[Federal Register Volume 88, Number 185 (Tuesday, September 26, 2023)]
[Proposed Rules]
[Pages 65908-65927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20922]



[[Page 65908]]

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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 210

[Docket No. 2022-5]


Termination Rights, Royalty Distributions, Ownership Transfers, 
Disputes, and the Music Modernization Act

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

ACTION: Supplemental notice of proposed rulemaking.

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SUMMARY: The U.S. Copyright Office is issuing a supplemental notice of 
proposed rulemaking to update its October 25, 2022 proposed rule 
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. 
This supplemental notice modifies the proposed rule and expands its 
scope in light of comments received in response to the previous notice. 
In addition to addressing the applicability of the derivative works 
exception, the supplemental proposed rule addresses other matters 
relevant to identifying the proper payee to whom the mechanical 
licensing collective must distribute royalties. Among other things, the 
Office proposes adopting regulations addressing the mechanical 
licensing collective's distribution of matched historical royalties and 
administration of ownership transfers, requests to designate 
alternative royalty payees, and related disputes. The Office invites 
public comments on the supplemental proposed rule.

DATES: Written comments must be received no later than 11:59 p.m. 
Eastern Time on October 26, 2023. Written reply comments must be 
received no later than 11:59 p.m. Eastern Time on November 13, 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-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: Rhea Efthimiadis, Assistant to the 
General Counsel, by email at [email protected] or telephone at 202-
707-8350.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Copyright Office (``Office'') issues this supplemental notice 
of proposed rulemaking (``SNPRM'') subsequent to a notice of proposed 
rulemaking (``NPRM'') published in the Federal Register on October 25, 
2022, pursuant to the Orrin G. Hatch-Bob Goodlatte Music Modernization 
Act (``MMA'').\1\ In the NPRM, the Office proposed regulations 
regarding the applicability of the derivative works exception 
(``Exception'') to termination rights under the Copyright Act to the 
statutory mechanical blanket license established by the MMA (``blanket 
license'').\2\ This SNPRM assumes familiarity with the prior NPRM and 
the public comments received in response to the NPRM.\3\
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    \1\ 87 FR 64405 (Oct. 25, 2022).
    \2\ Id.
    \3\ The NPRM stemmed from a previous rulemaking proceeding, 
discussed in detail in the NPRM, that 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. 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. Comments received in response to the NPRM are 
available at https://copyright.gov/rulemaking/mma-termination/. 
References to those public comments are by party name (abbreviated 
where appropriate), followed by ``Initial Comments,'' ``Reply 
Comments,'' or ``Ex Parte Letter,'' as appropriate.
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A. The Notice of Proposed Rulemaking

    The Office commenced this proceeding in response to the adoption by 
he Mechanical Licensing Collective (``MLC'') of a termination dispute 
policy that conflicted with prior guidance given by the Office and that 
embodied an erroneous application of the Exception.\4\ As a result of 
the MLC's adoption of this policy, the Office concluded it was 
necessary to revisit the termination issue more directly and to 
squarely resolve the question of how termination law intersects with 
the blanket license.\5\ The NPRM explained that the Office ``seeks to 
provide clarity concerning the application of the Exception to the 
blanket license,'' as ``[d]oing so would provide much needed business 
certainty to music publishers and songwriters'' and ``would enable the 
MLC to appropriately operationalize the distribution of post-
termination royalties in accordance with existing law.'' \6\ The NPRM 
contained a detailed discussion of the procedural background leading to 
this rulemaking,\7\ the Office's regulatory authority,\8\ and legal 
background about the Copyright Act's termination provisions and the 
Exception.\9\
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    \4\ 87 FR 64405, 64407. The Office disagrees with the MLC's 
suggestions to the contrary. See, e.g., MLC Initial Comments at 2-3; 
MLC Reply Comments at 1-2. As explained more fully in the NPRM, the 
Office's ultimate conclusion in the prior proceeding was 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.'' 87 FR 64405, 64407 (quoting 85 FR 58114, 58132 
(Sept. 17, 2020)).
    \5\ 87 FR 64405, 64407.
    \6\ Id. (``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.'').
    \7\ Id. at 64406-07.
    \8\ Id. at 64407-08.
    \9\ Id. at 64408-10.
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    The Office then analyzed the application of the Exception in the 
context of the blanket license and preliminarily concluded ``that the 
MLC's termination dispute policy is inconsistent with the law.'' \10\ 
It explained that ``[w]hether or not the Exception applies to a 
[digital music provider's (``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.'' \11\ This means that ``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.'' \12\
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    \10\ Id. at 64410-11.
    \11\ Id. at 64411.
    \12\ Id.
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    Consequently, the Office proposed a rule to clarify the appropriate 
payee under the blanket license to whom the MLC must distribute 
royalties following a statutory termination.\13\ Because the Office 
concluded that the MLC's termination dispute policy is contrary to law, 
it also proposed to require the MLC to immediately repeal its policy in 
full.\14\ The Office further proposed to require the MLC to adjust any 
royalties distributed under the policy within 90 days to make copyright 
owners whole for any distributions the MLC made based on ``an erroneous 
understanding and application of current law.'' \15\
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    \13\ Id. at 64411-12.
    \14\ Id. at 64412.
    \15\ Id.

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[[Page 65909]]

    After publication of the NPRM, the MLC said that it voluntarily 
``suspended its [termination dispute policy] pending the outcome of the 
[Office's] rulemaking proceeding'' and ``will hold all royalties for 
uses of musical works that are subject to statutory termination claims 
beginning with the October [2022] usage period, which would have been 
distributed in January 2023.'' \16\ To the Office's knowledge, the MLC 
continues to hold such royalties at present.
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    \16\ The MLC, Policies, https://www.themlc.com/dispute-policy 
(last visited Sept. 20, 2023).
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B. The NPRM Comments

