[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Rules and Regulations]
[Pages 6630-6632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02118]
=======================================================================
-----------------------------------------------------------------------
LIBRARY OF CONGRESS
U.S. Copyright Office
37 CFR Part 210
[Docket No. 2020-5]
Music Modernization Act Notices of License, Notices of Nonblanket
Activity, Data Collection and Delivery Efforts, and Reports of Usage
and Payment
AGENCY: U.S. Copyright Office, Library of Congress.
ACTION: Supplemental interim rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Copyright Office is issuing a supplemental interim
rule relating to certain reporting and payment requirements of digital
music providers and related duties of the mechanical licensing
collective under the Music Modernization Act. The amendment extends a
previously adopted transition period pending further rulemaking by the
Office regarding reports of adjustment. Based on the imminent
expiration of the existing transition period and recent public comments
requesting further proceedings on the subject of adjustments, the
Office has determined that there is a legitimate need to make this
amendment, effective immediately.
DATES: Effective February 1, 2023.
FOR FURTHER INFORMATION CONTACT: Rhea Efthimiadis, Assistant to the
General Counsel, by email at [email protected] or telephone at 202-
707-8350.
SUPPLEMENTARY INFORMATION:
I. Background
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\
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 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
from copyright owners.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
A. The Office's September 2020 and May 2022 Rules
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'').\5\ As relevant here, those interim regulations included
requirements governing annual reporting and the ability to make
adjustments to monthly and annual reports and related royalty payments,
including to correct errors and replace estimated inputs with finally
determined figures.\6\
---------------------------------------------------------------------------
\5\ 85 FR 58114 (Sept. 17, 2020).
\6\ 37 CFR 210.27(f), (g)(3) and (4), (k).
---------------------------------------------------------------------------
After enactment of the September 2020 Rule, the Office received a
request from the DLC to modify it, prompted by operational and
compliance concerns. After carefully evaluating the DLC's request and
the then-existing rulemaking record, the Office decided to make various
amendments through a supplemental interim rule and request for comments
issued on May 24, 2022 (the ``May 2022 Rule'').\7\ The May 2022 Rule
provided extensive background on requirements relating to monthly
reports of usage, annual reports of usage (``AROUs''), and reports of
adjustment (``ROAs''), including with respect to timing, invoices, and
response files.\8\ The Office assumes familiarity with both the
September 2020 Rule and May 2022 Rule and their detailed explanations
of these issues.\9\
---------------------------------------------------------------------------
\7\ 87 FR 31422, 31424-27 (May 24, 2022).
\8\ Id. at 31422-23.
\9\ To date, this proceeding has involved multiple rounds of
public comments through a notification of inquiry, 84 FR 49966
(Sept. 24, 2019), a notice of proposed rulemaking, 85 FR 22518 (Apr.
22, 2020), and an ex parte communications process. In addition to
the September 2020 Rule and May 2022 Rule, the Office has issued two
other supplemental interim rules. 85 FR 84243 (Dec. 28, 2020); 86 FR
12822 (Mar. 5, 2021). 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 MMA rulemaking
activity, including public comments, can currently be accessed via
navigation from https://www.copyright.gov/music-modernization.
---------------------------------------------------------------------------
In brief, and as relevant here, the May 2022 Rule established an
invoice and response file process for ROAs (and by extension, AROUs
that are combined with ROAs).\10\ Under these regulations, if there is
an underpayment of royalties, the DMP must pay the difference to the
MLC either contemporaneously with delivery of the ROA or promptly after
receiving an invoice from the MLC.\11\ In those circumstances where the
DMP will receive a response file from the MLC, the MLC must deliver the
invoice to the DMP contemporaneously with the response file.\12\ The
MLC must otherwise deliver the invoice to the DMP in a reasonably
timely manner.\13\ If requested by the DMP, the MLC must deliver a
response file no later than 45 days after receiving the ROA, unless the
ROA is combined with an AROU, in which case the response file must be
[[Page 6631]]
delivered within 60 days.\14\ Acknowledging that the MLC would need
time to implement these regulations, the May 2022 Rule provided a
transition period ending on February 24, 2023, during which the MLC is
not required to deliver invoices or response files within the specified
timeframes.\15\
---------------------------------------------------------------------------
\10\ 87 FR 31425-27.
