50

Their

proposal would require DMPs to

provide to the MLC by February 2021 a

cumulative statement of account

‘‘containing all metadata information

that would have been delivered to

copyright owners under the pre-MMA

monthly statements of account,’’ similar

to the present transition period

requirement for cumulative statement of

account.

51

DMPs would also be required

to submit a supplemental metadata

report to the MLC by June 15, 2021

containing ‘‘(1) available and up-to-date

track-level metadata that has been

obtained by the services and (2) in the

event copyright owners of partial shares

of particular works were identified and

paid, information regarding those paid

parties and the amounts that were

paid.’’

52

The cumulative statement of

account would also contain both a DMP-

provided track identifier and a unique

identifier for each individual ‘‘usage’’

line that the MLC will use to index to

the later-delivered supplemental

metadata report.

53

The Office appreciates the cooperative

efforts of the MLC and DLC in crafting

this joint proposal and generally agrees

with their approach and list of

information to be reported. The Office

believes the proposal constitutes a

reasonable approach that provides legal

certainty and effectuates the intent of

the MMA in light of the operational

realities DMPs face at this time.

54

The

supplemental metadata provided by

DMPs beyond what they are required to

report under existing cumulative

statement of account regulations should

benefit the MLC in executing its

matching duties, and the inclusion of a

unique identifier will further enable the

MLC to link data received through usage

reports and the supplemental metadata

report with sound recording and

musical work information it receives in

cumulative statements of account. At

the same time, this pragmatic approach

mitigates the risk that DMPs would

forgo the statutory limitation on

liability, which would ultimately harm

songwriters, copyright owners, and

DMPs by incentivizing continued

litigation.

The joint proposal provides that

‘‘failure to deliver the supplemental

metadata report would not result in the

loss of limitation of liability or the

blanket license.’’

55

The MLC and DLC

additionally propose that the MLC

could enforce the supplemental

metadata report delivery requirement by

bringing an action in federal court

against a DMP for ‘‘injunctive relief

requiring delivery of that report, plus

costs and attorney’s fees and,

potentially, a penalty on the amount of

accrued royalties paid to the MLC.’’

56

During the ex parte meeting, the Office

asked the MLC and DLC about the

Office’s authority to adopt language

prescribing these enforcement

remedies.

57

The MLC and DLC

responded that they believed the

Office’s general regulatory authority

under section 115(d) was broad enough

to cover this enforcement mechanism.

58

They explained that the proposal ‘‘is

intended to fill a gap in the statutory

scheme,’’ saying that while the statute

requires collection of such metadata by

DMPs, it does not explicitly require

delivery of the metadata to the MLC.

59

The Office agrees with the MLC and

DLC that failure to provide the

additional metadata should not result in

loss of the limitation on liability or

default of the blanket license.

60

This

result is consistent with the statute,

which premises the limitation on

liability on a requirement to report only

‘‘all of the information that would have

been provided to the copyright owner

had the digital music provider been

providing monthly statements of

account to the copyright owner from

initial use of the work in accordance

with this section and applicable

regulations.’’

61

The Office declines, however, to

adopt the enforcement mechanism

provisions proposed by the MLC and

DLC. The Office has accommodated

concerns regarding a gap in the statute

by requiring, via regulation, that DMPs

report the requested supplemental

metadata. Multiple reasons compel the

Office not to prescribe penalties for

noncompliance to a federal court (which

would also construct an entirely new

monetary damages scheme for the MLC

to administer). First, the timing of the

proposal came too late in the

rulemaking process to provide adequate

notice to other potentially interested

parties. Second, the establishment of

such a penalty provision via regulations

would be a significant departure from

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2180

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

62

E.g., id. at 115(d)(2)(A)(v) (improper rejection of

notice of license); id. at 115(d)(4)(E)(iv) (improper

termination of blanket license).

63

Id. at 115(d)(3)(C)(i)(VIII); DLC & MLC Ex Parte

Letter at 3 (Dec. 9, 2020).

64

The SNPRM itself was the latest formal call for

public comment on an issue that has been open to

public comment through various mechanisms since

December 2018. See 83 FR 63061 (interim rule); see

also 84 FR 49966 (notification of inquiry); NPRM;

SNPRM.

65

NPRM at 43521; see MLC Reply NOI Comment

App. D at 19; MLC Ex Parte Letter at 3 (June 17,

2020) (giving the example of an identified 50% co-

owner being paid their 50% share by a DMP, and

then subsequently being paid half of the remaining

share by the MLC due to lack of record of the first

payment; stating that ‘‘reporting on partially-

matched works and the respective shares that the

DMP already paid is essential to allow the MLC to

properly credit share owners who have been paid

and avoid double payments’’).

66

NPRM at 43521; see DLC Reply NOI Comment

at 25.

67

DLC Reply NOI Comment at 25.

68

MLC Ex Parte Letter at 4 (June 17, 2020).

69

NPRM at 43525.

70

Id. at 43521.

71

MLC NPRM Comment at 6.

72

Id. at 6, App. A at v.

73

Id. at 6–7, App. A at v–vi.

74

See SNPRM at 70550.

75

DLC NPRM Comment at 6.

76

Id. at 2.

77

Id. at 6.

78

Id.

79

Id. at 7 n.15.

80

DLC Ex Parte Letter at 5, 14–15 (Oct. 14, 2020);

see DLC NPRM Comment at 7.

81

Music Reports Ex Parte Letter at 2 (Sept. 29,

2020) (‘‘We are currently working with our clients

to understand and support their needs, on

commercially reasonable terms, with respect to

these needs. . . .’’); see DLC Ex Parte Letter at 5

(Oct. 14, 2020) (‘‘Music Reports, Inc., has recently

expressed willingness to provide this information to

the MLC on behalf of its clients, although the

commercial terms are still being discussed, and any

regulatory provision here should ensure that

vendors are not given undue bargaining power.’’).

historical practice: The Office is not

aware of analogous provisions

elsewhere in its regulations. Finally, the

Office notes that multiple provisions in

the MMA provide that a ‘‘district court

shall determine the matter de novo.’’

62

The statute provides the MLC with the

authority to enforce rights and

obligations, including regulatory

obligations, through the courts, which

are well-positioned to determine

appropriate remedies. The MLC and

DLC also requested that, ‘‘if the Office

is disinclined to adopt the particular

enforcement mechanisms proposed

herein, . . . [it] revert to the MLC and

DLC for discussion of potential

alternatives.’’

63

In light of the advanced

stage of this process and fast-

approaching statutory deadline,

however, the Office declines further

discussion.

64

2. Partially Matched and Paid Works

Next, the Office addresses conflicting

proposals from the MLC and DLC

regarding the level of information that

must be provided with respect to

partially matched musical works. As

discussed in the NPRM, the MLC

initially requested that cumulative

statements of account include

information about matched shares of a

musical work where unmatched shares

for the work are reported, it expressed

the concern that if a DMP paid one

copyright owner its royalty share and

held accrued royalties for any remaining

unmatched share(s), then upon transfer

of such unmatched royalties, if the paid

share is not properly identified, the a

paid co-owner might be able to collect

a portion of an unpaid co-owner’s

share.

65

The NPRM noted that the DLC did not

appear to disagree with the MLC’s

description of the issue, but had

suggested that DMPs’ third-party

vendors, who it said are subject to

‘‘strict contractual confidentiality

restrictions,’’ may have this information

and not the DMPs themselves.

66

The

DLC asked that the Office ‘‘account for

these [confidentiality] restrictions and

protect digital music providers from any

liability related to their breach.’’

67

In

response, the MLC offered to amend its

proposal to limit share reporting ‘‘to the

share percentage and the owner of the

share that was paid, [and] omit[ ] the

precise amount of royalties paid under

the voluntary license terms,’’ presuming

that the DLC’s confidentiality concern

‘‘relates to the amounts of royalties paid

under voluntary licenses.’’

68

The NPRM largely adopted the MLC’s

amended proposal, stating that for each

track for which a share of a musical

work has been matched and for which

accrued royalties for that share have

been paid, but for which one or more

shares remains unmatched and unpaid,

the DMP must provide a clear

identification of the share(s) that have

been matched, the owner(s) of such

matched shares, and, for shares other

than those paid pursuant to a voluntary

license, the amount of the accrued

royalties paid.

69

The Office tentatively

concluded that the MLC’s proposal was

reasonable in light of the statutory

function of cumulative statements of

account, noting that the situation the

MLC anticipated seems likely to occur

and that having the matched share

information will be important.

70

In response, the MLC generally agreed

with the NPRM’s proposal but asked for

two clarifications:

71

First, that the

identification of the matched share(s)

explicitly be of the ‘‘percentage’’

share(s);

72

and second, that unique

party identifiers known by the DMP be

provided for the owner(s) of the

matched shares being reported, as they

‘‘are very valuable for efficiency and

accuracy.’’

73

The Office agreed that

having these identifiers will be helpful

to the MLC in processing cumulative

statements and proposed these

clarifications as part of the SNPRM.

74

Having received no comments in

opposition, the Office incorporates these

changes into the final rule.

The DLC’s response to the NPRM

confirmed its agreement that the

treatment of partially matched works is

‘‘a legitimate issue that needs to be

resolved.’’

75

It noted that it ‘‘support[s]

providing information regarding

partially matched works to ensure that

the appropriate copyright owners are

paid,’’ but only ‘‘as long as [DMPs] that

do not have that information because of

confidentiality restrictions in contracts

with third-party vendors are not

required to provide it in order to claim

the benefits of the MMA’s limitation on

liability.’’

76

The DLC expanded on its

vendor-related concerns, claiming that

one such vendor, Music Reports, ‘‘has

notified its client DMPs that it is

unwilling to share any musical work

ownership share information with the

MLC or the DMPs, as it regards that

information to be proprietary.’’

77

The

DLC expressed concern that other

vendors could take a similar position.

78

The DLC additionally stated that ‘‘there

is also an issue related to voluntary

licenses, in that the information that

publishers provide about their share

splits are subject to their own

confidentiality restrictions.’’

79

The DLC

ultimately proposed that DMPs provide,

on a per-track basis, a clear

identification of the total aggregate

percentage share that has been matched

and the owner(s) of that share, without

identifying the specific shares owned by

each owner or the actual amount paid

(which, the DLC argued, would be

unnecessary and potentially

problematic). It proposed that this

requirement would be further subject to

the limitation that if the information is

maintained by a third-party vendor that

the information is made available to the

DMP on commercially reasonable and

non-discriminatory terms.

80

In response to the DLC’s assertions,

Music Reports informed the Office that

it ‘‘has never said it will not release

information about partially matched

works—only that such data has

independent commercial value given

the twenty-five years of effort the

company has invested in curating that

data.’’

81

Despite initial speculation, the

DLC has not informed the Office of any

other vendors who have expressed an

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2181

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

82

MLC Ex Parte Letter at 6 (Oct. 5, 2020).

83

Id.

84

Id.

85

DLC Ex Parte Letter at 5 n.9 (Oct. 14, 2020).

86

DLC Ex Parte Letter at 2 (Nov. 10, 2020)

(‘‘[T]here are significant operational and

commercial obstacles to producing and submitting

the reports by February 15.’’).

87

SNPRM at 70550.

88

DLC SNPRM Comment at 13 n.35.

89

Music Reports SNPRM Comment at 1.

90

MLC SNPRM Comment at 16.

91

Id.

92

Id. at 15–16 (‘‘[I]t is not conceivable that there

exists a reasonable restriction on disclosing

individual shares that only applies when multiple

shares are being disclosed together.’’).

93

Id. at 16.

94

Id. App. A at xiii.

95

Id.

96

DLC SNPRM Comment at 12–13, 13 n.35; MLC

SNPRM Comment at 15; DLC & MLC Ex Parte Letter

at 2, Add. A (Dec. 9, 2020).

97

While the DLC asserted that this scenario ‘‘is

not one that tends to occur in reality,’’ it did not

dispute the possibility that it could arise or that the

MLC would need non-aggregated information in

such cases, even if they are relatively rare. DLC Ex

Parte Letter at 3 (Dec. 11, 2020).

98

See MLC SNPRM Comment at 16.

unwillingness to provide share

information.

The MLC objected to the DLC’s

proposal, stating that it ‘‘would not

provide the MLC with adequate

information to ensure proper payment

allocation.’’

82

The MLC disputed that

copyright owner splits are subject to

publisher confidentiality restrictions,

noting that ‘‘[c]opyright owners will be

providing their claimed splits to the

MLC to receive royalty distributions and

the MMA directs that such splits be

included in the MLC’s public

database.’’

83

The MLC further stated

that ‘‘the logical conclusion of the DLC’s

argument is that it could not report any

partially-paid royalty information where

there was only one partially-paid

copyright owner, since the aggregate

percentage paid would of course reveal

the percentage of the single copyright

owner that was paid.’’

84

The DLC countered that, with respect

to the issue of ‘‘some copyright owners

regard[ing] the splits of musical works

they control as confidential,’’ ‘‘the MLC

is not a party to these agreements, and

does not purport to represent any

parties to these agreements,’’ and that

‘‘there is no reason that the MLC would

need detailed matched share

information in order to find the owners

of unmatched shares.’’

85

As with

requirements to report certain sound

recording and musical work information

discussed above, the DLC also asserted

that split information should be

included in a supplemental report

provided to the MLC at some point in

time after the cumulative statement of

account and that such reporting should

not be tied to eligibility for the

limitation on liability.

86

To obtain additional public input, the

SNPRM noticed an alternative approach

that more closely resembled the DLC’s

proposal than the MLC’s proposal,

which had been largely embodied in the

NPRM. The SNPRM proposed that

DMPs 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 known owner(s)), so

long as, 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.’’

87

The SNPRM was

informed by the DLC’s explanation that

the MLC did not necessarily need

payment amounts and non-aggregated

splits to perform its duties, and concern

about DMPs potentially losing eligibility

for the limitation on liability in the

event of a legitimate inability to provide

this information. The SNPRM did not

include the DLC’s proposal about third-

party vendor terms needing to be ‘‘non-

discriminatory,’’ as a vendor may well

have commercially reasonable reasons

for not treating differently situated

DMPs the same.

The DLC fully supported the

SNPRM’s proposed provision,

88

as did

Music Reports, which said it ‘‘nicely

draws a difficult line.’’

89

The MLC,

however, expressed concern, stating that

‘‘the reporting of only aggregate share

information would make it impossible

for the MLC to determine with

confidence what partial payments have

been made, where multiple shares have

been paid.’’

90

The MLC provided an

example to illustrate:

[I]f a DMP reports on a partial match only

that Publishers A and B were paid an

aggregate 75%, and the MLC’s records show

Publisher A owning 50% and Publisher B

owning 50%, how can the MLC possibly

determine how to fairly allocate the

remaining 25% between Publisher A and B?

The MLC needs the breakdown that

Publisher A received 50% and Publisher B

received 25%, instead of merely the

aggregated 75% payment, in order to

properly allocate the remaining royalties.

91

The MLC also reiterated its previous

argument that the DLC’s position on

confidentiality restrictions is ‘‘illogical’’

because ‘‘[t]he DLC has no objection to

reporting ‘aggregate’ shares paid when

there has been only one share paid,

which is of course equivalent to

reporting the individual share paid.’’

92

With respect to the SNPRM’s proposal

to excuse reporting where the

information is maintained by a third-

party vendor and not made available to

the DMP on commercially reasonable

terms, the MLC agreed that ‘‘[i]f there

truly was a situation where a digital

music provider was somehow legally

and commercially unable to obtain its

own historical royalty payment

information, then the rule could

accommodate this,’’ but contended that

because the information is ‘‘so critical to

ensuring that royalties are paid to the

correct parties,’’ the exception should be

stricter.

93

The MLC proposed the

following conditions: (1) The

information is maintained only by a

third-party vendor; (2) the DMP does

not have any contractual or other rights

to access the information; (3) the DMP

is unable to compile the information

from records in its possession; and (4)

the vendor refuses to make the

information available to the DMP on

commercially reasonable terms.

94

The

MLC further proposed that a DMP

relying on the exception must provide

the MLC with a certification, under

penalty of perjury, that the conditions

apply, and include a description of any

terms on which the vendor offered to

provide access to the information.

95

Although the MLC and DLC

continued to disagree about what

should be reported, they agreed that the

reporting itself should be contained in

a supplemental report separate from the

cumulative statement of account and

delivered to the MLC by June 15, 2021,

rather than by February 2021; they also

agreed, as discussed above, that the

supplemental report should not be a

condition of the limitation on liability

or the blanket license.

96

Having considered this issue, the

Office agrees with aspects of both the

MLC’s and DLC’s respective positions

and has adopted a final rule that is

essentially a hybrid approach. The

Office is persuaded by the MLC’s new

example that there are at least some

plausible situations where non-

aggregated share information will need

to be known.

97

At the same time, while

the Office is not in a position to opine

on the legitimacy of asserted

confidentiality concerns, it declines to

issue a rule that may interfere with

alleged confidentiality restrictions that

may exist. And as the MLC agrees, to the

extent there is a legitimate inability to

report the information, the rule should

accommodate it.

98

Consequently, the adopted rule

requires a DMP to provide a clear

identification of the percentage share(s)

that have been matched and paid and

the owner(s) of such matched and paid

share(s). If this information cannot be

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2182

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

99

NPRM at 43520; see MLC NPRM Comment at

2 (supporting the proposed format provision).

100

DLC Ex Parte Letter at 3 (Aug. 27, 2020); see

also DiMA NPRM Comment at 6; DLC NPRM

Comment at 10. Music Reports takes issue with the

DLC’s further assertion that ‘‘[t]he vendors who

maintain [historical records of use] are also unlikely

to be familiar with DDEX,’’ stating that, at least with

respect to Music Reports, this is ‘‘inaccurate.’’

Music Reports Ex Parte Letter at 2 (Sept. 29, 2020)

(alterations in original) (quoting DLC Ex Parte Letter

at 3 n.6 (Aug. 27, 2020)).

101

See, e.g., MLC Ex Parte Letter at 3 (June 17,

2020) (noting the MLC will employ the DDEX DSRF

format for reports of usage); see generally DDEX,

DSRF Royalty Reporting Profile, https://

kb.ddex.net/display/3mil/

DSRF+Royalty+Reporting+Profile (last visited Dec.

20, 2020).

102

DLC Ex Parte Letter at 3 (Aug. 27, 2020).

103

Id.

104

DLC NPRM Comment at 10, Add. 23.

105

Music Reports Ex Parte Letter at 2 (Sept. 29,

2020) (‘‘[W]e are in communication with the MLC

at senior levels and are already working with them

on the DDEX integration and testing process to

ensure both sides are ready to exchange the

necessary files. It appears to Music Reports that the

time available for this task is adequate, and that

commencement of operations on (or, where

applicable, before) the License Availability Date is

reasonably on track to occur.’’).

106

DLC & MLC Ex Parte Letter at 2 (Dec. 9, 2020).

107

Id.; see also Music Reports Ex Parte Letter at

2 (Sept. 29, 2020)

108

DLC & MLC Ex Parte Letter at 2, Add. A–8

(Dec. 9, 2020); see also Music Reports Ex Parte

Letter at 2 (Sept. 29, 2020)

109

Music Reports Ex Parte Letter at 2 (Dec. 15,

2020)

110

See also, e.g., 37 CFR 210.27(h)(1) (requiring

the MLC to offer at least two formatting methods for

submitting reports of usage).

111

See id. at 210.27(n).

reported for a particular track because it

is subject to a contractual

confidentiality restriction, the DMP, for

each such track, must certify to the

confidentiality restriction and instead

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.

Both scenarios are subject to the

SNPRM’s proposed exception for

vendor-held information, which the

Office agrees should be made stricter,

along the lines of the MLC’s proposal.

Subject to a slight modification, the

MLC’s four proposed conditions are

reasonably focused to ensure that the

exception only applies where there is a

legitimate issue without foreclosing

practical reliance on the exception. The

final rule adjusts the proposed third

condition to limit it to where the DMP

cannot compile the information using

commercially reasonable efforts within

the required reporting timeframe. A

DMP relying on the exception must

certify that the conditions apply, but the

Office disagrees that it is necessary to

provide the MLC with a description of

any terms on which the vendor offered

to provide access to the information.

The certification is adequate.

The Office also agrees with the MLC

and DLC that it is sufficient for partially

matched work information to be

delivered to the MLC in a subsequent

supplemental report by June 15, 2021,

and that delivery of this supplemental

report should not be a condition of the

limitation on liability. This is reflected

in the final rule.

3. Format

The final rule includes adjusted

language regarding the formatting of

cumulative statements that may be

submitted to the MLC. To facilitate

efficient and accurate reporting and

processing of cumulative statements of

account, as supported by the MLC, the

NPRM proposed carrying over the

existing provision reports of usage

format, which requires delivery to the

MLC in a machine-readable format that

is compatible with its information

technology systems, as reasonably

determined by the MLC and taking into

consideration relevant industry

standards.

99

The DLC expressed concern with this

provision, asserting that ‘‘the records at

issue are very old in many instances,

and therefore reflect the formats of their

time,’’ and that, for at least some DMPs,

‘‘it would be impossible to produce

historical records in the DDEX standard

that the MLC has indicated it will use

for these purposes.’’

100

(Elsewhere in

the record, this DDEX standard is

disclosed as DSRF.)

101

The DLC further

stated that ‘‘the alternative to a DDEX

report—a so-called ‘flat file’

spreadsheet—is smaller and more

manageable,’’ is something ‘‘DMPs

generally use,’’ and ‘‘can be converted

by the MLC into a uniform format with

some simple computer

programming.’’

102

The DLC also said

that ‘‘while there are many DMPs, there

are not many different formats (even

within flat files),’’ so the MLC ‘‘will not

be significantly burdened by the DMPs’

use of formats that are not 100%

consistent.’’

103

The DLC also proposed

including a qualification that

compliance with format requirements be

conditioned ‘‘[t]o the extent practicable’’

to ‘‘allow some flexibility to [DMPs],

which is particularly necessary given

the relatively short amount of time left

to produce the required report.’’

104

While noting the DLC’s concerns,

Music Reports, a major DMP vendor,

said that using the MLC’s initially

intended DDEX format will not be a

problem and ‘‘all of Music Reports’

current clients are certainly capable of

reporting to the MLC in DDEX format,

because Music Reports has stored their

historical records of use and is capable

of transcoding these into the MLC’s

required DSRF format when

necessary.’’

105

In December 2020, the MLC and DLC

reported that they had reached

agreement on format requirements.

106

The negotiated proposal would require

the MLC to accept both the cumulative

statement of account and supplemental

metadata report in a simplified format,

which the MLC and DLC refer to as the

‘‘simplified usage reporting format’’

(‘‘SURF’’), a format developed by the

MLC in consultation with the DLC and

its members.

107

They proposed

regulations that would permit the MLC

to accept reports from DMPs in

alternative formats, but require a DMP

to pay to the MLC costs incurred for

accepting the alternative format.

108

Music Reports subsequently expressed

concern that the announcement of this

‘‘simplified framework’’ ‘‘fails to take

into account the development lead

times necessary to process and present

billions of rows of data (per service) in

a new format.’’

109

The Office adopts the format

requirements proposed by the MLC and

DLC with two modifications. First,

although the Office understands the

preference for most parties to accept a

simplified usage reporting format, it

wishes to avoid discouraging

submission of reports in alternate, but

still acceptable formats, where this may

be necessary for a DMP to comply with

the statutory timeframe for reporting

and transfer of royalties to the MLC, to

the ultimate benefit of copyright

owners.

110

Thus, the Office has

modified the proposed language to

require submission of cumulative

statements of account in SURF to the

extent practicable, but otherwise allow

submission of an alternative format by

agreement. As a part of this proceeding,

the Office is adopting provisions that

permit voluntary agreements to alter

particular reporting procedures, similar

to the one adopted for reports of

usage.

111

The Office does not anticipate

that the MLC will generally rebuff

requests to report in alternative

formats—indeed, there appears to be

little authority for it to reject a

cumulative statement of account and

accompanying transfer of royalties in

different formats. Nevertheless, the rule

provides that the MLC’s consent to such

requests should not be unreasonably

withheld. For example, given the MLC’s

previous signaling of the intention to

require reporting in the more complex

DSRF format, which apparently

generated some reliance interests, the

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2183

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

112

17 U.S.C. 115(d)(7).

113

In December 2020, the DLC and MLC jointly

petitioned the CRJs to modify the terms of

implementation of the initial administrative

assessment. See Joint Motion to Modify the Terms

of Implementation of the Initial Administrative

Assessment, Determination and Allocation of Initial

Administrative Assessment to Fund Mechanical

Licensing Collective (No. 19–CRB–0009–AA) (filed

Dec. 18, 2020), https://app.crb.gov/document/

download/23405.

