[Federal Register Volume 87, Number 205 (Tuesday, October 25, 2022)]
[Proposed Rules]
[Pages 64405-64412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23204]


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LIBRARY OF CONGRESS

U.S. Copyright Office

37 CFR Part 210

[Docket No. 2022-5]


Termination Rights and the Music Modernization Act's Blanket 
License

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 applicability of the derivative works 
exception to termination rights under the Copyright Act to the new 
statutory mechanical blanket license established by the Music 
Modernization Act. The Office invites public comments on this proposed 
rule.

DATES: Written comments must be received no later than 11:59 p.m. 
Eastern Time on November 25, 2022. Written reply comments must be 
received no later than 11:59 p.m. Eastern Time on December 27, 2022.

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

FOR FURTHER INFORMATION CONTACT: Megan Efthimiadis, Assistant to the 
General Counsel, by email at [email protected] or telephone at 202-
707-8350.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Orrin G. Hatch-Bob Goodlatte Music Modernization Act (the 
``MMA'') substantially modified the compulsory ``mechanical'' license 
for reproducing and distributing phonorecords of nondramatic musical 
works under 17 U.S.C. 115.\1\ It did so by switching from a song-by-
song licensing system to a blanket licensing regime that became 
available on January 1, 2021 (the ``license availability date''),\2\

[[Page 64406]]

administered by a mechanical licensing collective (the ``MLC'') 
designated by the Copyright Office (the ``Office'').\3\ Digital music 
providers (``DMPs'') are able to obtain this new statutory mechanical 
blanket license (the ``blanket license'') to make digital phonorecord 
deliveries of nondramatic musical works, including in the form of 
permanent downloads, limited downloads, or interactive streams 
(referred to in the statute as ``covered activity'' where such activity 
qualifies for a blanket license), subject to various requirements, 
including reporting obligations.\4\ DMPs also have the option to engage 
in these activities, in whole or in part, through voluntary licenses 
with copyright owners.
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    \1\ Public Law 115-264, 132 Stat. 3676 (2018).
    \2\ 17 U.S.C. 115(e)(15).
    \3\ As permitted under the MMA, the Office also designated a 
digital licensee coordinator (the ``DLC'') to represent licensees in 
proceedings before the Copyright Royalty Judges (the ``CRJs'') and 
the Office, to serve as a non-voting member of the MLC, and to carry 
out other functions. 84 FR 32274 (July 8, 2019).
    \4\ 17 U.S.C. 115(d).
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    The MMA did not address or amend the Copyright Act's rules 
governing termination or derivative works. The Copyright Act permits 
authors or their heirs, under certain circumstances and within certain 
windows of time, to terminate the exclusive or nonexclusive grant of a 
transfer or license of an author's copyright in a work or of any right 
under a copyright.\5\ The statute, however, contains an exception with 
respect to ``derivative works.'' A derivative work is ``a work based 
upon one or more preexisting works, such as a . . . musical 
arrangement, . . . sound recording, . . . or any other form in which a 
work may be recast, transformed, or adapted.'' \6\ The derivative works 
exception (the ``Exception'') states that ``[a] derivative work 
prepared under authority of the grant before its termination may 
continue to be utilized under the terms of the grant after its 
termination, but this privilege does not extend to the preparation 
after the termination of other derivative works based upon the 
copyrighted work covered by the terminated grant.'' \7\ The Second 
Circuit observed that:
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    \5\ Id. at 203, 304(c).
    \6\ Id. at 101. A derivative work does not need to be the same 
type of work as the original work. For example, a movie is 
frequently a derivative work of a novel. If someone were to make a 
derivative work from a musical work, the new work could be another 
musical work, a sound recording, or other type of work (e.g., a 
music video).
    \7\ Id. at 203(b)(1), 304(c)(6)(A).

    [The] Exception reflects Congress's judgment that the owner of a 
derivative work should be allowed to continue to use the derivative 
work after termination, both to encourage investment by derivative 
work proprietors and to assure that the public retains access to the 
derivative work. Without the Exception, the creator of a derivative 
work (and, indeed, the public at large) could be held hostage to the 
potentially exorbitant demands of the owner of the copyright in the 
underlying work.\8\
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    \8\ Fred Ahlert Music Corp. v. Warner/Chappell Music, Inc., 155 
F.3d 17, 22 (2d Cir. 1998) (internal quotation marks and citations 
omitted).

    A question has arisen regarding the application of the Exception in 
the context of the blanket license when a songwriter exercises her 
right to terminate her agreement with a music publisher. Because the 
statute is silent on this issue and no court has addressed it, the 
Office is engaging in a rulemaking to ensure that there is a full 
airing of the issue and development of the relevant facts. The Office 
is undertaking this rulemaking to provide definitive guidance regarding 
the appropriate application of the Exception to the blanket license and 
to direct the MLC to distribute royalties consistent with the Office's 
guidance.

