[Federal Register Volume 85, Number 78 (Wednesday, April 22, 2020)]
[Proposed Rules]
[Pages 22549-22559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08375]


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LIBRARY OF CONGRESS

U.S. Copyright Office

37 CFR Part 210

[Docket No. 2020-6]


Reporting and Distribution of Royalties to Copyright Owners by 
the Mechanical Licensing Collective

AGENCY: U.S. Copyright Office, Library of Congress.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The U.S. Copyright Office is issuing a notice of proposed 
rulemaking regarding the obligations of the mechanical licensing 
collective to report and distribute royalties paid by digital music 
providers under the blanket license to musical work copyright owners 
under title I of the Orrin G. Hatch-Bob Goodlatte Music Modernization 
Act. After soliciting public comments through a notification of 
inquiry, the Office is now proposing regulations establishing the 
timing, form, delivery, and certification of statements accompanying 
royalty distributions to musical work copyright owners. The Office 
solicits additional public comments on the proposed rule. This notice 
concerns only royalty statements and distributions regarding matched 
uses of musical works embodied in sound recordings and does not address 
issues related to the distribution of unclaimed, accrued royalties.

DATES: Written comments must be received no later than 11:59 Eastern 
Time on May 22, 2020.

ADDRESSES: For reasons of government efficiency, the Copyright Office 
is using the regulations.gov system for the submission and posting of 
public comments in this proceeding. All comments are therefore to be 
submitted electronically through regulations.gov. Specific instructions 
for submitting comments are available on the Copyright Office website 
at https://www.copyright.gov/rulemaking/mma-royalty-statements. If 
electronic submission of comments is not feasible due to lack of access 
to a computer and/or the internet, please contact the Office using the 
contact information below for special instructions.

FOR FURTHER INFORMATION CONTACT: Regan A. Smith, General Counsel and 
Associate Register of Copyrights, by email at [email protected] or 
Terry Hart, Assistant General Counsel, by email at 
[email protected]. Each can be contacted by telephone by calling 
(202) 707-8350.

SUPPLEMENTARY INFORMATION:

I. Background

    Title I of the Music Modernization Act (``MMA''), the Musical Works 
Modernization Act, substantially modifies the compulsory ``mechanical'' 
license for making and distributing phonorecords of nondramatic musical 
works available under 17 U.S.C. 115. Prior to the MMA, a compulsory 
license was obtained by licensees on a per-work, song-by-song basis, 
and required a licensee to serve a notice of intention to obtain a 
compulsory license (``NOI'') on the relevant copyright owner (or file 
the NOI with the Copyright Office if the Office's public records did 
not identify the copyright owner and include an address at which notice 
could be served) and then pay applicable royalties accompanied by 
accounting statements.\1\
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    \1\ See 17 U.S.C. 115(b)(1), (c)(5) (2017); U.S. Copyright 
Office, Copyright and the Music Marketplace 28-31 (2015), https://www.copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf (describing operation of prior section 115 
license).
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    The MMA amends this regime in multiple ways, most significantly by 
establishing a new blanket compulsory license that digital music 
providers (``DMPs'') may obtain to make digital phonorecord deliveries 
(``DPDs'') of musical works, including in the form of permanent 
downloads, limited downloads, or interactive streams.\2\ Instead of 
licensing one song at a time by serving NOIs on individual copyright 
owners, the blanket license will cover all musical works available for 
compulsory licensing and will be centrally administered by a mechanical 
licensing collective (``MLC''), which has been designated by the 
Register of Copyrights.\3\ Under the MMA, compulsory licensing of 
phonorecords that are not DPDs (e.g., CDs, vinyl, tapes, and other 
types of physical phonorecords) (the ``non-blanket license'') continues 
to operate on a per-work, song-by-song basis, the same as before.\4\
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    \2\ 17 U.S.C. 115(d)(1), (e)(7); see H.R. Rep. No. 115-651, at 
4-6 (describing operation of the blanket license and the new 
mechanical licensing collective); S. Rep. No. 115-339, at 3-6 
(same).
    \3\ 17 U.S.C. 115(d)(1), (3); 84 FR 32274 (July 8, 2019).
    \4\ 17 U.S.C. 115(b)(1); see H.R. Rep. No. 115-651, at 3 (noting 
``[t]his is the historical method by which record labels have 
obtained compulsory licenses''); S. Rep. No. 115-339, at 3 (same); 
see also U.S. Copyright Office, Orrin G. Hatch-Bob Goodlatte Music 
Modernization Act, https://www.copyright.gov/music-modernization/ 
(last visited Apr. 2, 2020).
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    By statute, digital music providers will bear the reasonable costs 
of establishing and operating the MLC through an administrative 
assessment, to be determined, if necessary, by the Copyright Royalty 
Judges (``CRJs'').\5\ As permitted under the MMA, the Office designated 
a digital licensee coordinator (``DLC'') to represent licensees in 
proceedings before the CRJs and the Copyright Office, to serve as a 
non-voting member of the MLC, and to carry out other functions.\6\
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    \5\ 17 U.S.C. 115(d)(7)(D).
    \6\ Id. at 115(d)(5)(B); 84 FR at 32274; see also 17 
U.S.C.115(d)(3)(D)(i)(IV), (d)(5)(C).
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A. Reporting and Payment Obligations Under Non-Blanket License

    The proposed rule is informed by the preexisting section 115 
regulations that still apply to non-blanket licenses. Under a non-
blanket license, copyright owners receive royalties and statements of 
account directly from compulsory licensees. Timely payment and 
statements of account are a condition of the non-blanket compulsory 
license, and failure to comply with the requirements could lead to 
default.\7\ Default can subject a licensee to the remedies provided by 
sections 502 through 506 for infringement.\8\ The statute requires 
licensees to make monthly and annual statements of account, along with 
payment of royalties, in compliance with regulations promulgated by the 
Office.\9\ Regulations covering monthly and annual statements of 
account prescribe, among other things, requirements regarding the 
content such statements

[[Page 22550]]

must contain along with timing, delivery, and certification 
obligations.\10\
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    \7\ 17 U.S.C. 115(c)(2)(J).
    \8\ Id.
    \9\ Id. at 115(c)(2)(I). See generally 37 CFR 210.11.
    \10\ Regulations for monthly statements of account appear in 37 
CFR 210.16 and annual statements of account appear in 37 CFR 210.17.
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    The regulations for monthly and annual statements of account for 
the non-blanket license were most recently amended in 2014, in response 
to legal and marketplace developments, ``including the Copyright 
Royalty Board's adoption of newer percentage-of-revenue royalty rate 
structures for certain digital music services, and changes in 
accounting and industry practice in the years since the rules were last 
substantially amended.'' \11\ Among the changes made to payment and 
reporting of royalties relevant to this proceeding, the rule was 
amended ``to allow copyright owners and licensees to independently 
agree to alternative payment methods, including electronic payment''; 
allow a copyright owner to ``notify a licensee of its willingness to 
accept statements by means of electronic transmission''; permit 
``copyright owners to elect the format (paper or electronic) in which 
they receive statements''; set a ``default minimum payment threshold of 
up to $5 for payments to any copyright owner''; require ``reporting of 
ISRCs [``International Standard Recording Code''] when that information 
is known''; permit ``the reporting of other unique identifiers, such as 
the International Standard Name Identifier (``ISNI'') of the writer, or 
the International Standard Musical Work Code (``ISWC'') for the musical 
work''; and revise the existing certification regulations.
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    \11\ 79 FR 56190 (Sept. 18, 2014).
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B. Blanket License