    The Office received over 40 public comments in response to the 
NPRM. These comments reflect the views of hundreds of interested 
parties, including songwriters, music publishers and administrators, 
record labels, public interest groups, academics, and practitioners. 
Most commenters, including multiple music publishers and 
administrators, generally supported the proposed rule.\17\ While some 
commenters raised concerns with certain aspects of the NPRM,\18\ the 
National Music Publishers' Association (``NMPA'') was the only 
commenter to oppose the proposed rule more broadly.\19\
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    \17\ See, e.g., Authors All. et al. Initial Comments at 1-3; BMG 
Rights Mgmt. Initial Comments at 1-2; BMG Rights Mgmt. Reply 
Comments at 1; ClearBox Rights Initial Comments at 2, 6-8; Fishman & 
Garcia Initial Comments at 1-4; Gates Reply Comments at 1; Howard 
Initial Comments at 1-2; Howard Reply Comments at 2-3; King, Holmes, 
Paterno & Soriano LLP Initial Comments at 1; Landmann Initial 
Comments at 1; Miller Initial Comments at 1; North Music Grp. Reply 
Comments at 2-3; NSAI Initial Comments at 3; Promopub Initial 
Comments at 1-2; Promopub Reply Comments at 1-2; Recording Academy 
Reply Comments at 2-3; Rights Recapture Initial Comments at 1; SGA 
et al. Initial Comments at 1-2, 5; SONA et al. Initial Comments at 
2-3; SONA et al. Reply Comments at 3; Songwriters Reply Comments at 
1; Wixen Music Publ'g Initial Comments at 1-2.
    \18\ See, e.g., CMPA Initial Comments at 1-2 (requesting that 
the rule not affect previously distributed royalties); A2IM & RIAA 
Reply Comments at 1-2 (agreeing with parts of the Office's 
termination analysis, but requesting that the Office limit its 
analysis to those parts to ensure that the analysis and rule are 
strictly limited to the context of the blanket license); MPA Reply 
Comments at 2-5 (taking no position on the proposed rule, but 
expressing ``significant concerns with portions of the NPRM 
supporting the proposed rule to the extent they could be read to 
limit the application of the [Exception] beyond the Section 115 
blanket license'').
    \19\ See generally NMPA Initial Comments; NMPA Ex Parte Letter 
(Feb. 6, 2023).
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    NMPA explained that it ``has serious concerns regarding (i) the 
impermissible retroactive effect of the NPRM, (ii) the statutory 
authority underlying the broad legal analysis contained in the NPRM 
that would appear to have effect beyond the limited issue of whether 
the Exception applies to the Blanket License, and (iii) whether the 
Proposed Rule may constitute an unconstitutional taking in violation of 
the Fifth Amendment.'' \20\ Notwithstanding these concerns, NMPA stated 
that it ``supports what it believes to be the ultimate goal of the 
Proposed Rule: to provide that the post-termination copyright owner of 
a musical composition shall receive post-termination royalties under 
the Blanket License for any sound recordings created pre- or post-
termination.'' \21\
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    \20\ NMPA Initial Comments at 2; see also NMPA Ex Parte Letter 
at 2 (Feb. 6, 2023).
    \21\ NMPA Initial Comments at 1; see also NMPA Ex Parte Letter 
at 2 (Feb. 6, 2023); CMPA Initial Comments at 1 (``CMPA concurs with 
what it believes the USCO's intent is, under the Proposed Rule.'').
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    Several commenters, including the MLC, sought additional guidance 
from the Office on various related issues not directly addressed by the 
NPRM. Examples include the following:
     Application of the Exception to other types of statutory 
mechanical licenses; \22\
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    \22\ See, e.g., MLC Initial Comments at 6; MLC Reply Comments at 
2; ClearBox Rights Initial Comments at 6; ClearBox Rights Reply 
Comments at 2; Howard Initial Comments at 5; King, Holmes, Paterno & 
Soriano LLP Initial Comments.
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     Application of the Exception to voluntary licenses; \23\
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    \23\ See, e.g., MLC Initial Comments at 4-6; MLC Reply Comments 
at 2; ClearBox Rights Initial Comments at 6; ClearBox Rights Reply 
Comments at 2; Howard Initial Comments at 5; Rights Recapture 
Initial Comments.
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     Procedures for carrying out the proposed corrective 
royalty adjustment to remedy prior distributions by the MLC based on an 
erroneous understanding and application of the Exception.\24\
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    \24\ See, e.g., MLC Initial Comments at 6-8; ClearBox Rights 
Reply Comments at 3-4; ClearBox Rights Ex Parte Letter at 2-4 (June 
28, 2023); Howard Initial Comments at 6; Promopub Initial Comments 
at 2; Promopub Reply Comments at 3; North Music Grp. Reply Comments 
at 2.
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     Procedures concerning notice, documentation, timing, and 
other matters relating to the MLC's implementation of a termination 
notification; \25\ and
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    \25\ See, e.g., MLC Initial Comments at 10-11; ClearBox Rights 
Initial Comments at 8; ClearBox Rights Reply Comments at 5-6; Howard 
Initial Comments at 3-5; Howard Reply Comments at 2-3; SGA et al. 
Initial Comments at 2, 6-8.
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     Procedures concerning termination disputes and related 
confidential information.\26\
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    \26\ See, e.g., MLC Initial Comments at 11-14; ClearBox Rights 
Reply Comments at 6.
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    The MLC emphasized the importance of the Office providing guidance 
on these topics, explaining that it is ``essential to processing 
royalties in connection with statutory termination claims'' and ``would 
provide important guidance to parties involved in termination claims.'' 
\27\
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    \27\ MLC Initial Comments at 9-10; see also MLC Reply Comments 
at 2.
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II. Supplemental Proposed Rule

    While the Office is still considering the comments submitted in 
response to the NPRM, in light of the requests for further guidance and 
other comments received, the Office is issuing this SNPRM modifying the 
proposed rule, providing additional detail, and expanding its scope. 
The Office seeks public comments on the revised proposal and will 
consider all comments received in response to both the NPRM and SNPRM 
when issuing its final rule.
    As discussed below, in addition to the Exception, the supplemental 
proposed rule addresses other matters germane to identifying the proper 
payee to whom the MLC must distribute royalties. These matters include 
issues related to the distribution of matched historical royalties, the 
MLC's administration of terminations and related disputes, other types 
of ownership transfers, and requests to designate alternative royalty 
payees. While commenters' requests for additional guidance largely 
pertain to termination-related issues, the requests and other comments 
lead the Office to believe that a more comprehensive set of regulations 
would be beneficial to the MLC, publishers, songwriters, and the wider 
music industry. The accurate distribution of royalties is a core 
objective of the MLC. Adopting the supplemental proposed rule would 
establish standards and settle expectations for all parties with 
respect to such distributions. This SNPRM is, thus, a natural extension 
of the NPRM and continues to ``ultimately reflect[] the Office's 
oversight and governance of the MLC's reporting and payment obligations 
to copyright owners.'' \28\
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    \28\ See 87 FR 64405, 64408.
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    The Office begins with two introductory notes about some of the 
terminology used below. First, under the MMA, the MLC must hold, for a 
designated minimum time period, royalties associated with reported uses 
of sound recordings embodying musical works for which the copyright 
owners of such musical works (or shares of such works) have not been 
identified or located.\29\ Such works (or shares) are ``unmatched.'' 
\30\ At the end of the statutory minimum holding period, accrued 
royalties for musical works (and shares) that remain unmatched become 
eligible for distribution by relative

[[Page 65910]]

market share to copyright owners identified in the MLC's records, at 
which point they become ``unclaimed royalties.'' \31\
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    \29\ 17 U.S.C. 115(d)(3)(H)(i).
    \30\ Id. at 115(e)(35).
    \31\ Id. at 115(d)(3)(J)(i), (e)(34). The MLC has publicly 
confirmed that it does not have ``any such [market-share] 
distribution planned in the coming year,'' as it ``is focused on 
matching uses and identified rightsholders, and . . . has not yet 
turned to the evaluation of what remaining royalties might be 
appropriate for a market share distribution, let alone begun the 
process to effectuate such a distribution, which will occur with 
significant public notice and transparency as Congress intended.'' 
Five Years Later--The Music Modernization Act: Hearing Before the 
Subcomm. on Courts, Intellectual Property, and the internet of the 
H. Comm. on the Judiciary, Responses to Questions for the Record, 
118 Cong. 2-3 (2023) (statement of Kris Ahrend, CEO, Mechanical 
Licensing Collective), https://docs.house.gov/meetings/JU/JU03/20230627/116155/HHRG-118-JU03-20230627-SD013.pdf.
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    Second, the MMA contains an optional limitation on liability for 
unlicensed uses of musical works made by DMPs prior to January 1, 2021 
(the ``license availability date'').\32\ To be eligible for this 
limitation on liability, DMPs had to engage in good-faith, commercially 
reasonable efforts to identify, locate, and pay musical work copyright 
owners for covered uses of their works and had to accrue and hold 
royalties for uses of any unmatched musical works.\33\ If a musical 
work remained unmatched as of January 1, 2021, the DMP had to transfer 
all accrued royalties to the MLC along with a cumulative statement of 
account.\34\ Such royalties are ``historical unmatched royalties.'' 
When the MLC matches the musical work (or share) to which historical 
unmatched royalties are attributable, they become ``matched historical 
royalties.''
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    \32\ 17 U.S.C. 115(d)(10)(A).
    \33\ Id. at 115(d)(10)(B).
    \34\ Id.
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A. Rulemaking Authority

    The Office relies on the same authority for the supplemental 
proposed rule as it did for the original proposed rule, which is 
discussed in detail in the NPRM.\35\ The Office is continuing to 
evaluate comments submitted on this topic \36\ and welcomes further 
comments on its authority to adopt the supplemental proposed rule, 
including with respect to the proposed corrective royalty adjustment 
discussed in Part II.H below.
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    \35\ 87 FR 64405, 64407-08.
    \36\ See NMPA Initial Comments at 4-10, 12-13; NMPA Ex Parte 
Letter at 2-4 (Feb. 6, 2023).
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B. Termination and the Exception

