[Federal Register Volume 88, Number 36 (Thursday, February 23, 2023)]
[Proposed Rules]
[Pages 11398-11401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03738]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 88, No. 36 / Thursday, February 23, 2023 / 
Proposed Rules  

[[Page 11398]]



LIBRARY OF CONGRESS

 Copyright Office

37 CFR Part 210

[Docket No. 2023-2]


Fees for Late Royalty Payments Under the Music Modernization Act

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

ACTION: Notification of inquiry.

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SUMMARY: The U.S. Copyright Office is issuing a notification of inquiry 
soliciting public comments regarding when fees for late royalty 
payments should be assessed in connection with reporting by digital 
music providers under the Music Modernization Act's blanket license.

DATES: Written comments must be received no later than 11:59 p.m. 
Eastern Time on April 10, 2023. Written reply comments must be received 
no later than 11:59 p.m. Eastern Time on May 9, 2023.

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-late-fees/. 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: 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 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 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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A. The Copyright Royalty Judges' Late Fee Regulations

    Under section 115, the Copyright Royalty Judges (``CRJs'') are 
responsible for setting the blanket license's rates and terms of 
royalty payments. As part of this ratesetting authority, the CRJs' 
determinations ``may include terms with respect to late payment[s]'' 
(``late fees'').\5\ The Office has a corresponding responsibility to 
oversee the administration of the blanket license, including 
promulgating regulations governing reporting and payment requirements 
for DMPs. The MMA added a new provision to section 115 to address the 
new blanket license, stating that ``[l]ate fees for past due royalty 
payments shall accrue from the due date for payment until payment is 
received by the [MLC].'' \6\
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    \5\ Id. at 803(c)(7).
    \6\ Id. at 115(d)(8)(B)(i).
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    The currently operative late fee provision was adopted by the CRJs 
as part of an approved settlement in the Phonorecords IV proceeding, 
which covers the time period 2023 through 2027.\7\ The provision states 
that ``[a] Licensee shall pay a late fee of 1.5% per month, or the 
highest lawful rate, whichever is lower, for any payment owed to a 
Copyright Owner and remaining unpaid after the due date established in 
17 U.S.C. 115(c)(2)(I) \8\ or 17 U.S.C. 115(d)(4)(A)(i),\9\ as 
applicable and detailed in part 210 \10\ of this title.'' \11\ It 
further provides that ``[l]ate fees shall accrue from the due date 
until the Copyright Owner receives payment.'' \12\ In adopting the 
parties' settlement, the CRJs found that the late fee provision was 
``not unreasonable.'' \13\
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    \7\ 87 FR 80448 (Dec. 30, 2022).
    \8\ Section 115(c)(2)(I) states that, except as provided in 
section 115(d)(4)(A)(i), ``royalty payments shall be made on or 
before the twentieth day of each month and shall include all 
royalties for the month next preceding.''
    \9\ Section 115(d)(4)(A)(i) states that ``[a] digital music 
provider shall report and pay royalties to the [MLC] under the 
blanket license on a monthly basis in accordance with . . . 
subsection (c)(2)(I), except that the monthly reporting shall be due 
on the date that is 45 calendar days, rather than 20 calendar days, 
after the end of the monthly reporting period.''
    \10\ ``Part 210'' refers to the Office's regulations governing 
reporting and payments under section 115.
    \11\ 37 CFR 385.3.
    \12\ Id. Parties in the most recent section 115 ratesetting 
proceeding recognized that this language ``does not acknowledge that 
the [MLC] has responsibility for collecting payment under the 
blanket license for digital uses'' and moved to add the following 
language to the end of the quoted language: ``except that where 
payment is due to the mechanical licensing collective under 17 
U.S.C. 115(d)(4)(A)(i), late fees shall accrue from the due date 
until the mechanical licensing collective receives payment.'' Mot. 
to Req. Issuance of Amendment to Determination at 1-2, Determination 
of Royalty Rates and Terms for Making and Distributing Phonorecords 
(Phonorecords IV), Copyright Royalty Bd., No. 21-CRB-0001-PR (2023-
2027) (Jan. 10, 2023), https://app.crb.gov/document/download/27417. 
The current provision is similar to the CRJs' pre-MMA late fee 
regulations for the section 115 license. See, e.g., 37 CFR 385.4 
(2018) (``A Licensee shall pay a late fee of 1.5% per month, or the 
highest lawful rate, whichever is lower, for any payment received by 
the Copyright Owner after the due date set forth in [sec.] 
210.16(g)(1) of this title. Late fees shall accrue from the due date 
until payment is received by the Copyright Owner.'').
    \13\ 87 FR 80448, 80452 n.20.