    In creating a blanket license administered by the MLC, the MMA 
establishes a different legal framework for the payment and accounting 
of royalties. Under the MMA, when the blanket license becomes available 
on January 1, 2021, DMPs taking advantage of the blanket license will 
report usage of musical works and pay royalties to the MLC--instead of 
directly to copyright owners--on a monthly basis.\12\ The data 
contained in the DMP's reports of usage is governed by both the statute 
\13\ and regulations currently being promulgated by the Office in a 
separate proceeding.\14\ The MLC will, in turn, ``distribute royalties 
to copyright owners in accordance with the usage and other information 
contained in such reports, as well as the ownership and other 
information contained in the records of the collective.'' \15\
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    \12\ 17 U.S.C. 115(d)(4)(A)(i).
    \13\ Id. at 115(d)(4).
    \14\ U.S. Copyright Office, Notice of Proposed Rulemaking, Music 
Modernization Act Notices of License, Notices of Nonblanket 
Activity, Data Collection and Delivery Efforts, and Reports of Usage 
and Payment, Dkt. No. 2020-5, published elsewhere in this issue of 
the Federal Register.
    \15\ 17 U.S.C. 115(d)(3)(G)(i)(II).
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    Because some percentage of musical works reported by blanket 
licensees will not be initially matched to their respective copyright 
owners, the MLC will also engage in ongoing matching efforts to 
identify copyright owners of musical works where the identity of the 
copyright owner is unknown and provide a mechanism for copyright owners 
to claim unmatched works.\16\ When a copyright owner who is owed 
unmatched royalties becomes identified and located, the statute directs 
the MLC to pay applicable accrued royalties to the copyright owner, 
``accompanied by a cumulative statement of account reflecting usage of 
such work and accrued royalties based on information provided by 
digital music providers to the mechanical licensing collective.'' \17\ 
As noted below, the Office is separately addressing the issue of 
unclaimed accrued royalties, including through an ongoing policy study, 
and this proceeding does not address distribution procedures for those 
royalties that remain unmatched after the prescribed holding period.
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    \16\ The statute authorizes a number of functions related to 
matching works, including ``[e]ngage in efforts to identify musical 
works (and shares of such works) embodied in particular sound 
recordings, and to identify and locate the copyright owners of such 
musical works (and shares of such works); [m]aintain the musical 
works database and other information relevant to the administration 
of licensing activities under this section[, and a]dminister a 
process by which copyright owners can claim ownership of musical 
works (and shares of such works), and a process by which royalties 
for works for which the owner is not identified or located are 
equitably distributed to known copyright owners.'' Id. at 115 
(d)(3)(C)(i)(III)-(V).
    \17\ Id. at 115(d)(3)(I)(ii).
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    Finally, as reflected in the separate rulemaking regarding 
reporting by DMPs, blanket licensees may at times need to make 
adjustments to royalties paid in prior reporting periods since it is 
not unusual for the exact amount of royalties owed for a particular 
month to be known until after the close of the month.\18\ Ultimately, 
those adjustments will be reported to copyright owners by the MLC, 
along with any applicable credits or deductions to royalty 
distributions.
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    \18\ See DLC Initial at 15-16; 17 U.S.C. 115(d)(4)(A)(iv)(II) 
(contemplating adjustments for overpayment or underpayment).
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    Although the MLC is obligated to collect and distribute royalties, 
the statute does not, as it does for the non-blanket license, prescribe 
specific obligations for royalty distributions or statements of 
account, such as form, timing, delivery, or certification requirements 
by the MLC. Nor does it delegate specific rulemaking authority to the 
Office for prescribing distribution or statement requirements specific 
to the MLC. Separately, though, in a general provision largely retained 
from the pre-MMA section 115 related to license terms and conditions, 
the Register is directed to prescribe regulations related to monthly 
payments, and that provision states that ``regulations covering both 
the monthly and the annual statements of account shall prescribe the 
form, content, and manner of certification with respect to the number 
of records made and the number of records distributed.'' \19\
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    \19\ 17 U.S.C. 115(c)(2)(I). While applicability of this 
provision excepts requirements for reports of use and payments by 
blanket licensees, which are addressed separately by statute, it 
does not address either way whether these requirements extend to 
statements of account provided by the MLC.
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    There appears to be no dispute regarding the propriety or authority 
of the Office to promulgate regulations related to royalty statements 
issued by the MLC; indeed, the MLC itself has proposed regulatory 
language encompassing this activity.\20\ But as background and to aid 
commenters, the Office believes it may be helpful to situate this 
specific proposed rule within the broader regulatory framework set out 
in the MMA.
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    \20\ MLC Initial at 27-29.
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    The statute creates a general legal framework that supports rules 
regarding distribution and reporting of royalties under the blanket 
license. In order to establish sufficient oversight and accountability, 
Congress obligated the MLC to ``ensure that the policies and practices 
of the collective are transparent and accountable.'' \21\ In 
furtherance of that goal, Congress vested the Register of Copyrights 
with the authority to periodically review the designation of the entity 
serving as the MLC and designate a new entity if needed.\22\ The MLC is 
required by statute to be a nonprofit entity that ``is endorsed by, and 
enjoys substantial support from, musical work copyright owners'' \23\ 
and ``is able to demonstrate to the Register of Copyrights that the 
entity has . . . the administrative and technological capabilities to 
perform the required functions of the mechanical licensing 
collective.'' \24\
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    \21\ 17 U.S.C. 115(d)(3)(D)(ix)(I)(aa).
    \22\ Id. at 115(d)(3)(B)(ii).
    \23\ Id. at 115(d)(3)(A)(ii).
    \24\ Id. at 115(d)(3)(A)(iii).

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[[Page 22551]]

    Additionally, Congress provided general authority to the Register 
of Copyrights to ``conduct such proceedings and adopt such regulations 
as may be necessary or appropriate to effectuate the provisions of this 
subsection.'' \25\ The legislative history states,
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    \25\ Id. at 115(d)(12).

the Register is expected to promulgate the necessary regulations 
required by the legislation in a manner that balances the need to 
protect the public's interest with the need to let the new 
collective operate without over-regulation. The Copyright Office has 
the knowledge and expertise regarding music licensing through its 
past rulemakings and recent assistance to the Committee during the 
drafting of this legislation. Although the legislation provides 
specific criteria for the collective to operate, it is to be 
expected that situations will arise that were not contemplated by 
the legislation. The Office is expected to use its best judgement in 
determining the appropriate steps in those situations.\26\
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    \26\ S. Rep. No. 115-339, at 15.

    It is the Office's judgment that it is consistent with the larger 
goals of the MMA to prescribe specific royalty reporting and 
distribution requirements through regulation, that the Register of 
Copyrights has the authority to promulgate these rules under the 
general rulemaking authority in the MMA, and it can take into 
consideration how well the MLC carried out those obligations when 
reviewing the designation.\27\ Regulations establish a baseline for 
transparency and accountability, and the rulemaking process allows all 
stakeholders--particularly musical work copyright owners and 
songwriters--to communicate the specific transparency and 
accountability obligations they expect of the MLC.\28\
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    \27\ The legislative history states that when determining 
whether to redesignate an entity to serve as the collective, ``the 
failure to follow the relevant regulations adopted by the Copyright 
Office[] over the prior five years should raise serious concerns 
within the Copyright Office as to whether that same entity has the 
administrative capabilities necessary to perform the required 
functions of the collective.'' S. Rep. No. 115-339, at 5; see also 
H.R. Rep. No. 115-651, at 6 (same).
    \28\ See Future of Music Coalition (``FMC'') Reply at 3 (``[W]e 
urge the Office to balance this concern for pragmatism and 
flexibility against the need to provide as much clear guidance and 
oversight as possible to encourage trust. A good question to ask of 
any potential rule: `would including this item help music creators 
have confidence in the new system and trust that they will 
successfully get the money they are owed?' If the answer is yes, it 
should be included.'').
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C. Transitional Period

    The MMA created a transitional period between its date of enactment 
and January 1, 2021, the date when the blanket license first becomes 
available (the ``license availability date'').\29\ On December 7, 2018, 
the Office issued interim regulations, directed at that transition 
period, that amended existing regulations pertaining to the compulsory 
license to conform to the new law, including with respect to the 
operation of notices of intention and statements of account.\30\ Of 
relevance here, the interim rule detailed the requirements for DMPs to 
report and pay royalties regarding previously unmatched works for 
purposes of eligibility for the limitation on liability for making 
unauthorized DPDs during the transition period before the blanket 
license becomes available. The interim regulations largely restated the 
statutory requirements, specifying that the DMP must pay royalties and 
provide cumulative statements as if they were a compulsory licensee 
under the non-blanket license. The interim rule also required DMPs to 
identify the total period covered by the cumulative statement and the 
total royalty payable for the period. Finally, the interim rule also 
required that such cumulative statements be certified in the same 
manner as monthly statements of account under existing Office 
regulations for the non-blanket license.\31\ The Office welcomed 
``public comment on these amendments and any other specific technical 
amendments that stakeholders would like the Office to consider.'' \32\ 
It received no comments.
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    \29\ H.R. Rep. No. 115-651, at 10; S. Rep. No. 115-339, at 10.
    \30\ 83 FR 63061, 63065 (Dec. 7, 2018); 37 CFR 210.20.
    \31\ See id.; 17 U.S.C. 115(d)(10)(B)(iv)(II)(aa), (III)(aa) 
(cumulative statements to be provided ``in accordance with this 
section and applicable regulations, including the requisite 
certification under subsection (c)(2)(I)'').
    \32\ 83 FR at 63062.
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D. Music Modernization Act Implementing Regulations for the Blanket 
License for Digital Uses and Mechanical Licensing Collective 
Notification of Inquiry