1. Analysis Regarding Blanket Licenses
    While many commenters agree with the Office's legal analysis in the 
NPRM regarding the application of the Exception to blanket 
licenses,\37\ other commenters raise some concerns.\38\ The Office is 
continuing to evaluate these comments, but for purposes of this SNPRM, 
the Office continues to propose a rule that relies on the preliminary 
analysis and conclusions regarding the Exception, as detailed in the 
NPRM. Therefore, the Office does not propose to revise the portion of 
the proposed rule that would make clear (1) that the Exception is 
inapplicable to blanket licenses, and (2) that the Exception does not 
affect copyright ownership.\39\ The Office, however, proposes to 
further clarify that because the Exception is inapplicable to blanket 
licenses, the Exception does not affect the identity of the applicable 
royalty payee either.\40\ The Office proposes this clarification in 
light of the distinction that can exist between the copyright owner and 
the royalty payee.\41\
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    \37\ See, e.g., A2IM & RIAA Reply Comments at 2; Authors All. et 
al. Initial Comments at 2-3; BMG Rights Mgmt. Initial Comments at 2; 
ClearBox Rights Initial Comments at 6-7; Fishman & Garcia Initial 
Comments at 1-4; King, Holmes, Paterno & Soriano LLP Initial 
Comments at 1; North Music Grp. Reply Comments at 2; Recording 
Academy Reply Comments at 2; SGA et al. Initial Comments at 2, 5; 
SONA et al. Initial Comments at 2-3.
    \38\ See NMPA Initial Comments at 2-3; NMPA Ex Parte Letter at 
2-3 (Feb. 6, 2023); MPA Reply Comments at 2-5; see also A2IM & RIAA 
Reply Comments at 2; Fishman & Garcia Initial Comments at 4.
    \39\ The Office does not mean to suggest that someone could 
theoretically be construed as the copyright owner based on the 
Exception. See Howard Initial Comments at 5. Rather, the point of 
the proposed language is to make that impossibility clear.
    \40\ The Office makes this proposal based on Linda Edell 
Howard's suggestion to change the proposed rule to refer to ``any 
claim to any rights or revenue.'' Id.
    \41\ Termination causes copyright ownership to revert to the 
author (or heirs). After termination, the Exception only permits a 
pre-termination derivative work to ``continue to be utilized under 
the terms of the [terminated] grant.'' 17 U.S.C. 203(b)(1), 
304(c)(6)(A); see H.R. Rep. No. 94-1476, at 127 (1976), reprinted in 
1976 U.S.C.C.A.N. 5659, 5742-43 (explaining that ``termination means 
that ownership of the rights covered by the terminated grant 
reverts'' to the author or heirs, and describing the Exception as a 
``limitation on the rights of a copyright owner under a terminated 
grant'') (emphasis added); Mills Music, Inc. v. Snyder, 469 U.S. 
153, 173 (1985) (stating that ``[t]he purpose of the Exception was 
to preserve the right of the owner of a derivative work to exploit 
it, notwithstanding the reversion'') (emphasis added) (internal 
citations and quotation marks omitted).
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2. Requests for Additional Guidance
    Various commenters, including the MLC, request guidance from the 
Office regarding the application of the Exception to voluntary licenses 
\42\ and other types of statutory mechanical licenses beyond the 
blanket license,\43\ which the Office did not directly address in the 
NPRM. With respect to non-blanket statutory mechanical licenses, the 
MLC says that guidance is necessary to enable it to accurately match 
works (and shares) associated with historical unmatched royalties.\44\ 
Regarding voluntary licenses, the MLC explains that guidance is 
necessary because it must match and identify ownership for works used 
under voluntary licenses so that royalties for uses of such works can 
be deducted from DMP blanket license royalties.\45\ The Office notes 
that the MLC must also do the same for uses under individual download 
licenses.\46\
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    \42\ See, e.g., MLC Initial Comments at 4-6; MLC Reply Comments 
at 2; ClearBox Rights Initial Comments at 6; ClearBox Rights Reply 
Comments at 2; Howard Initial Comments at 5; Rights Recapture 
Initial Comments at 1.
    \43\ See, e.g., MLC Initial Comments at 6; MLC Reply Comments at 
2; ClearBox Rights Initial Comments at 6; ClearBox Rights Reply 
Comments at 2; Howard Initial Comments at 5; King, Holmes, Paterno & 
Soriano LLP Initial Comments at 1.
    \44\ MLC Initial Comments at 6.
    \45\ Id. at 4-6 (citing 17 U.S.C. 115(d)(3)(G)).
    \46\ 17 U.S.C. 115(d)(3)(G)(i)(I)(bb). An ``individual download 
license'' is ``a compulsory license obtained by a record company to 
make and distribute, or authorize the making and distribution of, 
permanent downloads embodying a specific individual musical work.'' 
Id. at 115(e)(12).
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    The Office agrees that further official guidance on these issues is 
required. While some commenters express concern with the Office opining 
on issues beyond the blanket license,\47\ the Office is persuaded that 
doing so is necessary to enable the MLC to accurately carry out its 
core statutory function to match and distribute royalties to copyright 
owners.
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    \47\ See A2IM & RIAA Reply Comments at 2; MPA Reply Comments at 
2-5; NMPA Ex Parte Letter at 2-3 (Feb. 6, 2023).
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i. Matched Historical Royalties \48\
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    \48\ As discussed below in Parts II.D and E, the MLC's market-
share-based distributions of unclaimed royalties, including 
historical unmatched royalties that may become unclaimed royalties, 
are beyond the scope of this rulemaking.
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    The Office is inclined to conclude that the Exception does not 
apply to any matched historical royalties. Historical unmatched 
royalties were paid to the MLC by DMPs as one of the requirements for 
the statutory limitation on liability for pre-2021 unlicensed uses and 
not pursuant to the terms of any pre-2021 voluntary or statutory 
license.\49\ Instead, where a DMP could not identify and locate an 
applicable copyright owner, the statute directed the DMP to accrue and 
hold royalties at the statutory license rate and ultimately transfer 
such accrued royalties to the MLC if they remained unmatched as of 
January 1, 2021.\50\ Likewise, the MLC's distribution of historical 
unmatched

[[Page 65911]]