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[[Page 11399]]

B. The Office's September 2020 Rule and Adjustments

    On September 17, 2020, the Office issued an interim rule adopting 
regulations concerning reporting and payment requirements under the 
blanket license (the ``September 2020 Rule'').\14\ The September 2020 
Rule addressed the ability of DMPs to make adjustments to monthly and 
annual reports and related royalty payments, including to correct 
errors and replace estimated royalty calculation inputs (e.g., the 
amount of applicable public performance royalties) with finally 
determined figures.\15\ The interim regulations permit DMPs to make 
adjustments in other situations as well, such as in exceptional 
circumstances, following an audit, or in response to a change in the 
applicable statutory rates or terms adopted by the CRJs.\16\
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    \14\ 85 FR 58114 (Sept. 17, 2020). 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 
Office 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 in the Office's proceedings are either 
cited in full or are by party name (abbreviated where appropriate), 
followed by ``NOI Initial Comments,'' ``NOI Reply Comments,'' ``NPRM 
Comments'' or ``Ex Parte Letter,'' as appropriate.
    \15\ 37 CFR 210.27(d)(2)(i), (f), (g)(3)-(4), (k).
    \16\ Id. at 210.27(k)(6).
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    With respect to the timing of the DMPs' reports and payments, their 
monthly reports of usage and related royalty payments must be delivered 
to the MLC no later than 45 days after the end of the monthly reporting 
period.\17\ Reports of adjustment adjusting monthly reports of usage 
must either be combined with the annual report of usage covering the 
relevant monthly report or delivered to the MLC before such annual 
report.\18\ Annual reports of usage must be delivered to the MLC no 
later than the 20th day of the sixth month following the end of the 
DMP's fiscal year covered by the annual report.\19\ Reports of 
adjustment adjusting annual reports of usage must be delivered to the 
MLC no later than 6 months after the occurrence of a relevant 
triggering event.\20\ Any underpayment of royalties associated with a 
report of adjustment must be paid to the MLC contemporaneously with 
delivery of the report of adjustment or promptly after receiving an 
invoice from the MLC.\21\
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    \17\ Id. at 210.27(g)(1); see 17 U.S.C. 115(d)(4)(A)(i).
    \18\ 37 CFR 210.27(g)(4)(i), (k)(1).
    \19\ Id. at 210.27(g)(3).
    \20\ Id. at 210.27(g)(4)(ii).
    \21\ Id. at 210.27(k)(4).
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    During the course of the rulemaking proceeding that culminated in 
the September 2020 Rule, interested parties, including the MLC and DLC, 
raised opposing views about whether late fees adopted by the CRJs apply 
to royalty payments made in connection with reports of adjustment.\22\ 
The DLC proposed that the Office adopt regulations to clarify that 
adjustments to estimates are not a basis for assessing late fees where 
a DMP makes its estimates and adjustments in accordance with the 
Office's regulations, including applicable reporting deadlines.\23\ In 
support of its proposal, the DLC said that ``the late fee is meant to 
ensure that digital music providers are following the regulations,'' 
and ``[i]f a service is following the regulations by making a 
reasonable estimate of an input it does not know the value of, it 
should not be penalized with a late fee even if it so happens that the 
estimate is too low.'' \24\ The MLC and others disagreed with the DLC's 
position, and the MLC proposed regulatory text providing that no 
estimate shall change or affect the due date for royalty payments or 
the applicability of late fees to any underpayment resulting from an 
estimate.\25\ In support of its proposal, the MLC stated that the 
relevant due date is the monthly due date set by statute regardless of 
any adjustment, and that ``[t]o permit DMPs to estimate inputs in a 
manner that results in underpayment to songwriters and copyright 
owners, without the penalty of late fees, encourages DMPs to underpay, 
to the detriment of songwriters and copyright owners.'' \26\
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    \22\ 85 FR 58114, 58136-37; 85 FR 22518, 22530.
    \23\ DLC NOI Reply Comments at 16-17, Add. A-8; DLC NPRM 
Comments at 14.
    \24\ DLC NOI Reply Comments at 16-17 (further asserting that 
``if the rule were otherwise, PROs could delay finalizing agreements 
(while still being paid interim royalties) with the purpose of 
causing digital service providers to have to pay late fees to 
publishers as a result''); see also DLC NPRM Comments at 14 
(``Although the CRJs set the amount of the late fee, the Office is 
responsible for establishing due dates for adjusted payments. It is 
those due dates that establish whether or not a late fee is 
owed.'').
    \25\ MLC NPRM Comments at 36-37, App. C at xiv; MLC Ex Parte 
Letter at 7-8 (Feb. 26, 2020); see also AIMP NPRM Comments at 4-5 
(``[L]ate royalty payments have been a significant problem for 
copyright owners, and the implementation of a late fee for any 
royalty amounts paid late was a significant step forward. The 
regulations as proposed, should remove any doubt that might 
interfere with those late fee payments.''); Peermusic NPRM Comments 
at 5 (``[W]e appreciate the Copyright Office's rejection of the DLC 
request that underpayments, when tied to `estimates,' should not be 
subject to the late fee provision of the CRJ regulations governing 
royalties payable under Section 115, and we would request that the 
regulations be clear on this point.'').
    \26\ MLC NPRM Comments at 36-37; see also AIMP NPRM Comments at 
4-5 (``[E]xpanded use of estimates, and the result of retroactive 
adjustment of royalty payments, does create increased risk and 
additional burden to copyright owners.'').
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    After reviewing the relevant comments, the Office explained that it 
``appreciates the need for relevant regulations to avoid unfairly 
penalizing DMPs who make good faith estimates from incurring late fees 
due to subsequent finalization of those inputs outside the DMPs' 
control, and also to avoid incentivizing DMPs from applying estimates 
in a manner that results in an initial underpayment that delays royalty 
payments to copyright owners and other songwriters.'' \27\ The Office, 
however, 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].'' \28\ 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.'' \29\
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    \27\ 85 FR 58114, 58137.
    \28\ Id.
    \29\ Id.
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C. Current Status