    On September 24, 2019, the Copyright Office issued a notification 
of inquiry to initiate this current proceeding regarding implementing 
regulations for the blanket license.\33\ The Office invited public 
comment on regulations that the MMA directs it to adopt, as well as 
additional regulations to promulgate under its general authority as may 
be necessary or appropriate to effectuate the new blanket licensing 
structure.
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    \33\ 84 FR 49966 (Sept. 24, 2019).
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    The notification of inquiry sought comment on areas where the MMA 
explicitly directs the Register of Copyright to adopt regulations, 
including: Form and substance of notices of license that digital music 
providers are required to submit to the mechanical licensing 
collective; \34\ form and substance of notices of non-blanket activity; 
\35\ information to be reported on usage reports,\36\ format and 
maintenance of reports,\37\ and mechanisms to account for adjustments; 
\38\ information to be included in the mechanical licensing 
collective's database; \39\ database usability, interoperability, and 
usage restrictions; \40\ and the handling of confidential 
information.\41\
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    \34\ 17 U.S.C. 115(d)(2)(A)(i).
    \35\ Id. at 115(d)(6)(A)(i).
    \36\ Id. at 115(d)(4)(A)(ii)(III).
    \37\ Id. at 115(d)(4)(A)(iii).
    \38\ Id. at 115(d)(4)(A)(iv).
    \39\ Id. at 115(d)(3)(E)(ii)(V).
    \40\ Id. at 115(d)(3)(E)(vi).
    \41\ Id. at 115(d)(12)(C).
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    The Office also solicited comments regarding the following issues 
not mentioned explicitly in the statute: ``the MLC's payment and 
reporting obligations with respect to royalties that have been matched 
to copyright owners, both for works that are matched at the time the 
MLC receives payment from digital music providers and works that are 
matched later during the statutorily prescribed holding period for 
unmatched works.'' \42\
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    \42\ 84 FR at 49972.
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    Specifically, the Office asked for input on ``what reporting should 
be required of the MLC when distributing royalties to matched copyright 
owners in the ordinary course under section 115(d)(3)(G)(i)(II), as 
well as input concerning the timing of such regular distributions.'' 
\43\ It also solicited input ``on any issues that should be considered 
relating to the cumulative statements of account to be provided under 
section 115(d)(3)(I)(ii), relating to payments due to copyright owners 
of a previously unmatched work (or share thereof) who is later 
identified and located by the MLC, including what additional material, 
if any, may be required in these statements as compared to routine 
periodic distributions for already matched works.'' \44\
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    \43\ Id. at 49973.
    \44\ Id. at 49972-73.
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    In response to the notification of inquiry, the Office received 
fifteen initial comments and twenty-nine reply comments.\45\ Of those, 
seven addressed

[[Page 22552]]

the MLC's reporting and payment obligations. In its initial comments, 
the MLC, provided proposed regulatory language for reporting and 
payment obligations. Several commenters responded to specific aspects 
of the MLC's proposal, as discussed in respective sections below.
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    \45\ All rulemaking activity, including public comments, as well 
as educational material regarding the Music Modernization Act, can 
currently be accessed via navigation from https://www.copyright.gov/music-modernization/. Comments received in response to the September 
2019 notification of inquiry are available at https://www.regulations.gov/docketBrowser?rpp=25&po=0&dct=PS&D=COLC-2019-0002&refD=COLC-2019-0002-0001. References to these comments and 
letters are by party name (abbreviated where appropriate), followed 
by either ``Initial,'' ``Reply,'' or ``Ex Parte Letter,'' as 
appropriate. 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. The Office encourages parties to refrain from 
requesting ex parte meetings on this proposed rule until they have 
submitted written comments. As stated in the guidelines, ex parte 
meetings with the Office are intended to provide an opportunity for 
participants to clarify evidence and/or arguments made in prior 
written submissions, and to respond to questions from the Office on 
those matters.
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    The accurate distribution of royalties under the blanket license to 
copyright owners is a core objective of the MLC.\46\ The payment of 
royalties, and the statements that accompany those payments, serve as 
the most visible and tangible connection many copyright owners will 
have with the MLC and the blanket license created by the MMA. Copyright 
owners of musical works have experience with the preexisting mechanical 
license and have built up certain expectations regarding how they 
receive royalties and statements under that license, on either a 
compulsory or voluntary licensing basis.\47\ The goal of the MMA is to 
address significant shortcomings that arose in licensing mechanical 
reproductions by DMPs and improve the functioning of the licensing 
regime in the digital ecosystem. So musical work copyright owners 
should reasonably anticipate royalty distributions and statements that 
look and operate materially the same or better than status quo 
mechanical licensing practices.
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    \46\ See Letter from Lindsey Graham, U.S. Senator, South 
Carolina, to Karyn Temple, Register of Copyrights, U.S. Copyright 
Office (Nov. 1, 2019).
    \47\ Prior to the MMA, the Office studied the section 115 
license and noted: ``Although the use of the section 115 statutory 
license has increased in recent years with the advent of digital 
providers seeking to clear large quantities of licenses, mechanical 
licensing is still largely accomplished through voluntary licenses 
that are issued through a mechanical licensing agency such as HFA or 
by the publisher directly.'' U.S. Copyright Office, Copyright and 
the Music Marketplace 30-31 (2015), https://www.copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf. 
Including because the MLC has selected HFA as a core vendor and 
because of the potential that services may prefer to make use of the 
blanket compulsory license over voluntary arrangements, the Office 
believes that identifying common industry expectations with regard 
to direct licensing will be relevant to the proposed rule.
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II. Proposed Rule

A. General

    Having reviewed and carefully considered all relevant comments in 
response to the September 2019 notification of inquiry, the Office now 
issues a proposed rule and invites further public comment. This 
proposed rule concerns the reporting and royalty distribution 
obligations of the MLC for the blanket license. The regulatory language 
is intended to ensure that copyright owners receive the royalties they 
are entitled to in a timely fashion with statements that provide them 
with accurate data regarding how their works are being used under the 
blanket license. The existing requirements for reporting under the non-
blanket license provide a useful starting point.
    At the same time, the Office recognizes that the MLC is responsible 
for implementing an unprecedented licensing regime from scratch, and 
the MMA is intended to address problems that accumulated under the non-
blanket licensing regime. Certain features of the non-blanket licensing 
regime may be inappropriate to use as benchmarks. Where appropriate, 
then, the Office is striving to retain flexibility in the regulations 
for the MLC, particularly when it is in its early stages of operations, 
while ensuring high standards of accuracy and service to copyright 
owners.\48\ The Office is also considering promulgating this rule on an 
interim basis, to facilitate adjustment on topics noticed in this 
rulemaking if necessary once the MLC begins issuing royalty statements 
to copyright owners.
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    \48\ See S. Rep. No. 115-339, at 15 (``Pursuant to paragraph 
(12) of subsection (d), the Register is expected to promulgate the 
necessary regulations required by the legislation in a manner that 
balances the need to protect the public's interest with the need to 
let the new collective operate without over-regulation.''); 
SoundExchange Initial at 15 (``SoundExchange urges the Office to be 
cautious in regulating the MLC and avoid the temptation to write 
into regulations every good idea that comes out of this proceeding. 
Through SoundExchange's history there have been numerous instances 
where well-intentioned regulations have not worked out quite as 
intended, and the inflexible nature of the rulemaking process has 
caused obsolete rules to persist.''); DLC Reply at 26-27 (``Although 
these regulations largely affect the relationship between the MLC 
and individual copyright owners, licensees will be funding the 
operations of the MLC through the administrative assessment. DLC 
therefore has a strong interest in ensuring appropriate regulations 
are in place to encourage a cost-effective approach to MLC's 
payments and statements of account to rights owners.'').
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    To be clear, this rulemaking only addresses the reporting and 
distribution of royalties that are matched by the MLC either as it 
processes reports of usage received from blanket licensees or through 
its ongoing matching efforts. It does not address the distribution of 
unclaimed accrued royalties after the expiration of the prescribed 
holding period.\49\ The Office is currently engaged in a study to 
determine the best practices that the MLC may implement to effectively 
identify copyright owners and unclaimed royalties of musical works 
while encouraging copyright owners to claim royalties and ultimately 
reduce the occurrence of unclaimed royalties.\50\ The Office may in the 
future separately consider promulgating regulations regarding the 
ultimate distribution of unclaimed royalties.\51\
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    \49\ 17 U.S.C. 115(d)(3)(J).
    \50\ U.S. Copyright Office, Unclaimed Royalties Study, https://www.copyright.gov/policy/unclaimed-royalties/ (last visited Apr. 2, 
2020). The study was initiated by an all-day educational symposium 
held by the Office on December 6, 2019. Materials related to the 
symposium, including a transcript and video of the proceedings can 
be found at the aforementioned web page.
    \51\ 84 FR at 49974 (``the Office is tentatively inclined to 
wait until after the policy study is underway to finalize rules with 
respect to this important duty of the MLC.'').
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B. Terminology: ``Royalty statement'' Instead of ``statement of 
account''

    Although the proposed rule regarding statements issued by the MLC 
to copyright owners under the blanket license is based upon the 
existing regulations pertaining to ``statements of account'' required 
under the non-blanket compulsory license, the proposed rule uses an 
alternate term ``royalty statements.''
    This is not intended to indicate any substantive change, but rather 
to avoid potential ambiguity with other references to ``statements of 
account'' pertaining to the non-blanket license. For example, the terms 
``Monthly Statement of Account'' and ``Annual Statement of Account'' 
are defined elsewhere in current regulations for the non-blanket 
compulsory license and expressly apply only to the statements required 
under the non-blanket license.\52\ The MMA itself does not use the term 
``statement of account'' when outlining the MLC's general royalty and 
reporting obligations,\53\ though it does use the term ``cumulative 
statement of account'' when prescribing obligations for distributing 
accrued royalties for previously unmatched works.\54\ To avoid 
confusion, the Office will use the generic term ``royalty statement'' 
in the