114

17 U.S.C. 115(d)(7)(A)(ii).

115

NPRM at 43520.

116

Id.

117

Id.

118

DLC NPRM Comment at 5–6, Add. 24; MLC

NPRM Comment at 4–5, App. A at vi.

119

DLC SNPRM Comment at 2; MLC SNPRM

Comment at 13–14, App. A at v, ix–x; DLC Ex Parte

Letter at 3–4, 12–14 (Oct. 14, 2020); MLC Ex Parte

Letter at 2 (Oct. 5, 2020).

120

See DLC NPRM Comment at 5–6 (supporting

approach); DLC Ex Parte Letter at 2–3 (Nov. 10,

2020) (providing examples of various estimates and

adjustments).

121

See Johnson v. Copyright Royalty Bd., 969

F.3d 363.

122

See DLC NPRM Comment at 6 (‘‘[A]s a result,

the cumulative statements will undoubtedly need to

be adjusted to account for the new rates when they

come into force.’’); DLC Ex Parte Letter at 3 (Oct.

14, 2020) (‘‘[D]igital music providers may require

significant retroactive adjustments to the amount of

accrued royalties during the relevant time period

depending on the resolution of that proceeding.’’).

123

See 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa)

(emphasis added).

124

See 37 CFR 210.6, 210.7.

125

17 U.S.C. 115(d)(10)(B)(iv)(III)(aa).

126

See, e.g., id. at 115(d)(12)(A); City of Arlington

v. FCC, 569 U.S. 290, 296 (2013); Brand X internet

Servs., 545 U.S. at 980, 982.

Office assumes that it would be

reasonable for the MLC to accept a

report submitted in that format.

Although the Office appreciates the

joint proposal’s intention behind

requiring DMPs to incur incremental

costs of submitting reports in alternative

formats, thereby encouraging standard

reporting formats and reducing the

potential MLC burden, the Office

declines to require this by regulation.

Funding of the total costs of the MLC is

already provided for in the statute,

including covering any unanticipated

shortfalls.

112

The Office is reluctant to

establish a precedent whereby the MLC

can directly charge individual DMPs;

such a proposal may be more

appropriately considered under the

aegis of the Copyright Royalty Judges in

connection with their establishment of

the administrative assessment.

113

The

Office notes, however, that the statute

permits voluntary contributions from

DMPs to fund the collective total costs

of the MLC.

114

The parties could

consider whether this provision, along

with the ability to enter into voluntary

agreements to alter process, might

accomplish the same goal as their

proposal to require payment of

incremental costs.

B. Estimates, Adjustments, and

Reconciliation of Cumulative

Statements

This section of the preamble discusses

requirements connected to the reliance

upon estimates, adjustments, and

reconciliation of statements, with

respect to royalty calculation inputs as

well as the relationship between

voluntary agreements and the obligation

to transfer accrued royalties to the MLC.

1. Estimates and Adjustments Relating

to Royalty Pool Calculation Inputs

The Office is adopting a rule that

establishes a mechanism for DMPs to

employ necessary estimates and

adjustments, including to account for

unknown royalty pool calculation

inputs, in a manner similar to the

recently adopted rule governing

submission of reports of usage under the

blanket license. Under the cumulative

statement of account regulations

initially adopted in December 2018,

DMPs could make estimates to the

extent permitted by 37 CFR

210.6(d)(3)(i) (where the final public

performance royalty has not yet been

determined), and there would be no

adjustment mechanism.

115

The NPRM

proposed to retain this status quo,

except to allow any overpayment

(whether resulting from an estimate or

otherwise) to be credited to a DMP’s

account, or refunded upon request.

116

The Office tentatively declined to

conform the proposed provision to the

estimates and adjustments provisions

for reports of usage given the one-time

nature of the cumulative statements as

compared to the regulatory structure

designed for the ongoing reporting of

reports of usage.

117

Both the MLC and DLC sought

modification to this aspect of the rule.

While they gave different reasons and

offered different proposed modifications

in their comments to the NPRM,

118

more recent submissions revealed

concurrence that the most prudent

approach is for the Office to adopt a

final rule that more closely tracks the

estimates and adjustments provisions

adopted for reports of usage under the

blanket license.

119

The Office agrees

and, following notice in the SNPRM and

due consideration of the public

comments, has revised the rule

accordingly. On reflection, the Office

acknowledges that while cumulative

statements of account are a one-time

filing, the need to estimate inputs that

cannot be finally determined at the time

reporting is due, and to make

adjustments in the future, is no less

critical here than in the context of

reports of usage. Although the NPRM

would have narrowly allowed estimates

where the final public performance

royalty is unknown, the Office has

concluded that broadening this

provision and allowing DMPs to make

estimates and adjustments more

generally as necessary, such as based on

the discovery of fraudulent streams after

algorithms are applied, and also

accounting for the possibility of both

underpayments and overpayments, best

fulfills the statutory objectives of

facilitating accurate royalty payment.

120

The recent remand of the CRJs’

Phonorecords III determination by the

D.C. Circuit further illustrates why this

provision should be expanded.

121

The

CRJs’ Phonorecords III determination

was intended to set rates and terms for

the section 115 mechanical license for

the period from January 1, 2018 through

December 31, 2022, but the D.C.

Circuit’s decision means that ultimate

rates for this time period have not yet

been finalized. As a result, when DMPs

are required to deliver their cumulative

statements of account to the MLC in

February they will not know what the

final operative royalty rate is for the

compulsory license for the period going

back to 2018. Without changes to the

NPRM’s proposal, there would be no

mechanism for DMPs to make

adjustments after the CRJs eventually

establish final rates and terms, meaning

that a DMP acting in good faith could,

through no fault of its own, end up with

an incurable underpayment and be

rendered ineligible for the limitation on

liability.

122

The Office does not believe

Congress could have intended for a

DMP’s limitation on liability to depend

on how well it predicts what the CRJs

may do on remand.

The statutory language requiring that

‘‘all accrued royalties’’ be transferred 45

days after the license availability date

does not restrict the Office’s authority or

discretion to adopt the rule’s system of

estimates and adjustments.

123

Estimates

and adjustments have long been a part

of the section 115 reporting and

payment structure,

124

and Congress was

surely aware of that when it adopted the

further statutory language requiring

related reporting to include

‘‘information . . . provided . . . in

accordance with . . . applicable

regulations.’’

125

The tension between

these two phrases in the same statutory

provision creates an ambiguity that the

Office concludes to be properly within

its authority to resolve in its reasonable

discretion.

126

Moreover, given the

degree of importance Congress placed

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2184

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

127

See H.R. Rep. No. 115–651, at 13–14; S. Rep.

No. 115–339, at 14–15; Conf. Rep. at 12–13

(‘‘[C]ontinued litigation generates unnecessary

administrative costs, diverting royalties from

artists.... The imposition of detailed statutory

requirements for obtaining [the] limitation of

liability ensure that more artist royalties will be

paid than otherwise would be the case through

continual litigation.’’; provision is a ‘‘key

component that was necessary to bring the various

parties together in an effort to reach common

ground’’); Letter from Senator Lindsey O. Graham,

Chairman, Senate Committee on the Judiciary, to

U.S. Copyright Office 1 (Sept. 30, 2020) (stating that

‘‘the intent of the MMA was to provide legal

certainty for past, present, and future usage’’).

128

See, e.g., Mova Pharm. Corp. v. Shalala, 140

F.3d 1060, 1068 (D.C. Cir. 1998) (‘‘If the literal

application of a statute will produce a result

demonstrably at odds with the intentions of its

drafters, the intention of the drafters, rather than the

strict language, controls. The rule that statutes are

to be read to avoid absurd results allows an agency

to establish that seemingly clear statutory language

does not reflect the unambiguously expressed intent

of Congress, and thus to overcome the first step of

the Chevron analysis.’’ (internal citations omitted)).

129

See SNPRM at 70549.

130

Id. at 70550–51.

131

See DLC SNPRM Comment at 14–15.

132

Id. at 2; MLC SNPRM Comment at 14, App.

A at v, ix–x; see also MLC Ex Parte Letter at 2 (Oct.

5, 2020); DLC Ex Parte Letter at 3–4, 12–14 (Oct.

14, 2020).

133

MLC SNPRM Comment at 14 n.7. As noted

above, it is separately possible that computation

errors could be corrected under the adjustment

provisions, for example, following an audit. See

DLC NPRM Comment at 5; DLC SNPRM Comment

at 2 (supporting the Office’s approach).

134

See 84 FR 10685, 10686 (noting the Office

received no comments in Dkt. 2018–10); see also,

e.g., DLC Initial NOI Comment at 3 (‘‘Rulemaking

will be necessary to clarify the relationship between

these preexisting deals and the MMA’s provisions

regarding accrual of unmatched royalties during the

transition period leading to the license availability

date.’’).

135

DLC Initial NOI Comment at 18–19.

136

NPRM at 43522–23.

137

DLC Initial NOI Comment at 18.

138

NPRM at 43523 (citing DLC Initial NOI

Comment at 19).

139

Id.

upon the limitation on liability,

127

it

would be unreasonable to believe

Congress intended that, where the

precise royalty owed cannot be

ascertained at the time it is due to the

MLC, the DMP must guess and hope

that subsequent events outside of its

control do not render that amount too

low.

128

Accordingly, the Office is adopting

language that allows DMPs to use

certain estimates where the computation

of attributable royalties depends on an

input that cannot be finally determined

at the time the cumulative statement of

account is due, and the reason is outside

of the DMP’s control.

129

The rule also

permits DMPs to subsequently adjust

cumulative statements in five

situations:

130

First, where a previously

estimated input becomes finally

determined, such as a determination of

the final public performance royalty;

second, where an audit of a DMP reveals

a need to adjust a payment; third, in

response to a change in applicable rates

or terms by the CRJs; fourth, where the

DMP discovers or is notified of 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

DMP despite its good-faith efforts; and

finally, as the DLC requested in

response to the SNPRM,

131

to ensure

consistency with any adjustments made

in an annual statement of account

generated under 37 CFR 210.7 for the

most recent fiscal year. The Office finds

this additional scenario to reasonably

further the aims of accuracy and

consistency. To ensure promptness, the

final rule provides that where more than

one scenario necessitates the same

adjustment, the six-month period to

make the adjustment begins to run from

the occurrence of the earliest triggering

event.

The MLC and DLC both signaled

support for the SNPRM’s approach, and

the Office received no comments

opposing it.

132

The MLC maintained

that this provision should be limited to

information outside a given DMP’s

control and expressed concern that the

use of the word ‘‘attributable’’ before

‘‘royalties’’ may be read to allow a DMP

to report ‘‘something less’’ than total

royalties.

133

The Office does not intend

the use of the word ‘‘attributable’’ to

allow a casual approach to royalty

calculations; the royalty calculation

requirements of paragraph (d), including

the estimate provision in paragraph

(d)(2), are tied to the requirement in

paragraph (c)(4) to report on all

unmatched usage, meaning these

provisions require reporting of the total

potential royalties, calculated at the

applicable rate under 37 CFR part 385,

that could be owed for all such usage.

2. Estimates and Adjustments Relating

to Private Agreements

Relatedly, the Office is resolving

requests by DMPs that the rule address

the treatment of payments made

pursuant to agreements that required the

distribution of unmatched royalties that

predate the MMA’s enactment, to avoid

a scenario that DMPs contend could

result in ‘‘double payment’’ of royalties

to musical work copyright owners for

uses covered under these agreements.

As explained below, the rule resolves

this request by establishing conditions

under which a DMP may in good faith

employ estimates in calculating total

accrued royalties, subject to subsequent

adjustments, to reflect the effect of these

agreements upon the DMP’s cumulative

reporting obligations. A relevant

copyright owner may notify the MLC of

a dispute in good faith over a DMP’s

reliance on such an agreement. If so,

once the MLC would otherwise be ready

to distribute the disputed royalties, the

MLC will invoice the DMP for the

disputed royalty amounts and hold

those amounts until the dispute is

resolved.

i. Factual Background

Although the Office received no

comments in 2018 when it solicited

public input on the transition rule that

is currently in place, the DLC and

individual DMPs subsequently

requested that the Office update its rule

to address the interrelationship between

statutory obligations and certain private

agreements.

134

The DLC initially

proposed that the Office adopt a

provision stating:

Notwithstanding anything in this section to

the contrary, digital music providers are not

required to accrue any royalties that are

required to be paid to copyright owners of

musical works pursuant to any agreements

entered into prior to the effective date of the

Music Modernization Act, and such royalties

shall not be treated as ‘‘accrued royalties’’ for

purposes of this section or 17 U.S.C.

115(d)(10).

135

The Office declined to adopt this

initial proposal, in part over concerns

that it was overbroad, noting that the

Office ‘‘must be careful to avoid

speaking over either the statute or

private transactions.’’

136

The Office

noted that if these agreements were, as

the DLC suggested, in ‘‘conflict’’ with

‘‘the MMA’s directions in section

115(d)(10) regarding the accrual of

unmatched royalties,’’’

137

the statute

‘‘could not yield to such

agreements.’’

138

To address the DLC’s

concerns, however, the Office provided

preliminary guidance regarding the

statutory obligations to report all

accrued royalties while preserving the

effectiveness of existing voluntary

agreements, noting that the proposed

rule included a provision that would

require the MLC to credit or refund any

overpayment back to the DMP, and

offered to have a further dialogue.

139

A number of parties took the Office

up on this offer, and the record now

benefits from this enriched dialogue.

While the Office reiterates its view that

matters regarding the specific

interpretation of various private

contracts should be resolved by the

relevant parties rather than a blanket

rule, additional information has been

provided that narrows the focus of the

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2185

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

140

See id.

141

The DLC quotes an NMPA statement claiming

that one agreement covered ‘‘virtually the entire

commercially relevant publishing community.’’

DLC NPRM Comment at 15 (quoting Tim Ingham,

Hunt for US Streaming Publishing Settlements

Won’t Stop at Spotify, Music Business Worldwide

(Mar. 20, 2016), https://

www.musicbusinessworldwide.com/hunt-for-us-

streaming-publishing-settlements-wont-stop-at-

spotify); see also Ed Christman, Vast Majority Join

Royalties Settlement Between Spotify and

Publishing Group, Billboard (July 11, 2016), https://

www.billboard.com/articles/business/7431272/

nmpa-spotify-settlement-most-members-join.

142

To inform its background analysis, and by the

consent of the contracting parties, the Office has

received three of the agreements between the

NMPA and individual services on a confidential

basis, which has been duly noted in this rulemaking

docket. See DLC NPRM Comment at 13 (‘‘We urge

the Office to request copies of these NMPA

agreements, subject to appropriate confidentiality

protections.’’); Google Ex Parte Letter at 1 (Oct. 23,

2020); MediaNet Ex Parte Letter at 1–2 (Oct. 28,

2020); NMPA Ex Parte Letter at 1 (Aug. 25, 2020);

Spotify Ex Parte Letter at 1–3 (Oct. 9, 2020); see also

5 U.S.C. 552(b)(4).

143

NMPA and Spotify Announce Landmark

Industry Agreement for Unmatched U.S. Publishing

and Songwriting Royalties (Mar. 17, 2016), http://

nmpa.org/press_release/nmpa-and-spotify-

announce-landmark-industry-agreement-for-

unmatched-u-s-publishing-and-songwriting-

royalties.

144

NMPA and YouTube Reach Agreement to

Distribute Unclaimed Royalties (Dec. 8, 2016),

http://nmpa.org/press_release/nmpa-and-youtube-

reach-agreement-to-distribute-unclaimed-royalties.

145

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 2 (Oct. 9, 2020).

146

NMPA Ex Parte Letter at 1–2 (Aug. 24, 2020);

SATV Ex Parte Letter at 1–2 (Oct. 28, 2020); UMPG

Ex Parte Letter at 1–2 (Oct. 30, 2020); WMG Ex

Parte Letter at 1 (Oct. 21, 2020). The Office also

offered to meet with additional publishers.

147

See, e.g., DLC Initial NOI Comment at 17;

MediaNet Ex Parte Letter at 2 (Oct. 28, 2020);

Spotify Ex Parte Letter at 1 (Sept. 1, 2020); see also

Ed Christman, Vast Majority Join Royalties

Settlement Between Spotify and Publishing Group,

Billboard (July 11, 2016), https://

www.billboard.com/articles/business/7431272/

nmpa-spotify-settlement-most-members-join (‘‘The

vast majority of our members have opted into our

settlement,’’ NMPA president and CEO David

Israelite tells Billboard, saying the agreement has

‘‘one of our highest opt-in rates ever.’’).

148

DLC NPRM Comment at 13 (‘‘[A]t issue are

specific industry-wide accrued royalty liquidation

agreements that the NMPA . . . structured with

DMPs with the specific purpose of distributing

accrued royalties to copyright owners, based on a

claiming and market-share distribution model that

was later essentially codified in the MMA. These

landmark agreements were aimed at solving the

exact same problem that the MMA address:

Ensuring that accrued royalties for unmatched

works are paid out promptly to copyright owners.’’);

DLC Ex Parte Letter at 1 (Aug. 11, 2020) (‘‘We

discussed industry-wide agreements between

certain digital services (Spotify, Google, MediaNet,

and Napster/Rhapsody) and the [NMPA] that

predated the enactment of the [MMA] and

facilitated distribution of historic accrued royalties

to copyright owners. As we explained, those

agreements were the model for the MMA.’’).

149

Ed Christman, Spotify and Publishing Group

Reach $30 Million Settlement Agreement Over

Unpaid Royalties, Billboard (Mar. 17, 2016), https://

www.billboard.com/articles/business/7263747/

spotify-nmpa-publishing-30-million-settlement-

unpaid-royalties (‘‘In exchange for participating in

the settlement, publishers release Spotify from any

claims related to the identified pool of pending and

unmatched works.’’); Ed Christman, YouTube

Strikes Settlement Deal Over Unpaid Royalties with

National Music Publishers Assoc., Billboard (Dec. 8,

2016) https://www.billboard.com/articles/business/

7616409/youtube-settlement-unpaid-royalties-

national-music-publishers-association.

150

NMPA and Spotify Announce Landmark

Industry Agreement for Unmatched U.S. Publishing

and Songwriting Royalties (Mar. 17, 2016), http://

nmpa.org/press_release/nmpa-and-spotify-

announce-landmark-industry-agreement-for-

unmatched-u-s-publishing-and-songwriting-

royalties (‘‘the agreement will not affect the

royalties owed to any publisher or writer who does

not choose to participate’’); Spotify Ex Parte Letter

at 2 (Oct. 9, 2020) (‘‘Spotify confirmed that this

‘holdback’ reflects the portion of the market that

NMPA and Spotify estimated as a conservative

amount designed to cover the market share of non-

participating publishers—and that Spotify’s data

reflected that the non-covered streaming during the

relevant usage periods is likely even smaller than

that.’’).

151

NMPA and Spotify Announce Landmark

Industry Agreement for Unmatched U.S. Publishing

and Songwriting Royalties (Mar. 17, 2016), http://

nmpa.org/press_release/nmpa-and-spotify-

announce-landmark-industry-agreement-for-

unmatched-u-s-publishing-and-songwriting-

royalties (emphasis added).

152

Id.

153

Id.

154

Spotify Ex Parte Letter at 2–3 (Oct. 9, 2020)

(‘‘The effect of this was that publishers did not need

to claim unmatched works—and, for the most part,

did not do so—in order to participate in the market

share distribution of unclaimed royalties at the

conclusion of each claiming period.’’); id. at 2 n.2

(noting ‘‘[the] tremendous difficulty in identifying

works embodied in particular tracks’’).

DLC’s request.

140

The DLC, NMPA, and

individual DMPs and publishers

disclosed details regarding agreements

that certain DMPs apparently entered

into with the NMPA and the ‘‘vast

majority’’ of the U.S. music publishing

industry.

141

These agreements have

been referred to using various terms by

the parties, including as liquidation

agreements, pending and unmatched

agreements, or NMPA settlement

agreements, but it has become clear that

the issue centers on sets of agreements

with four signatory services.

142

The DLC

represented that these services are

Spotify,

143

YouTube,

144

MediaNet, and

Rhapsody; the first three met with the

Office individually, generally

corroborating the DLC’s position and

providing specifics as to their

individual circumstances.

145

The Office

also met with the NMPA and certain

individual publishers.

146

From the

information provided, the Office has

gleaned a general sense of the shared

understandings between the interested

parties, as well as areas of disagreement.

It appears undisputed that these

agreements were generally structured

through an umbrella agreement between

the NMPA and the relevant service,

where publishers were subsequently

able to, and did, enter into individual

agreements with such DSPs.

147

The DLC

characterizes these agreements as

forming the framework for the idea of

the MMA, and factual reports of the

time support this characterization.

148

As

reported with respect to two of these

agreements, publishers released claims

against the relevant service for a

relevant period of time of usage in

exchange for payments, including (i) for

works that were claimed and (ii) for a

market-share based distribution of

unclaimed royalties after a subsequent

period of time.

149

For example, under

its agreement, Spotify agreed to hold

back amounts required to pay non-

participating publishers, which was

represented to the Office as calculated

conservatively to account for the risk

that the participating parties had

undercounted the royalties accrued for

non-participating copyright owners.

150

As described by NMPA at the time of

agreement in 2016, the NMPA-Spotify

agreement established ‘‘a large bonus

compensation fund that is a substantial

percentage of what is currently being

held by Spotify for unmatched royalties,

and creates a better path forward for

finding the owners of publishing rights

who should receive streaming

royalties.’’

151

As a result, the NMPA

and Spotify announced that:

The deal will allow copyright owners to

identify their works and receive the money

Spotify has set aside for the past usage of

unmatched works. It will allow the entire

industry to benefit by filling in the gaps in

ownership information, which help to ensure

that royalties are promptly paid to their

rightful owners in the future. Any royalties

associated with works that remain

unmatched after each claiming period will be

distributed to publishers and songwriters

who participate in the settlement, but the

agreement will not affect the royalties owed

to any publisher or writer who does not

choose to participate. The agreement is a key

step in improving transparency in the music

community and ensuring that music’s

creators receive royalties when their music is

used.

152

NMPA’s President and CEO further

explained, ‘‘we have found a way for

Spotify to quickly get royalties to the

right people.’’

153

Spotify represented

that as it turned out, the transaction

costs associated with claiming musical

works, coupled with the assurance of a

market-share based distribution for

unclaimed works, resulted in a low

level of publisher participation in

claiming ownership of musical

works.

154

As a result, most payments

were made pursuant to the unmatched

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2186

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

155

Google Ex Parte Letter at 2 (Oct. 23, 2020);

Spotify Ex Parte Letter at 2–3 (Oct. 9, 2020).

156

NMPA and YouTube Reach Agreement to

Distribute Unclaimed Royalties (Dec. 8, 2016),

http://nmpa.org/press_release/nmpa-and-youtube-

reach-agreement-to-distribute-unclaimed-royalties.

157

Id.; Google Ex Parte Letter at 1–2 (Oct. 23,

2020).

158

See Google Ex Parte Letter at 2–3, 2 n.2 (Oct.

23, 2020) (noting that the agreement ‘‘encompasses

more than section-115-eligible uses; rather, it covers

usage on YouTube more generally’’).

159

See id. at 2.

160

Id.

161

DLC NPRM Comment at 13 (quoting Lowery et

al. v. Rhapsody Int’l Inc., No. 4:16-cv-01135–JSW

(N.D. Cal. filed Mar. 7, 2016), Dkt. No. 175 at 3)

(‘‘Rhapsody has been advised by the NMPA that the

aggregate market share of the NMPA members who

opted-in to the NMPA[-Rhapsody] agreement is

approximately 97.13%.’’); Spotify Ex Parte Letter at

5 (Oct. 9, 2020) (projecting that ‘‘an estimated 5–

10% of the market of non-participating publishers’’

were not part of Spotify’s agreement); see DLC

NPRM Comment at 14 (‘‘These agreements have all

operated in essentially the same way.... [F]or

each period covered by the agreement, the vast

majority of the pool of accrued unmatched royalties

(e.g., 90%) was distributed to participating

copyright owners based on their respective market

shares’’ and ‘‘[t]he remaining, smaller share of

royalties (e.g., 10%) was left in the accrued pool as

reserve funds.’’).