    Since the September 2020 Rule, however, the CRJs have not taken any 
action on the late fee issue and have not indicated that they plan to 
do so. During this same time period, the MLC and DLC submitted comments 
in response to a May 2022 amendment to the September 2020 Rule that 
again raised the issue of late fees and confirmed their continued 
disagreement on the subject.\30\ Both the MLC and DLC requested the 
Office to provide guidance.\31\ The DLC requested that the Office 
``specify that when both the initial estimated payments and the later

[[Page 11400]]

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. [sec.] 115(d)(8)(B)(i).'' 
\32\ The MLC opposed the DLC's position \33\ and instead proposed 
regulatory language providing that nothing in the adjustment provisions 
``shall change a blanket licensee's liability for late fees, where 
applicable.'' \34\
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    \30\ MLC Ex Parte Letter at 8 (Oct. 17, 2022); MLC Ex Parte 
Letter at 2-5 (Dec. 21, 2022); DLC Comments to Supplemental Interim 
Rule at 3, Music Modernization Act Notices of License, Notices of 
Nonblanket Activity, Data Collection and Delivery Efforts, and 
Reports of Usage and Payment, U.S. Copyright Office, No. 2020-5 
(July 8, 2022), https://www.regulations.gov/comment/COLC-2020-0005-0029 (``DLC July 2022 Comments'').
    \31\ See 85 FR at 58136-37; MLC Ex Parte Letter at 8 (Oct. 17, 
2022); MLC Ex Parte Letter at 2-5 (Dec. 21, 2022); DLC July 2022 
Comments at 3.
    \32\ DLC July 2022 Comments at 3.
    \33\ MLC Ex Parte Letter at 2-5 (Dec. 21, 2022).
    \34\ MLC Ex Parte Letter at 8 (Oct. 17, 2022).
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    The Office typically does not offer interpretations of the CRJs' 
regulations. However, it is squarely within the Office's authority to 
interpret the meaning of ``due date'' as used in the statute.\35\ 
Moreover, Congress expressly authorized the Office to issue regulations 
establishing the adjustment reporting and payment regime.\36\ Thus, the 
Office is publishing this notification to facilitate a full airing of 
all relevant issues and to expand the public record to better inform 
what action the Office should take to address this matter.
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    \35\ See 17 U.S.C. 115(d)(8)(B)(i) (``Late fees for past due 
royalty payments shall accrue from the due date for payment until 
payment is received by the mechanical licensing collective.'').
    \36\ Id. at 115(d)(4)(A)(iv)(II) (``The Register of Copyrights 
shall adopt regulations . . . regarding adjustments to reports of 
usage by digital music providers, including mechanisms to account 
for overpayment and underpayment of royalties in prior periods.''); 
see id. at 115(d)(12)(A).
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II. Subjects of Inquiry

