NEWS | May 31st, 2019

Music Modernization Act Reforms Music Licensing

The Act reforms the music licensing landscape in four main dimensions

The Act, unanimously approved by the House Judiciary Committee this past April, ends the bulk Notice of Intent process through the Copyright Office that had long prevented songwriters from being compensated in a timely manner for use of their works.

A key part of the deal would create a database for songwriters, similar to SoundExchange, that would provide blanket mechanical licenses in addition to serving as a collection society to better manage royalties owed to composers and publishers. The goal of the legislation is to solve a specific set of issues surrounsing mechanical licensing for streaming services like Spotify and Apple music, both of which having faced a fair share of litigation for allegedly unpaid royalties.

The Act would also create business efficiencies for the digital services by providing a transparent and publicly accessible database housing song ownership information. Additionally, because the database would publicly identify songs that have not been matched to songwriters and/or publishers, publishers would also be able to claim the rights to songs and get paid for those songs. Songwriters and publishers would also be granted an audit right, which they did not have under Section 115 of the Copyrights Act.

Reformation of Section 115 of the Copyright Act:  Section 115 has regulated musical compositions since 1909—before recorded music even existed. Section 115, allowed anyone to seek a compulsory license to reproduce a song in exchange for paying a statutory rate. The Copyright Royalty Board (CRB)—the government body responsible for setting the statutory rate—applied a legal standard to determine rates that did not reflect market value. The Act replaces the flawed legal standard with a standard that requires the court to consider free-market conditions when determining rates. ASCAP and BMI were each assigned to a single, respective rate court judge. Every case was to be adjudicated before each performance rights organization’s (PRO’s) respective designated consent decree judge.

A district judge in the Southern District of New York would be randomly assigned from the wheel of district judges for rate setting disputes. The “wheel” approach would enable BMI and ASCAP, as well as licensees, to go before any judge in the Southern District of New York on a rotating basis—rather than being assigned to a single judge—for the purpose of rate setting disputes. This “wheel” approach ensures that the judge will find the facts afresh for each rate case based on the record in that particular case, without impressions derived from prior cases.

Repeal of Section 114(i) of the Copyright Act:  Section 114 (i) forbid the federal rate courts overseeing the consent decrees that govern the two major PROs from considering certain evidence when setting performance royalty rates for songwriters and composers. The rate court judges were barred from considering sound recording royalty rates as a relevant benchmark when setting performance royalty rates for songwriters and composers. As a result, the playing field was uneven, at the expense of songwriters. The Act repeals Section 114(i), moving the industry to a fairer system under which PROs and songwriters would have the opportunity to present evidence about the other facets of the music ecosystem to judges for their consideration. This repeal creates the opportunity for songwriters to obtain fairer rates for the public performances of their musical works.

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