162

Ed Christman, Vast Majority Join Royalties

Settlement Between Spotify and Publishing Group,

Billboard (July 11, 2016), https://

www.billboard.com/articles/business/7431272/

nmpa-spotify-settlement-most-members-join.

163

DLC Ex Parte Letter at 2 (Nov. 17, 2020). The

Office understands that this amount does not

encompass the smaller subset of royalties paid

pursuant to ‘‘claimed’’ uses of works. Google Ex

Parte Letter at 2 (Oct. 23, 2020); Spotify Ex Parte

Letter at 2–3 (Oct. 9, 2020)

164

NMPA Ex Parte Letter at 1–2 (Aug. 24, 2020).

165

See, e.g., NMPA and YouTube Reach

Agreement to Distribute Unclaimed Royalties (Dec.

8, 2016), http://nmpa.org/press_release/nmpa-and-

youtube-reach-agreement-to-distribute-unclaimed-

royalties (noting initial claiming period covering

uses from ‘‘August 1, 2012 through December 31,

2015’’ and that the claiming process ‘‘will be

repeated for future twelve-month usage periods

beginning on January 1, 2016 and ending on

December 31, 2019’’); MediaNet Ex Parte Letter at

2 (Oct. 28, 2020) (noting performance periods for

MediaNet agreements); Spotify Ex Parte Letter at 5

(Oct. 9, 2020) (noting that Spotify terminated its

agreement).

166

DLC Ex Parte Letter at 2 (Nov. 17, 2020) (‘‘DLC

also explained that the accruals that were

derecognized because copyright owners were paid

and provided releases were a fraction of that

amount [of several hundred million dollars]—on

the order of tens of millions of dollars.’’).

167

See, e.g., DiMA NPRM Comment at 3; DLC Ex

Parte Letter at 4 (Oct. 14, 2020); DLC & MLC Ex

Parte Letter at 2 (Dec. 9, 2020).

168

DiMA NPRM Comment at 3; see also H.R. Rep.

No. 115–651, at 13; S. Rep. No. 115–339, at 14;

Conf. Rep. at 12.

169

DLC NPRM Comment at 3–4.

170

Id. at 4; see also MediaNet Ex Parte Comment

at 3 (Oct. 28, 2020).

171

DLC Ex Parte Letter at 2 (Nov. 17, 2020).

liquidation provision of the

agreement.

155

Contemporary statements surrounding

the NMPA-Google/YouTube agreement

made similar claims that the agreement

structure would represent a

breakthrough path ‘‘to help pay out

millions of dollars in previously

unclaimed royalties to publishers and

songwriters.’’

156

The Google/YouTube

agreement was reported to be structured

slightly differently, with an initial four-

month claiming period, followed by

three-month claiming periods that were

open for respective twelve-month usage

periods.

157

The Office was also

informed that it covered more than just

uses eligible for the section 115 license,

e.g., broader access to YouTube’s

Content ID claiming platform.

158

Similar

to the MMA structure, payment for

unmatched uses based on market share

occurred only after an additional

holdback period, two years for the

Google/YouTube program.

159

Like

Spotify, Google disclosed that

participation in claiming activities was

relatively low, with ‘‘about 18% to

20%’’ of unmatched works ‘‘eventually

claimed, with the remainder distributed

on a market share basis.’’

160

Participation by publishers in these

agreements for the relevant time periods

was apparently extremely high.

161

For

example, NMPA reported that 96% of

its members participated in the Spotify

agreement.

162

As a result, for the time

periods these agreements were

respectively in effect, the services in

question paid ‘‘tens of millions of

dollars’’ to copyright owners that the

DLC describes as payments to release

claims for accrued royalties based on

usage that was unmatched to a

particular musical work.

163

In

describing the landscape, the Office also

credits NMPA’s assertion that the

‘‘pending and unmatched agreements’’

varied with respect to material

provisions and market coverage, as well

as with respect to performance by the

relevant services.

164

The Office does

not, however, understand any party to

dispute the general contours of these

agreement structures as described

herein.

The relevant parties agree that these

agreements, to the extent they are valid,

performed, and relevant, do not address

the entire obligations for the

participating services. First, as noted,

they do not account for royalties

accrued by DSPs for uses owed to non-

participating music publishers or other

copyright owners (e.g., self-

administered songwriters). The Office

does not understand any party,

including the DLC, to contend that these

agreements may be used to alleviate a

DMP’s obligation under the limitation

on liability to transfer royalties for

usages of musical works that are not

subject to a valid agreement. Second,

these agreements only cover a portion of

the period DMPs need to report on to

obtain the statutory limitation on

liability, meaning that the DMP would

need to transfer unclaimed accrued

royalties for any uncovered periods.

165

After conducting ‘‘a limited survey of a

subset of DLC members,’’ the DLC

estimates ‘‘that several hundred million

dollars were available to be transferred

to the MLC as accrued royalties’’ by the

relevant services, not including amounts

that those DMPs maintain do not

constitute accrued royalties as a result

of the operation of pending and

unmatched agreements.

166

DMPs repeatedly reminded the Office

that submission of cumulative

statements and payment of accrued

royalties is a condition for DMPs to

make use of the optional limitation on

liability, and not a condition of the

ongoing blanket license.

167

From their

perspective, an obtainable limitation on

liability was a critical piece of the

MMA’s core compromise, intended to

short-circuit an inefficient and costly

pattern of litigation so long as a DMP

complied with the relevant

provisions.

168

The DLC thus sought

clarity surrounding this reporting

obligation, suggesting that absent

regulatory certainty, ‘‘DMPs may be

forced to retain accrued royalties to

fund’’ ensuing infringement litigation,

‘‘precisely what the MMA was supposed

to prevent.’’

169

It further suggested that

if regulations ‘‘increase[] the risk that a

court would deem a DMP to not have

complied with the requirements in

section 115(d)(10), a DMP could make

the rational choice to forego the

payment of accrued royalties entirely,

and save that money to use in defending

itself against any infringement suits.’’

170

Given the DLC’s statement that

‘‘several hundred million’’ dollars are

otherwise ‘‘available to be transferred to

the MLC as accrued royalties,’’ a DMP’s

election to retain accrued royalties for

litigation expenses would have the

troubling result of withholding from

copyright owners—those who did not

participate in the agreements at issue (or

for time periods outside such valid

agreements)—compensation that all

agree they are otherwise entitled to

receive.

171

Accordingly, the Office

concludes that regulations, to the extent

appropriate and permissible under the

statute, should maintain the calibration

intended by Congress to incentivize

DMPs to participate in transferring over

accrued royalties, without prejudicing

the entitlements of music publishers or

songwriters to receive compensation for

past usages of their works. As Chairman

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2187

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

172

Letter from Senator Lindsey O. Graham,

Chairman, Senate Committee on the Judiciary, to

U.S. Copyright Office 1 (Sept. 30, 2020).

173

Summaries of that October 30, 2020

discussion are available here: https://

www.copyright.gov/rulemaking/mma-

implementation/ex-parte-communications.html.

The Office invited every party who had submitted

comments on this issue in this rulemaking docket

to participate in the discussion.

174

17 U.S.C. 115(d)(10)(B)(iv)(III)(aa).

175

DLC SNPRM Comment at 9–10 (stating ‘‘the

statute specifically incorporates [GAAP], which

specifically contemplate de-recognition of liabilities

when they have been extinguished’’ and ‘‘it is the

incorporation of [GAAP] that, when given meaning

(as they must be), provide that once a liability has

been extinguished, it is not accrued’’); see also

ARA, FMC & MusicAnswers SNPRM Comment at

3 (‘‘GAAP clearly allows for ‘derecognition’ of

liabilities if certain conditions are met—conditions

that these agreements and the releases they include

apparently satisfy.’’); DLC NPRM Comment at 17

n.45; DLC Ex Parte Letter at 2 (Nov. 10, 2020);

Spotify Ex Parte Letter at 2 (Oct. 9, 2020) (noting

that ‘‘the [Spotify] Agreement extinguished such

[copyright owner] rights for the periods of time

covered by the Agreement—not only because the

copyright owner had already received unmatched

royalties for those periods, but because the

copyright owner had released any and all claims to

such royalties’’).

176

DLC Initial NOI Comment at 19; Spotify Ex

Parte Letter at 1 (Sept. 1, 2020) (‘‘Congress certainly

did not intend for double payment of royalties paid

to publishers who released claims under those [pre-

MMA] agreements’’); Google Ex Parte Letter at 3

(Oct. 23, 2020) (Google asserts that its YouTube

agreement ‘‘was not established to resolve any

pending or even threatened litigation. Rather, it was

born out of a joint effort by Google and NMPA to

ensure that royalties flowed to copyright owners.’’).

177

DLC NPRM Comment at 3.

178

Id. at 11.

179

MLC Reply NOI Comment at 29.

180

WMG Ex Parte Letter at 1 (Oct. 21, 2020).

181

UMPG Ex Parte Letter at 1 (Oct. 30, 2020).

182

SATV Ex Parte Letter at 1–2 (Oct. 28, 2020).

183

Id.

184

NMPA Ex Parte Letter at 2 (August 24, 2020).

185

MLC Ex Parte Letter at 5 (Oct. 16, 2020)

(reflecting NSAI’s comments); MLC Ex Parte Letter

at 5 (Oct. 5, 2020); NMPA Ex Parte Letter at 2 (Nov.

3, 2020).

186

MLC SNPRM Comment at 10.

Graham explained in a letter to the

Register:

The legislative history makes clear that

. . . ‘‘continued litigation generates

unnecessary administrative costs, diverting

royalties from artists.’’ . . . 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.

172

In response, the Office convened a

multi-stakeholder call to address the

substance of this rulemaking, and this

rule reflects the comments from that

discussion.

173

The crux of the dispute concerns the

statutory requirement to accrue and

hold royalties, and to maintain them in

accordance with GAAP principles.

While there is agreement that the statute

requires ‘‘all accrued royalties’’

174

to be

reported and paid over to the MLC,

there is disagreement regarding the

meaning of this requirement in light of

these industry-wide agreements and

surrounding statutory language. The

DLC and individual DMPs contend that

the requirement to maintain accrued

royalties in accordance with GAAP has

resulted in the derecognition of

obligations extinguished by these

agreements, such that these previous

liabilities are not part of what must be

transferred to the MLC to be eligible for

the limitation on liability.

175

Participating DMPs also suggest that an

alternate reading would penalize those

companies that entered into voluntary

agreements to ensure royalties were

paid to publishers and songwriters, in

comparison to DMPs who did not enter

into such agreements to settle pre-MMA

disputes.

176

As the DLC put it, ‘‘these

agreements were designed to, and did,

put tens of millions of dollars in

statutory royalties in the hands of

copyright owners—money that they had

been unable to access due to the broken

pre-MMA statutory royalty system.’’

177

The DLC also noted that ‘‘some DMPs

simply do not have the financial

resources to make duplicate payments’’

under both their agreements and the

limitation on liability, which would

force them to forgo the benefit of the

limitation on liability.

178

In contrast, the MLC stated that

‘‘[w]hile prior to the enactment of the

MMA, certain DMPs entered into

settlement agreements with certain

music publishers in connection with

disputes arising from their failure to

license, match and/or pay royalties due,

such settlement payments were

definitively not the proper payment of

royalties to copyright owners of

unmatched uses,’’ and were ‘‘more

likely consideration for releases from

liability for copyright infringement or

covenants not to sue.’’

179

As discussed

below, the MLC contends that the clear

directive of the statute precludes the

DLC’s interpretation and that services

must transfer over all royalties

(calculated at the statutory rate) for all

unmatched uses without regard for

these agreements.

The MLC and various music

publishers acknowledge, however, that

there may be a need for some resolution

with respect to the effect of past

payments related to usage of unmatched

works. Strikingly, despite much

discussion on this matter, the

administrative record contains no

statement by any music publisher or

other copyright owner professing

entitlement to royalty payments related

to usages for which they have entered

into a valid liquidation agreement.

Warner Music Group, for example,

explained, ‘‘[f]or those DSPs with which

we have already settled claims for the

distribution of royalties owed before the

enactment of the MMA, we consider

these claims closed.’’

180

Universal

Music Publishing Group (‘‘UMPG’’)

‘‘believes that any issues relating to

payments under private settlements can

and should be dealt with between the

contracting parties’’ and ‘‘intends to

assist and facilitate voluntary

procedures for doing so with the digital

services, to the extent applicable.’’

181

And Sony/ATV Publishing (‘‘SATV’’)

‘‘is open to discussing letters of

direction and other potential solutions

that would ensure that the requirements

of the MMA are satisfied and also

address the concerns raised by the

digital services regarding payments

made pursuant to private

settlements.’’

182

SATV prefers ‘‘that any

potential reimbursements to digital

services be made by the MLC rather

than music publishers.’’

183

Representing the marketplace at large,

NMPA indicated a preference that the

issue ‘‘be addressed through state

contract law and discussions between

the contracting parties.’’

184

The MLC and others suggested that

one potential solution could be to rely

upon letters of direction. Although this

approach was not entirely fleshed out,

as the Office understands it, the idea is

that disputes could be resolved by

letters of direction sent by a copyright

owner directing the MLC to return

royalties that would otherwise go to the

copyright owner to the DMP with whom

the copyright owner had contracted.

185

The MLC opined that DMPs

participating in these agreements would

be able to ‘‘sit in the position of an

entity that has acquired rights through

a license or sale’’ and that ‘‘payments

can be redirected to the new owner

pursuant to the explicit or implicit

terms of the private contract.’’

186

Apart

from its proffered statutory

interpretation addressed below, the

MLC did not address how a scheme

requiring a DMP to transfer funds to the

MLC with an expectation by both the

DMP and copyright owner that those

funds will ultimately just be returned to

that DMP would effectuate Congress’s

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2188

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

187

See Conf. Rep. at 4 (noting that the MLC

should engage in an ‘‘efficient and fair

administration of the collective in a manner that

respects varying interests and concerns’’).

188

Google Ex Parte Letter at 3 (Oct. 23, 2020); see

also DLC SNPRM Comment at 11 (‘‘the MLC’s

invitation for DMPs to rely on self-help and battle

it out in court later is contrary to the spirit of the

statute . . . and may lead some DMPs to simply

withhold all the royalties in order to fund such

litigation’’); SGA SNPRM Comment at 8.

189

DLC SNPRM Comment at 5; see also Spotify

Ex Parte Letter at 4–5 (Oct. 9, 2020) (‘‘[W]e are

aware of no copyright owner who has released their

claims to the royalties covered by the Agreement

that is now demanding, or at any time since the

Agreement has demanded, a double payment of

those royalties.’’).

190

MLC Ex Parte Letter at 5 (Oct. 5, 2020). The

MLC’s proposal would not fall under the MLC’s

Dispute Resolution Committee and related

provisions, as the dispute is not between copyright

owners. See 17 U.S.C. 115(d)(3)(G)(i)(III)(bb), (K);

see also DLC Ex Parte Letter at 2, n.2 (Oct. 14, 2020)

(‘‘The dispute resolution process required by the

MMA is aimed at resolving disagreements among

copyright owners.... Thus, even the solution that

the MLC has proposed would require regulatory

action by the Office.’’).

191

MLC Ex Parte Letter at 5 (Oct. 5, 2020).

192

Spotify Ex Parte Letter at 4–5 (Oct. 9, 2020).

193

SNPRM at 70546–47.

194

ARA, FMC & MusicAnswers SNPRM

Comment at 2; ARA Ex Parte Letter at 1 (Nov. 17,

2020); see also DLC NPRM Comment at 16 (noting

that Office ‘‘regulation is plainly necessary to

provide unambiguous guidance to DMPs and the

MLC’’).

195

See, e.g., DiMA NPRM Comment at 5–6; MLC

SNPRM Comment at 3; SGA & SCL SNPRM

Comment at 2; NSAI Ex Parte Letter at 1 (Nov. 17,

2020); Recording Acad. & SONA Ex Parte Letter at

2 (Nov. 17, 2020).

196

DLC Initial NOI Comment at 18; DLC Reply

NOI Comment at 24 (requesting that the Office

‘‘clarify that agreements under which accrued

royalties for unmatched musical works were paid

to rightsowners, are not ‘accrued royalties’ subject

to transfer to the MLC’’); DLC SNPRM Comment at

3 (‘‘the proposed rule provides the clarity needed

to preserve the core bargain struck in the MMA’’).

197

MLC SNPRM Comment at 5–8, App. A at i; see

also NMPA Ex Parte Letter at 1 (Nov. 17, 2020);

Recording Acad. & SONA Ex Parte Letter at 2 (Nov.

17, 2020); SGA, SCL & MCNA Ex Parte Letter at 3

(Nov. 18, 2020).

198

MLC Ex Parte Letter at 3 (Oct. 16, 2020); see

also NSAI Ex Parte Letter at 1 (Nov. 17, 2020);

MAC, Recording Acad. & SONA SNPRM Comment

at 4; SGA, SCL & MCNA Ex Parte Letter at 3 (Nov.

18, 2020).

199

Spotify Ex Parte Letter at 2–4 (Oct. 9, 2020).

200

DLC Initial NOI Comment at 18; see also DLC

Reply NOI Comment at 24; DLC SNPRM Comment

at 4.

201

See, e.g., Spotify Ex Parte Letter at 3–4 (Oct.

9, 2020); DLC Ex Parte Letter at 3 (Oct. 14, 2020).

202

ARA Ex Parte Letter at 1 (Nov. 17, 2020).

203

DLC SNPRM Comment at 1–3 (quoting ARA

Ex Parte Letter at 1 (Nov. 17, 2020)).

intention that the MLC operate

efficiently and fairly.

187

DMPs disagreed that reliance upon

letters of direction to the MLC would be

workable, with Google explaining that a

DMP would be unlikely to get complete

coverage via letters of direction and, to

address any gaps, would ‘‘need to file a

significant number of separate

declaratory judgment actions in courts

around the country.’’

188

The DLC

strongly objected to the MLC’s

suggestion that DMPs should first pay

the contested amounts, then seek

redress for ‘‘double payments’’ by

‘‘proving the existence of a release’’ or

‘‘clawing back’’ overpayments,

contending that ‘‘the DMP does not get

any benefit from the transfer of royalties

that might be matched (or paid via

market share distribution) by the MLC

to those same owners pursuant to the

limitation on liability provision in the

MMA; it already has a limitation on

liability pursuant to the release.’’

189

Separately, the MLC clarified that in

the event of a relevant dispute between

a DMP and a copyright owner, it

intended to ‘‘hold such unmatched

royalties pending the resolution of the

dispute,’’ accruing interest until the

dispute was resolved.

190

The MLC

reasoned that ‘‘Congress intended for

the MLC to be that trusted party to

receive unmatched royalties and ensure

that they are paid to the right

parties.’’

191

Spotify objected to this

position, stating that the MLC’s proposal

to require all funds at issue under these

agreements to be immediately paid to

the MLC would create a dispute ‘‘in the

first instance,’’ as they are not aware of

any participating copyright owner who

claims they are entitled to additional

funds.

192

In light of this additional information,

the SNPRM proposed a solution that

would allow for participating DMPs to

pay their accrued royalties in

accordance with GAAP, permitting

reliance on certain temporary

estimations and subject to detailed

adjustment provisions. And the SNPRM

explained that, ‘‘[u]nder no

circumstances could this [noticed]

provision be used to shortchange

payment of accrued royalties for

musical work copyright owners who did

not participate in such agreements.’’

193

The Office received many comments

opining on Congress’s intent and the

statutory payment and reporting

requirements for the limitation on

liability contained in 17 U.S.C.

115(d)(10)(B)(iv). Some commenters,

including the Artists Rights Alliance,

the Future of Music Coalition, and

MusicAnswers, opined that the statute

was ambiguous on this point.

194

Others,

including the DLC, DiMA, individual

DMPs, the MLC, and representatives of

copyright owners and songwriters,

suggested that the applicable statutory

language is unambiguous,

195

although

they offered conflicting interpretations

of the relevant requirements. Because of

these disparate views, the DLC

suggested that parties would benefit

from a ‘‘regulatory clarification.’’

196

As

discussed below, there was considerable

disagreement regarding the meaning of

section 115(d)(10)(B)(iv)’s requirement

that ‘‘[a]ccrued royalties shall be

maintained by the digital music

provider in accordance with [GAAP],’’

whether this provision would benefit

from a regulatory clarification, and

whether the Office had authority to

promulgate the rule proposed in the

SNPRM (or alternate proposals

suggested by the DLC).

197

In brief, the MLC believes that section

115(d)(10)(B)(iv) ‘‘sets out a statutory

accrual and payment obligation that

identifies precisely what must be

accrued, the time frame for holding and

the two accepted ways the accrued

royalties can be paid,’’ that is, to a

matched copyright owner or the

MLC.

198

DMPs contend that the

aforementioned agreements

extinguished their statutory duties to

transfer royalties to the MLC, ‘‘not only

because the copyright owner had

already received unmatched royalties

for those periods, but because the

copyright owner had released any and

all claims to such royalties.’’

199

The

DLC stated that a ‘‘regulatory

clarification . . . may help music

industry participants understand the

proper treatment of unclaimed royalties

under the MMA.’’

200

Beyond the

liquidation agreements at issue, the

services contended that the MLC’s

reading would prohibit reliance upon

voluntary agreements generally, despite

other statutory provisions guaranteeing

that such agreements would remain in

effect.

201

The Artist Rights Alliance commented

that the proposed rule ‘‘creates a

workable, practical system that serves

the foundational statutory goal of

ensuring songwriters and publishers are

accurately, completely, and fairly paid

for all uses of their work . . . while

providing business certainty needed to

ensure the broadest number of digital

music providers possible participate in

the transfer of unmatched royalty funds

contemplated by the MMA.’’

202

The

DLC concurred with this assessment

and ‘‘strongly supports the proposed

rule noticed in the SNPRM.’’

203

ii. Statutory Analysis

Having considered these comments

and examined the relevant statutory

text, the Office concludes that the MMA

‘‘ ‘is silent or ambiguous with respect to

the specific issue’ ’’ at hand, i.e., the

DMP payment and reporting

requirements for the limitation on

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2189

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

204

See City of Arlington, 569 U.S. at 296 (quoting

Chevron, 467 U.S. at 843); see also ARA, FMC &

MusicAnswers SNPRM Comment at 2–3 (opining

that the statute is ambiguous); ARA Ex Parte Letter

at 1 (Nov. 17, 2020).

205

See 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa).

206

See DLC NPRM Comment at 5–6; DLC SNPRM

Comment at 2; MLC SNPRM Comment at 13–14,

App. A at v, ix–x; DLC Ex Parte Letter at 3–4, 12–

14 (Oct. 14, 2020); MLC Ex Parte Letter at 2 (Oct.

5, 2020). In addition, the DLC has suggested that an

adjustment scheme is appropriate to address

subsequent discoveries of fraudulent stream counts.

207

See, e.g., ARA, FMC & MusicAnswers SNPRM

Comment at 2–4; DLC NPRM Comment at 3–4, 11–

18; DLC SNPRM Comment at 1–12; MAC,

Recording Acad. & SONA SNPRM Comment at 2–

3; MLC NPRM Comment at 8; MLC SNPRM

Comment at 2–13; SGA, SCL & MCNA SNPRM

Comment at 9; ARA Ex Parte Letter at 1 (Nov. 17,

2020); DLC Ex Parte Letter at 2 (Oct. 14, 2020);

Google Ex Parte Letter at 2 (Oct. 23, 2020); MLC Ex

Parte Letter at 2–3 (Oct. 16, 2020); MLC Ex Parte

Letter at 2–5 (Oct. 5, 2020); MLC Ex Parte Letter at

2–7 (Nov. 17, 2020); NMPA Ex Parte Letter at 1

(Nov. 17, 2020); NSAI Ex Parte Letter at 1 (Nov. 17,

2020); Recording Acad. & SONA Ex Parte Letter at

2 (Nov. 17, 2020); SATV Ex Parte Letter at 1 (Oct.

28, 2020); Spotify Ex Parte Letter at 2–5 (Oct. 9,

2020); UMPG Ex Parte Letter at 1 (Oct. 30, 2020);

WMG Ex Parte Letter at 1 (Oct. 21, 2020).

208

17 U.S.C. 115(d)(10)(B)(iv)(III)(aa); see supra

section II(B)(1).