II. Procedural Background

    On September 17, 2020, as a part of its work to implement the MMA, 
the Office issued an interim rule adopting regulations concerning 
reporting requirements under the blanket license (the ``September 2020 
Rule'').\9\ During proceedings to promulgate the September 2020 
Rule,\10\ the MLC submitted comments and a regulatory proposal directly 
implicating the Exception. The MLC proposed to require DMPs to report 
the date on which each sound recording is first reproduced by the DMP 
on its server. The MLC reasoned that, as a result of the new blanket 
licensing system, the server fixation date is ``required to determine 
which rights owner is to be paid where one or more grants pursuant to 
which a musical work was reproduced in a sound recording has been 
terminated pursuant to Section 203 or 304 of the [Copyright] Act.'' 
\11\
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    \9\ 85 FR 58114 (Sept. 17, 2020).
    \10\ That proceeding involved multiple rounds of public comments 
through a notification of inquiry (NOI), 84 FR 49966 (Sept. 24, 
2019), a notice of proposed rulemaking (NPRM), 85 FR 22518 (Apr. 22, 
2020), and an ex parte communications process. Guidelines for ex 
parte communications, along with records of such communications, 
including those referenced herein, are available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. All rulemaking activity, including public 
comments, as well as educational material regarding the MMA, can 
currently be accessed via navigation from https://www.copyright.gov/music-modernization. References to public comments are by party name 
(abbreviated where appropriate), followed by ``NOI Initial 
Comments,'' ``NOI Reply Comments,'' ``NPRM Comments'' or ``Ex Parte 
Letter,'' as appropriate.
    \11\ MLC NOI Reply Comments at 19; see also MLC NOI Initial 
Comments at 20; MLC Ex Parte Letter at 6-7 (Feb. 26, 2020); MLC Ex 
Parte Letter at 6-7 (Apr. 3, 2020).
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    As the MLC explained it, ``because the sound recording is a 
derivative work, it may continue to be exploited pursuant to the 
`panoply of contractual obligations that governed pre-termination uses 
of derivative works by derivative work owners or their licensees.' '' 
\12\ The MLC took the position that the new blanket license can be part 
of this ``panoply,'' and therefore, if the blanket license ``was issued 
before the termination date, the pre-termination owner is paid. 
Otherwise, the post-termination owner is paid.'' \13\ The MLC further 
explained that ``under the prior NOI regime, the license date for each 
particular musical work was considered to be the date of the NOI for 
that work,'' but ``[u]nder the new blanket license, there is no license 
date for each individual work.'' \14\ The MLC believed that ``the date 
that the work was fixed on the DMP's server--which is the initial 
reproduction of the work under the blanket license--is the most 
accurate date for the beginning of the license for that work.'' \15\
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    \12\ MLC NOI Reply Comments at 19 (quoting Woods v. Bourne Co., 
60 F.3d 978, 987 (2d Cir. 1995)); see also MLC Ex Parte Letter at 6-
7 (Feb. 26, 2020); MLC Ex Parte Letter at 6-7 (Apr. 3, 2020). The 
``panoply'' concept is discussed in greater detail below.
    \13\ See MLC Ex Parte Letter at 6-7 (Feb. 26, 2020); MLC Ex 
Parte Letter at 6-7 (Apr. 3, 2020).
    \14\ MLC Ex Parte Letter at 6-7 (Apr. 3, 2020). In this context, 
``NOI'' is referring to notices of intention to obtain a statutory 
mechanical license under section 115. Under the pre-MMA song-by-song 
statutory licensing regime, DMPs needed to serve an NOI on a 
copyright owner (or file one with the Office, in certain situations) 
to obtain a statutory mechanical license for a musical work. See 37 
CFR 201.18 (2017).
    \15\ MLC Ex Parte Letter at 6-7 (Feb. 26, 2020).
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    The MLC's proposal attracted significant attention from groups 
representing songwriter interests, who were concerned with protecting 
termination rights and ensuring that those rights were not adversely 
affected by anything in the rulemaking proceeding or any action taken 
by the MLC.\16\ For example, the Recording Academy voiced concerns that 
the MLC's proposal ``would diminish termination rights'' and urged that 
the ``rulemaking should not imply or assume that a terminated party

[[Page 64407]]

necessarily continues to benefit from the blanket license after 
termination.'' \17\ Songwriters of North America (``SONA'') and Music 
Artists Coalition (``MAC'') jointly expressed ``serious reservations 
about [the MLC's] approach, which would seemingly redefine and could 
adversely impact songwriters' termination rights.'' \18\ The Office 
shared those concerns and sought to account for them in its September 
2020 Rule.
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    \16\ See, e.g., SONA & MAC NPRM Comments at 8-12; Recording 
Academy NPRM Comments at 3; MAC Ex Parte Letter (June 26, 2020); 
Recording Academy Ex Parte Letter (June 26, 2020); Songwriters Guild 
of America Ex Parte Letter (June 26, 2020); SONA Ex Parte Letter 
(June 26, 2020); Nashville Songwriters Association International Ex 
Parte Letter (June 26, 2020).
    \17\ Recording Academy Ex Parte Letter at 2 (June 26, 2020).
    \18\ SONA & MAC NPRM Comments at 8-11.
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    There, the Office adopted reporting requirements for DMPs, 
including the sound recording's ``server fixation date,'' ``street 
date,'' and ``estimated first distribution date.'' \19\ However, the 
Office explained that it was requiring DMPs to provide such information 
to the MLC because the record suggested that the transition to the 
blanket license represented a significant change to the status quo that 
may eliminate certain dates, such as NOI dates, that may have 
historically been used in post-termination activities, such as the 
renegotiation and execution of new agreements between the relevant 
parties to continue their relationship on new terms.\20\ The Office 
further made clear that it was not adopting or endorsing a specific 
proxy for a grant date with respect to termination.\21\ As the Office 
explained, ``[t]he purpose of this rule is to aid retention of certain 
information that commenters [including groups representing songwriter 
interests] have signaled may be useful in facilitating post-termination 
activities, such as via inclusion in letters of direction to the MLC, 
that may not otherwise be available when the time comes if not kept by 
the DMPs.'' \22\
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    \19\ 37 CFR 210.27(m)(3) and (4); see 85 FR 58134-35.
    \20\ 85 FR 58133.
    \21\ Id. at 58134.
    \22\ Id. at 58133-34.
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    In adopting the September 2020 Rule, the Office did not expressly 
address the question of how the blanket license interacts with the 
statutory termination provisions. There was no need to offer the 
Office's interpretation because that particular proceeding was focused 
on DMP reporting requirements rather than termination issues. The 
Office stressed that it was not making any substantive judgment about 
the proper interpretation of the termination provisions, the Exception, 
or their application to section 115. Nor was the Office opining on how 
the Exception, if applicable, may operate in the context of the blanket 
license, including with respect to what information may or may not be 
appropriate to reference in determining who is entitled to royalty 
payments.\23\
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    \23\ Id. at 58132.
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    At the same time, the Office cautioned the MLC that it was not 
convinced of the need for a default process for handling termination 
matters.\24\ Rather, the Office agreed with other commenters that ``it 
seems reasonable for the MLC to act in accordance with letters of 
direction received from the relevant parties, or else hold applicable 
royalties pending direction or resolution of any dispute by the 
parties.'' \25\ The Office explained that having a default method of 
administration for terminated works in the normal course ``might stray 
the MLC from its acknowledged province into establishing what would 
essentially be a new industry standard based on an approach that others 
argue is legally erroneous and harmful to songwriters.'' \26\ 
Additionally, as requested by several commenters representing 
songwriter interests, the Office adopted express limiting language in 
the regulations to make clear that nothing in the related DMP reporting 
requirements should be interpreted or construed as affecting 
termination rights in any way or as determinative of the date of the 
relevant license grant.\27\
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    \24\ Id.
    \25\ Id.
    \26\ Id. (further explaining that the information that may be 
relevant in administering termination rights may not be the same as 
what the MLC may be able to most readily obtain and operationalize); 
see id. at 58133 (observing that ``while the MLC does not see its 
function as enforcing termination rights or otherwise resolving 
disputes over terminations or copyright ownership, stating 
repeatedly that it takes no position on what the law should be and 
that it is not seeking to change the law, its position on the 
proposed rule may unintentionally be in tension with its stated 
goals,'' and concluding that ``it does not seem prudent to 
incentivize the MLC to make substantive decisions about an unsettled 
area of the law on a default basis'').
    \27\ See 37 CFR 210.27(m)(5); 85 FR 58132.
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    In 2021, the MLC adopted a dispute policy concerning termination 
that does not follow the Office's rulemaking guidance. Instead, its 
policy established a default method for determining the recipient of 
post-termination royalties in the ordinary course where there is no 
resolution via litigation or voluntary agreement.\28\ Declining to heed 
the Office's warning, the MLC's policy assumes that the Exception 
applies to the blanket license and uses various proxy dates to 
determine who to pay under the blanket license.\29\ In meetings with 
the Office, the MLC described its policy as a middle ground and 
explained that the policy was intended, in part, to avoid circumstances 
where parties' disputes could cause blanket license royalty payments to 
be held, pending resolution of the dispute, to the disadvantage of both 
songwriters and publishers. The Office appreciates the MLC's interest 
in advancing the overarching goal of ensuring prompt and uninterrupted 
royalty payments. But, having reviewed the MLC's policy, the Office is 
concerned that it conflicts with the MMA, which requires that the MLC's 
dispute policies ``shall not affect any legal or equitable rights or 
remedies available to any copyright owner or songwriter concerning 
ownership of, and entitlement to royalties for, a musical work.'' \30\
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    \28\ See The MLC, Notice and Dispute Policy: Statutory 
Terminations (Sept. 2021, revised Aug. 2022), https://www.themlc.com/dispute-policy.
    \29\ Id. at Ex. A.
    \30\ See 17 U.S.C. 115(d)(3)(K)(iii); see also Recording Academy 
Ex Parte Letter at 1-2 (June 26, 2020) (``Despite stating repeatedly 
that the MLC has no interest in altering, changing, or diminishing 
the termination rights of songwriters, it was clearly conveyed that 
one of the primary reasons for seeking this data is to determine the 
appropriate payee for the use of a musical work that is the subject 
of a termination. The Academy's view is that using the data in this 
way would diminish termination rights.'').
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    Because the MLC's policy embodies a legal interpretation of the 
Exception that conflicts with the Office's prior guidance, it is 
necessary to revisit the termination issue more directly and to 
squarely resolve the unsettled question of how termination law 
intersects with the blanket license. Specifically, the Office seeks to 
provide clarity concerning the application of the Exception to the 
blanket license. Doing so would provide much needed business certainty 
to music publishers and songwriters. It would enable the MLC to 
appropriately operationalize the distribution of post-termination 
royalties in accordance with existing law. Moreover, without the 
uniformity in application that a regulatory approach brings, the Office 
is concerned that the MLC's ability to distribute post-termination 
royalties efficiently would be negatively impacted. The Office 
appreciates that the MLC ``welcomes guidance from the Office on the 
interpretation of the law [of termination]'' \31\ and hopes this 
proceeding will resolve the uncertainty surrounding this issue.
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    \31\ MLC Ex Parte Letter at 2 (June 26, 2020).
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III. The Copyright Office's Regulatory Authority