[[Page 22553]]

regulations for those reporting obligations.
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    \52\ 37 CFR 210.12(a), (b). See 17 U.S.C. 115(c)(2)(I), (J).
    \53\ See 17 U.S.C. 115(d)(3)(C)(i)(II), (G).
    \54\ Id. at 115(d)(3)(I)(ii).
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C. Reporting and Payment Obligations

1. Scope of Periodic Reports
    The MLC must distribute two sets of royalty payments. The first set 
includes royalties for works that it matches upon receipt of monthly 
reports of usage from DMPs.\55\ The second set includes accrued 
royalties for works that were unmatched when they were reported by 
blanket licensees and where the copyright owner is subsequently 
identified and located.\56\ Blanket licensees may also need to adjust 
prior reports of usage, which may result in overpayment or underpayment 
of royalties from those prior periods, and the results of those 
adjustments must similarly be passed through to copyright owners.\57\
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    \55\ Id. at 115(d)(3)(G)(i).
    \56\ Id. at 115(d)(3)(I)(ii).
    \57\ Id. at 115(d)(4)(A)(iv)(II).
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    The rule proposes that the MLC report these three items--(1) 
royalties for regularly matched works, (2) cumulative statements of 
account for accrued royalties of previously unmatched works, and (3) 
any adjustments to royalties from prior periods--to copyright owners 
simultaneously, if each category is applicable to a given owner. The 
reporting for each should be clearly delineated in the statements 
themselves, but the intent is to minimize and simplify administration 
for both the MLC and copyright owners.
i. Periodic Matched Works
    As stated above, DMPs taking advantage of the blanket license will 
report usage of musical works and pay royalties to the MLC on a monthly 
basis. It is anticipated that the MLC will be able to match the 
majority of works reported to the copyright owners who are entitled to 
receive their respective royalties upon processing these reports of 
usage, based on the information reported and the information the MLC 
has in its own records. As such, the reporting of these regularly 
matched works will be the primary subject of royalty statements from 
the MLC to copyright owners. These statements will be in a format 
familiar to copyright owners who currently receive statements for 
mechanical reproductions of musical works either under the non-blanket 
compulsory license or voluntary licenses. The specific content that 
will be reported in the statements, along with the timing of 
statements, is discussed below.
ii. Cumulative Statements of Account
    For cumulative statements of account that report previously accrued 
royalties for newly matched musical works, the proposed rule asks the 
MLC to provide a statement substantially similar to the statement for 
royalties matched in the ordinary course. This information would be 
sent to copyright owners at the same time as the regular monthly 
royalty statements, in a segregated manner. Like royalty statement 
information relating to works matched in the ordinary course, the 
cumulative reporting would indicate the monthly reporting period that 
royalties originally accrued in. Cumulative royalty statements would 
also report the amount of interest accrued and a clear identification 
of the total period covered.\58\
---------------------------------------------------------------------------

    \58\ Id. at 115(d)(3)(I)(ii).
---------------------------------------------------------------------------

iii. Adjustments
    In initial comments to the September 2019 notification of inquiry, 
the DLC notes several reasons why ``it is often (if not usually) the 
case that the exact amounts of royalty payments owed to the MLC for a 
given month cannot be known with precision until well after the close 
of the month--and sometimes not for months afterwards.'' \59\ Thus, 
DMPs may need to adjust the amount of royalties paid in prior periods, 
and the MMA provides authority to the Register of Copyrights 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.'' \60\ The Office is 
currently promulgating such regulations in a separate proceeding.\61\ 
Such adjustments, and the original reporting period being adjusted, 
will ultimately be reported by the MLC to copyright owners in a 
separate and clearly identified section of their monthly statements. As 
noted below, this proposal is a change from the non-blanket license 
processes, where copyright owners receive adjustments on an annual 
basis. The Office is proposing this change in light of the DLC's 
comments related to the frequency of necessary adjustments.
---------------------------------------------------------------------------

    \59\ DLC Initial at 15. The DLC cites at least two reasons this 
occurs. First, ``the royalty rate can . . . be a function of a 
variety of variables, including certain service revenues, royalties 
paid for performance rights, consideration paid to record labels, 
and the number of subscribers, where applicable.'' Id. at 15-16. 
Some of these variables may not be known until the end of a 
particular year and may retroactively affect section 115 royalty 
calculations. Second, ``many licensees have voluntary licenses with 
publishers, and the MMA continues to accommodate such direct deals. 
But in some circumstances--for instance, new releases--neither the 
digital music provider nor the MLC may know at the time the payment 
and report of usage is initially due whether a particular track is 
associated with a direct deal publisher or is licensed under the 
blanket license or is licensed across some combination of a direct 
deal and the blanket license. As a result, a digital music provider 
that is administering its own voluntary agreements (or using a non-
MLC vendor) may inadvertently make a payment to the MLC that should 
have been made directly to a publisher under the terms of a 
voluntary agreement.'' Id. at 16.
    \60\ 17 U.S.C. 115(d)(4)(A)(iv)(II).
    \61\ U.S. Copyright Office, Notice of Proposed Rulemaking, Music 
Modernization Act Notices of License, Notices of Nonblanket 
Activity, Data Collection and Delivery Efforts, and Reports of Usage 
and Payment, Dkt. No. 2020-5, published elsewhere in this issue of 
the Federal Register.
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2. Monthly Reporting and Timing Considerations
    The proposed rule would require reporting and distribution of 
royalties by the MLC on a monthly basis. This approach, supported by 
the MLC,\62\ is also consistent with the regulations for the non-
blanket license, which requires monthly statements that ``include all 
royalties for the month next preceding.'' \63\
---------------------------------------------------------------------------

    \62\ MLC Initial at 28.
    \63\ 17 U.S.C. 115(c)(2)(I). The non-blanket license also 
imposes a deadline on reporting, requiring monthly statements of 
account and payments to be made within 20 calendar days of the end 
of the reporting period. The proposed rule does not propose a date 
certain for reporting by the MLC.
---------------------------------------------------------------------------

    Some commenters raised concerns that the MMA increases the amount 
of time for when a blanket licensee has to report usage at the end of a 
monthly reporting period. As Music Reports, Inc. (``Music Reports'') 
noted ``[t]he MMA's requirement that DMPs report and pay royalties to 
the MLC `not later than 45 calendar days after the end of the calendar 
month being reported' inserts a substantial delay into the royalty 
reporting and payment process required under Section 115 prior to the 
MMA, which required that such payments occur `on or before the 
twentieth day of each month.' '' \64\ Music Reports explained that 
prior to the MMA, it regularly was able to issue ``monthly statements 
of account and royalty payments no more than ten days following'' 
receipt of usage and royalty accounting data from DMPs, and it believed 
that ``through the use of modern accounting systems managed by a 
professional staff, the MLC should be able to render monthly statements 
and royalty payments to copyright owners no more than 10 days after it 
receives usage and other supporting data from DMPs.'' \65\ It noted 
that even assuming the MLC could accomplish this within 10 days, 
copyright owners would still

[[Page 22554]]

have to ``wait 35 days longer to receive payment from the MLC than they 
were accustomed to waiting prior to the license availability date,'' 
given the statutory 45-day period for digital music provider 
reporting.\66\
---------------------------------------------------------------------------

    \64\ Music Reports Initial at 7 (quoting 17 U.S.C. 
115(d)(4)(A)(i) and 17 U.S.C. 115(c)(2)(I)).
    \65\ Music Reports Initial at 7.
    \66\ Id. See also Monica Corton Consulting Reply at 2 (``Having 
the DSP's account 45 days after each month is totally changing the 
time frame for final payments from the MLC to the publishers and 
will create a huge lag time in mechanical payments from the 
publishers to the songwriters.'').
---------------------------------------------------------------------------

    MLC opposed Music Report's proposal, calling it an ``unreasonably 
tight timeline,'' and stating: \67\
---------------------------------------------------------------------------

    \67\ MLC Reply at 40.

    [A] 10-day turnaround from the time the MLC receives monthly 
usage reports from DMPs is not realistic given the sheer volume of 
transactions that the MLC will be reporting. While Music Reports 
argues that it generally issued monthly statements and royalty 
payment within 10 days of receipt of DMPs usage reporting, this 
comparison does not take into account the difference in the volume 
of data it was processing (from a limited number of DMPs), versus 
the exponentially larger volume of data being processed by the MLC. 
Nor does it take into account the MLC's obligations to carve out 
voluntary licenses and individual download licenses from blanket 
license usage. Nor does it consider that, unlike the pre-blanket 
license process, the blanket license process does not include pre-
matching of individual sound recordings as licenses are requested, 
and therefore, the MLC will be matching many transactions for the 
very first time when it processes usage. Nor does it consider that 
the MLC was created precisely to fix the serious problems that arose 
from prior practices in royalty processing, and those problematic 
practices are not the appropriate benchmarks for determining what 
should be best practices for the nationwide blanket license 
administered by the MLC under the new MMA regime.\68\
---------------------------------------------------------------------------

    \68\ Id. at 40-41.