\11\ 37 CFR 210.27(k)(4).
\12\ Id.
\13\ Id.
\14\ Id. Sec. 210.27(k)(8).
\15\ Id. Sec. 210.27(k)(9).
---------------------------------------------------------------------------
In response to the May 2022 Rule, the Office received relevant
comments from only the MLC and DLC.\16\ At a high level, the MLC
objected to the invoice and response file timelines in the rule. It
asserted operational concerns related to waste, inefficiency, and
burden if required to comply with the May 2022 Rule's timeframes for
delivering invoices and response files to DMPs for ROAs.\17\ The DLC
did not object to the MLC's position on this issue.\18\ The MLC also
proposed that, instead of permitting DMPs to pay additional royalties
promptly after receiving an invoice from the MLC, they should always
have to pay adjusted royalties contemporaneously with delivery of the
ROA to the MLC.\19\ The DLC disagreed on this point, stating that ``the
option [for DMPs] to make royalty payments for adjustments only after
receiving an invoice from the MLC should remain in place.'' \20\
---------------------------------------------------------------------------
\16\ DLC Supplemental Interim Rule Comments (July 8, 2022)
(``DLC Comments''); MLC Ex Parte Letter (Oct. 17, 2022); DLC Ex
Parte Letter (Nov. 18, 2022); MLC Ex Parte Letter (Dec. 21, 2022).
\17\ MLC Ex Parte Letter at 3-4, 8 (Oct. 17, 2022) (asserting,
for example, that it would be ``wasteful and burdensome'' if the MLC
is not allowed to abstain from processing a DMP's adjustments to
royalty reporting for 2021 or 2022 until the MLC receives the DMP's
ROA implementing the CRJs' final determination in the ongoing
Phonorecords III remand proceeding, because the forthcoming final
determination will require all DMPs to retroactively adjust
streaming royalties for those years, thereby rendering moot all
adjustments previously submitted); id. at 4-6 (asserting, for
example, that the MLC's ``efficient and effective blanket license
administration will be hindered if adjustments are required to be
processed as they are received'' because it ``would necessarily
preempt The MLC's ability to reprocess unmatched uses because
reprocessing would have to be put on hold for each adjustment'').
\18\ DLC Ex Parte Letter at 3-6 (Nov. 18, 2022) (stating that
the DLC has ``no objection in principle to the MLC's request to
delay processing of [2021 and 2022] adjustments'' and that it
``supports giving the MLC relief from its deadlines to process
reports of adjustment and provide invoices and response files'').
\19\ MLC Ex Parte Letter at 6-8 (Oct. 17, 2022).
\20\ DLC Ex Parte Letter at 6 (Nov. 18, 2022).
---------------------------------------------------------------------------
Having reviewed these comments, the Office is considering revising
the May 2022 Rule. However, as discussed below, because at least some
of the issues surrounding adjustments may be impacted by the unresolved
issue of the relationship between adjustments and late fees, the Office
has concluded that it should conduct further proceedings before
proposing any amendments.
B. Late Fees
The issue of late fees is not new to this proceeding. As previously
detailed by the Office, stakeholders, including the MLC and DLC,
disagree about whether late fees adopted by the CRJs for late payments
of royalties apply to adjustments.\21\ The Office previously declined
to adopt a rule addressing the interplay between the CRJs' late fee
regulation and the Office's provisions for adjustments because it was
not clear at the time of the September 2020 Rule that doing so would be
the best course ``particularly where the CRJs may wish themselves to
take the occasion of [the Phonorecords III] remand or otherwise update
their operative regulation in light of the [September 2020 Rule].''
\22\ At the time, the Office said it would instead ``monitor the
operation of this aspect of the [September 2020 Rule], and as
appropriate in consultation with the CRJs.'' \23\
---------------------------------------------------------------------------
\21\ 85 FR 58136-37 (discussing the DLC's request ``for language
to ensure DMPs are not subject to late fees for adjustments to
estimates'' and the MLC's request ``to add language prescribing that
no use of an estimate changes or affects the statutory due dates for
royalty payments or the applicability of late fees to any
underpayment of royalties that results from using an estimate''); 85
FR 22530; see 37 CFR 385.3; 17 U.S.C. 115(d)(8)(B).
\22\ 85 FR 58137.
\23\ Id.