royalties is governed by the statute. Historical unmatched royalties 
that remain unmatched long enough to become unclaimed royalties are 
eligible to be distributed by relative market share,\51\ and historical 
unmatched royalties that become matched historical royalties are to be 
distributed to the ``copyright owner.'' \52\
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    \49\ 17 U.S.C. 115(d)(10); 37 CFR 210.10; see generally 86 FR 
2176 (Jan. 11, 2021).
    \50\ 17 U.S.C. 115(d)(10)(B)(iv); see 37 CFR 210.10.
    \51\ 17 U.S.C. 115(d)(3)(J).
    \52\ Id. at 115(d)(3)(I)(ii).
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    Terms of any pre-2021 license, including as those terms might 
otherwise apply through the Exception, appear to have no bearing on how 
the MLC must distribute matched historical royalties.\53\ This is 
because the accrual and transfer of historical unmatched royalties to 
the MLC and distribution of any such royalties by the MLC are governed 
by statute and the Office's regulations. Even if the Exception applied 
to a pre-2021 license, it would not affect the statutory directive that 
the MLC must distribute matched historical royalties to the ``copyright 
owner.'' \54\ The Office tentatively believes that, based on these 
facts, the Exception does not apply to matched historical royalties.
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    \53\ To be clear, as the Office previously explained, a pre-2021 
agreement can, however, affect the calculation of the accrued 
royalties required to be transferred to the MLC to be eligible for 
the limitation on liability. See 86 FR 2176, 2195 (``Only `accrued 
royalties' for uses of unmatched works must be transferred to the 
MLC, and these may not necessarily be the same as the royalties that 
would otherwise be attributable to such usage under the statutory 
rate in the absence of any voluntary agreements that may extinguish 
or alter such royalty obligations for certain uses of certain 
works.''); see also 37 CFR 210.10(c)(5)(i). The Office further notes 
that it expresses no opinion at this time as to whether the 
Exception may have any bearing on the calculation of relative market 
share for distributions of historical unmatched royalties that 
become unclaimed royalties. The distribution of unclaimed royalties 
is beyond the scope of this proceeding.
    \54\ 17 U.S.C. 115(d)(3)(I)(ii); see id. at 203(b)(1), 
304(c)(6)(A). This result would not necessarily bar a party from 
seeking to recover unpaid royalties, at the statutory rate, for pre-
2021 unlicensed uses from a relevant DMP, even if the DMP is 
shielded by the limitation on liability. Id. at 115(d)(10)(A).
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ii. Pre-2021 Statutory Mechanical Licenses
    Under the MMA's provisions governing the transition to the new 
blanket licensing regime, most pre-2021 statutory mechanical licenses 
do not appear to have continued in effect after the license 
availability date.\55\ Section 115(d)(9)(A) provides that ``[o]n the 
license availability date, a blanket license shall, without any 
interruption in license authority enjoyed by such [DMP], be 
automatically substituted for and supersede any existing compulsory 
license previously obtained under [section 115] by the [DMP].'' \56\ 
That provision then has an exception, where the substitution does not 
apply ``to any authority obtained from a record company pursuant to a 
compulsory license to make and distribute permanent downloads.'' \57\ 
Section 115(d)(9)(B) adds that, except as provided in section 
115(d)(9)(A), ``on and after the license availability date, licenses 
other than individual download licenses obtained under [section 115] 
for covered activities prior to the license availability date shall no 
longer continue in effect.'' \58\ Read together, with respect to 
covered activities, it appears that only record companies' pre-2021 
individual download licenses and the authority obtained from them by 
DMPs survived the license availability date.\59\ Because all other pre-
2021 statutory mechanical licenses to engage in covered activities are 
no longer in effect pursuant to their own terms (i.e., the statutory 
text), any application the Exception may or may not have had while they 
were in force seems to have no bearing on the MLC's distribution of 
royalties for post-2021 usage.\60\ The application of the Exception to 
both pre- and post-2021 individual download licenses is discussed in 
the next section.
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    \55\ Id. at 115(d)(9)(A)-(B).
    \56\ Id. at 115(d)(9)(A).
    \57\ Id.
    \58\ Id. at 115(d)(9)(B). ``Covered activity'' means ``the 
activity of making a digital phonorecord delivery of a musical work, 
including in the form of a permanent download, limited download, or 
interactive stream, where such activity qualifies for a compulsory 
license under [section 115].'' Id. at 115(e)(7).
    \59\ See H.R. Rep. No. 115-651, at 10 (2018) (``Because the new 
blanket license replaces the previous work-by-work compulsory 
license, the compulsory licenses obtained under notices of intent 
served on musical work copyright owners prior to the availability of 
the blanket license will no longer be valid.''); S. Rep. No. 115-
339, at 10 (2018) (same); Report and Section-by-Section Analysis of 
H.R. 1551 by the Chairmen and Ranking Members of Senate and House 
Judiciary Committees 8 (2018) (``Conf. Rep.''), https://www.copyright.gov/legislation/mma_conference_report.pdf (same).
    \60\ See 17 U.S.C. 203(b)(1), 304(c)(6)(A).
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iii. Individual Download Licenses
    The Office tentatively believes that its legal analysis in the NPRM 
for blanket licenses applies similarly to individual download licenses. 
First, as a type of statutory mechanical license, the analysis 
contained in Parts V.A.1 (discussing that the blanket license cannot be 
terminated) and V.A.3 (discussing that applying the Exception to the 
blanket license would lead to an extreme result) of the NPRM fully 
applies to individual download licenses for the same reasons as for 
blanket licenses.\61\ Second, the analysis under Part V.A.2 of the NPRM 
(discussing that derivative works generally are not prepared pursuant 
to the blanket license) also applies to the extent no sound recording 
derivative is actually prepared pursuant to the individual download 
license.\62\ In such cases, for the same reasons discussed in Part 
V.A.2 of the NPRM, the individual download license ``is not part of any 
preserved grants that make the Exception applicable.'' \63\ If sound 
recording derivatives are prepared pursuant to an individual download 
license, then the Exception still would not apply.\64\ As explained in 
Part V.A.1 of the NPRM, a self-executing statutory license, like an 
individual download license, cannot be terminated in the first 
place.\65\ Third, the analysis contained in Part V.B of the NPRM is 
essentially the same for individual download licenses as for blanket 
licenses.\66\ The only difference is that the relevant terms of the 
individual download license providing for payment to the ``copyright 
owner'' is in a different location from the relevant provisions about 
blanket licenses.\67\
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    \61\ See 87 FR 64405, 64410-11.
    \62\ See id.
    \63\ See id.
    \64\ See id.
    \65\ See id.
    \66\ See id. at 64411.
    \67\ Under the statute, a notice must be served on the 
``copyright owner'' to obtain an individual download license and 
payments must be made in accordance with section 115(c)(2)(I). 17 
U.S.C. 115(b)(2)(A), (3). Under section 115(c)(2)(I), royalties must 
be paid in accordance with the Office's regulations. Id. at 
115(c)(2)(I). Under the Office's regulations, individual download 
licenses are subject to the same payment regulations as other non-
blanket statutory mechanical licenses. 37 CFR 210.11. Under those 
regulations, payment is to be made to the ``copyright owner.'' Id. 
at 210.6(g).
---------------------------------------------------------------------------

    Based on the foregoing, the supplemental proposed rule provides 
that the Exception would not apply to individual download licenses for 
purposes of the MLC's efforts under section 115(d)(3)(G)(i)(I)(bb) and 
37 CFR 210.27(g)(2)(ii).
iv. Voluntary Licenses
    The application of the Exception to voluntary licenses requires 
consideration of additional questions in light of the variety of 
licenses that may exist. Because DMP voluntary licenses are not 
statutory mechanical licenses, parts of the Office's analysis in the 
NPRM specific to the nature of the blanket license as self-executing 
and to the particular text of section 115 (i.e., Parts V.A.1, V.A.3, 
and V.B) do not apply to them.\68\ The analysis contained in Part V.A.2 
of the NPRM, however, would generally apply ``where no sound recording 
derivative is prepared

[[Page 65912]]

pursuant to a DMP's [voluntary] license.'' \69\ In many cases, for the 
reasons discussed in the NPRM, ``that [voluntary] license is not part 
of any preserved grants that make the Exception applicable.'' \70\
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    \68\ See 87 FR 64405, 64410-11.
    \69\ See id. The Office emphasizes that, as noted above, even 
though it is relying on the preliminary analysis and conclusions 
detailed in the NPRM for purposes of this SNPRM, it is continuing to 
evaluate the comments concerning its legal analysis of the 
Exception. The Office welcomes further comments and legal discussion 
and, in particular, invites comments on the jurisprudence of the 
Second Circuit, including the decisions in Woods v. Bourne Co., 60 
F.3d 978 (2d Cir. 1995) and Fred Ahlert Music Corp. v. Warner/
Chappell Music, Inc., 155 F.3d 17 (2d Cir. 1998).
    \70\ See id. (referring generically to any DMP ``musical work 
licenses'' throughout the analysis).
---------------------------------------------------------------------------

    There may, however, be some situations where the result is 
different, such as where a DMP's voluntary license is a ``pass-
through'' license.\71\ In such cases, even if no sound recording 
derivative is prepared pursuant to the DMP's voluntary license, the 
pre-termination copyright owner may still be entitled to post-
termination royalties for uses made pursuant to such a license. The 
contractual payment terms between a DMP and a record company pursuant 
to a voluntary pass-through license could be preserved by the Exception 
along with other terms that are part of the same direct chain of 
successive grants providing authority to utilize the relevant sound 
recording derivatives (e.g., those among the songwriter, music 
publisher, and record company).\72\
---------------------------------------------------------------------------

    \71\ When the copyright owner of a musical work authorizes a 
record company (or someone else) to prepare a sound recording 
derivative of the musical work, the musical work copyright owner can 
also provide the record company with authority to engage in what is 
often referred to as ``pass-through'' licensing. See U.S. Copyright 
Office, Copyright and the Music Marketplace 131-32 (2015), https://copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf (discussing pass-through licensing and describing it 
as ``mimic[king] the traditional physical model, where record labels 
ship product to stores and report sales back to publishers''); 86 FR 
12822 (Mar. 5, 2021) (discussing prior rulemaking activity involving 
pass-through licenses). Such authority would allow the record 
company, to the extent permitted by its license with the musical 
work copyright owner, to license the rights it possesses in the 
underlying musical work to a third party, e.g., a DMP, as a part of 
utilizing the sound recording embodying that musical work. Thus, a 
DMP could potentially enter into a voluntary license with the record 
company instead of the musical work copyright owner for uses of the 
musical work. This is similar to how individual download licenses 
operate, whereby ``record labels [can] obtain and pass through 
[section 115] mechanical license rights [to DMPs] for individual 
permanent downloads.'' H.R. Rep. No. 115-651 at 4; S. Rep. No. 115-
339 at 4; Conf. Rep. at 3; see 17 U.S.C. 115(b)(3).
    \72\ See 17 U.S.C. 203(b)(1), 304(c)(6)(A); Mills Music, Inc., 
469 U.S. at 163-69.
---------------------------------------------------------------------------