    The Office believes that it is properly within its authority under 
the MMA and section 702 of the Copyright Act to resolve this unsettled 
question of law. To carry out the MMA's new blanket licensing regime, 
Congress invested the Office with ``broad regulatory

[[Page 64408]]

authority'' \32\ to ``conduct such proceedings and adopt such 
regulations as may be necessary or appropriate to effectuate the 
provisions of [the MMA pertaining to the blanket license].'' \33\ The 
Office is to exercise this authority ``in a manner that balances the 
need to protect the public's interest with the need to let the [MLC] 
operate without over-regulation.'' \34\ As Congress anticipated, 
``[a]lthough the legislation provides specific criteria for the [MLC] 
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 judgment in determining the appropriate steps in those 
situations.'' \35\
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    \32\ H.R. Rep. No. 115-651, at 5-6 (2018); S. Rep. No. 115-339, 
at 5 (2018); Report and Section-by-Section Analysis of H.R. 1551 by 
the Chairmen and Ranking Members of Senate and House Judiciary 
Committees, at 4 (2018), https://www.copyright.gov/legislation/mma_conference_report.pdf (``Conf. Rep.'').
    \33\ 17 U.S.C. 115(d)(12)(A).
    \34\ H.R. Rep. No. 115-651, at 14; S. Rep. No. 115-339, at 15; 
Conf. Rep. at 12.
    \35\ H.R. Rep. No. 115-651, at 14; S. Rep. No. 115-339, at 15; 
Conf. Rep. at 12; see Long Island Care at Home, Ltd. v. Coke, 551 
U.S. 158, 165 (2007) (``We have previously pointed out that the 
power of an administrative agency to administer a congressionally 
created . . . program necessarily requires the formulation of policy 
and the making of rules to fill any gap left, implicitly or 
explicitly, by Congress.'') (quotations omitted) (quoting Chevron, 
U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 
(1984)); Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 
545 U.S. 967, 980 (2005) (discussing an agency's congressionally 
delegated authority and stating that ``ambiguities in statutes 
within an agency's jurisdiction to administer are delegations of 
authority to the agency to fill the statutory gap in reasonable 
fashion'').
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    Under the MMA, the MLC is to adopt (and has adopted) various 
policies and procedures in connection with its administration of the 
blanket license. Congress ``expected that such policies and procedures 
will be thoroughly reviewed by the Register to ensure the fair 
treatment of interested parties in such proceedings given the high bar 
in seeking redress'' under the MLC's limitation on liability contained 
in section 115(d)(11)(D).\36\ In entrusting the Office with express 
authority to fill statutory gaps in connection with the blanket 
license, Congress recognized that ``[t]he Copyright Office has the 
knowledge and expertise regarding music licensing through its past 
rulemakings and . . . assistance . . . during the drafting of [the 
MMA].'' \37\
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    \36\ H.R. Rep. No. 115-651, at 5-6; S. Rep. No. 115-339, at 5; 
Conf. Rep. at 4.
    \37\ H.R. Rep. No. 115-651, at 14; S. Rep. No. 115-339, at 15; 
Conf. Rep. at 12.
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    While this proposed rule is primarily focused on termination 
issues, this rulemaking ultimately reflects the Office's oversight and 
governance of the MLC's reporting and payment obligations to copyright 
owners. The Office has previously promulgated regulations regarding the 
MLC's reporting and distribution of royalties to copyright owners.\38\ 
In doing so, the Office observed that ``[t]he accurate distribution of 
royalties under the blanket license to copyright owners is a core 
objective of the MLC'' and concluded that ``it is consistent with the 
larger goals of the MMA to prescribe specific royalty reporting and 
distribution requirements through regulation[ and] that the Register of 
Copyrights has the authority to promulgate these rules under the 
general rulemaking authority in the MMA.'' \39\
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    \38\ 37 CFR 210.29; see 85 FR 58160 (Sept. 17, 2020); 85 FR 
22549 (Apr. 22, 2020).
    \39\ 85 FR 22550-52 (``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.'').
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    Beyond the MMA, the Office also has relevant authority under 
section 702 of the Copyright Act to ``establish regulations not 
inconsistent with law for the administration of the functions and 
duties made the responsibility of the Register under [title 17].'' \40\ 
Courts have concluded that the Office has both authority to ``issue 
regulations necessary to administer the Copyright Act'' and ``interpret 
the Copyright Act,'' and its interpretations of the Copyright Act have 
been granted deference.\41\ The Office's authority to interpret title 
17 in the context of statutory licenses in particular has long been 
recognized and courts routinely defer to the Office's 
interpretations.\42\
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    \40\ 17 U.S.C. 702.
    \41\ Motion Picture Ass'n of Am., Inc. v. Oman, 750 F. Supp. 3, 
6 (D.D.C. 1990) (``The Copyright Office has authority to interpret 
the Copyright Act, and its interpretations of the act are due 
deference.''), aff'd, 969 F.2d 1154 (D.C. Cir. 1992); see 
SoundExchange, Inc. v. Muzak, LLC, 854 F.3d 713, 718-19 (D.C. Cir. 
2017) (``[S]ince we have held that a Register's opinion is entitled 
to deference under Chevron, it is conceivable that should this exact 
issue come up during a rate proceeding, the Register might 
legitimately differ with us.'') (citations omitted).
    \42\ See, e.g., Bonneville Int'l Corp. v. Peters, 347 F.3d 485, 
490 (3d Cir. 2003) (deferring to the Office's interpretation of the 
section 114 sound recording license); Fox Tel. Stations, Inc. v. 
Aereokiller, LLC, 851 F.3d 1002, 1012-15 (9th Cir. 2017) (deferring 
to the Office's interpretation of the section 111 cable license); 
WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 283-84 (2d Cir. 2012), cert. 
denied, 568 U.S. 1245 (2013) (same); Satellite Broad. & Commc'ns 
Ass'n of Am. v. Oman, 17 F.3d 344, 345, 347-48 (11th Cir. 1994), 
cert. denied, 513 U.S. 823 (1994) (same and stating that 
``[a]lthough the new regulations conflict with our interpretation . 
. . , they are neither arbitrary, capricious, nor in conflict with 
the clear meaning of the statute'' and ``[t]hey are therefore valid 
exercises of the Copyright Office's statutory authority to interpret 
the provisions of the compulsory licensing scheme, and are binding 
on this circuit''); Cablevision Sys. Dev. Co. v. Motion Picture 
Ass'n of Am., Inc., 836 F.2d 599, 602, 607-12 (D.C. Cir. 1988), 
cert. denied, 487 U.S. 1235 (1988) (deferring to the Office's 
interpretation of the section 111 cable license and stating that 
``[t]he Copyright Office certainly has greater expertise in such 
matters than do the federal courts'').
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IV. Legal Background