    MLC therefore reiterated support for the proposal it offered in its 
initial comments, which is silent on a reporting deadline.\69\
---------------------------------------------------------------------------

    \69\ Id. at 41.
---------------------------------------------------------------------------

    The Office appreciates the points made by both Music Reports and 
the MLC, and tentatively concludes that the better regulatory approach 
is to ensure the MLC has sufficient flexibility to maximize its 
matching efforts before distributing royalties, subject to the 
commitment to report royalties on a monthly basis. Put another way, the 
proposed rule allows the MLC to determine the pace at which it will 
process monthly reports of use received from DMPs (e.g., whether it 
takes the MLC 10 days or 30 days for its routine matching efforts), but 
not the frequency--once processing and distribution starts, the 
proposed rule requires the MLC to report and pay matched royalties to 
copyright owners every month so that copyright owners can rely on the 
expectation that they will receive regularly-scheduled payments. Given 
the unprecedented project of the blanket license and associated 
transactional challenges, the Office declines at this time to impose a 
further timing requirement for distribution of royalties, and credits 
MLC's description of the material differences between its project and 
pre-blanket processing of matched royalties. The MLC faces both known 
and unknown challenges when it begins administering the blanket 
license, and a strict timing requirement for reporting and distributing 
royalties may compound those challenges.
    The proposed rule takes the same approach for reporting of 
cumulative royalties. The Office notes that, beginning on the license 
availability date, the MLC will receive cumulative usage reports of 
unmatched accrued royalties from DMPs covering as much as two years of 
usage at the same time it must begin processing royalties in the 
ordinary course. As with the regularly matched portion of monthly 
royalty statements, it is expected that the MLC will make timely 
payments of accrued royalties for newly matched musical works, but the 
proposed rule does not otherwise include a timing requirement with 
respect to reporting and paying cumulative royalties after they have 
been identified.
    For both revenue streams, significant nonregulatory incentives are 
also in place to ensure timely distribution of royalties. For one, the 
MLC represented in its designation proposal that it ``intends to 
provide `prompt, complete, and accurate payments to all copyright 
owners.' '' \70\ In addition, because the MLC is governed by the very 
copyright owners that it will be serving,\71\ and because it must 
maintain the support of copyright owners,\72\ it shares their interest 
in prompt reporting and distribution. The Office reserves the right to 
revisit a potential timing obligation in the future, and solicits 
comment on this aspect of the proposed rule.
---------------------------------------------------------------------------

    \70\ 84 FR at 32291.
    \71\ 17 U.S.C. 115(d)(3)(D).
    \72\ Id. at 115(d)(3)(A)(ii).
---------------------------------------------------------------------------

3. Method of Delivery
    The Office proposes that royalty statements be delivered to 
copyright owners electronically by default, with the option to receive 
them by mail by request. Copyright owners benefit from electronic 
statements in several ways, including faster delivery and more robust 
and useable data--data provided in electronic statements can, for 
example, be filtered and analyzed by copyright owners in ways that is 
much more difficult with paper statements. Electronic statements are 
also less costly to generate and distribute then paper statements. The 
Office understands that in some cases, the only reason paper statements 
are still used under current licenses is because of existing 
contractual conditions which are not applicable here. Nevertheless, the 
Office appreciates that a small number of copyright owners may prefer 
paper statements, so the regulations allow that option by request.
    Additionally, as suggested by the DLC, the regulations would allow 
for a copyright owner to request a separate, simplified report or to 
access their statements through an online password-protected 
portal.\73\ These options may be more attractive to some copyright 
owners and would likely reduce printing and postage costs. The Office 
invites comment on these issues.
---------------------------------------------------------------------------

    \73\ DLC Reply at 27 (``The MLC should also be permitted to 
satisfy the requirement for electronic delivery of statements by 
providing an online password protected portal, accompanied by email 
notification of the availability of the statement in the portal.'').
---------------------------------------------------------------------------

4. Content
    The proposed rule specifies the content the MLC is required, at a 
minimum, to provide to copyright owners when reporting royalties. In 
general, the statement will allow copyright owners to see royalties 
accrued for each blanket licensee's offerings for every musical work 
owned by the copyright owner embodied in a sound recording. The 
statement will clearly indicate the usage period when the royalties 
being distributed accrued.\74\ Identifying information for musical 
works and the sound recordings in which they are embodied, if available 
to the MLC, will also be included in the statement.
---------------------------------------------------------------------------

    \74\ See Lowery Reply at 6 (``If the MLC reports do not 
designate which period the payment corresponds to, there will be no 
way for songwriters to know what they are being paid for. This boils 
down to receiving a statement that says, here's some money, or 
worse, no money for you. If there is no explanation of when the 
royalties were earned or last paid on a service-by-service basis, 
there is no way for songwriters to know if any service is 
current.'').
---------------------------------------------------------------------------

    The list proposed by the Office provides for every musical work 
identified as owned by a copyright owner for which there has been 
reported usage, a line-by-line statement of royalties earned by service 
offering and sound recording that embodies the musical work. The 
content is a combination of what the regulations for

[[Page 22555]]

statements of account under the non-blanket license require and a list 
proposed by MLC, and is intended to provide reporting information 
consistent with industry standards.\75\ Where the language of the 
Office's proposed rule departs from the MLC, the departure is not 
intended to be substantive, but rather to conform with existing 
language in title 17 and associated regulatory provisions, as well as 
terminology used in other pending rulemakings regarding content to be 
provided by the DMPs as well as information included in the MLC's 
database.
---------------------------------------------------------------------------

    \75\ The content required to be included in statements of 
account under the non-blanket compulsory license is prescribed in 37 
CFR 210.16(b)-(c).
---------------------------------------------------------------------------

    The initial source of much information reported in statements will 
come from the blanket licensees themselves in the reports of usage that 
they will provide to the MLC every month.\76\ The MMA lists a number of 
types of information required to be included in reports of usage and 
also provides the Register of Copyrights with the authority to require 
additional information by regulation, which the Office is promulgating 
under a separate rulemaking proceeding.\77\ Under the statute, 
information will also be obtained by the MLC through additional 
sources. The MLC itself has an obligation to ``engage in efforts to 
identify the musical works embodied in particular sound recordings, as 
well as to identify and locate the copyright owners of such works (and 
shares thereof), and update such data as appropriate.'' \78\ The MLC 
will also ingest information related to musical works copyright 
ownership, including by ``[a]dminister[ing] a process by which 
copyright owners can claim ownership of musical works (and shares of 
such works).'' \79\ And musical work copyright owners have an 
obligation to ``engage in commercially reasonable efforts to deliver to 
the mechanical licensing collective, including for use in the musical 
works database, to the extent such information is not then available in 
the database, information regarding the names of the sound recordings 
in which that copyright owner's musical works (or shares thereof) are 
embodied, to the extent practicable.'' \80\ This combination of 
information will be used by the MLC to ensure that royalties generated 
by covered activities under the blanket license will be matched to 
their correct copyright owners. The statements that accompany the 
distribution of royalties to copyright owners will communicate this 
information to copyright owners. As reflected in the MLC's proposal and 
incorporated into the proposed rule, it will include identifying 
information for the copyright owner, including any standard identifiers 
associated with the owner, such as an Interested Parties Identification 
(``IPI'') number.\81\ The statement will include information 
identifying the musical work for which royalties are being distributed, 
including any alternative or parenthetical titles for the work known to 
the MLC. It will also include identification of the composers and 
songwriters of the musical work, which one commenter noted was 
essential to ensuring songwriters are properly paid under common 
publishing agreements.\82\
---------------------------------------------------------------------------

    \76\ 17 U.S.C. 115(d)(4)(A)(ii).
    \77\ Id. at 115(d)(4)(A)(ii)(III).
    \78\ Id. at 115(d)(3)(E)(i).
    \79\ Id. at 115(d)(3)(C)(i)(V).
    \80\ Id. at 115(d)(3)(E)(iv).
    \81\ The regulations make clear that certain types of 
information--which are not required by the statute for copyright 
owners to receive royalties they are entitled to under the blanket 
license, such as IPI numbers or International Standard Name 
Identifiers (``ISNI'')--will be reported if provided by a copyright 
owner, but they are not a prerequisite to receiving royalties. Some 
commenters raised concerns about such standard identifiers, which 
independent or self-represented songwriters may not necessarily 
have, becoming de facto requirements for receiving royalties from 
the MLC. See, e.g., North Music Group Reply at 1.
    \82\ North Music Group Ex Parte Letter at 1 (``Major publisher 
deals often include language that allows the publisher to not pay 
the writer if the data within the royalty statement delivered to the 
publisher does not include the writer's name. The MLC must deliver 
the writer's name in statements in order to provide the writer the 
best chance of receiving his/her royalties from the publisher.'').
---------------------------------------------------------------------------