    Additionally, and in contrast to blanket and other statutory 
mechanical licenses that cannot be terminated, if sound recording 
derivatives are in fact prepared by a DMP pursuant to a voluntary 
license before its termination, the Exception might apply to the extent 
of the voluntary license's terms. The Exception could allow the DMP's 
sound recording derivatives to ``continue to be utilized under the 
terms of the [voluntary license] after its termination.'' \73\
---------------------------------------------------------------------------

    \73\ See 17 U.S.C. 203(b)(1), 304(c)(6)(A).
---------------------------------------------------------------------------

    In sum, unlike statutory mechanical licenses, there are an 
innumerable variety of voluntary licenses and related underlying 
agreements that either currently exist or that could exist in the 
future. Consequently, the Office is inclined to conclude that it would 
not be prudent to attempt to craft a rule trying to account for how the 
Exception may or may not apply in every possible situation. Even if the 
Office could craft such a rule, it would be challenging, if not 
impossible, for the MLC to evaluate each and every voluntary license to 
determine the Exception's applicability based on whatever regulatory 
criteria the Office might adopt. Accordingly, the Office believes that 
the MLC should not exercise independent judgment regarding the 
application of the Exception to a voluntary license or its underlying 
grant of authority.\74\
---------------------------------------------------------------------------

    \74\ See The MLC, Dispute Policy: Musical Work Ownership, sec. 
1.2 (Feb. 2021) (``The Collective does not judge or resolve 
Conflicts or Disputes, or participate in the substantive resolution 
of Conflicts or Disputes.'').
---------------------------------------------------------------------------

    Instead of tasking the MLC with making such an evaluation, the 
Office proposes that the MLC only act as directed pursuant to either: 
(1) a notice from the copyright owner entitled to receive royalties 
from the MLC under the Office's regulations that designates an 
alternative royalty payee (such notices are discussed in Part II.F.1.iv 
below); or (2) the resolution of a dispute with respect to the 
applicability of the Exception to the relevant voluntary license or its 
underlying grant of authority. Under the supplemental proposed rule, 
the MLC's implementation of the Exception through its efforts under 
section 115(d)(3)(G)(i)(I)(bb) and 37 CFR 210.27(g)(2)(ii), to confirm 
uses of musical works subject to voluntary licenses and deduct 
corresponding amounts from royalties that would otherwise be due under 
the blanket license, would therefore depend on how the MLC is directed 
to act. In the absence of any such direction, the Office proposes that 
the Exception would not apply to the MLC's aforementioned efforts.
    The first type of direction the MLC may receive, from the copyright 
owner, is intended to accommodate situations where that owner may have 
contractually agreed to an alternative payment arrangement such that 
the MLC should act as if the Exception applies. The second type of 
direction the MLC may receive, pursuant to the resolution of a dispute, 
follows legal precedent holding that the pre-termination copyright 
owner has the burden of proving that the Exception applies.\75\ This 
approach would place the burden on the pre-termination copyright owner 
to initiate a dispute regarding the application of the Exception. As 
discussed below, after initiating a dispute, the MLC would hold 
relevant royalties and interest pending its resolution. If the 
resolution of the dispute--whether through settlement or adjudication--
requires the MLC to apply the Exception, then the MLC would be required 
to act as directed (see Part II.G.4 below discussing the resolution of 
disputes).
---------------------------------------------------------------------------

    \75\ Woods, 60 F.3d at 993-94; see Mills Music, Inc. v. Snyder, 
469 U.S. at 188 & n.20 (White, J., dissenting) (``In attempting to 
claim for itself the benefits of the [Exception], [the pre-
termination copyright owner] bears the burden of proof.''); see also 
Norman J. Singer & Shambie Singer, Sutherland Statutes & Statutory 
Construction sec. 47.11 (7th ed. 2014 & Supp. 2022) (explaining that 
``all courts do agree that those who claim the benefit of an 
exception have the burden of proving that they come within the 
limited class for whose benefit the exception was established,'' and 
collecting cases).
---------------------------------------------------------------------------

C. The Copyright Owner at the Time of the Use Versus the Copyright 
Owner at the Time of the Payment

    To codify its preliminary conclusion that the statute entitles the 
``current copyright owner'' to the royalties under the blanket license, 
the Office proposed in the NPRM 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.\76\ The NPRM explained the Office's reasoning 
for its proposal and sought comments on it, including whether some 
other point in time might be appropriate.\77\ The Office refers to the 
approach proposed in the NPRM as distributing royalties to ``the owner 
at the time of the use.''
---------------------------------------------------------------------------

    \76\ 87 FR 64405, 64411-12. The Office further explained that by 
``uses,'' the Office means the covered activities engaged in by DMPs 
under blanket licenses as reported to the MLC. Id. at 64412.
    \77\ Id. at 64412 (citing to sections 115(c)(1)(C) and 501(b)).

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

[[Page 65913]]

    Commenters largely agree with the proposed approach.\78\ NMPA and 
the Church Music Publishers Association (``CMPA'') propose a different 
approach. Instead of distributing royalties to the owner at the time of 
the use, they suggest that royalties should be distributed to the 
copyright owner as of the date of the MLC's relevant distribution--
regardless of when the related use occurred.\79\ The Office refers to 
this approach as distributing royalties to ``the owner at the time of 
the payment.'' NMPA and CMPA state that this approach is better for 
terminating songwriters because they would be the owner at the time of 
the payment for any post-termination adjustments to pre-termination 
periods.\80\ NMPA and CMPA refer to distributing royalties to the owner 
at the time of the payment as ``industry practice,'' \81\ though NMPA 
later commented that ``under current industry practice, once an 
ownership transfer occurs, the party receiving subsequent adjustment 
payments for usage of a musical work that occurred prior to the 
transfer is typically handled pursuant to the agreement between the 
previous owner and the new owner of the work.'' \82\ The MLC adds that, 
``as is standard in the industry, royalties from general reprocessing 
are normally paid to the current copyright owner, regardless of the 
usage month at issue.'' \83\
---------------------------------------------------------------------------

    \78\ See, e.g., ClearBox Rights Initial Comments at 8 
(``Attempting to identify, calculate and pay royalties by a specific 
day of the month in which the musical work was streamed based on the 
actual termination date would be administratively cumbersome and 
ripe for disputes.''); Howard Initial Comments at 3; King, Holmes, 
Paterno & Soriano LLP Initial Comments at 1; Miller Initial Comments 
at 1; NSAI Initial Comments at 3; SGA et al. Initial Comments at 2, 
5.
    \79\ NMPA Initial Comments at 5-6; CMPA Initial Comments at 2.
    \80\ NMPA Initial Comments at 6; CMPA Initial Comments at 2.
    \81\ NMPA Initial Comments at 6 (explaining that ``any 
adjustments or other payments made after an ownership transfer are 
paid to the new owner of the composition, including for usage that 
occurred prior to the transfer''); CMPA Initial Comments at 2.
    \82\ NMPA Ex Parte Letter at 3 (Feb. 6, 2023); see also id. at 4 
(``NMPA's draft legislation would have required the copyright owner 
at the time of the usage to be paid for subsequent adjustments.'').
    \83\ MLC Initial Comments at 9 n.9.
---------------------------------------------------------------------------

    Regardless of whatever the industry norm may be under voluntary 
agreements, the Office remains inclined to believe that the owner at 
the time of the use is the more appropriate payee under the blanket 
license, absent an agreement to the contrary. While the right to 
royalties can be assigned via contract independently of ownership in 
the copyright,\84\ that has no bearing on who the proper payee is where 
no such agreement exists. In response to the claim that distributing 
royalties to the owner at the time of the payment benefits terminating 
songwriters, the Office notes that it is not seeking to adopt a rule 
that is limited to the termination context. The Office is proposing a 
rule to govern all MLC distributions under the blanket license, 
including in contexts where ownership may be transferred by means other 
than statutory termination.\85\
---------------------------------------------------------------------------

    \84\ See, e.g., William F. Patry, 6 Patry on Copyright, sec. 
21:19 (2023) (``An agreement to share royalties, or even assigning 
all rights to royalties is not a `transfer of copyright'; instead, 
it is merely a right to proceeds flowing from exploitation of an 
exclusive right.'').
    \85\ See ClearBox Rights Ex Parte Letter at 4 (June 28, 2023) 
(stating that ``the same rules should apply for songs which have 
ownership transferred in methods other than through terminations'' 
and that ``if a song is sold from one person to another, the person 
who owns the work at the end of the reporting period should be 
entitled to the royalties'').
---------------------------------------------------------------------------