A. The Copyright Act's Termination Provisions

    The current termination provisions were adopted as part of the 
Copyright Act of 1976 and grew out of frustration with the prior law's 
attempted protections against inadequate author remuneration. Those 
earlier provisions provided that, after an initial twenty-eight-year 
copyright term, the copyright in a work could be extended by the author 
or their heirs for a renewal term, if they complied with certain 
formalities.\43\ As the Office had noted, these earlier provisions 
``largely failed to accomplish the purpose of protecting authors and 
their heirs against improvident transfers, and has been the source of 
much confusion and litigation.'' \44\ This was, in part, because it was 
``a common practice for publishers and others to take advance 
assignments of future renewal rights'' at the time of the original 
license.\45\
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    \43\ 17 U.S.C. 24 (1975).
    \44\ Copyright Law Revision, Report of the Register of 
Copyrights on the General Revision of the U.S. Copyright Law 92 
(Comm. Print 1961), https://www.copyright.gov/history/1961_registers_report.pdf.
    \45\ Id. at 53.
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    The aim of the revisions made by the 1976 Copyright Act ``was to 
protect authors against unremunerative transfers and to get rid of the 
complexity, awkwardness, and unfairness of the renewal provision.'' 
\46\ In particular, Congress sought to address problems stemming from 
``the unequal bargaining position of authors and from the impossibility 
of determining a work's value until it has been exploited.'' \47\ The 
current termination

[[Page 64409]]

provisions that resulted were the subject of much debate prior to their 
enactment.\48\ When adopting the new provisions, Congress explained 
that the termination provisions ``reflect[ ] a practical compromise 
that will further the objectives of the copyright law while recognizing 
the problems and legitimate needs of all interests involved.'' \49\ The 
Supreme Court would later comment on Congress's purpose in creating a 
termination right, stating:
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    \46\ U.S. Copyright Office, General Guide to the Copyright Act 
of 1976, ch. 6:1 (1977), https://www.copyright.gov/reports/guide-to-copyright.pdf.
    \47\ Id.; see H.R. Rep. No. 94-1476, at 124 (1976) (``The 
provisions of section 203 are based on the premise that the 
reversionary provisions of the present section on copyright renewal 
. . . should be eliminated, and that the proposed law should 
substitute for them a provision safeguarding authors against 
unremunerative transfers. A provision of this sort is needed because 
of the unequal bargaining position of authors, resulting in part 
from the impossibility of determining a work's value until it has 
been exploited.''); id. at 140 (``The arguments for granting rights 
of termination are even more persuasive under section 304 than they 
are under section 203; the extended term represents a completely new 
property right, and there are strong reasons for giving the author, 
who is the fundamental beneficiary of copyright under the 
Constitution, an opportunity to share in it.'').
    \48\ U.S. Copyright Office, General Guide to the Copyright Act 
of 1976, ch. 6:1 (1977), https://www.copyright.gov/reports/guide-to-copyright.pdf (``It is generally acknowledged that during the early 
stages of the revision effort, `the most explosive and difficult 
issue' concerned a provision for protecting authors against unfair 
copyright transfers.''); U.S. Copyright Office, Second Supplementary 
Report of the Register of Copyrights on the General Revision of the 
U.S. Copyright Law, ch. XI, at 10 (1975) (explaining that ``[t]he 
subject is inherently complex, and the bargaining over individual 
provisions was very hard indeed,'' and that ``[t]he result is an 
extremely intricate and difficult provision'').
    \49\ H.R. Rep. No. 94-1476, at 124.

