[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