    While the statute does not explicitly address whether the proper 
payee is the owner at the time of the use or the owner at the time of 
the payment, various statutory provisions support the Office's view. 
Under section 115(c)(1)(C), the payable royalties under the blanket 
license are for ``every digital phonorecord delivery of a musical work 
made under [the blanket] license.'' \86\ Thus, where the statute refers 
to distributing royalties to the ``copyright owner,'' it most logically 
means the copyright owner at the time that the applicable digital 
phonorecord delivery is made.\87\ This understanding is supported by 
sections 115(d)(4)(E)(ii)(II) and 501(b). Under section 
115(d)(4)(E)(ii)(II), where a DMP's blanket license is terminated by 
the MLC, ``[s]uch termination renders the making of all digital 
phonorecord deliveries of all musical works (and shares thereof) 
covered by the blanket license for which the royalty . . . has not been 
paid actionable as acts of infringement under section 501.'' \88\ 
Section 501(b) provides that ``[t]he 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.'' \89\ Read together, it appears that, 
absent an agreement to the contrary,\90\ the copyright owner who can 
sue a DMP for infringement due to non-payment of royalties under the 
blanket license is the copyright owner at the time the infringement was 
committed--i.e., at the time of the use. It, therefore, seems 
reasonable to the Office for that owner to be the one to whom such 
royalties are paid by the MLC.\91\
---------------------------------------------------------------------------

    \86\ 17 U.S.C. 115(c)(1)(C).
    \87\ See, e.g., id. at 115(d)(3)(G)(i)(I)-(III), (d)(3)(I).
    \88\ Id. at 115(d)(4)(E)(ii)(II).
    \89\ Id. at 501(b).
    \90\ Courts have held that a `` `copyright owner can assign its 
copyright but, if the accrued causes of action are not expressly 
included in the assignment, the assignee will not be able to 
prosecute them.' . . . In the event that accrued claims are not 
expressly included in the assignment, `the assignor retains the 
right to bring actions accruing during its ownership of the right, 
even if the actions are brought subsequent to the assignment.' '' 
John Wiley & Sons, Inc. v. DRK Photo, 882 F.3d 394, 404 (2d Cir. 
2018) (quoting ABKCO Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 
971, 980 (2d Cir. 1991)); see also NMPA Ex Parte Letter at 5 (Feb. 
6, 2023) (explaining that ``who has the right to sue for 
infringement for activity occurring prior to the ownership change'' 
would ``be addressed by private contract'').
    \91\ The Office declines to propose the changes suggested by 
ClearBox Rights to (1) omit the word ``monthly'' before ``reporting 
period'' in case DMPs report semi-monthly, and (2) to clarify that 
the relevant reporting period is the ``period of the [DMP's] actual 
activity, and not the . . . period in which the MLC received and/or 
distributed the royalties.'' ClearBox Rights Ex Parte Letter at 4-5 
(June 28, 2023). Regarding the first suggestion, the statute does 
not contemplate semi-monthly reporting. 17 U.S.C. 115(c)(2)(I), 
(d)(4)(A)(i). On the second suggestion, the Office believes the 
supplemental proposed rule is sufficiently clear, as it refers to 
the period ``in which such musical work is used.''
---------------------------------------------------------------------------

    The Office's conclusion that the owner at the time of the use is 
the more appropriate payee under the statutory mechanical license is 
not a new one. It reached the same conclusion under the pre-MMA version 
of the statute almost a decade ago.\92\ There, the Office determined 
that while ``[t]he transactions transferring copyright ownership may 
provide for a different result as a matter of private contract,'' 
``absent such an arrangement, any underpayment or overpayment stemming 
from the reconciliation of final performance royalty payments may 
properly be attributable to the copyright owner at the time of the 
relevant use of the statutory license.'' \93\
---------------------------------------------------------------------------

    \92\ 79 FR 56190, 56193 (Sept. 18, 2014).
    \93\ 79 FR 56190, 56193.
---------------------------------------------------------------------------

    With respect to private agreements, the Office is inclined to agree 
with NMPA that it is important ``to allow parties to agree by contract 
to a different payment arrangement and provide letters of direction to 
the MLC pursuant to those agreements.'' \94\ Therefore, the 
supplemental proposed rule would only establish the owner at the time 
of the use as the default payee--i.e., the proper payee to whom the MLC 
must distribute royalties and any other related amounts under the 
blanket license in the absence of an agreement to the contrary. As 
discussed below in Part II.F, the

[[Page 65914]]

supplemental proposed rule is designed to accommodate and give effect 
to contractual payment arrangements that deviate from this default 
rule.
---------------------------------------------------------------------------

    \94\ NMPA Ex Parte Letter at 4. (Feb. 6, 2023).
---------------------------------------------------------------------------

D. Unclaimed Royalties

    Commenters raise various questions about the MLC's distribution of 
unclaimed royalties.\95\ With respect to the market-share-based 
distributions of unclaimed royalties, the Office proposes to clarify 
that the reporting and payment regulations in Sec.  210.29 do not 
apply, as that section governs MLC distributions of royalties for 
matched works.\96\ Beyond this clarification, the Office views the 
market-share-based distributions of unclaimed royalties as beyond the 
scope of this proceeding.
---------------------------------------------------------------------------

    \95\ See, e.g., ClearBox Rights Reply Comments at 4-5; ClearBox 
Rights Ex Parte Letter at 5 (June 28, 2023); NMPA Initial Comments 
at 6 n.10; North Music Grp. Reply Comments at 2; McAnally & North Ex 
Parte Letter at 6-7 (Mar. 14, 2023).
    \96\ With this clarification, the supplemental proposed rule 
removes as redundant the reference to section 115(d)(3)(J) proposed 
in Sec.  210.29(b)(4)(i) of the NPRM.
---------------------------------------------------------------------------

E. Matched Historical Royalties

    Similarly, commenters raise questions about the proposed rule and 
matched historical royalties.\97\ Here, the Office proposes to clarify 
that Sec.  210.29 does apply and the MLC must report and distribute 
matched historical royalties in the same manner and subject to the same 
requirements that apply to the reporting and distribution of blanket 
license royalties. To avoid any confusion, the Office proposes to 
further clarify that matched historical royalties should be treated as 
accrued royalties distributable under Sec.  210.29(b)(1)(ii). They 
would need to be included in applicable royalty statements and 
separately identified and broken out from blanket license royalties so 
copyright owners can easily ascertain the nature and source of the 
payment made to them by the MLC. The Office proposes this approach 
because, at least based on the current record, it generally sees no 
reason to treat the reporting and distributing of matched historical 
royalties and blanket license royalties differently.
---------------------------------------------------------------------------

    \97\ See, e.g., NMPA Ex Parte Letter at 4 (Feb. 6, 2023); CMPA 
Initial Comments at 2.
---------------------------------------------------------------------------

    This would include the payee proposal discussed in Part II.C above, 
whereby the MLC would distribute royalties to the copyright owner at 
the time of the use, as opposed to the owner at the time of the 
payment. Despite this proposal, the Office is inclined to agree with 
NMPA that, given the age of some of the historical usage, there likely 
will be greater difficulty in identifying and locating historical 
copyright owners, and that requiring the MLC to pay the owner at the 
time of the use ``may result in lower match rates and lower payouts of 
historic unmatched royalties, even where the current copyright owner is 
known, because the MLC may have possibly incomplete or unreliable 
historical ownership data.'' \98\ The Office also recognizes Congress's 
clear interest in generally ``reduc[ing] the incidence of unclaimed 
royalties.'' \99\ Therefore, it seeks comments regarding whether it 
should consider drawing a distinction between matched historical 
royalties and blanket license royalties when it comes to the royalty 
payee. For example, the MLC could be permitted to distribute matched 
historical royalties to the copyright owner at the time of the payment 
when the owner at the time of the use cannot be located and identified. 
The Office further seeks comments on whether it has the authority to 
adopt such a distinction or any other approach commenters may wish to 
propose. For example, would it be appropriate to consider works matched 
to the owner at the time of the payment, rather than the owner at the 
time of the use, as being ``matched'' within the meaning of the 
statute, or does the statute require that such works be considered 
``unmatched'' and subject to eventual market-share-based distributions?
---------------------------------------------------------------------------

