Update – Three Music Industry Reform Bills to Watch: Congress Introduces Legislation to Modernize Music in the Digital Age

On September 18, 2018, the Senate unanimously approved the Music Modernization Act, now renamed the Orrin G. Hatch Music Modernization Act, in honor of the retiring Utah Senator – an avid songwriter who spearheaded the bill.  This approval follows its unanimous passing by the House of Representatives in April.  Due to changes made by the Senate, the bill will now return to the House for approval before it can be signed by President Trump to become law.  Public praise of this significant step has poured out from a variety of major industry players including the NMPA, the RIAA, BMI, ASCAP, the Recording Academy, and SoundExchange.  The bill’s supporters have uniformly expressed that such legislation is crucial in the fight for fairness for music creators and that it will also confer benefits on consumers and copyright holders.  While the precise details of the alterations that were made to the Act are not yet clear, many changes appear to have influenced by holdouts from satellite and digital broadcasting services, including a compromise proposal from SiriusXM to pay half of the performance royalties for pre-1972 recordings under the CLASSICS Act.  As of this writing, it is expected that the bill will pass within the next few weeks, marking the first music licensing reform in over two decades.

Three Music Industry Reform Bills to Watch: Congress Introduces Legislation to Modernize Music in the Digital Age

In a rare show of bipartisanship, Congress has proposed legislation that would financially benefit music creators who have either been overlooked in the past or are compensated on inconsistent terms.  Three bills –  the Fair Play, Fair Pay Act, the CLASSICS Act and the Music Modernization Act (all of which have bipartisan support) – were introduced in 2017 to reform Copyright laws and bring balance to the music industry.  As copyright reform has gained much traction in the past month, with a House Judiciary field hearing that took place in New York City on January 26, 2018, the three bills represent hope for change and needed updates in the digital music era.

Fair Play, Fair Pay Act

The Fair Play, Fair Pay Act, introduced March 2017, aims to extend a copyright owner’s rights to include the right to perform a sound recording publicly by means of any transmission – including traditional broadcast.  Currently, the Copyright Act affords the owners of musical compositions (the underlying music and lyrics) the right to perform a sound recording publicly, but only provides a much narrower public performance right for owners of sound recordings, limited to performance by means of digital transmissions by cable, satellite, and internet radio stations.  For instance, when an internet radio station such as Pandora streams a song, the artist and record label receive a statutory royalty for the performance of the sound recording, but when that same song is played on terrestrial AM/FM radio, the artist and record label are not compensated (in both scenarios the writer and/or publisher of the song is paid for the performance of the composition, though).  The radio industry has consistently defended the lack of monetary compensation for radio air play, citing the promotional value that radio uniquely brings an artist and record label.

The Fair Play, Fair Pay Act would establish a broader public performance right that would require these broadcasters to pay artists and record labels royalties when their songs are played on terrestrial radio.  The royalties would be determined by the Copyright Royalty Board (“CRB,” the tribunal that determines various royalty rates and administers distributions).  The CRB would be required to use a “willing buyer/willing seller” standard to represent royalty rates that would have been negotiated in a free market.  The CRB’s decision would be based on certain information presented by the parties, including the copyright owner’s other streams of revenue from the sound recording and the creative contribution from the copyright owner.  Similar to the structure for webcasting rates, the bill includes caps on the annual royalty rates for broadcasters who may find this new obligation to be a financial hardship – $500 for small commercial broadcast stations with less than $1 million in revenues for the calendar year and $100 for public broadcasting stations.  As the United States is the only developed country which does not compensate artists and labels for terrestrial radio airplay, the Fair Play, Fair Pay Act sets out to level the playing field for sound recording copyright while allowing certain more vulnerable broadcasters to pay little or nothing.

Compensating Legacy Artists for their Songs, Service, and Important Contributions to Society Act (“CLASSICS” Act)

In 1971, Congress passed the Recording Amendment of 1971, which provided federal copyright protection to sound recordings created on or after February 15, 1972.  The Amendment was soon incorporated into the Copyright Act and created a division between the level of copyright protection given to sound recordings pre- and post-1972, the former of which were protected only at the state level.  As a result, a variety of legal regimes govern protection of pre-1972 sound recordings in various states and the scope of protection is unclear (as exemplified by the many Flo & Eddie cases around the country).  The CLASSICS Act, introduced in July 2017, aims to close the gap between pre- and post-1972 sound recordings by bringing pre-1972 recordings into the federal copyright system and ensuring that digital transmissions of both pre- and post-1972 recordings are treated equally.  The gap has prevented pre-1972 sound recordings from receiving modern day protections extended to post-1972 sound recordings under the Copyright Act and the Digital Millennium Copyright Act, such as the safe harbor provisions for online piracy and compulsory licenses available for internet and satellite radio streaming.  For instance, digital music platforms such as Sirius XM do not pay artists digital public performance royalties when their pre-1972 songs are played, but do pay if a song was recorded post-1972.  While these artists are not compensated for their older songs, digital music services greatly benefit as services such as Sirius XM have popular music channels dedicated to music from the 50’s and 60’s.  As there are many legacy artists (with music recorded before 1972) who are retired and can no longer record music or tour, the CLASSICS Act seeks to compensate these artists for their past musical contributions to culture and the arts.