209

The Office finds the MLC’s assertion that ‘‘[a]

DMP does not estimate its total accrued royalties’’

unpersuasive, as it begs the question of how a DMP

can know its accrued royalties with certainty and

finality if, as the MLC agrees, a DMP can estimate

its royalty pool inputs where unknown, or where,

as is the case presently, no ultimate royalty rates

have even been set. MLC SNPRM Comment at 8–

10. Compare id. with DLC SNPRM Comment at 12

n.33 (referring to ‘‘the necessary estimates that

GAAP requires—not just to account for the release

of claims prior to the MMA, but for other estimates,

including royalty rates and inputs,’’ and noting that

‘‘[a]s a result of the D.C. Circuit’s vacatur and

remand of the Copyright Royalty Board’s

determination of the relevant statutory royalty rates,

it is a given that all DSPs will need to use estimates

when calculating accrued royalties pursuant to this

provision’’). The rule discussed herein simply

clarifies that certain good-faith estimates, subject to

adjustments, are permitted for purposes of the

payment and reporting requirements of the

limitation on liability.

210

MLC Ex Parte Letter at 5 (Oct. 5, 2020) (citing

17 U.S.C. 115(d)(3)(I)).

211

MLC Ex Parte Letter at 2–4 (Oct. 16, 2020); see

MLC SNPRM Comment at 3; MLC Ex Parte Letter

at 2–3 (Nov. 17, 2020); see also MAC, Recording

Acad. & SONA SNPRM Comment at 2; Recording

Acad. & SONA Ex Parte Letter at 2 (Nov. 17, 2020).

212

See 17 U.S.C. 115(d)(10)(B)(iv)(II).

213

MLC Ex Parte Letter at 7 (Nov. 17, 2020)

(quoting 17 U.S.C. 115(d)(10)(B)(iv)(II)(aa)).

214

See DLC SNPRM Comment at 10.

215

See 17 U.S.C. 115(d)(10)(B)(iv)(II)(aa).

216

See id. at 115(d)(10)(B)(iv)(I).

liability contained in 17 U.S.C.

115(d)(10)(B)(iv) and its subclauses (I)

through (III)—particularly the treatment

during the transition period of voluntary

licenses and other agreements whereby

copyright owners may have released

certain royalty claims such that a DMP’s

obligation to pay royalties for related

uses has been extinguished, and the

related possibility that some portion of

unmatched musical work uses may not

have accrued royalties associated with

them.

204

First, the statute is not clear about

what happens if a DMP legitimately

cannot determine what accrued

royalties are owed by the required date

of transfer to the MLC under section

115(d)(10)(B)(iv)(III). At first glance, the

statute presumes this amount will be a

final and ascertainable figure by the

deadline, directing that DMPs ‘‘not later

than 45 calendar days after the license

availability date, transfer all accrued

royalties to the mechanical licensing

collective.’’

205

But, as discussed above,

both the MLC and DLC acknowledge

that this may not be possible,

particularly in light of the Phonorecords

III remand, and agree that a regulatory

scheme of estimates and adjustments is

necessary in at least some instances,

such as where the computation of

accrued royalties depends upon one or

more then-unknown royalty pool inputs

outside the DMP’s control (such as

applicable performance royalties), or

where the applicable statutory royalty

rates or terms change retroactively after

the cumulative statement of account has

been delivered to the MLC.

206

Commenters disagree, however, as to

whether an estimate and adjustment

mechanism should also be applied

where certain usage of certain

unmatched works may be subject to a

voluntary license or other agreement

containing an appropriate release of

royalty claims. Under such a scenario,

because the specific works are

unmatched and cannot be identified as

being subject to the agreement at the

time of delivery of the cumulative

statement, the amount of accrued

royalties is predicated upon estimating

certain usages for which royalties have

already been paid or otherwise are not

considered accrued.

207

The statute is no less unclear in the

contested scenario (where a voluntary

agreement may affect accrued royalties)

than the agreed-upon scenario (where

an unknown royalty pool input may

affect accrued royalties); both involve

the statutory reference to ‘‘all accrued

royalties,’’ which, as discussed above, is

ambiguous.

208

Under both scenarios, the

purported need to estimate and adjust

stems from a DMP’s need to pay all

accrued royalties by the statutory

payment due date when the precise

accrued royalties is not yet

calculable.

209

Second, the limitation on liability

provision does not address the

application of voluntary licenses,

making no explicit acknowledgement of

their existence. The MLC argues that for

‘‘works initially unmatched that are

later matched to voluntary licenses, . . .

for periods prior to the license

availability date, the MMA provides for

payments of matched royalties to be

made to copyright owners, and does not

provide for the MLC to carve out

voluntary agreements,’’ further

contending that ‘‘the distinction

between blanket license coverage and

voluntary license coverage only exists

after the license availability date.’’

210

The MLC also argues that for a DMP to

be eligible for the limitation on liability,

after royalties have been accrued in

accordance with section

115(d)(10)(B)(iv), they must ‘‘be held

through the date when the royalties are

either (a) matched and distributed to the

proper copyright owner pursuant to

subsection II or (b) transferred to the

MLC pursuant to subsection III.’’

211

Given that neither section

115(d)(10)(B)(iv)(II) nor (III) references

voluntary licenses, this interpretation

would seem to result in such licenses

not being given effect, whether entered

into before the MMA or after. Taken

literally, this would seem to mean, for

example, that if a DMP uses a work that

is not matched by the end of the

calendar month of first usage, even if its

efforts later result in a match subject to

an existing voluntary license (such as

delayed matching of new releases), the

DMP must pay the copyright owner

pursuant to the statutory payment and

reporting requirements instead of the

terms of the existing agreement in order

to retain eligibility for the limitation on

liability.

212

The MLC tries to avoid this

conclusion by arguing that ‘‘Section

115(d)(10)(B)(iv)(II) is fully consistent

on its face with the payment of royalties

under voluntary license terms’’ because

‘‘[t]he subsection provides that, when a

DMP matches an unmatched work, it

shall pay all respective accrued royalties

to the identified copyright owner ‘in

accordance with this section and

applicable regulations.’ ’’

213

But, as the

DLC observes, this is a misreading of the

statute.

214

The language quoted by the

MLC concerns ‘‘the information’’ that

must be ‘‘include[d]’’ in the required

cumulative statement of account; it does

not relate to the payment of royalties or

other aspects of the reporting.

215

The DMPs contend that section

115(d)(10)(B)(iv)(I) speaks to this issue

by requiring that ‘‘[a]ccrued royalties

shall be maintained by the digital music

provider in accordance with generally

accepted accounting principles.’’

216

They argue that this provision covers

how accrued liabilities can be

extinguished, asserting that GAAP

permits this in ways not provided for in

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2190

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

217

See DLC NPRM Comment at 17 (‘‘[U]nder

GAAP, accrued royalties that were paid to

participating publishers, who released all

entitlement to royalties for such usage, would cease

being ‘maintained’ in accordance with GAAP; only

those royalties expected to be due to third parties

who had not released such royalty claims would be

accrued.’’); DLC SNPRM Comment at 10; DLC Ex

Parte Letter at 2 (Oct. 14, 2020); Spotify Ex Parte

Letter at 3–4 (Oct. 9, 2020).

218

Spotify Ex Parte Letter at 4 (Oct. 9, 2020); see

DLC SNPRM Comment at 10; DLC Ex Parte Letter

at 2 (Oct. 14, 2020) (‘‘[T]he MLC’s proffered

statutory argument . . . would improperly read the

GAAP requirement out of the law, and fail to

account for voluntary licenses.’’).

219

See 17 U.S.C. 115(d)(3)(I)(ii), (d)(10)(B)(iv)(II)–

(III) (all referring to the payment of ‘‘accrued

royalties’’). For example, where a DMP transferred

over royalties for an unmatched work that, when

later matched by the MLC, turns out to be subject

to a catalog-based voluntary license where payment

for the relevant usage was already made to the

copyright owner under the terms of that agreement.

220

See, e.g., R–S–C v. Sessions, 869 F.3d 1176,

1183–85 (10th Cir. 2017) (finding statute ambiguous

where it was ‘‘apparent’’ that statutory provisions

were ‘‘at odds with one another,’’ such that the

‘‘intra-statutory conflict obscure[d] any clear

command from Congress’’ on the subject at issue).

221

17 U.S.C. 115(c)(2)(A)(i); see also id. at

801(b)(7)(A), (C); H.R. Rep. No. 115–651, at 4; S.

Rep. No. 115–339, at 4; Conf. Rep. at 3 (‘‘Consistent

with the current 115 compulsory license,

subsection (c)(2)(A) makes clear that voluntary

licenses entered into between musical work

copyright owners and digital music providers are

given effect in lieu of the rates established for the

blanket license.’’).

222

17 U.S.C. 115(d)(9)(C); see also id. at

115(d)(1)(C); H.R. Rep. No. 115–651, at 10; S. Rep.

No. 115–339, at 10–11; Conf. Rep. at 8–9 (‘‘[A]ny

voluntary license agreement between a digital

music provider and a musical work copyright

owner continues to be effective and takes

precedence over the blanket license until such

license expires according to its own terms.’’).

223

See U.S. Copyright Office, Views of the United

States Copyright Office Concerning PRO Licensing

of Jointly Owned Works, at 20 (Jan. 2016), https://

www.copyright.gov/policy/pro-licensing.pdf

(‘‘Congress established [compulsory licenses] to

address specific market conditions, and they are

narrowly construed in their application.’’) (citing

Fame Publ’g Co. v. Alabama Custom Tape, Inc., 507

F.2d 667, 670 (5th Cir. 1975) and WPIX, Inc. v. ivi,

Inc., 691 F.3d 275, 281 (2d Cir. 2012)); see also DLC

SNPRM Comment at 10 (observing that ‘‘other

references to voluntary agreements in the statute

say nothing about how those agreements should be

applied to the issues posed by accrued unmatched

royalties’’).

224

See 85 FR 22518, 22528 (Apr. 22, 2020) (‘‘The

DLC is specifically concerned with the handling of

voluntary licenses, explaining that because such

licenses are often procured through blanket deals

covering all musical works in a publisher’s catalog,

the DMP usually does not know which specific

musical works are covered, and will be reliant on

the MLC to make that determination based on its

statutorily directed matching efforts; this in turn

affects the amount of royalties the DMP owes under

the blanket license.’’); DLC SNPRM Comment at 9

(‘‘[I]t is common in the industry, if not standard, for

full-catalog licenses not to identify each work

covered, and for the list of covered works to change

from time to time.... [I]t is precisely for this

reason that the MLC must provide a response file

identifying the works covered by a voluntary

license, in order to allow the licensee to calculate

the royalties owed pursuant to the blanket license

for the remaining works.’’); see also, e.g., Steven

Winogradsky & David Lowery, Music Publishing:

The Complete Guide 267 (2nd ed. 2019) (discussing

production music library licenses on a non-title

basis).

225

See 17 U.S.C. 115(d)(10)(B)(iv)(II).

226

MLC Ex Parte Letter at 2–3 (Oct. 16, 2020); see

MLC SNPRM Comment at 3.

227

The first clause reads, ‘‘[i]f 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.’’ 17 U.S.C.

115(d)(10)(B)(iv).

228

The second clause reads, ‘‘the digital music

provider shall accrue and hold royalties calculated

section 115(d)(10)(B)(iv)(II) or (III), such

as pursuant to agreement.

217

They argue

that ‘‘this is how Subclause (I) has to

work, in order to account for voluntary

licenses’’ because subclause (II) ‘‘does

not address voluntary licenses at all’’

and instead ‘‘requires—regardless of the

terms of any contrary agreement—

payment of ‘all accrued royalties’ on a

specific timetable, accompanied by a

statutorily mandated ‘cumulative

statement of account.’ ’’

218

The Office concludes that the

limitation on liability provision is not

clear about the treatment of voluntary

licenses. The MLC’s formulation

assumes that any amount transferred to

the MLC must necessarily be ‘‘accrued,’’

failing to recognize that some portion of

what is transferred may instead

constitute an overpayment subject to

credit or refund.

219

Additionally,

neither the MLC’s nor the DMPs’

interpretations resolve conflicts between

section 115(d)(10)(B)(iv) and at least two

other related provisions in section 115

intended to preserve the effect of

existing voluntary transactions.

220

The

first provision states that ‘‘[l]icense

agreements voluntarily negotiated at any

time between one or more copyright

owners of nondramatic musical works

and one or more persons entitled to

obtain a compulsory license . . . shall

be given effect in lieu of any

determination by the Copyright Royalty

Judges.’’

221

The second provides that

‘‘[a] voluntary license for a covered

activity in effect on the license

availability date will remain in effect

unless and until the voluntary license

expires according to the terms of the

voluntary license, or the parties agree to

amend or terminate the voluntary

license.’’

222

Both in essence require that

voluntary licenses be given effect in lieu

of compulsory licenses, and yet by the

MLC’s read (despite its attempts to

suggest otherwise), section

115(d)(10)(B)(iv)(II) and (III) would

require the opposite.

223

It seems highly unlikely that

Congress, without being explicit about

what it was doing, would have adopted

a statutory scheme that broadly

encourages and gives effect to the

common practice of voluntary licenses

(including by preserving existing

agreements), only to override them and

risk marketplace confusion for purposes

of the limitation on liability

requirements. It is possible that

Congress may have assumed that an

unmatched work would not be subject

to a voluntary license, but that appears

to be factually untrue, as it has been

represented to the Office that many

voluntary licenses operate on a

participating-party or musical work

catalog or library basis, rather than a

per-matched-work (or ‘‘title-bound’’)

basis.

224

The DMPs’ reliance on the GAAP

provision in subclause (I) does not

resolve the matter, however. Even if the

provision encompassed derecognition of

liabilities, including by agreement, in

certain contexts, it would still be in

conflict with subclause (II). For

example, where a previously unmatched

work becomes matched prior to the

license availability date, if the work is

matched to a copyright owner with

whom the DMP has a voluntary license,

then under subclause (I), that license

could be given effect, or, if there is no

such license, the DMP and copyright

owner could agree to one at that time to

extinguish the liability. But under

subclause (II), in the exact same

situation, the DMP is told to undertake

certain acts that could be contrary to

any such agreement.

225

Even if a

voluntary license was structured so that

no further accrued royalties would be

due, to the extent further reporting is

still required under the agreement, there

could be a conflict with the reporting

requirements of subclause (II). Congress

has given no indication as to whether

subclause (I) or (II) should control in

these types of situations.

Third, the Office finds section

115(d)(10)(B)(iv) to be ambiguous on its

face. The MLC argues that the provision

is clear and requires that ‘‘on enactment

of the MMA, DMPs must accrue and

hold royalties for all of their historical

and ongoing unmatched uses, with such

accrued royalties to be calculated at the

statutory rate and to cover all uses from

initial use of the work, with such

accrued royalties to be held through the

date when the royalties are either (a)

matched and distributed to the proper

copyright owner pursuant to subsection

II or (b) transferred to the MLC pursuant

to subsection III.’’

226

The MLC contends

that the ‘‘first clause’’ of section

115(d)(10)(B)(iv)

227

‘‘serves to identify

what is being addressed by the

provision, namely all unmatched works

and associated royalties;’’ the ‘‘second

clause’’

228

‘‘sets forth the unambiguous

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2191

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

under the applicable statutory rate in accordance

with usage of the work.’’ Id.

229

The third clause reads, ‘‘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.’’ Id.

230

MLC Ex Parte Letter at 3 (Oct. 16, 2020).

231

Id. at 3–4; see MLC SNPRM Comment at 5–

10; MLC Ex Parte Letter at 2–4 (Nov. 17, 2020); see

also, e.g., Recording Acad. & SONA Ex Parte Letter

at 2 (Nov. 17, 2020) (‘‘[The GAAP provision] is

meant to safeguard the royalties until they can be

successfully matched to the owner or transferred to

the MLC. It is not intended to provide a trap door

through which accrued royalties can be disposed of

in a way not prescribed in the statute.’’); NMPA Ex

Parte Letter at 1 (Nov. 17, 2020); SGA, SCL &

MCNA Ex Parte Letter at 3 (Nov. 17, 2020).

232

DLC Ex Parte Letter at 2 (Oct. 14, 2020); see

also, e.g., ARA, FMC & MusicAnswers SNPRM

Comment at 3 (non-DMP organizations agreeing that

‘‘Congress clearly intended the . . . [relevant]

provisions to cover usages of musical works for

which rightsholders had not yet received payment

at all—not usages for which a corresponding

payment had been negotiated and made,’’ and that

‘‘[t]he financial structures and allowances of GAAP

are incorporated in their entirety by a plain reading

of the statute’’); DLC SNPRM Comment at 9; Spotify

Ex Parte Letter at 3–4 (Oct. 9, 2020).

233

Spotify Ex Parte Letter at 3 (Oct. 9, 2020); see

also DLC Ex Parte Letter at 2 (Oct. 14, 2020).

234

Spotify Ex Parte Letter at 3–4 (Oct. 9, 2020);

see also DLC Ex Parte Letter at 2 (Oct. 14, 2020).

235

See 17 U.S.C. 115(d)(10)(B)(iv).

236

Id. at 115(d)(10)(B)(iv)(II)(aa), (III)(aa).

237

Id. at 115(d)(10)(B)(iv)(II)(bb)–(cc), (III)(bb).

238

See id. at 115(d)(10)(B)(iv).

obligation to accrue and hold royalties

at the statutory rate,’’ with ‘‘[t]he

statutory obligation to accrue and hold

these royalties begin[ning] on the

enactment date;’’ and the ‘‘third

clause’’

229

‘‘details the scope of the

accrual to be made, the time frame for

holding, and the ultimate payment

obligation.’’

230

Based on this analysis,

the MLC disagrees with the DMPs’

position on the meaning of the GAAP

provision in section 115(d)(10)(B)(iv)(I),

asserting that ‘‘[r]eading the generic

direction to ‘maintain’ royalties in

accordance with GAAP as overriding

the detailed statutory instructions and

producing a result where the DMP in

fact does not maintain the accrued

royalties and does not transfer them

under either subsection II or III—the

exact opposite of the explicit statutory

directive—does not appear

reasonable.’’

231

The DMPs disagree, arguing that ‘‘the

MLC’s proffered statutory argument . . .

would improperly read the GAAP

requirement out of the law, and fail to

account for voluntary licenses.’’

232

Instead, they contend that the phrase

‘‘as follows’’ at the end of clause (iv)

must mean that ‘‘the subsequent

Subclauses (I)–(III) describe how and

when the royalties are accrued, paid to

copyright owners, or transferred to the

MLC.’’

233

They further explain that

‘‘Subclause (I) provides a general

instruction that the royalties ‘shall be

maintained’ in accordance with

GAAP—which means that GAAP

standards apply to the initial calculation

of the accrual as well as to any

adjustment of that initial calculation in

light of new facts. That is made clear by

the fact that Clause (iv) ends with the

phrase ‘as follows,’ which links the

initial accrual determination described

in Clause (iv) to the application of

GAAP standards specified in Subclause

(I).’’

234

The Office finds that neither of these

interpretations eliminates the

ambiguities in clause (iv). A key

uncertainty lies in what the MLC refers

to as the ‘‘third clause’’ of clause (iv):

‘‘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.’’

235

It is not clear what that

phrase is referencing. Looking at the

immediately preceding phrase (‘‘the

digital music provider shall accrue and

hold royalties calculated under the

applicable statutory rate in accordance

with usage of the work’’), it seems that

two possibilities are most likely.

First, the ‘‘third clause’’ of clause (iv)

could be referencing ‘‘accrue and hold

royalties calculated under the

applicable statutory rate.’’ Under that

reading, it would direct when the DMP

must accrue statutory royalties for an

unmatched usage of the work and for

how long it must hold them. For

example, if first use of a work occurred

in May 2015 and that work remained

unmatched at the license availability

date, the DMP must have started

accruing statutory royalties in May 2015

and must be holding all such royalties

until they are transferred to the MLC in

early 2021. Second, the ‘‘third clause’’

could be referencing ‘‘in accordance

with usage of the work.’’ Under that

reading, it would define the lookback

period for the unmatched usage of the

work that may be subject to accrual and

holding of statutory royalties, but would

not speak to when royalties must

actually be accrued by the DMP or for

how long they must be held. For

example, if first use of a work occurred

in May 2015 and that work remained

unmatched at the license availability

date, those uses occurring between May

2015 and the date of transfer to the MLC

in early 2021 would be subject to

royalty accrual requirements for

purposes of cumulative reporting and

transfer to the MLC (but this clause

would not speak to what those

requirements are, including when or for

how long royalties must be accrued and

held; e.g., following enactment in

October 2018, a DMP could first accrue

royalties for the period of use stretching

back to May 2015). The ‘‘third clause’’

could perhaps also be referring to both

the royalty accrual and holding period

and usage lookback period, but that

formulation would not resolve the

issues identified below.

The first construction, which would

construe this phrase as a set holding

period for accrued royalties, mostly

aligning with the MLC’s interpretation,

is problematic in multiple ways. One

obvious issue is that it causes significant

friction with the structure of the overall

provision. Clause (iv) ends with the

phrase ‘‘as follows:’’ after which

detailed requirements are provided

under subclauses (I) through (III). Thus,

the most natural reading is that DMPs

‘‘shall accrue and hold royalties’’ as

specified in subclauses (I) through (III).

But if the ‘‘third clause’’ of clause (iv)

is construed as speaking to the accrual

and holding of royalties in absolute

terms, it would essentially act as an

exception to the operation of subclauses

(I) through (III). There is no indication

that the ‘‘third clause’’ is meant to

function this way, to undercut the

subclauses in the very same provision.

As the DMPs argue, treating it in such

a manner would significantly diminish

the scope and application of the GAAP

provision in subclause (I). If Congress

had meant to further delineate the

requirements of subclauses (I) through

(III), it would likely have done so within

that framework of subclauses, or by at

least using verbiage indicative of an

exception. Further, subclauses (II) and

(III) do not merely dictate the initial

bulk historical payment and cumulative

statement of account requirements,

236

but also the ongoing payment and

reporting obligations for subsequent

reporting periods,

237

making it even less

likely that the ‘‘third clause’’ is meant

as an overarching exception to the

whole of subclauses (I) through (III).

Another problem is that to read the

‘‘third clause’’ as referring to the royalty

holding period, it would have to define

both the beginning and end points of

that period—i.e., starting with the

‘‘initial use of the work’’ and ending

when ‘‘the accrued royalties can be paid

to the copyright owner or are required

to be transferred to the mechanical

licensing collective.’’

238

If understood

this way, to qualify for the limitation on

liability, a DMP would have needed to

‘‘accrue and hold royalties . . . from

initial use of the work,’’ no matter how

many years ago that may have been and

regardless of whether the DMP

addresses any historic bookkeeping or

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2192

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

239

See id.

240

MLC Ex Parte Letter at 3 (Oct. 16, 2020).

241

Id.

242

See 17 U.S.C. 115(d)(10)(B).

243

Id. at 115(d)(10)(B)(iv)(II)(aa), (III)(aa).

244

Id. at 115(d)(10)(B)(iv)(II)(bb)–(cc), (III)(bb).

245

See id. at 115(d)(10)(B)(iv).

246

See id. at 115(d)(10)(B)(iv)(II)(aa)–(bb),

(III)(aa)–(bb).

247

See City of Arlington, 569 U.S. at 296 (quoting

Chevron, 467 U.S. at 842–43).

248

See Vill. of Barrington v. Surface Transp. Bd.,

636 F.3d 650, 659 (D.C. Cir. 2011).

249

See Brand X Internet Servs., 545 U.S. at 980

(‘‘[A]mbiguities in statutes within an agency’s

jurisdiction to administer are delegations of

authority to the agency to fill the statutory gap in

reasonable fashion.’’).

250

H.R. Rep. No. 115–651, at 5–6, 14; S. Rep. No.

115–339, at 5, 15; Conf. Rep. at 4, 12; see 17 U.S.C.

115(d)(12)(A); see also AT&T Corp. v. Iowa Utils.

Bd., 525 U.S. 366, 397 (1999) (‘‘Congress is well

aware that the ambiguities it chooses to produce in

a statute will be resolved by the implementing

agency.’’); Brand X Internet Servs., 545 U.S. at 982.

The Office is not persuaded by the MLC’s

invocation of expressio unius est exclusio alterius

to argue that because there is a provision in the

MMA relating to private agreements in the context

of pre-1972 sound recordings, weight should be

given to the assertion that with respect to the

limitation on liability requirements, ‘‘the MMA

could have easily included language providing for

the deduction of moneys paid in private

settlements, but it did not.’’ MLC SNPRM Comment

at 4–5 (discussing 17 U.S.C. 1401(d)). The provision

about pre-1972 sound recordings is in a separate

section of title 17, was enacted in a separate title

of the MMA that originated from a completely

different bill, and is unrelated to the section 115

compulsory license. It is difficult to see how in

such circumstances silence can be construed as

dispositive of Congress’s intent, especially in light

of the other ambiguities identified above and

Congress’s express cautioning to the Office with

respect to the portions of the MMA relating to

section 115 that uncontemplated issues will arise

and need to be addressed. See H.R. Rep. No. 115–

651, at 5–6, 14; S. Rep. No. 115–339, at 5, 15; Conf.