    In addition, the statement will include information about the 
individual sound recordings embodying the musical works, including such 
information as the sound recording name (including, as with musical 
works, any alternative and parenthetical titles), the names of the 
featured artists, and the record label. The proposed rule would also 
require the statement to identify the sound recording copyright owner, 
an item the statute directs DMPs to include in the usage reports sent 
to the MLC \83\ and directs the MLC to include in its musical works 
database.\84\ The Office is separately considering the meaning of the 
term ``sound recording copyright owner'' in rulemakings addressing 
usage reports and the musical works database, and the term will carry 
the same meaning here.\85\ At the same time, the Recording Industry 
Association of America, Inc. (``RIAA'') identified a potential source 
of confusion with the term, given that the legal owner of a sound 
recording copyright is not always the same as the party identified as 
the sound recording copyright owner in royalty metadata currently used 
in the digital music marketplace.\86\ At a minimum, the Office 
recognizes that for musical work copyright owners receiving royalty 
statements, ``sound recording copyright owner'' may not be as important 
to know for recordkeeping purposes as other fields identifying the 
sound recording, such as record label, and the Office seeks comment on 
whether it is necessary to require reporting of sound recording 
copyright owner on royalty statements.
---------------------------------------------------------------------------

    \83\ 17 U.S.C. 115(d)(4)(A)(ii)(I)(aa).
    \84\ Id. at 115(d)(3)(E)(ii).
    \85\ See U.S. Copyright Office, Notice of Proposed Rulemaking, 
Music Modernization Act Notices of License, Notices of Nonblanket 
Activity, Data Collection and Delivery Efforts, and Reports of Usage 
and Payment, Dkt. No. 2020-5, published elsewhere in this issue of 
the Federal Register; U.S. Copyright Office, Notification of 
Inquiry, Transparency of the Mechanical Licensing Collective and Its 
Database of Musical Works Information, Dkt. No. 2020-8, published 
elsewhere in this issue of the Federal Register.
    \86\ RIAA Initial at 2 (``In the digital music space, DMPs are 
required to pay royalties in exchange for access to valuable sound 
recordings. DMPs are instructed to whom to send those royalties via 
a specialized DDEX message known as the ERN (or Electronic Release 
Notification), which includes a field labeled sound recording 
copyright owner (`SRCO'). Importantly, as a matter of business 
custom and practice, the SRCO field is typically populated with 
information about the party that is entitled to receive royalties 
(who may or may not be the actual legal copyright owner), because 
that is the information that is relevant to the business 
relationship between record labels and DMPs. The SRCO data in the 
ERN message is not meant to be used to make legal determinations of 
ownership.''); see also Sony Music & RIAA Ex Parte Letter at 1-2; 
Universal Music Group & RIAA Ex Parte Letter at 2-3.
---------------------------------------------------------------------------

    The proposed rule is not intended to be an exhaustive list of 
everything the MLC will report to copyright owners, but rather set a 
baseline of fields that, at a minimum, will be included in royalty 
statements. The MLC will likely report additional information to 
copyright owners based on standard industry practices or customer 
expectations.\87\ For example, the proposed rule would encourage, but 
not require, the MLC to report additional identifying information for 
sound recordings, including playing time, album title, album artist 
(which may be different than the featured artist of the individual 
sound recording, particularly in the case of compilations or 
soundtracks), record label, distributor, a Universal Product Code (UPC) 
for albums, version number, release date, producer(s), catalog number, 
and any other standard identifiers in the MLC's records. It is the 
Office's understanding that the MLC does intend to report additional 
information, and so the

[[Page 22556]]

proposed rule would provide it some flexibility to be responsive to 
copyright owner needs. If, however, it becomes appropriate for 
regulations to require the reporting of additional fields, either 
through the initial adoption of regulations or through adjustment of an 
interim rule if practical experience demonstrates such an additional 
need, this proposed language could be adjusted.
---------------------------------------------------------------------------

    \87\ See MLC Ex Parte Letter Mar. 24, 2020 (``MLC Ex Parte 
Letter #3'') at 2.
---------------------------------------------------------------------------

    Finally, for each separate service, activity, or offering that is 
reported by blanket licensees to the MLC, royalty information regarding 
the identification of the blanket licensee, the particular service 
where the musical work was used under the blanket license, the royalty 
rate, total usage, and total amount of royalties to be distributed, 
will be provided to copyright owners. In some cases, the actual blanket 
licensee may be an infrastructure provider or ``white label'' service 
that provides all the necessary elements of a digital music provider to 
a consumer-facing service. Such white label services may in fact serve 
multiple consumer-facing services. In such cases, the name of the 
customer-facing service is just as useful (if not more useful) to 
copyright owners, who are likely to be more familiar with those 
services than the underlying licensees.\88\ Thus, the regulations would 
require identification of any trade or consumer-facing brand names of 
such services if they are different from the name of the blanket 
licensee.
---------------------------------------------------------------------------

    \88\ See, e.g., id.
---------------------------------------------------------------------------

    The rule proposes that certain identifying information for musical 
works and sound recordings, such as Interested Parties Information 
(``IPI''), International Standard Work Code (``ISWC''), International 
Standard Recording Code (``ISRC''), and record label, are only required 
to the extent they are known to the MLC, since there may be copyright 
owners and musical works that do not have this information associated 
with them. This threshold--requiring reporting information only ``to 
the extent it is known to the mechanical licensing collective''--is 
intended to ensure the MLC includes such information that it has 
determined is reliable enough to be reported as ``known,'' but does not 
imply any further obligations to seek out such information beyond what 
is already required of it.\89\ This proposed approach is similar to the 
standard articulated in a separate notice of inquiry regarding the 
MLC's public database.\90\ The Office seeks comments on whether ``known 
to the MLC'' is an appropriate standard for triggering an obligation to 
report specific information.
---------------------------------------------------------------------------

    \89\ This proceeding is not intended to create any rules 
regarding when a work is considered ``matched'' as that term is used 
in 17 U.S.C. 115. As noted above, the Office is currently undergoing 
a study on unclaimed royalties, which may provide an avenue for 
members of the public to comment upon that standard in greater 
detail.
    \90\ U.S. Copyright Office, Notification of Inquiry, 
Transparency of the Mechanical Licensing Collective and Its Database 
of Musical Works Information, Dkt. No. 2020-8, published elsewhere 
in this issue of the Federal Register.
---------------------------------------------------------------------------

    The Office invites comments on the proposed information to be 
reported to copyright owners, including whether the rule should require 
any additional information, or conversely, whether certain fields 
should be excluded from the rule, with the MLC retaining discretion to 
include them based on its experiences and judgment.
5. Certification
    Under the non-blanket license, licensees are required to certify to 
the truth of the statements made in monthly statements of account.\91\ 
The MMA is silent on any certification requirement for blanket license 
royalty statements, and the MLC proposal did not require certification 
of royalty statements. Music Reports replied in favor of retaining a 
certification requirement for the MLC royalty statements, saying, 
``[t]he same logic, ethical obligations, and need for accounting rigor 
that apply to monthly, cumulative, and annual statements of account in 
the pre-license availability date period should also apply to such 
statements when they are prepared and rendered to copyright owners by 
the MLC.'' \92\ Music Reports noted in particular that 
``[h]istorically, music rights owners and digital music providers have 
been in contractual privity with one another through the mechanism of 
the compulsory mechanical license.'' \93\ That privity is lost with the 
creation of the blanket license and transfer of blanket license 
functions to the MLC. The MLC disagreed with Music Report's proposal, 
saying certification of usage reports by the DMPs, which is required 
under the statute,\94\ ``should be sufficient.'' \95\ Certification, it 
said, ``is unjustified given that the underlying data is certified by 
the DMPs, and the nonprofit MLC has no financial interest in 
underpayment, and MLC accountings are subject to audit by any copyright 
owner.'' \96\ Additionally, it noted that the requirement ``would be 
unduly burdensome and costly.'' \97\
---------------------------------------------------------------------------

    \91\ 37 CFR 210.16(f).
    \92\ Music Reports Initial at 5.
    \93\ Id.
    \94\ 17 U.S.C. 115 (d)(4)(A)(i) provides that ``[a] digital 
music provider shall report and pay royalties to the mechanical 
licensing collective under the blanket license on a monthly basis in 
accordance with clause (ii) and subsection (c)(2)(I).'' Section 
115(c)(2)(I) in turn requires that reports be made under oath and 
according to regulations prescribing ``the manner of 
certification.''
    \95\ MLC Reply at 39.
    \96\ Id. at 40.
    \97\ Id.
---------------------------------------------------------------------------