    \98\ See NMPA Ex Parte Letter at 4 (Feb. 6, 2023).
    \99\ See Public Law 115-264, tit. I, sec. 102(f)(1), 132 Stat. 
at 3722; 17 U.S.C. 115(d)(3)(H)(i).
---------------------------------------------------------------------------

F. Ownership Transfers and Other Changes to the Royalty Payee

    Several commenters, including the MLC, seek additional guidance 
from the Office on procedures concerning notice, documentation, timing, 
and other matters relating to the MLC's implementation of a termination 
notification.\100\ Having considered these comments, the Office agrees 
that further guidance would be helpful to stakeholders. Specifically, 
the Office proposes to adopt regulations governing the MLC's 
administration of all transfers of copyright ownership and other 
changes to the royalty payee entitled to distributions from the MLC. 
The Office believes such a rule will help establish standards and 
settle expectations for all parties with respect to such distributions.
---------------------------------------------------------------------------

    \100\ See, e.g., MLC Initial Comments at 10-11; ClearBox Rights 
Initial Comments at 8; ClearBox Rights Reply Comments at 5-6; Howard 
Initial Comments at 3-5; Howard Reply Comments at 2-3; SGA et al. 
Initial Comments at 2, 6-8.
---------------------------------------------------------------------------

    Under the supplemental proposed rule, current Sec.  210.30--
addressing a temporary exception to certain DMP reporting requirements 
with a deadline that passed over two years ago--would be repealed and 
replaced with an entirely new Sec.  210.30. Under paragraph (b) of the 
newly proposed Sec.  210.30, the MLC would be prohibited from taking 
any action to implement or give effect to a change in the royalty payee 
unless it receives a notice about the change that complies with the 
requirements of proposed paragraph (c) or is acting in connection with 
the resolution of a dispute under proposed paragraph (f).\101\ Where 
the requirements of proposed paragraph (c) are satisfied, the MLC would 
be required to implement and give effect to the change in payee in 
accordance with the provisions of proposed paragraph (d).
---------------------------------------------------------------------------

    \101\ Proposed paragraph (f) is discussed below in Part II.G.4.
---------------------------------------------------------------------------

1. Notice of a Change to the MLC
    Under proposed paragraph (c), the MLC would need to be 
appropriately notified in writing about any change in the royalty 
payee. The supplemental proposed rule would establish detailed and 
tailored notice requirements based on the type of payee change. Several 
of the proposed requirements--such as those about submission and 
receipt, certification and signature, and the identification of the 
relevant parties and musical works--are similar to the regulations 
governing the notices of license that DMPs must submit to the MLC to 
obtain a blanket license.\102\ Those requirements seem to be working in 
the DMP context and there are sufficient parallels between the two 
types of notices that the Office proposes to adopt them here. The 
Office encourages the MLC to develop an electronic form to assist 
submitters in completing notices about a change in payee.
---------------------------------------------------------------------------

    \102\ See 37 CFR 210.24(b), (b)(8), (c), (d). The Office's 
rationale for originally adopting those requirements can be found in 
the record of that proceeding. 85 FR 22518, 22519-21; 85 FR 58114, 
58116-18.
---------------------------------------------------------------------------

i. Transfers of Copyright Ownership Other Than by Will or Operation of 
Law
    Proposed paragraph (c)(1) addresses the requirements for a change 
in payee due to a transfer of copyright ownership other than by will or 
operation of law. Accordingly, these requirements would apply to a 
contractual assignment of the copyright in the relevant musical work, 
but not a reversion of the copyright resulting from the statutory 
termination of a prior grant concerning the work. The Office proposes 
that notices for the transfers covered by paragraph (c)(1) must 
include: (1) all relevant dates required for the MLC to properly 
implement and give effect to the transfer; (2) information identifying 
the

[[Page 65915]]

transferor (i.e., the prior musical work copyright owner); (3) 
information identifying the transferee (i.e., the new musical work 
copyright owner); and (4) either (i) an identification satisfactory to 
the MLC of any applicable catalog exclusions from the transfer (which 
may state that there are no such exclusions, and that, therefore, the 
whole catalog is subject to the transfer) or (ii) a list of all 
transferred musical works identified by appropriate unique identifiers.
    The Office further proposes that the required notice must be 
submitted and signed by the transferor or its representative certifying 
the accuracy of the information provided. This proposal is intended to 
reduce both the possibility of fraudulent notices and the effort 
required by the MLC to verify transfer claims where notice of the 
transfer is provided solely by a purported transferee.
    Where there are multiple transferors or transferees, the notice 
would also need to identify any applicable ownership shares for the 
transferred works. Where there are multiple transferors, the notice 
would be effective only as to those transferors whose information is 
provided in the notice and whom have signed and certified the notice. 
Where there are multiple transferees, the notice would be effective 
only as to those transferees whose information is provided in the 
notice.
ii. Transfers of Copyright Ownership by Statutory Termination
    Proposed paragraph (c)(2) addresses the requirements for a change 
in payee due to a transfer of copyright ownership resulting from an 
effective termination under section 203 or 304. The Office proposes 
that the required notice for this type of payee change must include the 
following requirements: (1) a copy of the statutorily required notice 
of termination submitted to the Office for recordation; \103\ (2) a 
copy of the statement of service submitted to the Office for 
recordation, if one was submitted; \104\ (3) either (i) proof that the 
notice of termination was recorded in the Office before the effective 
date of termination, or (ii) if the Office has not yet recorded the 
notice, proof that the notice was submitted to the Office for 
recordation, so long as proof of timely recordation is delivered to the 
MLC at a later date; \105\ and (4) information identifying the 
terminating party (i.e., the new musical work copyright owner).
---------------------------------------------------------------------------

    \103\ See 37 CFR 201.10(f)(1)(i)(A).
    \104\ See id. at 201.10(f)(1)(i)(B).
    \105\ See 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A) (``A copy of the 
notice shall be recorded in the Copyright Office before the 
effective date of termination, as a condition to its taking 
effect.'').
---------------------------------------------------------------------------

    With respect to the first three items, the supplemental proposed 
rule would make clear that it is not necessary to provide the MLC with 
official Copyright Office certifications for this information. If the 
MLC has good reason to doubt the authenticity of the information 
provided, it should seek verification from the Office. Where the 
supplemental proposed rule refers to providing proof of recordation or 
proof of submission for recordation, the Office means more than a 
declaration by the terminating party or its representative. Adequate 
proof of timely recordation could be demonstrated by either providing 
the MLC with a copy of the certificate of recordation or the record as 
reflected in the Office's online public catalog. Adequate proof of 
submission to the Office for recordation could take the form of courier 
tracking or a delivery confirmation, a return receipt from the 
Office,\106\ or some other communication from the Office confirming 
receipt.\107\
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    \106\ See 37 CFR 201.10(f)(2)(iii).
    \107\ Proof of submission would not need to include proof of 
proper fee payment to the Office because an incorrect fee can be 
remedied without affecting the relevant date of recordation. Id. at 
201.10(f)(3).
---------------------------------------------------------------------------

    The MLC requests the inclusion of additional information and 
documentation.\108\ The Office declines to propose these additional 
requirements. It agrees with other commenters that the MLC's requests 
exceed what is necessary to effectuate a statutory termination under 
the law.\109\ The Office also shares commenters' concerns about the 
ability of terminating parties to provide some of what the MLC 
requests.\110\ The Office continues to ``remain convinced that the 
required contents of the notice [of termination] must not become unduly 
burdensome to grantors, authors, or their successors, and must 
recognize that entirely legitimate reasons may exist for gaps in their 
knowledge and certainty.'' \111\ The intent of the Office's proposal is 
to generally provide the MLC with the necessary information to process 
the termination without unduly burdening terminating parties.\112\
---------------------------------------------------------------------------