Rep. at 4, 12.

251

See U.S. Copyright Office, Copyright & the

Music Marketplace 30–31 (2015), https://

www.copyright.gov/policy/musiclicensingstudy/

copyright-and-the-music-marketplace.pdf (noting

that pre-MMA, the statutory license served as a

‘‘ghost in the attic’’ while voluntary licensing

facilitated the majority of licensed uses).

252

See 17 U.S.C. 115(d)(12)(A) (‘‘The Register of

Copyrights may conduct such proceedings and

adopt such regulations as may be necessary or

appropriate to effectuate the provisions of this

subsection.’’); see also ARA, FMC & MusicAnswers

SNPRM Comment at 2–4; ARA Ex Parte Letter at

1 (Nov. 17, 2020) (noting ambiguity and asserting

that ‘‘[a]s a consequence of this ambiguity, we

believe the Copyright Office has discretion to

interpret the MMA’s terms and the authority to

promulgate a rule that creates a workable, practical

system’’); SGA, SCL & MCNA Ex Parte Letter at 1

(Nov. 17, 2020) (‘‘[R]eject[ing] the assertion by some

music publisher representatives (backed by at least

one of their affiliated songwriter groups) that the

USCO’s oversight and rulemaking authority

concerning matters related to 2020–12 should be

viewed as being narrowly limited.’’).

253

See 17 U.S.C. 115(d)(4)(A)(iv) (directing 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’’).

254

See 37 CFR 210.6, 210.7, 210.27.

accounting issues by reporting on and

paying all properly accrued royalties as

required under subclauses (II) and

(III).

239

It seems unlikely that Congress

would have intended something so

sweepingly retroactive and incurable

given its clear intent to encourage

participation in the limitation on

liability and concerns about imposing

potentially retroactive obligations on

DMPs to qualify for this limitation.

Even the MLC does not go this far,

instead stating that ‘‘[t]he statutory

obligation to accrue and hold these

royalties begins on the [MMA’s]

enactment date.’’

240

It is not clear why

the MLC believes this to be the case,

since it contends that the ‘‘third clause’’

details ‘‘the time frame for holding.’’

241

The MLC’s view would only give effect

to the half of the provision purportedly

detailing the end date. To the extent the

MLC qualifies its reading by the overall

direction that the requirements for the

limitation on liability ‘‘shall apply on

the enactment date and through the end

of the period that expires 90 days after

the license availability date,’’ the Office

finds that provision to be yet another

reason why the ‘‘third clause’’ of clause

(iv)—with its conflicting reference to the

starting point of ‘‘initial use of the

work’’ (at least where initial use

predates the MMA’s enactment)—

cannot be construed as the royalty

holding period, or at minimum adds a

layer of ambiguity.

242

The second construction, which

would construe this phrase as defining

the applicable usage lookback period,

despite avoiding most of the problems

plaguing the first construction is also

problematic. As noted above, the details

of subclauses (II) and (III) do not merely

dictate the initial bulk historical

payment and cumulative statement of

account requirements,

243

but also the

ongoing payment and reporting

obligations for subsequent reporting

periods.

244

Understanding the ‘‘third

clause’’ of clause (iv) to be defining the

usage lookback period does not resolve

that tension.

The main issue, though, concerns the

end points of the usage lookback period.

Defining the end of the period as the

dates when ‘‘the accrued royalties can

be paid to the copyright owner [under

subclause (II)(aa)] or are required to be

transferred to the mechanical licensing

collective [under subclause (III)(aa)]’’

245

creates tension with the usage periods

defined in those subclauses, which in

both cases end 45 calendar days

earlier.

246

This discrepancy means that

the ‘‘third clause’’ of clause (iv) does not

refer to an unambiguous usage lookback

period.

The foregoing demonstrates that

Congress’s intent cannot be clearly

divined, and ‘‘ ‘Congress has [not]

directly spoken to the precise question

at issue’ ’’

247

or prescribed a ‘‘precise

course of conduct.’’

248

Therefore, the

Office may proceed to fill the statutory

gap in a reasonable fashion.

249

Specifically with respect to the MMA,

Congress ‘‘expected that situations will

arise that were not contemplated by the

legislation’’ and imbued the Office with

‘‘broad regulatory authority’’ to act,

directing that ‘‘[t]he Office is expected

to use its best judgement in determining

the appropriate steps in those

situations.’’

250

iii. Appropriateness of Regulatory

Action

In light of the statutory ambiguities

identified above in the limitation on

liability provision, including those

raised when reading it in connection

with the provisions preserving

voluntary licensing, the Office

concludes that the most reasonable

interpretation is one that does not

disrupt the existing marketplace for

licensing on a participating-party or

musical work catalog or library basis, as

opposed to a title-bound basis. An

alternative conclusion that disfavors

transactions not based on song-by-song

licenses would be at odds with

animating legislative desires to facilitate

large scale licensed uses of musical

works and avoid disrupting the

marketplace that has arisen around the

compulsory license.

251

Accordingly, the

Office finds that it is necessary and

appropriate to promulgate a rule that

accounts for voluntary agreements

(whether considered licenses,

settlements, liquidations, releases, or

otherwise) during the transition period,

and the corresponding possibility that

the royalties a DMP has accrued may

not associate with all unmatched

musical work usages because some of

those usages may be subject to relevant

agreements.

252

Beyond the broad

statutory grant of authority bestowed

upon the Office as part of the MMA and

the authority delegated to the Office by

virtue of the ambiguities identified

above, it has long been recognized to be

well within the ambit of the Office’s

authority to promulgate rules governing

processes for reporting and paying

royalties, including reliance upon

estimates and adjustments.

253

Indeed,

the Office’s longstanding pre-MMA

statement of account regulations, and

the more-recently enacted reports of

usage regulations under the blanket

license, employ a system of estimates

and adjustments.

254

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2193

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

255

See H.R. Rep. No. 115–651, at 13–14; S. Rep.

No. 115–339, at 14–15; Conf. Rep. at 12; Letter from

Senator Lindsey O. Graham, Chairman, Senate

Committee on the Judiciary, to U.S. Copyright

Office 1 (Sept. 30, 2020).

256

See, e.g., MAC, Recording Acad. & SONA

SNPRM Comment at 2–3 (‘‘The original NPRM,

which remained silent on how the Agreements

should be treated, is the better approach. If the DMP

interpretation of GAAP is correct and can be

justified, the Office does not need to explicitly

ratify it in the regulations. The DMPs can simply

comply with the statute and transfer their accrued

royalties as they understand them along with the

usage data.’’) MLC SNPRM Comment at 2, 10–11.

257

DLC SNPRM Comment at 11; see DLC NPRM

Comment at 16–17 (‘‘[R]egulation is plainly

necessary to provide unambiguous guidance to

DMPs and the MLC.... [L]eaving this provision

open ended will undoubtedly invite litigation that

second-guesses DMPs’ accounting determinations

and render the limitation on liability illusory....

Regulatory clarification to guard against that result

is warranted.’’); DLC Ex Parte Letter at 2 (Oct. 14,

2020); Spotify Ex Parte Letter at 4 n.5 (Oct. 9, 2020).

258

See NPRM at 43523.

259

See DLC SNPRM Comment at 12 (‘‘[E]ven if

the DMPs are to employ the self-help invited by the

MLC with respect to the GAAP treatment of pre-

MMA releases, the Office would still need to issue

regulations clarifying the manner in which DMPs

reconcile the cumulative statement of account with

the necessary estimates that GAAP requires—not

just to account for the release of claims prior to the

MMA, but for other estimates, including royalty

rates and inputs.’’).

260

See H.R. Rep. No. 115–651, at 13–14; S. Rep.

No. 115–339, at 14; Conf. Rep. at 12 (noting

concerns over continued litigation, including how

it diverts royalties from artists); Letter from Senator

Lindsey O. Graham, Chairman, Senate Committee

on the Judiciary, to U.S. Copyright Office 1 (Sept.

30, 2020) (noting that the MMA was intended to

provide legal certainty and that it is ‘‘critical’’ to

resolve the issue, considering copyright owner,

songwriter, and DMP interests).

261

See ARA, FMC & MusicAnswers SNPRM

Comment at 3–4 (agreeing that the ‘‘structure seems

to accomplish exactly what Congress intended’’ and

‘‘resolves the current controversy in a way that best

serves the interest of independent and working

songwriters who have a strong interest in bringing

as much money as possible into the MLC matching

and payment process for pre-MMA uses’’).

262

See Am. Intellectual Prop. Law Ass’n, 2019

Report of the Economic Survey 54 (2019) (median

cost in 2019 for a party to litigate a copyright

infringement lawsuit with less than $1 million at

risk through to appeal was $550,000; median cost

to reach the close of discovery was $150,000).

263

DLC Ex Parte Letter at 2 (Nov. 17, 2020); see

ARA, FMC & MusicAnswers SNPRM Comment at

4 (stating that ‘‘potentially hundreds of millions of

dollars for songwriters and publishers are at stake’’

because the risk of DMPs foregoing the limitation

on liability ‘‘is real’’).

264

DLC Ex Parte Letter at 2 (Nov. 17, 2020).

265

See, e.g., NMPA Ex Parte Letter at 2 (Nov. 3,

2020) (discussing the ability of DMPs to get letters

of direction from relevant publishers and potential

litigation to enforce contract rights); MLC Ex Parte

Letter at 5 (Oct. 5, 2020) (noting that ‘‘in the event

of any such legal dispute between a DMP and a

copyright owner concerning the right to receive

unmatched royalties that the DMP had turned over

under the MMA, the MLC would hold such

unmatched royalties pending the resolution of the

dispute,’’ and that the MLC would ‘‘follow[] the

direction of the parties or appropriate courts as to

how royalties should be distributed pursuant to

private agreements’’); SATV Ex Parte Letter at 2

(Oct. 28, 2020) (‘‘SATV is open to discussing letters

of direction and other potential solutions that

would ensure that the requirements of the MMA are

satisfied and also address the concerns raised by the

digital services regarding payments made pursuant

to private settlements.’’); UMPG Ex Parte Letter at

1 (Oct. 30, 2020) (‘‘UMPG believes that any issues

relating to payments under private settlements can

and should be dealt with between the contracting

parties. UMPG intends to assist and facilitate

voluntary procedures for doing so with the digital

services, to the extent applicable.’’); WMG Ex Parte

Continued

Concluding otherwise would be at

odds with Congress’s intent to create

certainty and discourage litigation over

historical usage.

255

The Office did give

thought to remaining silent on the issue,

as some commenters urged. In

particular, the MLC and others

contended that a regulation is

unnecessary, essentially opining that

since the DMPs believe the statute is

clear, they should simply rely on their

asserted interpretation.

256

in contrast,

the DLC and DMPs asserted that ‘‘[t]he

need for [a] rule is critical’’ because ‘‘the

MLC’s very insistence that the statute

doesn’t square with the interpretation

advanced by the DLC confirms that

clarifying regulation is imperative, and

that a lack of such clarification is likely

to provoke litigation—which will be a

burden not just for DMPs, but also for

the copyright owners who would have

to bring those infringement suits.’’

257

The Office concludes that the better

approach is to provide regulatory

guidance to address what most parties

seem to agree will be inevitable

situations where usage that certain

DMPs could not match is subsequently

determined by the MLC to be owned by

copyright owners who may be party to

a valid agreement covering the relevant

period. Contrary to the MLC’s and

others’ statements, the rule’s approach

is in many ways aligned with the

original NPRM, as it seeks to give effect

to voluntary agreements, where

appropriate, without opining on any

particular individual agreements.

258

At

its heart, the rule detailed below simply

creates a mechanism through which the

MMA’s limitation on liability

requirements can accommodate

voluntary agreements (including those

adopted on a non-title-bound basis) to

the extent they may be appropriately

relied upon in computing accrued

royalties. Moreover, in the event that a

court found the statute unambiguously

to require the DLC’s and DMPs’

interpretation, a rule would still be

necessary to prescribe conditions under

which their interpretation could be

given effect, including by articulating

how estimates and adjustments as well

as underpayments and overpayments

should operate.

259

In this respect, the

Office believes regulatory guidance will

help guide DMP compliance, and

provide a mechanism for additional

royalty monies to be payable to

copyright owners entitled to such

payment, in the event obligations have

been underestimated. Without the

uniformity in application that a

regulatory scheme brings, it could

negatively impact the MLC’s ability to

process cumulative statements of

account.

Importantly, the Office also concludes

that regulatory action will best limit the

risk of DMPs choosing to forego the

limitation on liability by providing

added certainty, helping to ensure that

accrued royalties owed to copyright

owners and songwriters are transferred

to the MLC and eventually matched and

distributed accurately without resorting

to litigation, as Congress intended.

260

The transfer of cumulative statements

and royalties is an optional condition to

the limitation on liability and not

otherwise required for DMPs to use the

blanket license. As explained below, the

adopted rule acknowledges, without

endorsing, the DMPs’ proffered

interpretation of relevant agreements by

establishing a process that leaves room

for such issues to be litigated if

necessary.

261

DMP participation is

particularly important for smaller

publishers and self-published

songwriters who may not have the

means to engage in the litigation that

could otherwise be necessary to obtain

royalty payments.

262

That loss could be

significant; as noted, the DLC

‘‘estimated that several hundred million

dollars were available to be transferred

to the MLC as accrued royalties, even

after accounting for the derecognition of

accruals based on preexisting

agreements containing releases to claims

for accrued royalties.’’

263

Indeed,

regulatory action seems particularly

appropriate to ensure that those

copyright owners who did not

participate in voluntary agreements will

see the money to which they are entitled

for uses of their works transferred to the

MLC and ultimately paid without

needing to resort to litigation. The

adopted final rule is a practical solution

to a complex issue. It is a permissible

construction of the statute that best

effectuates Congress’s intent and is

within the Office’s authority to adopt.

Other practical considerations weigh

in favor of adopting the rule. Most

notably, it would be a waste of resources

to require DMPs to transfer ‘‘tens of

millions of dollars’’

264

to the MLC,

which the MLC and music publishers

seem to agree, may have to circuitously

make their way back to the DMPs in

cases where valid releases apply.

265

The

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2194

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

Letter at 1 (Oct. 21, 2020) (‘‘For those DSPs with

which we have already settled claims for the

distribution of royalties owed before the enactment

of the MMA, we consider these claims closed.’’).

266

H.R. Rep. No. 115–651, at 6; S. Rep. No. 115–

339, at 5; Conf. Rep. at 4, 6.

267

See SATV Ex Parte Letter at 2 (Oct. 28, 2020)

(noting, in the context of market-based solutions, a

preference for ‘‘any potential reimbursements to

digital services be made by the MLC rather than

music publishers’’).

268

See, e.g., DLC NPRM Comment at 14–15 (‘‘The

NMPA has represented that 90%-plus of all usage

was covered by the NMPA agreements: It would be

absurd to require DMPs to make an acknowledged

duplicate payment of tens of millions of dollars to

cover payments that are merely around 10%, or

less, of that amount.’’); id. at 13 (quoting Ed

Christman, Vast Majority Join Royalties Settlement

Between Spotify and Publishing Group, Billboard

(July 11, 2016), https://www.billboard.com/articles/

business/7431272/nmpa-spotify-settlement-most-

members-join (stating that participation was ‘‘96%

of [NMPA’s] market share’’)); id. (quoting Lowery et

al. v. Rhapsody Int’l Inc., No. 4:16–cv–01135–JSW

(N.D. Cal. filed Mar. 7, 2016), Dkt. No. 175 at 3)

(noting opt in market share of 97.13%).

269

Id. Add. at 22; see also NPRM at 43523; NMPA

Ex Parte Letter at 2 (Aug. 25, 2020) (‘‘[R]esolution

of issues and disputes concerning privately

negotiated agreements such as the pending and

unmatched settlement agreements . . . is to be

addressed through state contract law and

discussions between the contracting parties.’’); MLC

NPRM Comment at 8–9 (accord).

270

SNPRM at 70548; see id. at 70546 (citing Fed.

Acct. Standards Bd. (‘‘FASB’’) Acct. Standards

Codification (‘‘ASC’’), titled ‘‘Derecognition’’).

271

Id. at 70548.

272

See, e.g., MAC, Recording Acad., & SONA

SNPRM Comment at 2–3; MLC SNPRM Comment

at 2–10; NMPA Ex Parte Letter at 1–2 (Nov. 17,

2020); MLC Ex Parte Letter at 2–5 (Nov. 17, 2020);

SGA, SCL & MCNA Ex Parte Letter at 3 (Nov. 17,

2020).

273

See 17 U.S.C. 115(d)(10)(B)(iv)(I) (‘‘Accrued

royalties shall be maintained by the digital musical

provider in accordance with generally accepted

accounting principles.’’).

274

See MLC SNPRM Comment at 2–10. The

MLC’s approach seems to assume that the principle

that derecognition is only appropriate if there is

payment to the creditor or a release ‘‘judicially or

by the creditor’’ cannot be used to reflect payments

to, and/or releases by, creditors that are made on

a creditor basis as opposed to a title-bound basis.

See id. at 7. The MLC does not fully explain the

basis for its assumption, which the DLC does not

share. See DLC NPRM Comment at 17. Neither

party submitted statements from any accounting

authority in support of their respective contentions.

275

See MLC Ex Parte Letter at 2–3 (Nov. 17,

2020); see also MLC SNPRM Comment at 6–8; MLC

Ex Parte Letter at 3–4 (Oct. 16, 2020); Recording

Acad. & SONA Ex Parte Letter at 2 (Nov. 17, 2020).

276

See DLC SNPRM Comment at 9.

Office is mindful that Congress expects

the MLC to operate in an ‘‘efficient and

fair’’ manner without engaging in

‘‘waste’’ or the ‘‘unreasonable use of

funds.’’

266

Unnecessary reimbursement

would be an inefficiency and waste to

be avoided. Music publishers may also

not want to incur their own

administrative costs if funds distributed

to them by the MLC are ultimately

returnable to DMPs, such as those

relating to legal review and accounting

processes.

267

There is no practical

purpose to this exercise, especially if it

is correct, as appears uncontested, that

a large portion of the music publishing

industry (in terms of market share) is

subject to relevant releases for relevant

reporting periods.

268

iv. Regulatory Approach

The Office declines to adopt the

DLC’s initial proposal, made in response

to the NPRM, which would have the

Office establish a blanket rule that

draws conclusions about private

contracts.

269

Instead, the Office

concludes that a reasonable and

appropriate approach is to promulgate a

rule that: (1) Incorporates the statutory

reference to GAAP in section

115(d)(10)(B)(iv)(I) and confirms this

includes principles with respect to

derecognition of liabilities where

appropriate; (2) clarifies that the

requirements of section

115(d)(10)(B)(iv)(II) do not supersede a

relevant voluntary agreement to the

contrary; and (3) with respect to section

115(d)(10)(B)(iv)(III), adopts an estimate

and adjustment mechanism for cases

where certain usage of certain

unmatched works is believed to be

subject to a voluntary agreement, but

because the specific works are

unmatched, the DMP’s accrued royalties

do not fully identify which works are

subject to such an agreement at the time

of delivery of the cumulative statement

to the MLC and the amount of accrued

royalties may need to be adjusted in

response to matching.

GAAP treatment. To address, in part,

the discussed ambiguities in section

115(d)(10)(B)(iv) and to clarify the

operation of subclause (I), the SNPRM

proposed language stating that

‘‘[a]ccrued royalties shall be maintained

by the digital music provider in

accordance with generally accepted

accounting principles, including those

concerning derecognition of

liabilities.’’

270

The SNPRM also stated

that ‘‘[a]ccrued 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.’’

271

The MLC and other commenters

object, contending that this language

conflicts with the statute and blesses an

incorrect interpretation of GAAP.

272

On

the first point, as discussed, the Office

has concluded that the regulatory

clarification to address an area of

ambiguity is appropriate. On the

second, the Office is unconvinced that

incorporating the statutory directive to

maintain accrued royalties in

accordance with GAAP can be read as

blessing a specific interpretation of

GAAP.

273

To the extent the proposed

language expressly acknowledges a

GAAP provision that DMPs indicate is

relevant to their reporting, and to the

extent that copyright owners disagree

that this provision is, in fact, relevant,

copyright owners may contest whether

a DMP has appropriately applied GAAP,

but the Office will not presume that

DMPs may not rely upon this

provision.

274

Nor is the Office convinced by the

MLC’s contention that ‘‘since the

copyright owners of unmatched works

are by definition not known or located,

there cannot be private agreements that

dispose of these unmatched royalties

prior to the required transfer to the

MLC.’’

275

The MLC does not adequately

support this assertion or point to

relevant principles of contract law.

While the DLC does not cite clear

authority either, its reasoning is more

persuasive:

[These assertions are] patently wrong: It is

common in the industry, if not standard, for

full-catalog licenses not to identify each work

covered, and for the list of covered works to

change from time to time.... [I]t is

precisely for this reason that the MLC must

provide a response file identifying the works

covered by a voluntary license, in order to

allow the licensee to calculate the royalties

owed pursuant to the blanket license for the

remaining works. To suggest that the license

simply does not exist or is ineffective until

that matching takes place is contrary to the

law and is inconsistent with long-standing

industry practice. Moreover, the notion that

derecognizing liability for unmatched

royalties can never be appropriate unless and

until all royalties are matched ignores the

reality of the market. If the owners of the

works that generated over 90% of the

royalties have released their claims, there is

no need to know exactly which owner

released which royalties to know that there

is not an outstanding liability of 100% of the

royalties.

276

Indeed, a public version of an

agreement purporting to be one of the

agreements referenced by the DMPs

includes a broadly worded release

provision that would apply to claims

‘‘whether disclosed or undisclosed,

whether known or unknown, whether

asserted or unasserted, whether

determined, determinable or otherwise,

whether strict, absolute or continent,

whether accrued or unaccrued, whether

liquidated or unliquidated, whether in

law, in equity, or otherwise, whether

incurred or consequential, whether due

or to become due, and of any kind or

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2195

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

277

See Participating Publisher Pending and

Unmatched Usage Agreement 15 (2016) (embedded

in Paul Resnikoff, Exclusive: This Is the Contract

Songwriters Are Signing With Spotify, Digital Music

News (Apr. 27, 2016) https://www.digital

musicnews.com/2016/04/27/exclusivespotify-

establishing-direct-publisher-contracts-to-solve-

mechanicals-issues (document is embedded in

article)). The Office again emphasizes that it is not

in any way opining on the meaning of this or any

other relevant private agreement, but noting the

language used as a potential example. No party

disputes the DLC’s suggestion that this public

version of the agreement is authentic, although the

MLC and others note that there exist supplemental

agreements and other documentation concerning

negotiation or performance. See, e.g., MLC SNPRM

Comment at 9.

278

See DLC SNPRM Comment at 10.

279

See MLC SNPRM Comment at 8–9.

280

See id. at 5–6, 8 (‘‘Maintaining an accrued

liability under GAAP means maintaining

accounting records and financial statements that

reflect the details of the accrual.’’); MLC Ex Parte

Letter at 3–4 (Oct. 16, 2020) (arguing it ‘‘does not

appear reasonable’’ if ‘‘producing a result where the

DMP in fact does not maintain the accrued

royalties’’); Recording Acad. & SONA Ex Parte

Letter at 2 (Nov. 17, 2020) (‘‘The provision to

‘maintain’ accrued royalties in accordance with

GAAP is meant to safeguard the royalties until they

can be successfully matched to the owner or

transferred to the MLC.’’).

281

ARA, FMC, & MusicAnswers SNPRM

Comment at 3; see DLC SNPRM Comment at 9.

282

See NMPA and Spotify Announce Landmark

Industry Agreement for Unmatched U.S. Publishing

and Songwriting Royalties (Mar. 17, 2016), http://

nmpa.org/press_release/nmpa-and-spotify-

announce-landmark-industry-agreement-for-

unmatched-u-s-publishing-and-songwriting-

royalties (noting ‘‘the agreement establishes a large

bonus compensation fund that is a substantial

percentage of what is currently being held by

Spotify for unmatched royalties’’).

283

See SNPRM at 70548.