    [T]he concept of a termination right itself, [was] obviously 
intended to make the rewards for the creativity of authors more 
substantial. More particularly, the termination right was expressly 
intended to relieve authors of the consequences of ill-advised and 
unremunerative grants that had been made before the author had a 
fair opportunity to appreciate the true value of his work product. 
That general purpose is plainly defined in the legislative history 
and, indeed, is fairly inferable from the text of [the statute] 
itself.\50\
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    \50\ Mills Music, Inc. v. Snyder, 469 U.S. 153, 172-73 (1985).
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B. Application of the Exception by the Courts

    While the application of the Exception can often be straight-
forward (e.g., ``a film made from a play could continue to be licensed 
for performance after the motion picture contract had been terminated 
but any remake rights covered by the contract would be cut off'' \51\), 
there are instances where the Exception's operation is less clear. Few 
courts have addressed the Exception and, to the Office's knowledge, no 
court has dealt directly with the application of the Exception to a 
statutory license either before or after the passage of the MMA. 
Instead, the cases address the termination of voluntary licenses.
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    \51\ H.R. Rep. No. 94-1476, at 127.
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    The most notable case addressing the Exception is the 1985 decision 
by the Supreme Court in Mills Music, Inc. v. Snyder.\52\ In this case, 
a songwriter (Snyder) had assigned his copyright in a musical work to a 
publisher (Mills Music) and the publisher, pursuant to that grant, had 
then issued voluntary mechanical licenses to record companies. The 
sound recordings embodying the musical work prepared by the record 
companies pursuant to these mechanical licenses were the relevant 
derivative works. The songwriter's heirs timely terminated his grant to 
the publisher. In a 5-4 decision, the divided Court found that, under 
its interpretation of the Exception, the publisher was entitled to 
continue receiving royalties from the record companies under the 
voluntary mechanical licenses even after the songwriter's heirs 
terminated the underlying assignment with the publisher. The Court 
concluded that Congress did not intend for the Exception only to apply 
where there is a single direct grant (e.g., from songwriter to 
publisher) and not to apply where there is a chain of successive grants 
(e.g., from songwriter to publisher to record company). Rather, the 
Court reasoned that, where a derivative work had been prepared, the 
statute should be read ``to preserve the total contractual 
relationship.'' \53\
---------------------------------------------------------------------------

    \52\ 469 U.S. 153 (1985).
    \53\ Id. at 163-64, 169.
---------------------------------------------------------------------------

    The Court elaborated that, with respect to the particular facts in 
the case, defining the relevant ``terms of the grant'' as ``the entire 
set of documents that created and defined each licensee's right to 
prepare and distribute derivative works'' meant preserving not only the 
record companies' right to prepare and distribute the derivative works, 
but also their corresponding duty to pay the publisher any due 
royalties and the publisher's duty to pay the songwriter's heirs any 
due royalties.\54\ The Court surmised that if the underlying assignment 
from the songwriter to the publisher is not included as part of the 
relevant ``terms of the grant'' preserved under the Exception, then 
there would be no contractual or statutory obligation on the publisher 
or record companies to pay the songwriter's heirs any royalties.\55\ 
The Court also explained that the Exception is defined by both the 
terms of the grant and when the derivative work was prepared.\56\
---------------------------------------------------------------------------

    \54\ Id. at 166-69.
    \55\ Id. (``[A]lthough the termination has caused the ownership 
of the copyright to revert to the [songwriter's heirs], nothing in 
the statute gives them any right to acquire any contractual rights 
that the Exception preserves. The [songwriter's heirs'] status as 
owner of the copyright gives them no right to collect royalties by 
virtue of the Exception from users of previously authorized 
derivative works . . . . [T]he licensees . . . have no direct 
contractual obligation to the new owner of the copyright. The 
licensees are merely contractually obligated to make payments of 
royalties under terms upon which they have agreed. The statutory 
transfer of ownership of the copyright cannot fairly be regarded as 
a statutory assignment of contractual rights.'').
    \56\ Id. at 164 (``[T]he boundaries of that Exception are 
defined by reference to the scope of the privilege that had been 
authorized under the terminated grant and by reference to the time 
the derivative works were prepared.'').
---------------------------------------------------------------------------

    The Mills Music dissent would not have interpreted the Exception to 
permit the publisher to continue to benefit from the terminated grant 
(i.e., continuing to collect its share of the royalties due from the 
record companies under their licenses with the publisher).\57\ The 
dissent reasoned that the Copyright Act's termination right 
``encompasses not only termination of the grant of copyright itself, 
but also termination of the grant of `any right under' that 
copyright,'' which in this case, included the right ``to share in 
royalties paid by [the record company] licensees.'' \58\
---------------------------------------------------------------------------

    \57\ Id. at 178 (White, J., dissenting).
    \58\ Id. at 178-79 (White, J., dissenting) (citing 17 U.S.C. 
304(c)).
---------------------------------------------------------------------------

    In support of its conclusion, the dissent noted, among other 
points, that the majority's analysis of the Exception was inconsistent 
with the statutory mechanical license, observing that statutory 
mechanical license royalties are ``payable to the current owner of the 
copyright,'' who ``[i]n this case, as all agree, . . . are the 
[songwriter's heirs].'' \59\ The majority opinion responded to this 
critique by explaining that no statutory license was at issue in the 
case.\60\ It is noteworthy in connection with the current rulemaking 
that the majority did not disagree with the dissent's reasoning as it 
applies to the statutory mechanical license.\61\ In discussing such 
licenses, the majority calls them ``self-executing'' and distinguishes 
them from the voluntary mechanical licenses at issue in the case.\62\
---------------------------------------------------------------------------

    \59\ Mills Music, 469 U.S. at 185 n.12 (White, J., dissenting) 
(citing 17 U.S.C. 115(c)(1) (1985)).
    \60\ Mills Music, 469 U.S. at 168 n.36.
    \61\ The majority expressly agrees that ``the termination has 
caused the ownership of the copyright to revert to the [songwriter's 
heirs].'' Id. at 167-68. With respect to the implication for a 
section 115 license, the majority merely says that the dissent is 
``incorrect because it seems to assume that the case involves self-
executing compulsory licenses.'' Id. at 168 n.36.
    \62\ Id.
---------------------------------------------------------------------------

    In reviewing the Copyright Act's termination provisions and Mills 
Music, the Nimmer copyright treatise agrees with the Court that because 
the statutory mechanical license ``is executed by operation of law,'' 
rather than ``by the consent of the author or his successors,'' it is 
``not subject to termination.'' \63\ Nimmer observes that because a 
songwriter who terminates an

[[Page 64410]]

assignment to a publisher becomes the ``copyright owner'' of the 
musical work and the publisher's copyright ownership ``would cease'' at 
the point of termination, statutory mechanical license royalties would 
then ``be payable solely to'' the terminating songwriter.\64\ 
Goldstein's treatise takes a similar view.\65\
---------------------------------------------------------------------------

    \63\ Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright 
sec. 11.02 n.121 (2022).
    \64\ Id. (citing Mills Music, 469 U.S. at 168 n.36; id. at 185 
n.12 (White, J., dissenting)).
    \65\ Paul Goldstein, Goldstein on Copyright sec. 5.4.1.1.a (3d 
ed. 2022) (``The requirement that, to be terminable, a grant must 
have been `executed' implies that compulsory licenses, such as 
section 115's compulsory license for making and distributing 
phonorecords of nondramatic musical works, are not subject to 
termination.'').
---------------------------------------------------------------------------