    While the requirement that DMPs certify the statements made in 
their usage reports to the MLC will provide a measure of quality 
control for much of the information that eventually flows to copyright 
owners, the Office tentatively concludes that it may not provide 
sufficient safeguards for copyright owners. The MLC is required to 
engage in additional processing of the statements made in usage reports 
when it receives them, including ``identify[ing] the musical works 
embodied in sound recordings reflected in such reports, and the 
copyright owners of such musical works (and shares thereof) . . . 
confirm[ing] uses of musical works subject to voluntary licenses and 
individual download licenses, and the corresponding pro rata amounts to 
be deducted from royalties that would otherwise be due under the 
blanket license[,] and confirm[ing] proper payment of royalties due.'' 
\98\ Certification by the MLC may thus help ensure the accuracy of this 
additional accounting done by the MLC before distributing royalties. 
While the MMA provides copyright owners with the right to audit the MLC 
to verify the accuracy of royalty payments, this new audit right does 
not ameliorate the value of certification.\99\ As one commenter noted, 
audits are limited to no more than one a year for any individual 
copyright owner and may be costly and lengthy.\100\
---------------------------------------------------------------------------

    \98\ 17 U.S.C. 115(d)(3)(G)(i)(I).
    \99\ Id. at 115(d)(3)(L).
    \100\ See, e.g., Lowery Reply at 7 (``Auditing years after the 
fact is not going to get it done . . . . The audit language is 
simply not fit for purpose in a world of trillions of individual 
transactions rather than hundreds of millions of CDs.'').
---------------------------------------------------------------------------

    The proposed rule would require the MLC to certify monthly royalty 
statements under the blanket license the same way monthly statements of 
account must be currently certified by non-blanket licensees using the 
compulsory license. This requirement would provide copyright owners 
with the same level of certification by the processor of their 
royalties that they enjoy under the existing non-blanket license. The 
Office recognizes this will add an additional process step upon the 
MLC. To address that concern, the Office is proposing a minimum 
threshold of royalties due that triggers the certification requirement. 
Under the proposed rule, only statements where the total royalties to 
be distributed

[[Page 22557]]

during the period covered by the statement exceed $100 are required to 
be certified by the MLC. The Office seeks comment on this proposal.
6. Payment Thresholds
    Under the proposed rule, the MLC will be required to provide 
copyright owners with a statement for every period in which there is 
activity relevant to the distribution of royalties under the blanket 
license. To promote efficiency, royalties will not be considered 
payable to copyright owners until the total royalties collected equal 
at least one cent.
    Separately, the DLC commented that it would be inefficient to send 
``tens of thousands of penny checks'' and suggested setting a default 
royalty payment threshold of $25.\101\ The current regulations for 
monthly statements of account under the non-blanket license allow a 
compulsory licensee to defer the payment date for royalties until the 
cumulative unpaid royalties exceed $5.\102\ The Office set the 
threshold at $5 after a proposal to set it at $50.\103\ The Office 
concluded that although it lacked express statutory authority to set a 
threshold, it could create one through its ``inherent authority to 
allow the withholding of amounts it determines are de minimis.'' \104\ 
It determined that a threshold of $5 was permitted under that 
standard.\105\
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    \101\ DLC Reply at 27.
    \102\ 37 CFR 210.16(g)(6).
    \103\ 79 FR at 56198.
    \104\ Id.
    \105\ Id. at 56198-99.
---------------------------------------------------------------------------

    In light of the additional general rulemaking authority delegated 
to the Register of Copyrights under section 115(d)(12)(A), it appears 
that the Office would not be similarly constrained in establishing a 
minimum threshold for royalty payments and can set a threshold higher 
than $5. Indeed, it may be appropriate to provide for different 
thresholds depending on the payment method, given that there are 
different costs associated with processing payments by direct deposit, 
physical check, or wire transfer, and such tiered structures are 
standard in comparable distributions. At this point, there are 
insufficient data regarding how much it will cost the MLC to process 
payments, but existing thresholds within the market provide a useful 
starting point. For example, SoundExchange has a minimum payment 
threshold of $10 for electronic payments and $100 for paper 
checks.\106\ For ASCAP, the minimum thresholds are set at $1 and $100, 
respectively; \107\ for BMI, the thresholds are $2 and $100.\108\ Based 
on these benchmarks, the Office proposes establishing a minimum payment 
threshold of $5 for direct deposit, $100 for paper checks, and $250 for 
wire transfer. In any case, the copyright owner would retain the 
ability under the regulations to request payment for accrued royalties 
that fall below the threshold set by the MLC. The Office seeks comment 
on this threshold, including whether amounts proposed are appropriate.
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    \106\ SoundExchange, General FAQs, https://www.soundexchange.com/about/general-faqs/ (last visited Apr. 2, 
2020).
    \107\ ASCAP, Performance Periods and Payment Methods, https://www.ascap.com/help/royalties-and-payment/payment/payment (last 
visited Apr. 2, 2020).
    \108\ BMI, How We Pay Royalties, https://www.bmi.com/creators/royalty/general_information (last visited Apr. 2, 2020).
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7. Annual Royalty Statement
    At this time, the Office is not proposing including a requirement 
for annual royalty statements. Although section 115 requires non-
blanket licensees to provide an annual statement of account to 
copyright owners, there is a key difference in how adjustments to 
royalties distributed in prior reporting periods are proposed to be 
reported under the blanket license. Under the non-blanket license, 
licensees are required to serve an amended annual statement of account 
when royalties are adjusted.\109\ Under the blanket license, to 
facilitate timely payment of royalties to copyright owners, the 
proposed rule would provide for adjustments to be reported to copyright 
owners with their regular monthly statements, as the MLC receives and 
processes reports of adjustments from the DMPs.\110\ Thus, the proposed 
rule ensures copyright owners continue to receive the same information 
under the blanket license they expect under the non-blanket license, 
just in a different type of statement. In fact, since the Office is 
proposing that adjustments be reported by DMPs to the MLC and 
subsequently, from the MLC to copyright owners, in a more frequent 
manner than once a year, the Office hopes that adjustments will be made 
and any additional royalties paid out more quickly under the blanket 
license than under the non-blanket license.
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    \109\ 37 CFR 210.17(d)(2)(iii).
    \110\ The Office is proposing that DMPs report adjustments on a 
monthly basis in a separate, concurrent rulemaking. See U.S. 
Copyright Office, Notice of Proposed Rulemaking, Music Modernization 
Act Notices of License, Notices of Nonblanket Activity, Data 
Collection and Delivery Efforts, and Reports of Usage and Payment, 
Dkt. No. 2020-5, published elsewhere in this issue of the Federal 
Register.
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    As with the type of information this rule requires the MLC to 
report to copyright owners, this rule establishes only minimum 
reporting obligations. The MLC may choose to provide copyright owners 
with annual statements if it sees a value in doing so. The rule is 
silent on the requirement to preserve maximum flexibility to the MLC 
for providing statements beyond what the Office has identified as 
required to ensure transparency and accountability. The Office seeks 
comment on this proposal.
8. Disclosures; Education and Outreach
    Under the MMA, the MLC is required to engage in certain outreach 
and educational efforts, including, ``engag[ing] in diligent, good-
faith efforts to publicize, throughout the music industry--the 
existence of the collective and the ability to claim unclaimed accrued 
royalties for unmatched musical works (and shares of such works) held 
by the collective; the procedures by which copyright owners may 
identify themselves and provide contact, ownership, and other relevant 
information to the collective in order to receive payments of accrued 
royalties; any transfer of accrued royalties for musical works under 
paragraph (10)(B), not later than 180 days after the date on which the 
transfer is received; and any pending distribution of unclaimed accrued 
royalties and accrued interest, not less than 90 days before the date 
on which the distribution is made.'' \111\ Royalty statements provide a 
valuable avenue for communicating with copyright owners. The Office is 
not proposing any specific disclosures, but encourages the MLC to use 
royalty statements as part of its educational and outreach obligations 
under the statute.
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    \111\ 17 U.S.C. 115(d)(3)(J)(iii)(II).
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III. Subjects of Inquiry

    Before promulgating a final rule, the Copyright Office seeks 
additional public comment on all aspects of the proposed rule, 
including the specific subjects below:
    1. Should the regulations require distribution and reporting of 
royalties to occur within a specified time period?
    2. Should the rule establish electronic delivery of statements by 
default, with the option to request paper statements?
    3. Is ``known to the MLC'' an appropriate standard for triggering 
an obligation to report information that the MLC is not expected to 
have for all

[[Page 22558]]

musical works, sound recordings, and/or copyright owners?
    4. Is there any additional content that should be reported to 
copyright owners, or, conversely, is there any content proposed to be 
reported that is unnecessary to require by regulation?
    5. Are the minimum payment thresholds ($2 for direct deposit, $100 
for paper checks, and $250 for wire transfer) for distribution of 
royalties appropriate?
    6. Should the mechanical licensing collective be required to send 
annual statements in addition to monthly royalty statements?