    The Office invites written comments on the following subjects:
    1. Please provide your views regarding whether a DMP is obligated 
to pay late fees when it makes an adjustment that reveals an 
underpayment of royalties. For example, should late fees apply to all 
adjustments, should they apply to no adjustments, or should they apply 
only to certain types of adjustments? Should it matter whether a DMP 
acted reasonably and in good faith and complied with all applicable 
regulations when it made the reporting or payment that later needed to 
be adjusted? Common scenarios, such as adjustments to fix errors in 
prior reporting as well as the scenarios referenced in 37 CFR 
210.27(k)(6), should be discussed. Proposals with specific regulatory 
language are encouraged.
    2. Please provide detailed legal arguments supporting your views 
about the application of late fees in the context of adjustments, 
including an analysis of section 115's text and the legislative history 
and intent behind any relevant statutory provisions. In particular, 
commenters should discuss 17 U.S.C. 115(d)(8)(B)(i) and how that 
provision should be read in connection with the statutory reporting and 
payment due date provisions in 17 U.S.C. 115(c)(2)(I) and (d)(4)(A)(i) 
as well as the Office's regulatory due date provisions for adjustments 
in 37 CFR 210.27(g)(3), (g)(4), and (k)(1). Commenters should also 
address how their position is consistent with other provisions 
referring to due dates, such as 17 U.S.C. 115(c)(2)(J), 
(d)(3)(G)(i)(I), and (d)(4)(E).
    3. Please discuss your understanding of the history and purpose of 
the CRJs' authority under 17 U.S.C. 803(c)(7), as adjusted by 17 U.S.C. 
115(d)(8)(B), to adopt late fees and of the actual late fee provisions 
adopted by the CRJs, including in contexts outside of section 115 if 
relevant.\37\
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    \37\ See, e.g., 37 CFR 380.2(d), 380.6(g), 380.22(f), 382.3(e), 
382.7(g), 383.4(a), 384.4(e), 385.3. For example, in the section 114 
webcasting context, the CRJs have stated that ``[i]nconsequential 
good-faith omissions or errors should not warrant imposition of the 
late fee,'' 72 FR 24084, 24108 (May 1, 2007), and have adopted a 
late fee provision allowing SoundExchange (the designated collective 
under the section 114 license) to ``waive or lower late fees for 
immaterial or inadvertent failures of a Licensee to make a timely 
payment or submit a timely Statement of Account.'' 37 CFR 
380.2(d)(1).
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    4. What is the appropriate division of the Office's and CRJs' 
respective regulatory authority in this area? For example, can the 
Office or CRJs adopt a rule pursuant to which late fees may or may not 
apply depending on the type of adjustment at issue (e.g., where the 
effect of a hypothetical rule might be that late fees apply to 
adjustments to estimates, but not to adjustments responding to royalty 
rate changes adopted by the CRJs)? Is the Office's authority more 
limited in relation to the CRJs' authority (e.g., to determining the 
applicable due date after which a payment is deemed late)?
    5. Please discuss any relevant music industry practices surrounding 
late fees and adjustments. For example:
    a. Did DMPs typically pay late fees to copyright owners in 
connection with adjustments under section 115 prior to the MMA's new 
blanket licensing regime? If not, did copyright owners make any demands 
for late fees or otherwise respond to the failure to pay late fees?
    b. How do voluntary licenses involving covered activity operate in 
the context of late fees and adjustments? Do such voluntary licenses 
typically contain late fee provisions? Are they analogous to the one 
adopted by the CRJs in 37 CFR 385.3? How are they applied to 
adjustments?
    c. Does the nature of a payment--as a royalty payment, late fee 
payment, interest payment, or some other kind of payment--received by a 
musical work copyright owner (whether from the MLC or directly from a 
licensee) typically affect how the payment is accounted and paid 
through to the copyright owner's songwriters for mechanical uses of 
their works made by DMPs or other licensees? If so, please discuss the 
general industry practice.\38\
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    \38\ See Comments of Helienne Lindvall, David Lowery, and Blake 
Morgan on Proposed Regulations for Subparts A, C and D at 12, 
Determination of Royalty Rates and Terms for Making and Distributing 
Phonorecords (Phonorecords IV), Copyright Royalty Bd., No. 21-CRB-
0001-PR (2023-2027) (Dec. 7, 2022), https://app.crb.gov/document/download/27356 (asking the CRJs to adopt ``clarifying language that 
would require the applicable Copyright Owner to treat any late fee 
payment so received as an additional royalty payment under any 
publishing agreement'' because, otherwise, ``a late fee might be 
treated as a catalog-wide penalty that a Copyright Owner collecting 
the late fee could argue should be retained for its own account'').
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    d. Are any of the terms of late fee settlements between publishers 
and record companies who use the section 115 license instructive for 
the Office to consider in the context of this proceeding?\39\
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    \39\ See, e.g., NMPA Late Fee Program, http://www.nmpalatefeesettlement.com (last visited Feb. 2, 2023).
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    6. Under 37 CFR 210.27(d)(2)(i), there are several requirements 
that DMPs must comply with to make use of an estimate, including that 
the estimate must be reasonable and determined in accordance with 
generally accepted accounting principles (``GAAP''), and the DMP's 
reporting must explain the basis for the estimate and why it was 
necessary. Aside from assessing late fees, could concerns about DMPs 
potentially abusing the adjustment process be mitigated by enhancing 
these requirements? Could such concerns be addressed through other 
additional regulations surrounding estimates or adjustments that could 
assist the MLC in identifying any DMP noncompliance?
    a. Should the Office consider adopting a rule providing that if a 
DMP's estimate results in an underpayment of more than a certain amount 
or percentage, the estimate is per se unreasonable and, thus, not in 
compliance with the Office's regulations?\40\
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    \40\ Cf. 17 U.S.C. 115(d)(4)(D)(i)(VI) (requiring a DMP to bear 
the costs of the MLC's audit if the auditor ``determines that there 
was an underpayment by the [DMP] of not less than 10 percent''); 
Dep't of the Treas., Internal Revenue Serv., Instructions for Form 
2210, Underpayment of Estimated Tax by Individuals, Estates, and 
Trusts at 1-2 (2021), https://www.irs.gov/pub/irs-pdf/i2210.pdf 
(discussing thresholds for the penalty for underpaying estimated 
tax).