    In a subsequent appellate case, Woods v. Bourne Co., the Second 
Circuit stated that ``[t]he effect of Mills Music, then, is to preserve 
during the post-termination period the panoply of contractual 
obligations that governed pre-termination uses of derivative works by 
derivative work owners or their licensees.'' \66\ Woods involved a more 
complicated series of agreements, but as with Mills Music, the 
preparation of the derivative work began with a grant in a musical work 
from a songwriter to a publisher that was terminated by the 
songwriter's heirs. The court ultimately found that the publisher was 
entitled to continue to receive a share of royalties from post-
termination performances of the musical work embodied within pre-
termination audiovisual derivative works that were prepared pursuant to 
synchronization licenses issued by the publisher. The court explained 
that ``[u]nder our reading of Mills Music, the `terms of the grant' 
include the provisions of the grants from [the publisher] to ASCAP and 
from ASCAP to television stations. This pair of licenses is 
contemplated in the grant of the synch licenses from [the publisher] to 
film and television producers,'' the terms of which ``required the 
television stations performing the audiovisual works to obtain a second 
grant from either [the publisher] or ASCAP, licensing the stations to 
perform the Song contained in the audiovisual works.'' \67\
---------------------------------------------------------------------------

    \66\ Woods v. Bourne Co., 60 F.3d 978, 987 (2d Cir. 1995) 
(``Mills Music appears to require that where multiple levels of 
licenses govern use of a derivative work, the `terms of the grant' 
encompass the original grant from author to publisher and each 
subsequent grant necessary to enable the particular use at 
issue.'').
    \67\ Id. at 987-88. Another Second Circuit case emphasized the 
importance of the actual terms of the grant. Fred Ahlert Music 
Corp., 155 F.3d at 24-25 (concluding that where the co-authors of a 
musical work had made a grant to a publisher and the publisher, 
pursuant to that grant, authorized a record company to prepare a 
sound recording derivative of the musical work and release it as 
``Record No. SP 4182,'' the inclusion of the recording in a film 
soundtrack and soundtrack album were not covered by the Exception 
because the terms of the grant from the publisher to the record 
company did not authorize additional releases or inclusion in a film 
soundtrack, even if the grant from the songwriters to the publisher 
may have).
---------------------------------------------------------------------------

V. Analysis

A. The Exception Does Not Apply in the Context of the Blanket License

    1. The Blanket License Cannot Be Terminated Under Section 203 or 
304 of the Copyright Act
    To be subject to termination, a grant must be executed by the 
author or the author's heirs.\68\ The blanket license, however, is not 
executed by the author or the author's heirs. As a type of statutory 
license, the blanket license is ``self-executing,'' such that it cannot 
be terminated.\69\ If a blanket license cannot be terminated, then it 
cannot be subject to an exception to termination; the license simply 
continues in effect according to its terms.\70\
---------------------------------------------------------------------------

    \68\ 17 U.S.C. 203(a) (``executed by the author''), 304(c) 
(``executed . . . by any of the persons designated by subsection 
(a)(1)(C) of this section'').
    \69\ Mills Music, 469 U.S. at 168 n.36; see Melville B. Nimmer & 
David Nimmer, 3 Nimmer on Copyright sec. 11.02 n.121 (2022); Paul 
Goldstein, Goldstein on Copyright sec. 5.4.1.1.a (3d ed. 2022).
    \70\ Although the blanket license cannot be terminated, as 
discussed below, that does not mean that entitlement to royalties is 
fixed. It travels with ownership of the copyright.
---------------------------------------------------------------------------

    The plain language of the statute is in accord. The Exception 
refers to ``the grant before its termination,'' ``the grant after its 
termination,'' and ``the terminated grant.'' \71\ Thus, the ``grant'' 
referenced in the statute is a terminated grant. Because the blanket 
license cannot be terminated, it cannot be the terminated ``grant'' 
referenced in the text to which the Exception applies.
---------------------------------------------------------------------------

    \71\ 17 U.S.C. 203(b)(1), 304(c)(6)(A).
---------------------------------------------------------------------------

2. No Derivative Work Is Generally Prepared Pursuant to the Blanket 
License
    Section 115's blanket licensing regime is premised on the 
assumption that DMPs are not preparing derivative works pursuant to 
their blanket licenses. Instead, the statute envisions that DMPs 
operating under the blanket license are obtaining and licensing sound 
recording derivatives \72\ from record companies or other sound 
recording licensors.\73\ In this standard situation, DMPs would 
generally have two distinct sets of licenses: one to use the sound 
recordings offered through their service and another to use the 
underlying musical works.
---------------------------------------------------------------------------

    \72\ Some sound recordings of musical works may not even 
necessarily be derivative works within the meaning of the Copyright 
Act. For example, where preparation of the musical work and sound 
recording are concurrent, the musical work is not a ``preexisting 
work[ ]'' that the sound recording is ``based upon.'' See 17 U.S.C. 
101.
    \73\ See, e.g., 17 U.S.C. 115(a)(1)(A)(ii)(II) (in describing 
one of the eligibility criteria, stating that ``the sound recording 
copyright owner, or the authorized distributor of the sound 
recording copyright owner, has authorized the digital music provider 
to make and distribute digital phonorecord deliveries of the sound 
recording''); id. at 115(d)(4)(A)(ii)(I)(bb) (requiring DMPs to 
report certain information ``to the extent acquired by the digital 
music provider in the metadata provided by sound recording copyright 
owners or other licensors of sound recordings''); id. at 
115(d)(4)(B) (requiring DMPs to ``engage in good-faith, commercially 
reasonable efforts to obtain from sound recording copyright owners 
and other licensors of sound recordings'' certain information).
---------------------------------------------------------------------------

    If no derivative work is prepared ``under authority of the grant,'' 
then the Exception cannot apply. Proponents of the Exception's 
application to the blanket license might argue that the blanket license 
should be construed as being included within a so-called ``panoply'' of 
grants pursuant to which a pre-termination derivative work of the 
musical work was prepared. However, the only panoply to which the 
blanket license could theoretically belong would be the grant (or chain 
of successive grants) emanating from the songwriter and extending to 
the record company (or other person) who prepared the sound recording 
derivative licensed to the DMP.
    It is the Office's view that where no sound recording derivative is 
prepared pursuant to a DMP's blanket license, that blanket license is 
not part of any preserved grants that make the Exception applicable. 
The Exception, as interpreted by Mills Music, should not be read as 
freezing other grants related to, but outside of, the direct chain of 
successive grants providing authority to utilize the sound recording 
derivative, such as the musical work licenses obtained by DMPs.
    First, any changes in, or even the loss of, a DMP's musical work 
licenses post-termination should not have any direct effect on a record 
company's authorization to continue utilizing a sound recording 
derivative under the terms of the preserved chain of pre-termination 
sound recording-related grants. While such a change or loss could 
affect a DMP's ability to utilize the sound recording--because it 
cannot make use of sound recording derivatives without the relevant 
musical work licenses--there does not appear to be any indication that 
the Exception is meant to preserve a DMP's ability to do so.\74\
---------------------------------------------------------------------------

    \74\ See Mills Music, 469 U.S. at 173 (``The purpose of the 
Exception was to `preserve the right of the owner of a derivative 
work to exploit it, notwithstanding the reversion.'' ') (quoting 
Copyright Law Revision Part 4: Further Discussions and Comments on 
Preliminary Draft for Revised U.S. Copyright Law, 88th Cong., 2d 
Sess., at 39 (H. Judiciary Comm. Print 1964) (statement of Barbara 
A. Ringer, U.S. Copyright Office)) (emphasis added).