List of Subjects in 37 CFR Part 210

    Copyright, Phonorecords, Recordings.

Proposed Regulations

    For the reasons set forth in the preamble, the Copyright Office 
proposes amending 37 CFR part 210 as follows:

PART 210--COMPULSORY LICENSE FOR MAKING AND DISTRIBUTING PHYSICAL 
AND DIGITAL PHONORECORDS OF NONDRAMATIC MUSICAL WORKS

0
1. The authority citation for part 210 continues to read as follows:

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

Subpart B--Blanket Compulsory License for Digital Uses, Mechanical 
Licensing Collective, and Digital Licensee Coordinator

0
 2. Add Sec.  210.29 to read as follows:


Sec.  210.29  Reporting and distribution of royalties to copyright 
owners by the mechanical licensing collective.

    (a) General. This section prescribes reporting obligations of the 
mechanical licensing collective to copyright owners for the 
distribution of royalties for musical works, licensed under the blanket 
license for digital uses prescribed in 17 U.S.C. 115(d)(1), that have 
been matched, either through the processing by the mechanical licensing 
collective upon receipt of a report of usage and royalty payment from a 
digital music provider, or during the holding period for unmatched 
works as defined in 17 U.S.C. 115(d)(3)(H)(i).
    (b) Distribution of royalties and royalty statements. (1) Royalty 
distributions shall be made on a monthly basis and shall include:
    (i) All royalties to a copyright owner for a musical work matched 
in the ordinary course under 17 U.S.C. 115(d)(3)(G)(i)(II) for the 
month next preceding;
    (ii) All accrued royalties for any particular musical work that has 
been matched in the month next preceding and a proportionate amount of 
accrued interest associated with that work; and
    (iii) Any overpayment or underpayment of royalties in prior periods 
based on adjustments to reports of usage by digital music providers.
    (2) Royalty distributions shall be accompanied by a royalty 
statement containing the information set forth in paragraph (c) of this 
section.
    (c) Content--(1) General content of royalty statements. 
Accompanying the distribution of royalties to a copyright owner, the 
mechanical licensing collective shall provide to the copyright owner a 
statement that includes, at a minimum, the following information:
    (i) The period (month and year) covered by the statement.
    (ii) The name and address of the mechanical licensing collective.
    (iii) The name and mechanical licensing collective identification 
number of the copyright owner.
    (iv) ISNI and IPI name and identification number of the copyright 
owner, to the extent it has been provided to the mechanical licensing 
collective by a copyright owner.
    (v) The name and mechanical licensing collective identification 
number of the copyright owner's administrator (if applicable), to the 
extent one has been provided to the mechanical licensing collective by 
a copyright owner.
    (vi) ISNI and IPI of the copyright owner's administrator, to the 
extent one has been provided to the mechanical licensing collective by 
a copyright owner, songwriter, or administrator.
    (vii) Payment information, such as check number, ACH 
identification, or wire transfer number.
    (viii) The total royalty payable to the relevant copyright owner 
for the month covered by the royalty statement.
    (2) Musical work information. For each matched musical work owned 
by the copyright owner for which accompanying royalties are being 
distributed to that copyright owner, the mechanical licensing 
collective shall report the following information:
    (i) The musical work name, including primary and any alternative 
and parenthetical titles for the musical work known to the mechanical 
licensing collective.
    (ii) ISWC for the musical work, to the extent it is known to the 
mechanical licensing collective.
    (iii) The mechanical licensing collective identification number of 
the musical work.
    (iv) The administrator's unique identifier for the musical work, to 
the extent one has been provided to the mechanical licensing collective 
by a copyright owner or its administrator.
    (v) The name(s) of the songwriter(s), to the extent they are known 
to the mechanical licensing collective.
    (vi) ISNI(s) and IPI(s) of each songwriter, to the extent either is 
known to the mechanical licensing collective.
    (vii) The percentage share of musical work owned or controlled by 
the copyright owner.
    (viii) For each sound recording embodying the musical work, the 
identifying information enumerated in paragraph (c)(3) of this section 
and the royalty information enumerated in paragraph (c)(4) of this 
section.
    (3) Sound recording information. For each sound recording embodying 
a musical work included in a royalty statement, the mechanical 
licensing collective shall report the following information:
    (i) The sound recording name(s), including primary and all known 
alternative and parenthetical titles for the sound recording.
    (ii) The featured artist(s).
    (iii) The record label name(s), to the extent it is known to the 
mechanical licensing collective.
    (iv) ISRC, to the extent it is known to the mechanical licensing 
collective.
    (v) The sound recording copyright owner(s).
    (vi) The MLC is encouraged to include other information commonly 
used in the industry to identify sound recordings, such as 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:
    (A) Playing time.
    (B) Album title(s) or product name(s).
    (C) Album or product featured artist(s), if different from sound 
recording featured artist(s).
    (D) Distributor(s).
    (4) Royalty information. The mechanical licensing collective shall 
separately report, for each service, offering, or activity reported by 
a blanket licensee, the following royalty information for each sound 
recording embodying a musical work included in a royalty statement:
    (i) The name of the blanket licensee and, if different, the trade 
or consumer-facing brand name(s) of the service(s), including any 
specific offering(s), through which the blanket licensee engages in 
covered activities.
    (ii) The service tier or service description.
    (iii) The use type (download or stream).
    (iv) The number of payable units, including, as applicable, 
permanent

[[Page 22559]]

downloads, plays, and constructive plays.
    (v) The royalty rate and amount.
    (vi) The interest amount.
    (vii) The distribution amount.
    (d) Cumulative statements of account, and adjustments. (1) For 
royalties reported under paragraph (b)(1)(ii) of this section, the 
mechanical licensing collective shall provide a cumulative statement of 
account that includes, in addition to the information in paragraph (c) 
of this section, a clear identification of the total period covered and 
the total royalty payable for the period.
    (2) For adjustments reported under paragraph (b)(1)(iii) of this 
section, the mechanical licensing collective shall clearly indicate the 
original reporting period of the royalties being adjusted.
    (e) Delivery of royalty statements. Royalty statements may be 
delivered electronically or, upon written request of the copyright 
owner, by mail. Nothing in this section shall prevent the mechanical 
licensing collective from alternatively providing, upon written request 
of the copyright owner:
    (1) A separate, simplified report containing fewer data fields that 
may be more understandable for the copyright owner; or
    (2) Access to statements through an online password protected 
portal, accompanied by email notification of the availability of the 
statement in the portal.
    (f) Clear statements. The information required by paragraph (c) of 
this section requires intelligible, legible, and unambiguous statements 
in the royalty statements without incorporation of facts or information 
contained in other documents or records.
    (g) Certification. (1) Each royalty statement in which the total 
royalty payable to the relevant copyright owner for the month covered 
is equal to or greater than $100 shall be accompanied by:
    (i) The name of the person who is signing and certifying the 
statement.
    (ii) A signature of a duly authorized officer of the mechanical 
licensing collective.
    (iii) The date of signature and certification.
    (iv) The title or official position held by the person who is 
signing and certifying the statement.
    (v) One of the following statements:
    (A) Statement one:

    I certify that (1) I am duly authorized to sign this royalty 
statement on behalf of the mechanical licensing collective; (2) I 
have examined this royalty statement; 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; or

    (B) Statement two:

    This statement was prepared by the Mechanical Licensing 
Collective 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 blanket licensee'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.

    (h) Delivery. (1) Subject to paragraph (h)(2) of this section, a 
separate royalty statement shall be provided for each month during 
which there is any activity relevant to the distribution of royalties 
under the blanket license.
    (2) Royalties under the blanket license shall not be considered 
payable, and no royalty statement shall be required, until the 
cumulative unpaid royalties collected for the copyright owner equal at 
least one cent. Moreover, in any case in which the cumulative unpaid 
royalties under the blanket license that would otherwise be distributed 
by the mechanical licensing collective to the copyright owner are less 
than $2 if the copyright owner receives payment by direct deposit, $100 
if the copyright owner receives payment by physical check, or $250 if 
the copyright owner receives payment by wire transfer and the copyright 
owner has not notified the mechanical licensing collective in writing 
that it wishes to receive royalty statements reflecting payments of 
less than the threshold, the mechanical licensing collective may choose 
to defer the payment date for such royalties and provide no royalty 
statements until the earlier of the time for rendering the royalty 
statement for the month in which the unpaid royalties under the blanket 
license for the copyright owner exceed the threshold, at which time the 
mechanical licensing collective may provide one statement and payment 
covering the entire period for which royalty payments were deferred.
    (3) If the mechanical licensing collective is required, under 
applicable tax law and regulations, to make backup withholding from its 
payments required hereunder, the mechanical licensing collective shall 
indicate the amount of such withholding on the royalty statement or on 
or with the distribution.

    Dated: April 15, 2020.
Regan A. Smith,
General Counsel and Associate Register of Copyrights.

[FR Doc. 2020-08375 Filed 4-17-20; 4:15 pm]
 BILLING CODE 1410-30-P