284

See MLC Ex Parte Letter at 7 (Nov. 17, 2020)

(‘‘Section 115(d)(10)(B)(iv)(II) is fully consistent on

its face with the payment of royalties under

voluntary license terms.’’).

285

See SNPRM at 70548.

286

See MLC SNPRM Comment at 3–4, 13–14,

App. A at v, ix–x.

nature whatsoever.’’

277

If a relevant

voluntary agreement were worded

appropriately, it would be difficult to

see how a work would not be subject to

the agreement just because it is not

matched at a particular point in time by

a particular DMP; a work belonging to

a copyright owner under the relevant

period of agreement still belongs to that

owner regardless of whether the DMP

knows it. Moreover, if the DMPs’

assertions about GAAP are correct, the

MLC’s position seems to read the word

‘‘accrued’’ out of subclause (III).

278

Only

‘‘accrued royalties’’ for uses of

unmatched works must be transferred to

the MLC, and these may not necessarily

be the same as the royalties that would

otherwise be attributable to such usage

under the statutory rate in the absence

of any voluntary agreements that may

extinguish or alter such royalty

obligations for certain uses of certain

works.

279

The Office also disagrees that the

requirement for accrued royalties to be

‘‘maintained’’ in accordance with GAAP

must be read to prohibit royalties from

ceasing to be maintained.

280

It is far

more logical that relevant principles

governing maintenance of such royalties

may dictate how and under what

circumstances or conditions such

maintenance may conclude prior to the

events of subclauses (II) and (III). In

light of the foregoing, the Office is

adopting as final the proposed language

clarifying that GAAP treatment can

include its derecognition principles

where appropriate, to make clear that

‘‘[t]he financial structures and

allowances of GAAP are incorporated in

their entirety.’’

281

With respect to the MLC’s assertion

that the SNPRM blesses an incorrect

interpretation of GAAP, the Office does

not concur. The Office agrees, however,

that it can clarify that it is not opining

on what GAAP may or may not allow.

Accordingly, the final rule omits the

second sentence of the proposed

provision, relating to the interaction

between GAAP and the statute. The

Office intends for this deletion to make

clear that to the extent something (e.g.,

the potential extinguishment of a DMP’s

payment obligation pursuant to a

voluntary license or other agreement

whereby the DMP is legally released

from the liability by the relevant

creditor copyright owner) is permitted

under GAAP, it is also permitted under

the statute and regulations. While the

rule does not opine on whether royalty

payment liabilities were appropriately

extinguished and derecognized by

DMPs pursuant to GAAP, the final rule

accommodates that possibility within

the MMA’s transitional cumulative

reporting and payment structure if

DMPs are correct in their assertions

about GAAP with respect to their

relevant agreements. The Office believes

this approach is reasonable particularly

in light of the asserted purpose of

certain voluntary agreements at issue.

282

Voluntary agreements and works

matched during the transition period.

As noted, the limitation on liability

provision makes no explicit

acknowledgement of the existence of

voluntary licenses or other agreements,

while Congress has elsewhere broadly

encouraged and given effect to

voluntary licenses (including by

preserving existing licenses). In the

absence of clear congressional intent

otherwise, to harmonize these

provisions and ensure that such

agreements are given effect in the

context of the limitation on liability as

well, the SNPRM proposed to limit the

application of the requirements in

section 115(d)(10)(B)(iv)(II) where a

voluntary license or other relevant

agreement, entered into before the

statutory reporting and payment

deadline, applies to the relevant musical

work (or share) that the DMP has

matched during the transition period.

283

That way, the DMP can pay and report,

and the copyright owner can receive

royalties and reporting, in accordance

with their preexisting or a newly-

entered-into mutual agreement. Notably,

even the MLC seems to concur that

voluntary agreements should apply in

lieu of the requirements detailed in

section 115(d)(10)(B)(iv)(II).

284

This

aspect of the proposed rule is being

adopted as final, as a necessary and

appropriate clarification.

Estimating and adjusting accrued

royalties reported and transferred to the

MLC. All agree that, at a minimum, the

total accrued royalties owed by a DMP

at the end of the transition period may

not be a finally calculable figure because

of the need to estimate certain royalty

pool inputs that are unknown at that

point in time. At present, because of the

Phonorecords III remand, no final

operative rates have been set; not even

a rate structure has been finally

established. This means that, even in

the absence of any other need to

estimate and adjust, whatever amount is

transferred to the MLC in February is

unlikely to align with what a DMP will

ultimate owe under the finally

determined rates and terms. Because of

this need to make estimates and

adjustments, the Office concluded, as

discussed above, that the statutory

reference in section

115(d)(10)(B)(iv)(III)(aa) to ‘‘all accrued

royalties’’ cannot be read to prohibit a

regulatory structure permitting DMPs to

make estimates and subsequent

adjustments. Anticipating this

conclusion, the SNPRM omitted the

word ‘‘all’’ from the proposed regulatory

language to alleviate any ambiguity.

285

The MLC opposed the deletion,

stating that ‘‘the SNPRM’s provisions for

less than all accrued royalties to be

transferred conflicts with the MMA,’’

which seems inconsistent with its

agreement that royalty pool inputs

should be subject to estimation and

adjustment, including regulations

specifically addressing the

‘‘underpayment of royalties’’ (i.e., some

amount less than ‘‘all’’).

286

The MLC

appears to believe that allowing for

potential underpayment is appropriate

where the reason is due to an unknown

royalty pool input, but not where the

reason is due to the unknown

applicability of a voluntary agreement;

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2196

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

287

This distinction is striking given that the MLC

did not oppose the inclusion of a provision in

regulations governing reports of usage under the

MMA’s blanket license that permits DMPs in

similar circumstances to, subject to later

adjustment, ‘‘compute the royalties payable by the

blanket licensee under the blanket license using a

reasonable estimation of the amount of payment for

[usage subject to applicable voluntary licenses and

individual download licenses] to be deducted from

royalties that would otherwise be due under the

blanket license, determined in accordance with

GAAP.’’ See 37 CFR 210.27(d)(2)(ii); MLC NPRM

Comment at 34–35, U.S. Copyright Office Dkt. No.

2020–5, https://www.regulations.gov/

document?D=COLC-2020-0005-0014

(acknowledging the need for estimates in this

context).

288

See SNPRM at 70548–49.

289

See 37 CFR 210.24(b)(8).

290

See, e.g., MLC SNPRM Comment at 11–13;

SGA, SCL & MCNA SNPRM Comment at 9; MAC,

Recording Acad., & SONA SNPRM Comment at 2;

MLC Ex Parte Letter at 5–6 (Nov. 17, 2020); NMPA

Ex Parte Letter at 1–2 (Nov. 17, 2020); NSAI Ex

Parte Letter at 1 (Nov. 17, 2020).

291

It may not matter how much was paid or

whether the payment constituted royalties under

relevant voluntary agreements. See MLC NOI Reply

it does not adequately explain its basis

for this distinction.

287

Nevertheless, to

address the MLC’s comment, the final

rule restores the word ‘‘all’’ and resolves

any ambiguity by adding clarifying

language that it is subject to the ability

to estimate and adjust pursuant to other

regulatory provisions.

In addition to identifying the

possibility of needing to estimate and

adjust royalty pool inputs, the SNPRM

recognized another type of unknown

variable that could affect the calculation

of accrued royalties: whether an

unmatched work is subject to a

voluntary agreement whereby the DMP’s

payment obligations have been

extinguished, whether by blanket or

advance payment, release of claims, or

otherwise (to the extent permitted by

GAAP and thereby the statute). The

SNPRM proposed an estimate and

adjustment mechanism to cover this

scenario as well, as follows:

288

•Under paragraph (c)(4), a DMP

would have to report on all unmatched

usage, meaning that the royalty

calculation provisions in paragraph (d),

which are tied to paragraph (c)(4),

would require reporting of the total

potential royalties, calculated at the

applicable rate under 37 CFR part 385,

that could be owed for all such usage.

Such calculations would be subject to

potential estimation of royalty pool

inputs under paragraph (d)(2).

•Under paragraph (c)(5)(i), a DMP

would be permitted to report total

accrued royalties that employ

reasonable estimations if it has a

reasonable good-faith belief that the

total accrued royalties are less than the

total potential royalties calculated under

paragraph (c)(4), and the unmatched

status of relevant musical works at the

end of the transition period requires

reliance upon estimations in calculation

of such accrued royalties.

•Under paragraph (c)(5)(ii), DMPs

reporting and transferring accrued

royalties that employ estimations would

have to provide detailed information

about any voluntary agreement being

relied on in making a (c)(5)(i) estimation

so that the MLC is able to confirm uses

of musical works subject to such an

agreement. The required information

largely tracks information about

voluntary licenses required to be

reported to the MLC under the blanket

license for similar purposes.

289

•Under paragraph (c)(5)(iii), the MLC

would have to engage in efforts to

confirm uses of musical works that are

subject to any identified agreement, and

may notify relevant copyright owners

about the DMP’s reliance. Where the

MLC confirms that a reported use of a

musical work is subject to an identified

agreement, the MLC would be required

to presume that the DMP appropriately

relied on the agreement, and during the

pendency of any dispute between a

DMP and copyright owner over the

DMP’s reliance, the MLC would not be

permitted to make a corresponding

distribution to the copyright owner or

treat the amount at issue as an

overpayment unless directed to do so by

agreement of the parties or by order.

•Under paragraph (c)(5)(iv), if a

DMP’s estimate turns out to be

insufficient to cover a required

distribution to a copyright owner, the

MLC would deliver an invoice and/or

response file to the DMP for the

additional amount outstanding

(including interest) along with the basis

for the MLC’s conclusion that such

amount is due. The DMP would have 14

business days to pay the invoiced

amount or dispute the bill. If the bill

were disputed, the MLC would notify

the relevant copyright owner. If a DMP

were ultimately found by an appropriate

adjudicative body to have erroneously

withheld any accrued royalties—

whether as part of its estimate or in

response to an MLC bill—it would be

able to potentially remain in compliance

with the regulations for purposes of

retaining its limitation on liability if the

other requirements for the limitation

have been satisfied, the additional

amount due is paid, and the DMP did

not withhold the royalties unreasonably

or in bad faith.

•Under paragraph (c)(5)(v), an

overpayment based on a (c)(5)(i)

estimate would be subject to credit or

refund like any other overpayment.

•Under paragraph (c)(5)(vi), any

underpayment of royalties would have

to be remedied by a DMP without regard

for the relevant statute of limitations,

and by using an estimate—whether

under (c)(5)(i) or (d)(2)—the DMP would

be deemed to have agreed to waive any

statute-of-limitations-based defenses

with respect to any asserted

underpayment of royalties connected to

the use of the estimate.

To provide a workable estimate and

adjustment mechanism that is

consistent with the statute and

congressional aims, and that

appropriately balances the flexibility

DMPs need to help ensure they

participate in the limitation on liability

against the right of copyright owners to

receive complete and prompt payment

of accrued royalties (to the extent a DMP

participates), the Office is adopting

many core aspects of the proposed rule

as final, while making significant

modifications in response to various

stakeholder concerns, as discussed

below.

The MLC and others oppose the

SNPRM’s proposed rule primarily on

the grounds that it would allow DMPs

to improperly deduct accrued royalties,

that it would improperly shift burdens

from DMPs to copyright owners and

otherwise prejudice copyright owners,

and that it will lead to the increased

litigation the proposed rule sought to

avoid.

290

The Office addresses each in

turn.

With respect to deductions,

commenters seem to misunderstand the

SNPRM’s proposal, and therefore no

changes are being made in the final rule

with respect to this concern. To be clear,

the final rule does not permit

deductions of accrued royalties; all

accrued royalties must be transferred to

the MLC. The rule merely allows DMPs,

in transferring such accrued royalties by

the statutory deadline, to rely upon

temporary estimates, subject to later

adjustment, where that precise figure of

all accrued royalties is not otherwise

ascertainable at that time.

For example, if the total potential

royalties (calculated at the statutory

rate) attributable to all of a DMP’s

unmatched usage is $20 million, the

rule does not permit the DMP to deduct

$5 million because that is what it

previously paid out under certain pre-

MMA agreements. Instead, the rule

acknowledges that DMPs may be correct

that because of such agreements—

whether due to previous payment, claim

release, or otherwise—some portion of

the $20 million may not constitute

accrued royalties at the time of required

transfer to the MLC in February.

291

In

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2197

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

Comment at 29 (‘‘Simply paying lump sums of

money to publishers who threaten to sue for

copyright infringement is in no sense the equivalent

of paying unclaimed accrued royalties.... Rather,

settlement payments are more likely consideration

for releases from liability for copyright infringement

or covenants not to sue.’’); MAC, Recording Acad.,

& SONA SNPRM Comment at 3; MLC Ex Parte

Letter at 3 (Oct. 5, 2020). As a legal principle, it is

not clear why the amount of consideration or how

the consideration is classified should be material if

the result is still an appropriately worded full and

complete release of relevant royalty claims for a

given period. Moreover, a voluntary license could

theoretically, for example, be structured as a

blanket license for all of an owner’s works (without

listing them) for which a one-time flat fee was paid

for a covered period. Regardless of how common

such an arrangement may be, the possibility of its

existence highlights flaws in commenters’ argument

on this point.

292

See, e.g., DLC SNPRM Comment at 9 (‘‘If the

owners of the works that generated over 90% of the

royalties have released their claims, there is no

need to know exactly which owner released which

royalties to know that there is not an outstanding

liability of 100% of the royalties.’’).

293

The MLC has ‘‘confirmed that its goal is to

match all unmatched uses, including all historical

unmatched uses for which accrued royalties are

transferred to the MLC, and to minimize the

incidence of unclaimed accrued royalties. The

MLC’s position has always been, and remains, that

it can and will hold unmatched royalties for longer

than the required minimum statutory period where

appropriate in service of this goal.’’ MLC Ex Parte

Letter at 2 (Nov. 17, 2020).

294

See SGA, SCL & MCNA SNPRM Comment at

10.

295

While the DLC ‘‘agrees with the aspect of the

proposed rule that builds in protection for

copyright owners by preserving their legal claims in

the event that a DMP fails to remedy an

underpayment of royalties,’’ it proposes certain

modifications ‘‘to clarify that the defense is waived

where the underpayment is one that is determined

pursuant to the procedures in the rule, and is not

remedied.’’ DLC SNPRM Comment at 16; see DLC

Ex Parte Letter at 2 n.7 (Dec. 11, 2020). The Office

declines this request. The waiver provision is meant

to be broad and not limited merely to the MLC

invoice process provided for in the rule. On the

contrary, this provision must also cover litigation

surrounding an alleged underpayment where it is

connected to the DMP’s use of an estimate.

296

See, e.g., MAC, Recording Acad., & SONA

SNPRM Comment at 4; MAC Ex Parte Letter at 1

(Nov. 17, 2020).

297

See 17 U.S.C. 115(d)(3)(J)(i)(I); MLC Ex Parte

Letter at 2 (Nov. 17, 2020).

298

See NMPA Ex Parte Letter at 2 (Nov. 17, 2020).

299

See Fed. R. Civ. P. 8(c)(1); cf. Capitol Records,

LLC v. Vimeo, LLC, 826 F.3d 78, 94 (2d Cir. 2016)

(describing the section 512 safe harbor as ‘‘an

affirmative defense’’ that the ‘‘defendant

undoubtedly bears the burden of raising entitlement

to’’ and showing that it ‘‘has taken the steps

necessary for eligibility’’).

300

See MLC Ex Parte Letter at 6 (Nov. 17, 2020);

see also NSAI Ex Parte Letter at 1 (Nov. 17, 2020).

301

See NSAI Ex Parte Letter at 1 (Nov. 17, 2020);

see also NMPA Ex Parte Letter at 2 (Nov. 17, 2020)

(citing 17 U.S.C. 115(d)(10)(D)).

302

See MLC Ex Parte Letter at 6 (Nov. 17, 2020).

303

Compare id. at 5–6 and MLC SNPRM

Comment at 12 n. 4 with DLC SNPRM Comment at

11–12 n.32 (‘‘Just because a DMP cannot re-pay

millions of dollars of accrued royalties for nearly

the entire market of usage for certain time periods

does not suggest it would not be able to pay a

potential shortfall to one or more copyright owners

if it were to have incorrectly estimated the accrued

royalties. . . .’’).

304

See, e.g., DLC SNPRM Comment at 5 (‘‘[T]here

is nothing in the record to assume or even suggest

that any DMP is likely to rely on a release

improperly.’’); SATV Ex Parte Letter at 2 (Oct. 28,

2020); Spotify Ex Parte Letter at 4–5 (Oct. 9, 2020);

WMG Ex Parte Letter at 1 (Oct. 21, 2020); UMPG

Ex Parte Letter at 1 (Oct. 30, 2020).

other words, certain unmatched usage

may no longer have outstanding accrued

royalties associated with it at the time

of transfer because, to the extent

permitted under GAAP, those liabilities

may have been appropriately

derecognized by the DMP. The rule

allows the DMP to employ reasonable

estimations, subject to adjustment,

where the unmatched status of the work

prevents the DMP from definitively

confirming whether or not it is subject

to a relevant voluntary agreement.

292

If

the DMP appropriately calculates that

$15 million are accrued royalties, then

that is what it must transfer in February.

If, after the MLC later engages in its

matching activities,

293

it is discovered

that the DMP’s estimate was off because

it mistakenly, but in good faith, believed

certain usage of works to be subject to

certain agreements when in fact the

opposite turns out to be true once they

have been identified, the DMP will

either need to make a true-up payment

for any shortfall or may be entitled to

credit or refund for any surplus.

Thus, this is not a question of whether

copyright owners will or will not see the

money owed to them. It is only a

question of when, and even then, that

question only becomes relevant to the

extent the DMP’s February 2021

payment—which must be reasonable,

determined in accordance with GAAP,

made in good faith and on the basis of

the best knowledge, information, and

belief of the DMP at the time—ends up

being an inadvertent underpayment.

While some commenters raised statute

of limitations concerns,

294

as noted, the

rule anticipates and accounts for this

explicitly, so it should not impede the

recovery of any underpaid royalties.

295

To the extent some commenters also

raise concerns about possible delayed

payments to copyright owners, these are

unfounded.

296

Copyright owners receive

royalty distributions from the MLC

either when the MLC matches usage to

the owner or when the MLC makes a

distribution of unclaimed accrued

royalties to identified owners after a

prescribed holding period. No money

can be distributed until one of these

events occurs, and a potential

distribution of unclaimed accrued

royalties cannot occur until 2023 at the

earliest, and may well be later.

297

If

there is a shortfall due to a DMP’s

estimate, the rule requires DMPs to pay

the difference (with interest) within 14

business days after being billed by the

MLC. That is hardly an undue delay

when weighed against the reasons for

permitting estimates.

With respect to burden shifting and

prejudice to copyright owners, the

Office finds commenter concerns to be

largely overstated, but has made some

adjustments to the final rule. As

background, the proposed rule would

not ‘‘improperly shift the burden of

proving compliance with the statutory

requirements for the limitation on

liability from the DMPs, who are

seeking the limitation, to copyright

owners.’’

298

In an infringement action,

the limitation on liability would be an

affirmative defense, and, as such, the

DMP would bear the burden of proving

compliance with its requirements.

299

The rule does not change this. Second,

the proposed rule would not, as the

MLC suggested, ‘‘allow[ ] DMPs to

unilaterally withhold unmatched

royalties in their discretion.’’

300

Rather,

it would have allowed a DMP to dispute

a bill from the MLC on a reasonable,

good-faith basis, not merely because it

hoped to avoid paying by forcing a

copyright owner to sue for the money—

which would clearly be bad faith. Third,

although the Office has calibrated this

rulemaking to discouraging litigation

within relevant statutory parameters,

copyright owners are inherently in the

position of potentially needing to bring

an infringement suit to obtain royalties

if a DMP does not transfer accrued

royalties to the MLC. the Office also

disagrees that allowing a DMP to

potentially retain its limitation on

liability if it is adjudged to have

erroneously in good faith withheld

accrued royalties would necessarily

significantly ‘‘impede[ ] the ability of

copyright owners to enforce their

rights’’

301

or otherwise deprive them of

a ‘‘just remedy.’’

302

The Office also

notes the proposed rule limited the

effect to compliance with the Office’s

regulations, not all statutory

requirements. Finally, the record

provides no basis for asserted fears of

DMP insolvency.

303

Nevertheless, to alleviate some of

these concerns, the final rule has been

adjusted to reach a better balance

between copyright owners and DMPs. A

significant change is how the final rule

handles a dispute between a DMP and

a copyright owner over the DMP’s

reliance on an agreement in connection

with its estimation and adjustment of

accrued royalties. Although, as noted,

the available record suggests such

disputes may be uncommon,

304

the final

rule establishes a better-dispute

mechanism for this eventuality,

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2198

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

305

See MAC, Recording Acad., & SONA SNPRM

Comment at 4 (‘‘[T]he MLC should be viewed as a

trusted party to hold the disputed funds for the

benefit of both copyright owners and digital

services.’’); MLC Ex Parte Letter at 5 (Oct. 5, 2020)

(‘‘[I]n the event of any such legal dispute between

a DMP and a copyright owner concerning the right

to receive unmatched royalties that the DMP had

turned over under the MMA, the MLC would hold

such unmatched royalties pending the resolution of

the dispute.’’); MLC Ex Parte Letter at 6 (Nov. 17,

2020) (suggesting the MLC would hold funds in

dispute); MLC SNPRM Comment at 11, 13 (same).

306

This time limit is only for the administrative

process described in the rule involving the MLC

holding disputed funds and is without prejudice to

a copyright owner’s rights to otherwise dispute a

DMP’s reliance outside of this process, such as in

court.

307

The Office declines at this time to opine on

statutory requirements surrounding distributions of

unclaimed accrued royalties under section

115(d)(3)(J); that issue is not within the scope of

this proceeding. See ARA, FMC, & MusicAnswers

SNPRM Comment at 4–5 (addressing this issue);

MAC, Recording Acad., & SONA SNPRM Comment

at 4–5 (same). The statute provides that the MLC’s

unclaimed royalties oversight committee will

establish relevant policies and procedures, 17

U.S.C. 115(d)(3)(J)(ii), and Congress has made clear

that ‘‘it is expected that such policies and

procedures will be thoroughly reviewed by the

Register to ensure the fair treatment of interested

parties,’’ S. Rep. No. 115–339, at 5. As there will

be no such distribution until 2023 at the earliest,

there is ample time for the Office to provide

guidance if necessary.

308

See 17 U.S.C. 115(d)(3)(G)(i)(III)(bb), (K).

309

See MLC SNPRM Comment at 11–12 (‘‘[T]he

SNPRM would place the MLC in the middle,

requiring the MLC to administer the agreements,

and further to ‘presume’ that DMPs ‘appropriately

relied’ on agreements (which would not even be

provided to the MLC). Requiring the MLC to make

presumptions in favor of certain disputing parties,

let alone presumptions unconnected to knowledge

or accuracy, is unreasonable and inconsistent with

its mandate.’’) (internal citation omitted).

310

This is somewhat similar to what is required

of the MLC in the context of the blanket license.

There, the MLC will receive a similar level of

information about voluntary licenses, see 37 CFR

210.24(b)(8), and then must use that information to

‘‘confirm uses of musical works subject to voluntary

licenses ..., and, if applicable, the corresponding

amounts to be deducted from royalties that would

otherwise be due under the blanket license,’’ 37

CFR 210.27(g)(2)(ii).

whereby the MLC will hold disputed

funds, as the MLC and others argue it

should.

305

After receiving the detailed

information about any voluntary

agreement being relied upon by the

DMP in making its estimation, the MLC

will be required to promptly notify

relevant copyright owners of such

reliance. A notified copyright owner

may then dispute the appropriateness of

the DMP’s reliance by notifying the

MLC within one year.

306

The copyright

owner’s notification must describe its

basis with particularity and must be

certified as being made in reasonable

good faith. The notice must also specify

whether the owner is disputing reliance

with respect to potential distributions

based on matched usage or of unclaimed

accrued royalties under section

115(d)(3)(J), or both. The MLC must

then promptly provide the DMP with

any such notification it receives.

If the MLC has received a notice of

dispute from a copyright owner, then at

or around the point in time that the

MLC would otherwise make a particular

distribution to that copyright owner but

for the DMP’s reliance on the disputed

agreement, the MLC must send an

invoice and/or response file to the DMP

for the amount that would otherwise be

distributed at that time (including

interest), accompanied by an

appropriate explanation. Depending on

the scope of the notice of dispute, this

may include distributions based on

matched usage and/or distributions of

unclaimed accrued royalties under

section 115(d)(3)(J).