---------------------------------------------------------------------------

[[Page 64411]]

    Second, if the grants authorizing utilization of a sound recording 
derivative are separately preserved, then the major concern in Mills 
Music, regarding the continuity of contractual royalty obligations, is 
not present. Under the terms of the preserved chain of sound recording-
related grants, a publisher would still be entitled to continue to be 
compensated by a record company and a songwriter would still be 
entitled to continue to then be compensated by the publisher for the 
record company's post-termination uses of a sound recording derivative. 
A DMP's musical work licenses would not need to be preserved to keep 
these sound recording-related contractual obligations intact post-
termination.
    Last, the Exception's language does not support the inclusion of a 
DMP's musical work licenses within a panoply of preserved sound 
recording-related grants where the DMP is not the derivative work 
preparer. As noted above, the word ``grant'' is used three times in the 
Exception and, according to the Supreme Court, all three references 
should be given a ``consistent meaning.'' \75\ While some might contend 
that the third reference, to ``the terminated grant,'' could refer to 
at least some types of DMP musical work licenses (e.g., a direct grant 
from a songwriter to the DMP), the other two references cannot.
---------------------------------------------------------------------------

    \75\ See Mills Music, 469 U.S. at 164-66. For reference, the 
Exception reads as follows: ``A derivative work prepared under 
authority of the grant before its termination may continue to be 
utilized under the terms of the grant after its termination, but 
this privilege does not extend to the preparation after the 
termination of other derivative works based upon the copyrighted 
work covered by the terminated grant.'' 17 U.S.C. 203(b)(1), 
304(c)(6)(A) (emphasis added).
---------------------------------------------------------------------------

    The Exception's first use of ``grant'' is to a ``derivative work 
prepared under authority of the grant.'' Here, the relevant derivative 
work triggering the Exception (i.e., the sound recording) was not 
prepared pursuant to any authority under the DMP's musical work 
licenses (in contrast to the direct chain of sound recording-related 
grants that did authorize the sound recording's preparation). Thus, the 
first use of ``grant'' cannot be referring to the DMP's musical work 
licenses pursuant to which no derivative work was prepared. The second 
use, permitting the continued utilization of the derivative work 
``under the terms of the grant,'' also cannot refer to a DMP's musical 
work licenses for the same reason.\76\
---------------------------------------------------------------------------

    \76\ If a DMP actually did prepare a derivative work pursuant to 
the authority of a blanket license, so that the above analysis is 
inapplicable, the Exception still would not apply. As discussed in 
the previous section, a blanket license cannot be terminated; it 
simply continues in effect under its terms. Practically, however, 
the continued effect of a blanket license in this context is that 
the ability of the DMP to continue utilizing the relevant derivative 
work that it prepared remains preserved.
---------------------------------------------------------------------------

3. Applying the Exception to the Blanket License Would Lead to an 
Extreme Result
    Finally, the Office has an additional significant concern with the 
application of the Exception to the blanket license. If it applies, 
then it is not clear why it would only apply to the payee, as the MLC's 
prior rulemaking comments seem to suggest. In Mills Music, the Court 
emphasized that the statute ``refers to `the terms of the grant'--not 
to some of the terms of the grant.'' \77\ Consequently, the Office 
believes that if the Exception applies, then it must apply to all of 
the blanket license's terms. This would be extremely far reaching, as 
it would freeze in time everything from DMP reporting requirements and 
MLC royalty statement requirements to the rates and terms of royalty 
payments for using the license set by the CRJs. Any post-termination 
changes made by Congress to section 115 (without also abrogating the 
effect of the Exception) or by the Office or CRJs to related 
regulations would seem to be a nullity with respect to an applicable 
work, for DMPs, the MLC, copyright owners, and songwriters alike. It is 
improbable that Congress intended such an extreme result sub silentio. 
Such a construction of the Exception would also be directly at odds 
with Congress's clearly expressed intent for the CRJs to be empowered 
to adjust the rates and terms of the blanket license every five 
years.\78\ Moreover, as a practical matter, the Office is concerned 
about how the MLC could effectively administer a license that may need 
to be treated differently for each one of millions of works across 
nearly 50 different DMPs.
---------------------------------------------------------------------------

    \77\ Mills Music, 469 U.S. at 167 n.35.
    \78\ See 17 U.S.C. 115(c)(1)(E)-(F), 804(b)(4); see also id. at 
803(c)(4) (providing the CRJs with continuing jurisdiction to 
``issue an amendment to a written determination'' under certain 
circumstances).
---------------------------------------------------------------------------

B. Even if the Exception Applies to the Blanket License, a Terminated 
Publisher Is Not Entitled to Post-Termination Blanket License Royalties

    Mills Music makes clear that what matters most under the Exception 
are ``[t]he `terms of the grant' as existing at the time of 
termination.'' \79\ Here, the terms of the blanket license are the 
applicable text of section 115 and related regulations, which simply 
refer to paying the ``copyright owner,'' \80\ who can change over 
time.\81\ Thus, whenever a change is effectuated, whether via a 
contractual assignment or by operation of a statutory termination, the 
new owner becomes the proper payee entitled to royalties under the 
blanket license.\82\ It is not clear why the statute or the case law 
should be read as making one particular copyright owner the permanent 
recipient because it happened to be the owner immediately before 
termination occurred. Such a construction of the Exception would read 
something into the terms of the blanket license that is not present: 
the identification of a specific named individual or entity to be 
paid.\83\
---------------------------------------------------------------------------

    \79\ Mills Music, 469 U.S. at 174, 177.
    \80\ See, e.g., 17 U.S.C. 115(d)(3)(G)(i)(I)-(III), (d)(3)(I).
    \81\ Id. at 201(d)(1) (``The ownership of a copyright may be 
transferred in whole or in part by any means of conveyance or by 
operation of law.'').
    \82\ See Mills Music, 469 U.S. at 185 n.12 (White, J., 
dissenting); Melville B. Nimmer & David Nimmer, 3 Nimmer on 
Copyright sec. 11.02 n.121 (2022).
    \83\ See Mills Music, 469 U.S. at 169 (``The contractual 
obligation to pay royalties survives the termination and identifies 
the parties to whom the payment must be made.'').
---------------------------------------------------------------------------