Music Modernization Act

The Music Modernization Act, introduced in December 2017, aims to revise Section 115 of the Copyright Act to create a single licensing entity to administer mechanical reproduction royalties (royalty payments due to publishers and songwriters when their musical compositions are reproduced) payable by digital music services, including streaming companies like Spotify and digital music retailers like iTunes.  Currently, if a digital music service wishes to reproduce a musical composition, the service must obtain a license from the songwriter and publisher, which creates inefficiencies for the licensee.  Under Section 115, the service may enter into a license agreement with the songwriter and publisher directly, or if the service cannot identify the songwriter, the service can file a “Notice of Intention” (“NOI”) through the Copyright Office to secure a compulsory license and pay the songwriter and publisher a set rate.  Digital music services often will file NOIs in bulk and begin using sound recordings immediately thereafter, as they have claimed that it is difficult to find the correct author(s) for every song.  The proponents of the legislation claim that the current NOI system often prevents music creators from being compensated or compensated in a timely manner, and digital music services use the NOI system are being accused of implementing an “infringe now, apologize later system.” This problem has led to lawsuits against Spotify and other digital music services in recent years.

The Music Modernization Act would create a broad blanket license for digital music services that covers every song in a database called the “Mechanical Licensing Collective.”  The database would publicly identify songs that have not been matched to songwriters and publishers, and publishers would be able to claim the rights to songs and be compensated.  Digital music services would fund the operation, while music publishers would administer it.  The Act would require the CRB to use the willing buyer/willing seller standard in setting the royalty rate, rather than use the current system of having the royalty rate set by a series of “public interest directives” (known as the 801(b)(1) factors, which include objectives to “maximize the availability of creative works to the public” and “minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices”).

In addition, the bill also aims to reform Section 114(i) of the Copyright act to modify how royalty disputes related to the public performance of musical compositions are resolved and who resolves them.  Currently under 114(i), each case must be adjudicated before one of the two major performance rights organization’s designated ”rate court” judge, a system that resulted from antitrust consent decrees between performing rights organizations and the U.S. government.  There are two federal judges in the Southern District of New York who are designated royalty rate court judges, one for the American Society of Composers, Authors, and Publishers (“ASCAP”) (Judge Cote) and another for Broadcast Music Inc. (“BMI”) (Judge Stanton).  Under the Music Modernization Act, when a royalty rate dispute arises, a district judge in the Southern District of New York would be randomly assigned for rate setting disputes.  This is referred to as the “wheel approach” and would ensure that the judge assigned to the case will bring new eyes to the disputes, without impressions derived from past cases.

Furthermore, the Act aims to allow rate court judges to consider additional evidence when calculating performance royalties for songwriters and composers.  Under section 114(i) of the Copyright Act, royalty rate court judges are barred from considering the royalty rates which digital services are paying in performance royalties for sound recordings, as determined by the Copyright Royalty Board.  Songwriters and publishers have found the current evidentiary exclusion frustrating as the performance royalties for sound recordings have often been higher than the performance royalty rates for the musical composition afforded to songwriters and publishers.  The Act would repeal section 114(i), creating a more even playing field for songwriters, who can offer proof of these higher rates as justification for higher rates for composers and writers.

To gain support from digital services, the Music Modernization Act provides legal protection to digital music services who comply with the terms of a valid blanket license under the bill.  For any lawsuit brought after January 1, 2018 against a digital music service who complies with the new law, the plaintiff may only recover royalties, and the digital music service will not be held responsible for statutory damages for copyright infringement.

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As of today, all three bills have been referred to the House Committee on the Judiciary and are awaiting further hearings and mark-up.  As these three significant pieces of legislation make their way through Congress, many music industry organizations have expressed their support, including the Recording Industry Association of America, ASCAP, BMI, National Music Publishers’ Association, Sound Exchange, and SAG-AFTRA.  Of course, no legislation is without its opponents – for instance, the Songwriters Guild of America and various independent songwriters are opposing the Music Modernization Act, and the National Association of Broadcasters is opposed to the Fair Play, Fair Pay Act.  Although the bills are still in the early phases of the legislative process, the strong interest in change and the current unity in creator activism has been deemed an important milestone in music.