307

In the case of the

latter, the relevant approximate date to

bill the DMP is the date the MLC

provides the notice required under

section 115(d)(3)(J)(iii)(II)(dd). To be

clear, this means that the MLC may be

in a position to invoice the DMP for

usages that it has matched to a disputing

copyright owner, while not yet able to

invoice for unmatched remaining

usages. Where a copyright owner

delivers a notice of dispute after the

relevant point in time has passed for a

particular distribution, the MLC should

bill the DMP promptly after receiving

the notification. Upon receiving the bill,

the DMP has 14 business days to pay the

invoiced amount, which is then held by

the MLC pending resolution of the

dispute.

Because the holding of such funds

would not be pursuant to policies and

procedures that the MLC’s dispute

resolution committee is empowered to

adopt to govern ownership disputes,

308

the final rule dictates how the MLC

must hold the disputed funds. The MLC

must hold the newly transferred funds

in accordance with section

115(d)(3)(H)(ii) (e.g., with interest)

without regard for whether or not the

funds are in fact accrued royalties. The

MLC must not make a distribution of the

funds or treat them as an overpayment

unless directed to do so pursuant to the

agreement of the relevant parties or by

order of an appropriate adjudicative

body. If the MLC has not been so

directed within one year after the DMP

transfers the disputed funds, and if

there is no active dispute resolution

occurring at that time (e.g., litigation,

arbitration, mediation, private

settlement discussions), then the MLC

shall credit or refund the disputed funds

back to the DMP. Any resolution of the

dispute should be reflected in the MLC’s

ongoing administration activities.

The Office believes these changes are

a reasonable accommodation to help

allay concerns about DMP insolvency

and ensure that disputed funds are held

somewhere that copyright owners trust

and that is subject to public disclosure

and oversight. At the same time, several

features built into this dispute

framework (e.g., that it has to be

triggered by the copyright owner, the

certification requirement, the timing of

when a DMP may need to transfer

disputed funds, the limited holding

period if there are no active efforts at

resolution) should quell concerns about

it becoming a back door compelling

DMPs to make large potential double

payments up front whenever an

unfounded general dispute is raised.

With respect to the MLC’s

presumption that the DMP has

appropriately relied upon the relevant

agreement, that aspect of the proposed

rule is retained in the final rule, with

the clarification that the presumption

applies where there is no dispute raised

by the relevant copyright owner. It is

unclear why the MLC should object to

this,

309

as it should not be exercising

independent judgment or discretion

with respect to a DMP’s asserted

reliance on a voluntary agreement.

310

That is a private matter between the

parties to the agreement.

As with the proposed rule, the final

rule requires that if the amount

transferred to the MLC ends up being

insufficient to cover any required

distributions to copyright owners, the

MLC must send an invoice and/or

response file to the DMP for the amount

outstanding (including interest) that

includes an explanation of the basis for

the MLC’s conclusion that such amount

is due. The key change to this provision

is that unlike the proposed rule, the

final rule does not permit a DMP to

dispute such a bill. The DMP must pay

the invoiced amount within 14 business

days or it will not be in compliance

with the rule and will risk loss of the

limitation on liability. The inability to

dispute such a bill cuts off a potential

avenue for misuse of the rule’s estimate

and adjustment mechanism, and should

help alleviate concerns with the

SNPRM’s proposed approach.

The Office does not believe this

change should cause alarm among

DMPs. The practical effect is that a DMP

cannot challenge a bill with respect to

amounts that bear no relation to

voluntary agreements that the DMP

relied upon in estimating its accrued

royalties, e.g., a bill that concerns time

periods not covered by such an

agreement or copyright owners who are

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2199

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

311

See DLC NPRM Comment at 16, Add. at 22

(proposing that where there are ‘‘insufficient funds

. . . to pay royalties that are owed to a copyright

owner who has not previously released claims to

such royalties pursuant to an [identified] agreement

..., the mechanical licensing collective shall

issue an invoice and/or response file ..., and the

digital music provider shall pay the additional

royalties to the MLC within 45 days of receipt of

such invoice’’).

312

See, e.g., DLC SNPRM Comment at 3

(‘‘Copyright owners who did not participate in any

pre-MMA agreements that released royalty

obligations are not impacted by this proposed rule;

they will still get all the royalties to which they are

entitled.’’); DLC NPRM Comment at 15–16; DLC Ex

Parte Letter at 2 (Oct. 14, 2020).

313

See, e.g., WMG Ex Parte Letter at 1 (Oct. 21,

2020); SATV Ex Parte Letter at 2 (Oct. 28, 2020);

UMPG Ex Parte Letter at 1 (Oct. 30, 2020); DLC

SNPRM Comment at 5; Spotify Ex Parte Letter at

4–5 (Oct. 9, 2020).

314

See, e.g., MLC Ex Parte Letter at 6 (Nov. 17,

2020) (‘‘[The proposed rule] appears likely to

generate far more litigation activity than a DMP

simply enforcing its claimed unambiguous

contractual right to be repaid royalties that match

to copyright owners with who it has private

agreements.’’); NMPA Ex Parte Letter at 2 (Nov. 3,

2020) (arguing that if the regulations ‘‘permit DSPs

to not pay all of the accrued unmatched royalties

that songwriters and copyright owners are

expecting to be paid to the MLC, that will

undoubtedly result in litigation that is far broader

and more fundamental than an action to simply

enforce a contract right’’).

315

See, e.g., DLC SNPRM Comment at 5; Spotify

Ex Parte Letter at 4–5 (Oct. 9, 2020); SATV Ex Parte

Letter at 2 (Oct. 28, 2020); WMG Ex Parte Letter at

1 (Oct. 21, 2020); UMPG Ex Parte Letter at 1 (Oct.

30, 2020).

316

MLC SNPRM Comment at 11 (‘‘There is no

history presented of copyright owners acting

unreasonably with respect to private agreements

with DMPs.’’).

317

See, e.g., ARA, MAC, NSAI, Recording Acad.

& SONA Ex Parte Letter at 1–3 (Sept. 22, 2020);

Recording Acad. & SONA Ex Parte Letter at 2 (Nov.

17, 2020); SGA, SCL, AWFC & MCNA Ex Parte

Letter at 1–2 (Sept. 15, 2020).

not parties. This approach is consistent

with the DLC’s proposal made in

response to the NPRM

311

and aligns

with statements that ‘‘the DLC and its

members agree that copyright owners

that did not participate in such an

agreement should receive the full

amount of royalties they may be

owed.’’

312

In disputes involving

copyright owners who are allegedly

parties to an effective agreement for

relevant time periods, no such bill can

be sent via this provision; either the

MLC is prohibited from doing so

because it is required to presume that

the DMP relied appropriately, or if the

copyright owner has raised a dispute,

the separate above-discussed dispute

mechanism would control.

The final rule retains the provision

that would permit a DMP to keep its

limitation on liability even if it is

adjudged to have erroneously withheld

accrued royalties, so long as all other

requirements for the limitation are

satisfied, the additional amount due is

paid, and the DMP is not found to have

withheld the royalties unreasonably or

in bad faith. With the final rule

restricting a DMP’s ability to dispute a

bill from the MLC in the event of

shortfall, challenges should generally be

limited to circumstances where a

copyright owner is allegedly party to an

agreement relied upon by the DMP and

the owner disputes the appropriateness

of the DMP’s reliance (assuming the

DMP is otherwise in compliance with

the limitation on liability). As noted,

there is no evidence in the record that

participating musical work copyright

owners will necessarily dispute DMP

reliance on voluntary agreements with

respect to accrued royalties.

313

Lastly, the Office has added a savings

clause to make plain that nothing in the

final rule should be construed as

prejudicing a copyright owner’s ability

to challenge whether a DMP has

satisfied the requirements for the

limitation on liability.

With respect to suggestions of

potential increased litigation, the Office

is not persuaded to further adjust the

rule. Commenters’ arguments are based

on a speculative comparison between

the volume and complexity of litigation

they believe might ensue under the rule

for copyright owners to rectify

underpayments, and the litigation that

DMPs might engage in without a rule to

rectify overpayments and enforce their

voluntary agreements.

314

That is the

wrong comparison. The main litigation

the rule seeks to avoid is that which

may be brought if DMPs choose to

forego the limitation on liability and

transfer nothing to the MLC. Indeed, the

limitation on liability was enacted

precisely to prevent such litigation. The

rule provides the certainty DMPs have

told the Office is necessary for them to

participate in the limitation on liability

instead of holding back the money as a

litigation war chest. Potential litigation

over the estimated tens of millions of

dollars at issue with respect to these

voluntary agreements pales in

comparison to potential litigation over

the estimated several hundred million

dollars in unpaid royalties that may

otherwise be withheld, including

payments to those copyright owners

who did not opt into the voluntary

agreements at issue.

By establishing a default posture that

accommodates potential private

agreements but cabins reliance upon

those agreements—as well as disputes

about those agreements—through good-

faith certifications of the very parties

who allegedly entered into them, the

rule should forestall further litigation

and foster resolution of disagreements.

Perhaps no regulation can secure against

parties engaging in litigation in an area

so contentious that it generated historic

copyright legislation. Certainly, the rule

does not curtail the ability of a

copyright owner or DMP to seek judicial

recourse. But to the extent there is a

legitimate dispute, the rule seeks to

incentivize DMPs and relevant

copyright owners to privately resolve

these issues.

A DMP’s risk of losing its limitation

on liability entirely if found to have

acted unreasonably or in bad faith

should be powerful motivation to try to

avoid being sued, and the prospect of

not being able to recover costs or

statutory damages may make such a suit

unappealing to a copyright owner. As

noted several times, there is no evidence

in the record that musical work

copyright owners will necessarily

dispute DMP reliance on voluntary

agreements with respect to accrued

royalties.

315

As the MLC points out,

‘‘there is no basis to think that copyright

owners would spend time or money on

frivolous litigation over their contracts

with DMPs.’’

316

Likewise, there is no

basis to think that DMPs would act

differently, such as by inappropriately

using voluntary agreements (including

those that may have been terminated,

breached, or have performance issues),

to avoid paying accrued royalties, or by

employing unreasonable or inaccurate

GAAP interpretations to try to

rationalize a spurious underpayment.

3. Songwriter Concerns and

Transparency Considerations

Upon publication of the NPRM, the

Office heard from a variety of creator

groups expressing unfamiliarity with

the contours of these agreements or

confusion regarding whether payments

had been passed through to

songwriters.

317

While the record

contains some factual information

regarding such practices, the Office

notes that payment questions with

respect to the operation of private

agreements between publishers and

songwriters are separate from this

rulemaking’s required focus on DMP

obligations to transfer royalties and

report information to satisfy the

eligibility conditions for the limitation

on liability. The MMA does not regulate

the terms by which publishers (or

administrators) and songwriters may

enter into contractual arrangements—

and certainly not on a retroactive basis,

insofar as these questions may implicate

payments passed through (or not) to

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2200

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

318

In contrast, the section 114 license, currently

administered by SoundExchange, does specify the

percentage of statutory royalties that are payable to

sound recording copyright owners, recording

artists, nonfeatured musicians, and nonfeatured

vocalists, respectively. 17 U.S.C. 114(g)(2). The

MMA did not amend the section 115 license to

adopt a similar approach.

319

See NMPA Ex Parte Letter at 2 (Nov. 17, 2020)

(‘‘settlements entered into prior to the enactment

date of the MMA, in some cases even years before,

could not be considered to be subject to the

requirements of the MMA’’).

320

17 U.S.C. 115(d)(3)(J)(iv).

321

See, e.g., ARA, MAC, NSAI, Recording Acad.

& SONA Ex Parte Letter at 1–3 (Sept. 22, 2020);

MAC Ex Parte Letter at 1 (Nov. 17, 2020); Recording

Acad. & SONA Ex Parte Letter at 3 (Nov. 17, 2020);

SGA, SCL, AWFC & MCNA Ex Parte Letter at 1

(Sept. 15, 2020).

322

See, e.g., SGA & SCL NPRM Comment at 3; see

also Cas Martin SNPRM Comment at 3; Rayn

Jackson NPRM Comment at 1; Sophie Korpics

SNPRM Comment at 2.

323

Recording Acad. & SONA Ex Parte Letter at 2

(Nov. 17, 2020) (‘‘Many songwriter groups

expressed continued frustration that so little is

known about the agreements, including how much

money was involved, how the money was

accounted for, and whether songwriters benefited

from it.’’).

324

SATV Ex Parte Letter at 2 (Oct. 28, 2020); see

also WMG Ex Parte Letter at 1 (Oct. 21, 2020)

(accord).

325

UMPG Ex Parte Letter at 2 (Oct. 30, 2020).

326

No creator group has reported the results of

reaching out to publishers on this issue. See SGA,

SCL & MCNA Ex Parte Letter at 1–2 (Dec. 14, 2020)

(acknowledging Office recommendation to contact

publishers directly).

327

U.S. Copyright Office, Copyright and the

Music Marketplace 1 (2015), https://

www.copyright.gov/docs/musiclicensingstudy/

copyright-and-the-music-marketplace.pdf.

328

S. Rep. 115–339 at 17. To that end, the Office

has separately conducted a rulemaking aimed at

furthering appropriate transparency of the MLC. 85

FR 58170 (Sept. 17, 2020).

329

Compare SGA & SCL NPRM Comment at 3

(suggesting unmatched royalties encompassing a

range ‘‘from a few hundred million dollars to over

$1.5 billion’’) (citation omitted) with SGA, SCL &

MCNA Ex Parte Letter at 2 (Nov. 18, 2020)

(reflecting understanding that ‘‘while there remain

hundreds of millions of dollars in accrued,

unmatched royalties in the possession of the Digital

Music Providers, tens of millions of dollars in

accrued unmatched royalties were indeed turned

over directly to music publishers pursuant to the

terms of the confidential, private negotiated

agreements’’ (emphasis omitted)).

330

ARA, FMC & MusicAnswers SNPRM

Comment at 3 n.2 (‘‘urg[ing] the [O]ffice to use all

levers available to it’’); SGA & SCL SNPRM

Comment at 8 (stating that the Office ‘‘has sufficient

authority to compel disclosure of the details of the

private and confidential agreements between DSPs

and music publishers’’).

331

These roundtables have not been scheduled at

the time of this rule’s publication. For more

information on the policy study, visit https://

www.copyright.gov/policy/unclaimed-royalties.

songwriters prior to enactment.

318

Further, even if DMPs were to transfer

royalties for uses subject to pre-MMA

agreements, it is not clear whether

songwriters would be entitled to any of

these funds, due to releases provided by

copyright owners to whom they have

assigned rights.

In any event, even if those

agreements’ details were widely public,

it could not change the Office’s

analysis.

319

Even when the MLC

distributes matched royalties and

related statements to musical work

copyright owners (e.g., music

publishers), the MMA does not further

restrict the conditions, typically spelled

out by contract, for how those copyright

owners subsequently pay songwriters.

This is true regardless whether the MLC

is matching works connected to pre-

MMA usages reported and payments

made for purposes of eligibility for the

limitation of liability or in connection

with future usages authorized under the

blanket license. To be sure, for those

usages that the MLC cannot reasonably

match after the prescribed holding

period, the MMA specifies that

copyright owners receiving future

distributions of unclaimed accrued

royalties by the MLC must pay or credit

individual songwriters in accordance

with applicable contractual terms, and

in no case less than 50% of the payment

received by the copyright owner

attributable to usage of musical

works.

320

But this rulemaking is focused

on the separate, predicate obligation for

DMPs to report unmatched usages and

transfer accrued royalties to the MLC,

which in turn will match usages and

pay copyright owners, who will pay

songwriters (either in accordance with

contract for payments connected to

matched uses, or in accordance with

contract subject to the 50% floor for

payments for unmatched uses).

Notwithstanding this clarification,

and while the Office believes that the

rule offers a reasonable and workable

compromise to concerns raised by the

MLC, DMPs, and songwriters in a

manner consistent with the statutory

language and congressional intent, the

Office also recognizes that multiple

creator groups expressed uncertainty

regarding the substance of these pre-

MMA agreements. At the core of these

concerns is a perceived lack of

transparency concerning the existence

and terms of these agreements,

321

the

amount of these agreements,

322

and

whether songwriters received payments

under these agreements (and if so, upon

what terms).

323

The Office appreciates that the music

publishers who met with the Office each

confirmed individually that they

followed their respective business

practices in sharing payments received

through these agreements with

songwriters affiliated with their

publishing houses. For example, SATV

stated that ‘‘payments made by DSPs to

SATV under private agreements, as well

as any other distribution of unmatched

funds, whether title bound or not, are

always paid through to our songwriters’’

and offered ‘‘to explain to our writers

who inquire how these royalties are

distributed and reflected on their

statements.’’

324

UMPG provided similar

assurances, noting ‘‘UMPG does so as a

matter of policy, notwithstanding the

fact that applicable contracts may not

require payment for non-title-bound

revenues.’’

325

The Office does not know

whether individual songwriters or

creator groups have made inquiries to

publishers in response to these

letters.

326

To be sure, the Office continues to

support greater transparency in the

music industry. In its 2015 report, the

Office identified the ‘‘key principle’’

that ‘‘[u]sage and payment information

should be transparent and accessible to

rightsowners.’’

327

Following this report,

the Office is gratified that Congress

clearly intended the MLC to operate ‘‘in

a transparent and accountable

manner.’’

328

And it appears that this

rulemaking process has resulted in the

voluntary public disclosure of

additional information regarding these

agreements, including with respect to

the aggregate monies paid under the

pre-MMA agreements.

329

The Office

cannot, however, compel publishers or

DMPs to disclose the terms of private

deals to songwriters.

330

The Office

encourages the interested parties to

continue to engage on this matter and

can make itself available to assist in

facilitating dialogue. While the MMA

addresses some longstanding

complaints over transparency, the Office

will keep creators’ concerns in mind as

it continues its implementation work

and advises Congress on future potential

improvements to the music ecosystem.

The Office also notes that creator groups

will have the opportunity to offer

additional views on this issue at the

upcoming Unclaimed Royalties policy

study roundtables.

331

4. Reconciliation

Relatedly, the Office proposed

language that would address situations

where the total amount of royalties

transferred does not match the

corresponding report. Although the

MLC and DLC both supported the

NPRM’s proposed reconciliation

provision—whereby if the total royalties

turned over to the MLC do not reconcile

with the corresponding cumulative

statement of account, the DMP should

include a clear and detailed explanation

of the deviation—the DLC sought two

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2201

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

332

See DLC NPRM Comment at 4–5, Add. 23;

MLC NPRM Comment at 7–8; see also NPRM at

43522.

333

DLC NPRM Comment at 4–5.

334

SNPRM at 70549; see MLC SNPRM Comment

App. A at v (not opposing this phrase).

335

DLC NPRM Comment at Add. 23.

336

See NPRM at 43522; SNPRM at 70549.

337

SNPRM at 70549.

338

Id. at 70547 (citing MediaNet Ex Parte Letter

at 2–3 (Oct. 28, 2020)).

339

See MediaNet Ex Parte Letter at 3 (Oct. 28,

2020).

340

Id. at 2–3.

341

Id. at 3.

342

Id.

343

Id. (citing 17 U.S.C. 115(d)(10)(B)(iv)(III)(aa)).

344

Jeff Price Ex Parte Letter at 1, 2, 10 (Nov. 23,

2020).

345

Id. at 1–2.

346

Id. at 1.

347

Id. at 2–7.

348

SNPRM at 70547.

349

MediaNet SNPRM Comment at 2.

350

17 U.S.C. 115(d)(10)(B)(iv)(III)(aa).

minor modifications.

332

First, the DLC

‘‘suggest[ed] changing the phrase ‘total

royalty payable’ to ‘total royalty

reported,’ to avoid any suggestion that

the amount reflected on the cumulative

statement of account is necessarily

‘payable’ to the MLC.’’

333

The Office

incorporated this technical edit into the

SNPRM, proposing the phrase ‘‘total

accrued royalty reported’’ (inserting

‘‘accrued’’ for added precision), which it

now adopts as final.

334

Second, the DLC’s regulatory proposal

added an illustrative clause referring to

discrepancies ‘‘due to the GAAP

treatment of previously-distributed

royalties or for any other reason.’’

335

Just as the Office did not include the

MLC’s previously proposed language

about interest, deductions, and

adjustments in the NPRM, the Office did

not include the DLC’s language in the

SNPRM and declines to include it in the

final rule, as any discrepancy of any

kind should be explained.

336

The DLC

did not oppose this in its comments to

the SNPRM.

The SNPRM further proposed that a

clear and detailed explanation also be

required if the royalties reported

include use of an estimate permitted for

computing accrued royalties in

paragraph (c)(5)(i).

337

This would be

required whether or not there is also a

discrepancy between the total accrued

royalty reported and the actual amount

transferred, and should describe the

basis for the total accrued royalty

reported including any deviation from

the total potential statutory royalty

attributable to all unmatched usage

reported under paragraph (c)(4)(i). With

the Office having concluded that it

should adopt a version of this SNPRM

structure as final, this corresponding

proposal is being adopted as well. It was

not opposed (other than in connection

with certain commenters’ overall

opposition to this proposed framework),

and should be helpful to the MLC in

processing cumulative statements of

account that contain any such estimates,

and will result in MLC-held records of

how any such estimates were employed.

C. Period of Reporting

Next, the Office addresses an issue

raised by MediaNet related to required

information that may not be able to be

located or recreated. The SNPRM

solicited comments regarding whether

the rule should include language

addressing MediaNet’s concern that it

may be unable to provide pre-2013

usage data, as such data may be

unavailable or inaccessible because it is

not in the DMP’s possession and may no

longer be held by its former vendor.

338

In operation for nearly 20 years,

MediaNet carries a potentially greater

burden to report past unmatched usages

than newer services.

339

MediaNet

explained that it previously used

vendors to maintain its royalty and

usage data, but once those agreements

were terminated ‘‘the relevant data was

not transferred to MediaNet,’’ and it was

unsure whether those vendors with

whom it has terminated its relationships

continued to maintain that data.

340

MediaNet requested regulatory language

requiring provision of all available data,

subject to an exception addressing the

circumstance when such information

relates to usage that is over five years

old and was held by a third-party

vendor who no longer has a business

relationship with the DMP, and such

vendor cannot or will not provide such

historic information.

341

MediaNet

explained that, without such an

exemption, it ‘‘may decline to take

advantage of the limitation on liability,

which may deprive copyright owners of

additional accrued royalties.’’

342

MediaNet further suggested that such a

regulation would be ‘‘consistent with

the overall statutory scheme,’’ because

the statute requires reporting to be

pursuant to ‘‘applicable regulations,’’

and the relevant reporting regulations at

the time required that documentation

related to royalties and usages needed to

be preserved for only five years.

343

Commenter Jeff Price challenged

MediaNet’s assertion that royalty and

usage information would not have been

retained by MediaNet and also

suggested that, even if this information

was not retained, it could be

recreated.

344

In Mr. Price’s experience,

DMPs who used vendors to match

works and pay mechanical royalties

engaged in a workflow that sent output

and return files between the vendor and

the DMP several times. A DMP would

send sound recording data to the vendor

who would try to match works, the

vendor would reply by sending a file

listing matched works and whether they

were licensed, the DMP would then

send usage and metadata inputs to the

vendor, and the vendor would send

back mechanical royalty calculations

addressing the total time period, each

publisher, and each individual work.

345

Mr. Price believes that, based on this

workflow, ‘‘some or all of the original

elements necessary to calculate the

mechanicals still exist.’’

346

Mr. Price

also suggested that other data

presumably residing with MediaNet

concerning monthly revenue, monthly

subscribers, eligible streams, and total

streams for sound recordings could be

used with other known royalty

calculation inputs to ‘‘possibly recreate

the missing mechanical statements.’’

347

The Office noticed this issue and

requested public comment, but ‘‘[g]iven

the timing of MediaNet’s request’’ did

not propose its own regulatory language

and instead requested comments on

MediaNet’s proposal.

348

In response,

only MediaNet addressed this issue.

MediaNet affirmed that it is ‘‘committed

to ensuring that all creators are paid for

the use of their works,’’ but stated that

it remained unclear ‘‘whether such data

exists, and can be reported to the

MLC.’’

349

MediaNet did not comment

on either Mr. Price’s assertion that

MediaNet may still have this royalty

and usage data, or the feasibility of Mr.

Price’s suggested alternative solution of

recreating the necessary reporting

information, as discussed above.