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[[Page 11401]]

    7. If the Office concludes that late fees do not apply to certain 
types of adjustments, could the Office consider adopting regulations 
requiring DMPs to pay interest on such adjustments to make copyright 
owners whole for any lost time value of money? \41\ If so, what should 
such regulations look like? What is an appropriate interest rate? 
Should such regulations be similar to the Office's current regulations 
assessing interest on royalties paid with late or amended statements of 
account under the section 111 and section 119 statutory licenses? \42\ 
Are there any relevant music industry practices related to assessing 
interest on adjusted royalties?
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    \41\ See SONA & NSAI Ex Parte Letter at 2 (July 7, 2022) (asking 
the Office to ``consider whether it has the authority to require 
interest to be paid'' by DMPs if there is a delay in payment).
    \42\ See 37 CFR 201.11(i), 201.17(k)(4); 54 FR 14217, 14220 
(Apr. 10, 1989) (adopting rule for section 111 and explaining that 
``[t]he Copyright Office does not wish to penalize cable systems for 
late and amended filings, but rather wishes to compensate copyright 
owners for the present value loss of royalties which should have 
been deposited on a timely basis''); 54 FR 27873, 27874-75 (July 3, 
1989) (adopting rule for section 119); 57 FR 61832 (Dec. 29, 1992) 
(amending the applicable interest rate).
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    8. Please provide any additional pertinent information not 
referenced above that the Office should consider in this proceeding.

    Dated: February 17, 2023.
Suzanne V. Wilson,
General Counsel and Associate Register of Copyrights.
[FR Doc. 2023-03738 Filed 2-22-23; 8:45 am]
BILLING CODE 1410-30-P