VI. Proposed Rule

    The Office believes that the statute is ambiguous, as it does not 
directly speak to how the Exception operates in connection with the 
blanket license. It is not always clear from the plain meaning of the 
text which grants fall into the Exception, as demonstrated by divisions 
on the Supreme Court in Mills Music.\84\ Additionally, the 
significantly different nature of DMP blanket licenses, as compared to 
the record company voluntary licenses at issue in Mills Music, raises 
questions about how both the Exception and Mills Music's interpretation 
should apply.
---------------------------------------------------------------------------

    \84\ Id. at 180-85 (White, J., dissenting) (stating that 
Congress ``phrased the statutory language . . . ambiguously'').
---------------------------------------------------------------------------

    Based on the foregoing analysis of the statute, Congress's intent, 
and the above-discussed authorities, the Office concludes that the 
MLC's termination dispute policy is inconsistent with the law. Whether 
or not the Exception applies to a DMP's blanket license (and the Office 
concludes that the Exception does not), the statute entitles the 
current copyright owner to the royalties under the blanket license, 
whether pre- or post-termination. In other words, the post-termination 
copyright owner (i.e., the author, the author's heirs, or their 
successors, such as a subsequent publisher grantee) is due the post-
termination royalties paid by the DMP to the MLC. Consequently, the 
Office is proposing a rule to clarify the

[[Page 64412]]

appropriate payee under the blanket license to whom the MLC must 
distribute royalties following a statutory termination.
    The Office proposes a rule with two parts. The first part would 
make clear that the copyright owner of the musical work as of the end 
of the monthly reporting period is the one who is entitled to the 
royalties and any other related amounts (e.g., interest), including any 
subsequent adjustments, for the uses of the work during that period. 
The proposal provides that by ``uses,'' the Office means the covered 
activities engaged in by DMPs under blanket licenses as reported to the 
MLC. The proposed rule would also caveat that entitlement to royalties 
is subject to section 115(d)(3)(J), which requires the MLC, under 
certain circumstances, to make market-share-based distributions of 
unclaimed royalties for which the copyright owners are unknown.
    The Office believes that the appropriate moment in time when a 
copyright owner becomes entitled to royalties is when the use of the 
relevant musical work by a DMP under a blanket license occurs.\85\ In 
line with the monthly reporting scheme set up by the MMA and the 
Office's regulations, and in an effort to make the rule reasonably 
administrable for the MLC, the Office proposes using the last day of 
the relevant monthly reporting period instead of requiring the MLC to 
manage day-to-day ownership changes occurring mid-month. The Office 
seeks comments on this proposed approach, including whether some other 
point in time might be appropriate.
---------------------------------------------------------------------------

    \85\ See 17 U.S.C. 115(c)(1)(C) (providing that payable 
royalties are for ``every digital phonorecord delivery of a musical 
work made''). Cf. id. at 501(b) (``The legal or beneficial owner of 
an exclusive right under a copyright is entitled . . . to institute 
an action for any infringement of that particular right committed 
while he or she is the owner of it.'') (emphasis added).
---------------------------------------------------------------------------

    To avoid any doubt, the proposed rule would also explicitly provide 
that the Exception does not apply to blanket licenses. It would also 
provide that no one may claim that by virtue of the Exception they are 
the copyright owner of a musical work used pursuant to a blanket 
license.
    The second part of the proposed rule would require the MLC to 
distribute royalties in accordance with the Office's legal conclusions 
under the first part. The proposal includes an exception when the MLC 
is directed in writing to distribute the royalties in some other manner 
by the copyright owner identified under the first part or by the mutual 
written agreement of the parties to an ownership dispute. Letters of 
direction are commonly used in the music industry and the Office 
believes the proposed rule should accommodate such arrangements. More 
specifically, the Office appreciates and understands the MLC's interest 
in avoiding circumstances where the existence of a dispute causes 
songwriters' income streams to be interrupted. Under the proposed rule, 
the Office believes that it would be appropriate for the MLC to 
implement a policy that allows blanket license royalties to continue to 
be paid to an existing claimant (including a pre-termination copyright 
owner), despite the presence of an ownership dispute, if the parties to 
the dispute jointly submit a mutually agreed-to letter of direction 
requesting the continued payment subject to subsequent adjustment upon 
resolution of the dispute.
    Because the MLC's termination dispute policy is contrary to the 
Office's interpretation of current law, the proposed rule would require 
the MLC to immediately repeal its policy in full. If the issue 
surrounding the Exception is resolved, it is not clear to the Office at 
this time why the MLC would need a separate dispute policy specifically 
for handling terminations that is different from its policy for other 
ownership disputes. The proposed rule would then also require the MLC 
to adjust any royalties distributed under the policy, or distributed in 
a similar manner if not technically distributed pursuant to the policy, 
within 90 days. The Office proposes this adjustment to make copyright 
owners whole for any distributions the MLC made based on an erroneous 
understanding and application of current law.

List of Subjects in 37 CFR Part 210

    Copyright, Phonorecords, Recordings.

Proposed Regulations

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

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

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

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

0
2. Amend Sec.  210.29 by adding paragraph (b)(4) to read as follows:


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

* * * * *
    (b) * * *
    (4)(i) Subject to 17 U.S.C. 115(d)(3)(J), the copyright owner of a 
musical work (or share thereof) as of the last day of a monthly 
reporting period in which such musical work is used pursuant to a 
blanket license is entitled to all royalty payments and other 
distributable amounts (e.g., accrued interest), including any 
subsequent adjustments, for the uses of that musical work occurring 
during that monthly reporting period. As used in the previous sentence, 
the term uses means all covered activities engaged in under blanket 
licenses as reported by blanket licensees to the mechanical licensing 
collective. The derivative works exception contained in 17 U.S.C. 
203(b)(1) and 304(c)(6)(A) does not apply to any blanket license and no 
individual or entity may be construed as the copyright owner of a 
musical work (or share thereof) used pursuant to a blanket license 
based on such exception.
    (ii) The mechanical licensing collective shall not distribute 
royalties in a manner inconsistent with paragraph (b)(4)(i) of this 
section, unless directed to do so in writing by the copyright owner 
identified in paragraph (b)(4)(i) of this section or by the mutual 
written agreement of the parties to an ownership dispute. The 
mechanical licensing collective shall immediately repeal its ``Notice 
and Dispute Policy: Statutory Terminations.'' No later than [90 DAYS 
AFTER DATE OF PUBLICATION OF THE FINAL RULE], the mechanical licensing 
collective shall adjust all royalties and other amounts distributed 
pursuant to that policy or in a similar manner so as to be consistent 
with paragraph (b)(4)(i) of this section.
* * * * *

    Dated: October 19, 2022.
Suzanne V. Wilson,
General Counsel and Associate Register of Copyrights.
[FR Doc. 2022-23204 Filed 10-24-22; 8:45 am]
BILLING CODE 1410-30-P