The Office understands MediaNet’s

concern and hopes it is able to locate or

recreate such data to take advantage of

the limitation on liability, but must

decline to promulgate its proposed rule.

As an initial matter, MediaNet has not

confirmed whether this information

currently exists with its former vendors

or can be recreated. The Office is

reluctant to promulgate MediaNet’s

requested exemption without a showing

confirming its necessity. Further, the

request appears to depart from statutory

requirements. The operative statutory

language contemplates that to obtain the

limitation on liability a DMP will report

‘‘all of the information that would have

been provided to the copyright owner’’

to the MLC.

350

Based on the applicable

regulations, such information would

have included, for example, the number

of phonorecords made during a

reporting period, phonorecord

identification information such as titles,

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2202

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

351

See 37 CFR 210.6(c)(3), 210.10(d), (e).

352

In response to the Office’s NOI, the MLC asked

for even more information to support its matching

efforts. NPRM at 43518–19 (citing MLC Reply NOI

Comment App. D at 19; MLC Ex Parte Letter at 2

n.1 (June 17, 2020)).

353

See 17 U.S.C. 115(d)(3)(E), (G), (J).

354

SNPRM at 70547; 37 CFR 210.27(m) (reports

of usage records of use provision).

355

SNPRM at 70551 (‘‘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’’).

356

37 CFR 210.27(m)(2).

357

MLC SNPRM Comment at 14 n.6; Cas Martin

SNPRM Comment at 2; see also MLC Ex Parte Letter

at 2 (Oct. 5, 2020).

358

MLC SNPRM Comment at App. xi.

359

DLC Ex Parte Letter at 1–2 (Dec. 11, 2020).

360

See 17 U.S.C. 115(d)(4)(A)(iii), (iv)(I).

361

43 FR 44511, 44515 (Sept. 28, 1978).

362

Similarly, the record retention requirement

under the non-blanket compulsory license does not

have a ‘‘reasonable access’’ requirement. See 37

CFR 210.8.

363

DLC SNPRM Comment at 13.

364

NPRM at 43521–22 (citing 85 FR at 22518,

22546).

365

37 CFR 210.27(n).

366

MLC NPRM Comment at 7.

367

SNPRM at 70551.

368

Id. at 70547, 70551.

369

DLC SNPRM Comment at 1 (‘‘DLC strongly

supports the proposed rule noticed in the

SNPRM.’’); MLC SNPRM Comment at App. x.

ISRCs, catalog numbers, ISWCs, and

UPCs, and, importantly, detailed

information on how per-work royalty

allocations for these works were

calculated.

351

MediaNet’s broad

proposed exemption would deprive the

MLC of all of this information.

The information-related reporting

requirement is intended to facilitate the

MLC in appropriately accounting for the

previously unreported usage.

352

This

information would allow the MLC to

confirm that the appropriate royalties

are being turned over, confirm which

matched and unmatched works have

been paid, pay for any matched works,

and consider whether to make an

eventual distribution of unclaimed

accrued royalties by market share for

this period.

353

Based on the above

considerations, the Office declines

MediaNet’s proposed amendment.

D. Other Provisions and Additional

Clarifications

In this section, the Office addresses

additional matters raised in this

rulemaking, including those relating to

record retention requirements, harmless

errors, certifications, and voluntary

agreements between the MLC and a

DMP to alter certain procedures.

Records of use. The SNPRM proposed

to impose a ‘‘records of use’’ provision

on DMPs for cumulative statements of

account, modeled in part after the

records of use provision that applies to

DMPs under the reports of usage

regulations.

354

A DMP would be

required to ‘‘keep and retain in [their]

possession all records and documents

necessary and appropriate to support

fully the information set forth in

[cumulative statements of account and/

or statements of adjustment]’’ for at least

seven years after delivering the

statement to the MLC.

355

Unlike the

reports of usage records of use

provision, the SNPRM did not include

language allowing the MLC ‘‘reasonable

access’’ to the DMPs’ records or

accompanying access limitation

provisions.

356

The Office received comments

supporting its proposed records of use

provision and no comments in

opposition.

357

But the MLC asserted that

‘‘the value of the provision is largely

lost without a provision for reasonable

access to the records,’’ and proposed

adding the following language:

The mechanical licensing collective or its

agent shall be entitled to reasonable access to

records and documents described in this

section, which shall be provided promptly

and arranged for no later than 30 calendar

days after the mechanical licensing

collective’s reasonable request, subject to any

confidentiality to which they may be

entitled.

358

In response, the DLC disputed the

MLC’s needs for these records, stating

that while these records may be relevant

for copyright owners bringing related

legal challenges, ‘‘the MLC has no role

in enforcing the accuracy of the

cumulative statement of account—

which is a feature of the limitation on

liability, and not the blanket

license.’’

359

The Office appreciates the MLC’s

suggestion, but is not including its

proposed access-related language. While

the statute requires that the records of

use provision that applies to reports of

usage, contain an MLC-access provision,

there is no such requirement for

cumulative statement of account

reporting.

360

The Office previously

declined to promulgate access rules for

pre-MMA mechanical license reporting,

stating that ‘‘we believe that rules

governing access to business records

. . . are beyond our authority to

establish. In any event, judicial

discovery procedures—and possible

other alternatives—are available to

copyright owners to secure such

access.’’

361

The Office concludes that

given the lack of congressional direction

and the ability for litigants to secure

access to these records via judicial

order, it does not need to promulgate a

‘‘reasonable access’’ regulation.

362

Activity or offering clarification. The

DLC asked for a clarification to reflect

that, when a DMP reports on historic

activities and offerings as a part of a

cumulative statement of account, such

reporting ‘‘is to be of service offerings at

the time of the usage, and that there is

no expectation to map old categories of

offerings onto the most recent categories

of offerings.’’

363

The Office confirms

that it shares this understanding. In

light of the DLC’s request, it has

clarified section 210.10(g) accordingly

to expressly state that reporting

requirements are related to the

applicable activity or offering at the

time of the usage.

Voluntary agreements to alter process.

In the NPRM, the Office solicited

comments ‘‘regarding whether the rule

should . . . permit the MLC and

individual DMPs to enter into

agreements to alter [the cumulative

statement of account reporting] process’’

and noted that, at that time, it was

proposing ‘‘a similar provision with

respect to monthly reports of usage.’’

364

The Office subsequently adopted such a

rule for monthly reports of usage.

365

The

MLC supports including a similar

provision for cumulative reporting,

stating ‘‘while the reporting required

under the [NPRM] should be the

baseline, every circumstance cannot be

anticipated, and allowing the MLC the

flexibility to address specific

considerations attendant to a particular

DMP is appropriate.’’

366

The SNPRM proposed a provision

modelled after that recently adopted in

connection with monthly reports of

usage, including clarification that

certification procedures could not be

altered by agreement and that any

flexibility ‘‘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.’’

367

Non-substantive

procedures, such as reporting formats,

could be altered by agreement,

‘‘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.’’

368

Neither the MLC nor DLC directly

addressed the SNPRM’s proposal,

although the MLC included this

language in its proposed regulatory

language and the DLC signaled general

support for the Office’s SNPRM.

369

An

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2203

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

370

Cas Martin SNPRM Comment at 2–3.

371

SNPRM at 70547 n.33; see 37 CFR 210.9.

372

DLC Ex Parte Letter at 3 (Dec. 11, 2020).

373

Id. at 2.

374

Id.

375

79 FR 56190, 56205 (Sept. 18, 2014).

376

DLC NPRM Comment at 5, 9.

377

17 U.S.C. 115(d)(10)(B)(iv)(III)(aa).

378

NPRM at 43520.

379

DLC NPRM Comment at 2, 4.

380

DLC SNPRM Comment at 15 (suggesting

revision parallel requirements for submission of

notices of license; quoting 37 CFR 210.24(c)).

381

Id.

382

85 FR at 58152–53; see 37 CFR 210.16(f)

(2015).

individual commenter also indicated

support for this provision.

370

The Office

has incorporated this aspect of the

SNPRM into the final rule.

Harmless errors. In the SNPRM, the

Office asked parties whether it should

adopt a harmless error provision

‘‘similar to the provision adopted for

reporting by significant nonblanket

licensees’’ and noted that pre-MMA

regulations did contain a harmless error

rule pertaining to monthly and annual

statements of account.

371

The DLC

supported this provision, and proposed

alternate regulatory language based

upon pre-MMA regulations governing

monthly and annual statements of

account: ‘‘Errors in a Cumulative

Statement of Account or Statement of

Adjustment that do not materially

prejudice the rights of the copyright

owner shall be deemed harmless, and

shall not render that statement of

account invalid.’’

372

The DLC explained

that cumulative, monthly, and annual

statements of account are ‘‘prepared

using at least some of the same

processes’’ and ‘‘include specifically the

information that would have been

included at the time of the use,’’ in

arguing that harmless errors should be

treated in the same manner.

373

It

suggested that the inclusion of an

estimate and adjustment provision

would not ‘‘obviate the need for a

harmless error provision’’ as ‘‘some

harmless errors might not result from

the use of an estimate, and/or might not

be appropriate for adjustment.’’

374

The Office accepts the DLC’s

suggestion to promulgate a harmless

error rule for cumulative statements of

account, based on the current harmless

error regulations governing monthly and

annual statements of account. As the

Office previously noted in the context of

the monthly and annual statement of

account harmless error rule, ‘‘[i]t would

be unduly severe to treat . . .

inconsequential mistakes as equal to

errors that result in material prejudice to

the copyright owner.’’

375

Certification requirements. With

respect to the proposed certification

requirement for cumulative statements

of account, which no party opposes, the

DLC says its members ‘‘have interpreted

the reference to using ‘processes and

internal controls that were subject to an

examination, during the past year, by a

licensed certified public accountant,’ to

refer to the CPA examination that has

happened for the 2019 annual

statements of account, which were

distributed to publishers earlier this

calendar year, rather than to a new CPA

certification related to the cumulative

statement of account.’’

376

The Office

cautions DMPs to consider the scope of

the relevant CPA examination, and be

sure that the processes and internal

controls that were examined previously

are the same processes and controls

relevant to preparing the cumulative

statement of account. If not, a DMP may

need a separate examination for the

processes and controls applicable to the

cumulative statement of account, or it

can use the alternative certification

option that does not involve a CPA

examination.

The DLC also requested changes to

the signature requirements in provisions

addressing certifications in cumulative

statements of account. The statute

requires a DMP to submit the

certification that would have been

provided to an identified copyright

owner (i.e., the pre-existing statement of

account certification) as well as ‘‘an

additional certification by a duly

authorized officer of the digital music

provider that the digital music provider

has fulfilled the [statutory good-faith

matching] requirements’’ during the

transition period.

377

The NPRM

proposed ‘‘a technical change to include

the actual language for clarity’’ and

moved both required certifications into

the same paragraph.

378

The DLC

initially ‘‘welcomed’’ this clarification,

calling it ‘‘reasonable and

appropriate.’’

379

Subsequently,

however, the DLC proposed edits to

both certification provisions.

380

It

explained that the proposed regulation

‘‘may unintentionally be read to limit

the corporate personnel who can sign

and certify the cumulative statement of

account and the facts therein,’’ as

‘‘officer’’ has a specific meaning under

corporate law.

381

The Office declines to adopt the

DLC’s proposed edits. It is not clear that

the pre-existing statement of account

certification, which is mirrored in the

cumulative statement of account rule

and was similarly just adopted as a

requirement in connection with future

reports of usage, has caused DMPs any

issues since it was implemented years

ago.

382

Further, the cumulative

statement of account certification

language for good-faith matching is

dictated by statute, which references

‘‘officer’’ and not ‘‘representative.’’

Finally, the Office has not received

additional input from other potentially

interested parties, such as the MLC,

confirming they also understand this to

be a technical clarification. For these

reasons, the Office believes that it is

better to maintain consistency for

cumulative statements of account

certifications and respectfully declines

the DLC’s proposal.

List of Subjects in 37 CFR Part 210

Copyright, Phonorecords, Recordings.

For the reasons set forth in the

preamble, the Copyright Office amends

37 CFR part 210 as follows:

PART 210—COMPULSORY LICENSE

FOR MAKING AND DISTRIBUTING

PHYSICAL AND DIGITAL

PHONORECORDS OF NONDRAMATIC

MUSICAL WORKS

■1. The authority citation for part 210

continues to read as follows:

Authority: 17 U.S.C. 115, 702.

■2. Amend § 210.2 by revising

paragraph (k) and removing paragraphs

(l) through (o).

The revision reads as follows:

§ 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).

■3. Amend § 210.10 by revising

paragraphs (b) introductory text, (b)(1),

(b)(2) introductory text, and (b)(3)(i) and

adding paragraphs (c) through (m) to

read as follows:

§ 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:

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2204

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

(1) Accrued royalties shall be

maintained by the digital music

provider in accordance with generally

accepted accounting principles,

including those concerning

derecognition of liabilities.

(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 all accrued royalties to the

mechanical licensing collective (as

required by paragraph (i)(2) of this

section and subject to paragraphs (c)(5)

and (k) 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) (including as may be defined

in part 385 of this title), 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, the total accrued royalties

reported and transferred may make use

of reasonable estimations, 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 accrued royalties that

make use of reasonable estimations

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.

(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)(A) 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 shall promptly notify

relevant copyright owners of the digital

music provider’s reliance on such

identified agreement(s).

(B)(1) A notified copyright owner may

dispute whether a digital music

provider has appropriately relied upon

an identified agreement by delivering a

notice of dispute to the mechanical

licensing collective no later than one

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2205

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

year after being notified. A notice of

dispute must describe the basis for the

copyright owner’s dispute with

particularity and specify whether the

copyright owner is disputing the digital

music provider’s reliance with respect

to potential distributions based on

matched usage or of unclaimed accrued

royalties under 17 U.S.C. 115(d)(3)(J), or

both. The notice must contain a

certification by the copyright owner that

its dispute is reasonable and made in

good faith. The mechanical licensing

collective shall promptly provide the

digital music provider with a copy of

any notice of dispute it receives.

Nothing in this paragraph

(c)(5)(iii)(B)(1) shall be construed as

prejudicing a copyright owner’s right or

ability to otherwise dispute a digital

music provider’s reliance on an

identified agreement outside of this

process.

(2) If the mechanical licensing

collective receives a notice of dispute

from an appropriate copyright owner in

compliance with paragraph

(c)(5)(iii)(B)(1) of this section, then at or

around the point in time that the

mechanical licensing collective would

otherwise make a particular distribution

to that copyright owner but for the

digital music provider’s reliance on the

disputed agreement, 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 that would

otherwise be distributed at that time

(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 an explanation of

how that amount was determined.

Depending on the scope of the notice of

dispute, this may include distributions

based on matched usage and/or

distributions of unclaimed accrued

royalties under 17 U.S.C. 115(d)(3)(J). In

the case of the latter, the relevant

approximate date to deliver the invoice

and/or response file to the digital music

provider shall be the date on which the

mechanical licensing collective

provides the notice required under 17

U.S.C. 115(d)(3)(J)(iii)(II)(dd). Where a

copyright owner delivers a notice of

dispute after the relevant point in time

has passed for a particular distribution,

the mechanical licensing collective shall

deliver the invoice and/or response file

to the digital music provider promptly

after receiving the notice of dispute. No

later than 14 business days after receipt

of the invoice and/or response file, the

digital music provider must pay the

invoiced amount.

(3) All amounts delivered to the

mechanical licensing collective by a

digital music provider pursuant to

paragraph (c)(5)(iii)(B)(2) of this section

shall be held by the mechanical

licensing collective pending resolution

of the dispute, in accordance with 17

U.S.C. 115(d)(3)(H)(ii)(I) without regard

for whether or not the funds are in fact

accrued royalties. The mechanical

licensing collective shall not make a

distribution of the funds (or any part

thereof), treat the funds (or any part

thereof) as an overpayment, or

otherwise release the funds (or any part

thereof), unless directed to do so by

mutual agreement of the relevant parties

or by order of an adjudicative body with

appropriate authority. If the mechanical

licensing collective has not been so

directed within one year after the funds

have been received from the digital

music provider, and if there is no active

dispute resolution occurring at that

time, the mechanical licensing

collective shall treat the funds as an

overpayment which shall be handled in

accordance with paragraph (k)(5) of this

section.

(C) The mechanical licensing

collective shall presume that a digital

music provider has appropriately relied

upon an identified agreement, except

with respect to a relevant copyright

owner who has delivered a valid notice

of dispute for such agreement pursuant

to paragraph (c)(5)(iii)(B)(1) of this

section. Notwithstanding the preceding

sentence, any resolution of a dispute

shall be reflected in the mechanical

licensing collective’s ongoing

administration activities.

(iv)(A) Subject to paragraph (c)(5)(iii)

of this section, if the amount transferred

to the mechanical licensing collective

by a digital music provider with its

cumulative statement of account 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 pay the invoiced amount.

(B) 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 this section

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.

(vii) Nothing in this section shall be

construed as prejudicing a copyright

owner’s ability to challenge whether a

digital music provider has satisfied the

requirements for the limitation on

liability.

(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 employ 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

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2206

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

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) For each sound recording

embodying a musical work required to

be reported under paragraph (c)(4)(ii) of

this section, the digital music provider

shall provide the information referenced

in § 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, plus the

unique identifier assigned by the digital

music provider to the sound recording

and a unique identifier assigned by the

digital music provider to each

individual usage line.

(f) The information required by

paragraphs (c), (d), (e), (k), and (o) 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, including any

defined activities or offerings, 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, and each supplemental

metadata report delivered to the

mechanical licensing collective under

paragraph (o) 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 an option that is accessible to

smaller digital music providers that may

not be reasonably capable of complying

with the requirements of a sophisticated

reporting or data standard or format.

Nothing in this section shall be

construed as prohibiting the mechanical

licensing collective from adopting more

than one reporting or data standard or

format. A digital music provider may

use an alternative reporting or data

standard or format pursuant to an

agreement with the mechanical

licensing collective under paragraph (l)

of this section, consent to which shall

not be unreasonably withheld by the

mechanical licensing collective.

(2) 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.

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2207

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

(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

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. Where more than one

scenario necessitates the same particular

adjustment, the 6-month deadline to

make the adjustment begins to run from

the occurrence of the earliest 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.

(E) To ensure consistency with any

adjustments made in an Annual

Statement of Account generated under

§ 210.7 for the most recent fiscal year.

(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).

(n) Errors in a cumulative statement of

account or statement of adjustment that

do not materially prejudice the rights of

the copyright owner shall be deemed

harmless, and shall not render that

statement invalid.

(o)(1) By June 15, 2021, the digital

music provider must submit a

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

2208

Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Rules and Regulations

supplemental metadata report that

includes all of the information provided

in the cumulative statement of account

pursuant to paragraph (c) of this section,

as well as, separately or together with

such information, the following

information for each sound recording

embodying a musical work that was

reported under paragraph (c)(4)(ii) of

this section:

(i) Identifying information for the

sound recording, including but not

limited to:

(A) Sound recording name(s),

including, to the extent practicable, all

known alternative and parenthetical

titles for the sound recording;

(B) Featured artist(s);

(C) Unique identifier assigned by the

digital music provider, if any, including

to the extent practicable, any code(s)

that can be used to locate and listen to

the sound recording through the digital

music provider’s public-facing service;

(D) Actual playing time measured

from the sound recording audio file,

where available; and

(E) To the extent acquired by the

digital music provider in connection

with its use of sound recordings of

musical works to engage in covered

activities, and to the extent practicable:

(1) Sound recording copyright

owner(s);

(2) Producer(s);

(3) International standard recording

code(s) (ISRC);

(4) Any other unique identifier(s) for

or associated with the sound recording,

including any unique identifier(s) for

any associated album, including but not

limited to:

(i) Catalog number(s);

(ii) Universal product code(s) (UPC);

and

(iii) Unique identifier(s) assigned by

any distributor;

(5) Version(s);

(6) Release date(s);

(7) Album title(s);

(8) Label name(s); and

(9) Distributor(s).

(ii) Identifying information for the

musical work embodied in the reported

sound recording, to the extent acquired

by the digital music provider in the

metadata provided by sound recording

copyright owners or other licensors of

sound recordings in connection with the

use of sound recordings of musical

works to engage in covered activities,

and to the extent practicable:

(A) Information concerning

authorship of the applicable rights in

the musical work embodied in the

sound recording, including but not

limited to:

(1) Songwriter(s); and

(2) International standard name

identifier(s) (ISNI) and interested parties

information code(s) (IPI) for each such

songwriter;

(B) International standard musical

work code(s) (ISWC) for the musical

work embodied in the sound recording;

and

(C) Musical work name(s) for the

musical work embodied in the sound

recording, including any alternative or

parenthetical titles for the musical work.

(iii)(A) 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, for each usage line for such

track, a reference to the specific unique

identifier for the usage line reported

under paragraph (e) of this section, and

a clear identification of the percentage

share(s) that have been matched and

paid and the owner(s) of such matched

and paid share(s) (including any unique

party identifiers for such owner(s) that

are known by the digital music

provider).

(B) If, for a particular track, a digital

music provider cannot provide a clear

identification of the percentage share(s)

that have been matched and paid and

the owner(s) of such share(s) because

this information is subject to a

contractual confidentiality restriction or

the conditions of paragraph (o)(1)(iii)(C)

of this section apply with respect to

such information, the digital music

provider must provide alternate

information for the track, namely, 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). If the digital

music provider still cannot provide

such alternate information because of

the conditions of paragraph (o)(1)(iii)(C)

of this section, the information required

by this paragraph (o)(1)(iii)(B) may be

omitted for the track from the

supplemental metadata report. A digital

music provider reporting under this

paragraph (o)(1)(iii)(B) must deliver a

certification to the mechanical licensing

collective stating that the conditions of

being permitted to report under this

paragraph (o)(1)(iii)(B) apply with

respect to the provision of alternate

information or omission of percentage

share(s) information entirely, as

specified in the certification.

(C) The conditions referred to in

paragraph (o)(1)(iii)(B) of this section

are:

(1) The information is maintained

only by a third-party vendor;

(2) The digital music provider does

not have any contractual or other rights

to access the information;

(3) The digital music provider is

unable to compile the information from

records in its possession using

commercially reasonable efforts within

the required reporting timeframe; and

(4) The vendor refuses to make the

information available to the digital

music provider on commercially

reasonable terms.

(2) Any obligation under paragraph

(o)(1) of this section concerning

information about sound recording

copyright owners may be satisfied by

reporting the information for applicable

sound recordings provided to the digital

music provider by sound recording

copyright owners or other licensors of

sound recordings (or their

representatives) contained in each of the

following DDEX fields: LabelName and

PLine. Where a digital music provider

acquires this information in addition to

other information identifying a relevant

sound recording copyright owner, all

such information must be reported to

the extent practicable.

(3) As used in this paragraph (o), it is

practicable to provide the enumerated

information if:

(i) It belongs to a category of

information expressly required to be

reported by the enumerated list of

information contained in § 210.6(c)(3);

(ii) It belongs to a category of

information that has been reported, or is

required to be reported, by the

particular digital music provider to the

mechanical licensing collective under

the blanket license; or

(iii) It belongs to a category of

information that is reported by the

particular digital music provider to the

mechanical licensing collective under a

voluntary license or individual

download license.

(4) The supplemental metadata report

provided for in this paragraph (o) is not

a condition for eligibility for the

limitation on liability in 17 U.S.C.

115(d)(10), or a condition of the blanket

license.

Dated: December 23, 2020.

Shira Perlmutter,

Register of Copyrights and Director of the

U.S. Copyright Office.

Approved by:

Carla D. Hayden,

Librarian of Congress.

[FR Doc. 2020–29190 Filed 1–7–21; 8:45 am]

BILLING CODE 1410–30–P

VerDate Sep<11>2014 00:28 Jan 09, 2021 Jkt 253001 PO 00000 Frm 00034 Fmt 4701 Sfmt 9990 E:\FR\FM\11JAR5.SGM 11JAR5

jbell on DSKJLSW7X2PROD with RULES5

Citation	86 FR 2176
Record Number	2020-29190
Published date	11 January 2021
Section	Rules and Regulations
Court	Library Of Congress,U.s. Copyright Office

Music Modernization Act Transition Period Transfer and Reporting of Royalties to the Mechanical Licensing Collective

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

You can sign up for a trial and make the most of our service including these benefits.

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

Why Sign-up to vLex?

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users

Over 100 Countries

Thousands of Data Sources

Find What You Need, Quickly

Over 2 million registered users