---------------------------------------------------------------------------
Since the September 2020 Rule, however, the CRJs have not taken any
action on the late fee issue and have not indicated an intent that they
plan to do so. At the same time, the MLC's and DLC's comments in
response to the May 2022 Rule again raised the issue and confirmed
their continued disagreement on the issue.\24\ Both the MLC and DLC
requested the Office provide guidance.\25\ The DLC requested that the
Office ``specify that when both the initial estimated payments and the
later adjustment of such payments to account for the updated and
finalized information are made according to the timelines established
in the regulations, such payments are proper and have been made by the
`due date for payment' as set forth in 17 U.S.C. 115(d)(8)(B)(i).''
\26\ The MLC opposed the DLC's position \27\ and instead proposed
regulatory language providing that nothing in the adjustment provisions
``shall change a blanket licensee's liability for late fees, where
applicable.'' \28\ Other parts of the MLC's comments on adjustments
also touched on the issue of late fees. For example, discussing its
opposition to allowing DMPs to avoid paying adjusted royalties until
after receiving an invoice, the MLC argues that ``[f]ull payment of
royalties is due and owing from the original due date of each month's
royalties.'' \29\
---------------------------------------------------------------------------
\24\ MLC Ex Parte Letter at 8 (Oct. 17, 2022); MLC Ex Parte
Letter at 2-5 (Dec. 21, 2022); DLC Comments at 3.
\25\ See 85 FR 58136-37; MLC Ex Parte Letter at 8 (Oct. 17,
2022); MLC Ex Parte Letter at 2-5 (Dec. 21, 2022); DLC Comments at
3.
\26\ DLC Comments at 3.
\27\ MLC Ex Parte Letter at 2-5 (Dec. 21, 2022).
\28\ MLC Ex Parte Letter at 8 (Oct. 17, 2022).
\29\ MLC Ex Parte Letter at 2 (Dec. 21, 2022).
---------------------------------------------------------------------------
C. Further Proceedings on Adjustments and Late Fees
In sum, resolution of when royalties are ``due'' and when late fees
are incurred could be relevant to the adjustment issues being
considered by the Office. The Office therefore finds it prudent to
consider both issues concurrently. It intends to publish a notification
of inquiry in the near future to expand the public record on the late
fee issue before publishing a proposed rule. Once it has evaluated the
relevant comments, the Office plans to issue a notice of proposed
rulemaking that jointly addresses both late fees and the other concerns
raised in response to the May 2022 Rule (e.g., regarding the timing of
royalty payments, invoices, and response files for adjustments).
II. Supplemental Interim Rule
One component of the May 2022 Rule, however, must be amended
immediately to provide the Office with sufficient time to conduct these
further public proceedings: the current February 24, 2023 expiration of
the MLC's transition period. Based on the MLC's and DLC's comments
discussed above, the Office is extending the length of the MLC's
transition period during the pendency of the Office's further
rulemaking activity in this area. To provide flexibility, the new rule
provides that the MLC's transition period ends 30 days after receiving
written notice from the Office. Prior to that time, as noted above, the
Office expects to issue a superseding rule addressing the underlying
issues as part of further public proceedings surrounding adjustments.
Because of the short amount of time remaining before the expiration
of the MLC's current transition period on February 24, 2023, and based
on the MLC's unopposed assertions that complying with the May 2022
Rule's timelines is operationally problematic, the Office finds that
there is good cause to adopt this supplemental interim rule without
public notice and comment,
[[Page 6632]]
and to make it effective immediately upon publication.\30\
---------------------------------------------------------------------------
\30\ See 5 U.S.C. 553(b)(B), (d)(3).
---------------------------------------------------------------------------
List of Subjects in 37 CFR Part 210
Copyright, Phonorecords, Recordings.
Interim Regulations
For the reasons set forth in the preamble, the U.S. Copyright
Office amends 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.
Sec. 210.27 [Amended]
0
2. Amend Sec. 210.27(k)(9) by removing ``February 24, 2023'' and
adding in its place ``30 calendar days after receiving written notice
from the Copyright Office''.
Dated: January 26, 2023.
Shira Perlmutter,
Register of Copyrights and Director of the U.S. Copyright Office.
Approved by:
Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2023-02118 Filed 1-31-23; 8:45 am]
BILLING CODE 1410-30-P