    \108\ MLC Initial Comments at 11 (proposing, among other things, 
documents sufficient to ``identify the grants that the post-
termination claimant claims have been terminated by the relevant 
termination notice'' and to ``show that the post-termination 
claimant or its assignor owns the termination interest'').
    \109\ ClearBox Rights Reply Comments at 5-6; Howard Reply 
Comments at 2-3; see 17 U.S.C. 203, 304(c); 37 CFR 201.10; U.S. 
Copyright Office, Compendium of U.S. Copyright Office Practices, 
sec. 2310.3(D)(1)(c) (3d ed. 2021) (``In most cases, the party 
issuing the notice of termination may not have a copy of the grant 
that is being terminated or may not have access to a copy. For these 
reasons, the terminating party does not need to identify the 
location of the grant, offer to produce a copy of the grant, or 
attach a copy of the grant to the notice.'').
    \110\ Howard Reply Comments at 2-3 (describing the MLC's 
proposal as ``a list of documents that will be impossible for an 
author or his/her statutory heirs to provide''); see ClearBox Rights 
Reply Comments at 5-6.
    \111\ 42 FR 45916, 45918 (Sept. 13, 1977); see id. at 45917 
(``[T]he preparation of notice of termination will be occurring at a 
time far removed from the original creation and publication of a 
work and, in many cases, will involve successors of original authors 
having little, if any, knowledge of the details of original creation 
or publication.''); id. at 45918 (recognizing that ``it will 
commonly be the case that the terminating author, or [other 
terminating party], will not have a copy of the grant or ready 
access to a copy'').
    \112\ For example, the Office's regulations governing the 
content of statutory notices of termination already provide for an 
identification of each: (1) grant, 37 CFR 201.10(b)(1)(iv), 
(b)(2)(v); (2) pre-termination copyright owner, 37 CFR 
201.10(b)(1)(ii), (b)(2)(ii), (d)(2); (3) terminating party, 37 CFR 
201.10(b)(1)(vii), (b)(2)(vii), (c)(2)-(3); (4) work, 37 CFR 
201.10(b)(1)(iii), (b)(2)(iv); and (5) effective date of 
termination, 37 CFR 201.10(b)(1)(v), (b)(2)(vi).
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    The Office appreciates that part of the MLC's proposal is geared at 
``maintaining basic fraud protection and avoiding unnecessary 
disputes.'' \113\ While the Office supports those aims, it is concerned 
that the MLC's proposed measures could result in legitimate terminating 
parties being unable to exercise their rights because they are unable 
to provide the information the MLC seeks. Instead, the Office proposes 
a notice and dispute process as an alternative means of achieving the 
MLC's stated goals in this context.
---------------------------------------------------------------------------

    \113\ MLC Initial Comments at 11.
---------------------------------------------------------------------------

    Evaluating and potentially disputing a termination on the merits is 
the duty of the pre-termination copyright owner, not the MLC. The 
proposed notice and dispute process (discussed in more detail below) 
would provide the pre-termination copyright owner with an opportunity 
to dispute a termination before the MLC would be required to implement 
it, thereby reducing the likelihood of the MLC acting on a fraudulent 
notice.\114\
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    \114\ The Office also notes that with respect to fraud, federal 
law prohibits (and may punish with fine or imprisonment), ``in any 
matter within the jurisdiction of the executive, legislative, or 
judicial branch of the Government of the United States,'' the making 
of any ``knowingly and willfully'' ``materially false, fictitious, 
or fraudulent statement or representation'' or the provision of 
``any false writing or document knowing the same to contain any 
materially false, fictitious, or fraudulent statement or entry.'' 18 
U.S.C. 1001(a)(3). This provision applies to submissions to the 
Office, including where a notice of termination is submitted for 
recordation.
---------------------------------------------------------------------------

    Nevertheless, the Office recognizes that a valid notice of 
termination might not provide the MLC with sufficient information to 
process and implement the ownership change. In those cases, the Office 
proposes that the MLC should

[[Page 65916]]

engage in best efforts to identify the minimum necessary information, 
including through correspondence with both the terminating party and 
pre-termination copyright owner (or their respective representatives). 
This may be a better approach than requiring terminating parties to 
provide additional information to the MLC at the outset that they may 
not readily have and which may not be needed to implement the change.
    Similar to other transfers, the Office proposes that the required 
notice must be submitted and signed by either the terminating party or 
the pre-termination copyright owner (or their respective 
representatives) certifying the accuracy of the information 
provided.\115\ The Office agrees with ClearBox Rights that a 
terminating party should not be ``held hostage'' by needing to wait for 
a pre-termination copyright owner's acknowledgement that the 
termination is valid and effective before the MLC can act on the 
notice.\116\ At the same time, however, the Office believes that pre-
termination copyright owners must have a fair opportunity to dispute 
the validity of a termination where the MLC is notified of the payee 
change unilaterally by the terminating party.
---------------------------------------------------------------------------

    \115\ The Office declines to propose Linda Edell Howard's 
suggestion to require the pre-termination copyright owner to be the 
one to notify the MLC of the termination. Howard Initial Comments at 
4. While the supplemental proposed rule would permit the pre-
termination owner to provide the notice, the Office does not propose 
to require that they be the one to provide it, in part, because it 
is not clear what the remedy for noncompliance would be.
    \116\ ClearBox Rights Initial Comments at 8; see also ClearBox 
Rights Reply Comments at 6; Howard Reply Comment at 3 (``[T]he 
default should be reversion of rights and royalties to the 
termination owners and the burden placed on the publisher to bring 
suit to challenge a Notice before the MLC could ignore one.'').
---------------------------------------------------------------------------

    Therefore, if the notice to the MLC is submitted by the terminating 
party, the Office proposes additional requirements similar to those 
suggested by ClearBox Rights.\117\ First, the MLC would be required to 
inform the pre-termination copyright owner about the notice within 15 
days of receiving either the notice or the last piece of information 
necessary for the MLC to implement the change, whichever is later. 
Second, after being so notified, a pre-termination copyright owner who 
disputes the termination would have 30 days to initiate its dispute 
with the MLC. Third, if the pre-termination copyright owner does not 
initiate a dispute within the allotted time, then the MLC would be 
required to implement and give effect to the ownership transfer 
resulting from the termination in accordance with the proposed 
implementation requirements discussed in Part II.F.2 below. The 
supplemental proposed rule would make clear that even if the pre-
termination copyright owner misses the regulatory deadline and the MLC 
implements the change, nothing prevents that owner from disputing the 
termination with the MLC at a later date or challenging the termination 
in court. The purpose of the proposal is not to limit a pre-termination 
copyright owner's right or ability to oppose a purported termination, 
but rather to help ensure that the implementation of a terminating 
party's notification to the MLC is not unduly delayed by a pre-
termination copyright owner's inaction.\118\
---------------------------------------------------------------------------

    \117\ See ClearBox Rights Reply Comments at 6.
    \118\ See ClearBox Rights Initial Comments at 8 (``There is very 
little incentive for the pre-termination owner to send an 
acknowledgement, and even if they don't have an issue with doing so, 
administratively it could take them weeks, months, or in some cases, 
years.'').
---------------------------------------------------------------------------

    Where there are multiple terminating parties or pre-termination 
copyright owners, the notice would need to identify any applicable 
ownership shares for the works subject to the termination. Where there 
are multiple terminating parties, the notice would be effective only as 
to those terminating parties whose information is provided in the 
notice. Also, the Office proposes that where there are multiple 
terminating parties, a notice that is signed and certified by any one 
of them would be sufficient as to all terminating parties. The Office 
invites comments on this proposal.
iii. Other Transfers of Copyright Ownership
    Proposed paragraph (c)(3) addresses changes in payees due to any 
other type of ownership transfer, such as a transfer by will or through 
intestate succession. For these types of changes, the Office declines 
to propose any specific requirements at this time, but welcomes 
comments on whether it should adopt any. Under the supplemental 
proposed rule, such changes would be subject to any additional 
reasonable notice requirements established by the MLC.
iv. Designating an Alternative Royalty Payee
    The last type of payee change covered under proposed paragraph (c) 
involves the circumstance where the copyright owner entitled to receive 
royalties from the MLC under the Office's regulations \119\ designates 
an alternative royalty payee to whom the MLC must distribute the 
royalties instead. This part of the supplemental proposed rule would 
apply where there is no transfer of copyright ownership. Instead, it 
addresses the situation where the regulatorily entitled copyright owner 
might voluntarily elect or be compelled by private agreement to request 
that the MLC distribute the royalties to someone else--e.g., a party 
contractually entitled to such royalties. The Office proposes this 
process as the means by which the supplemental proposed rule would 
accommodate and give effect to contractual payment arrangements that 
deviate from the proposed default payee rules discussed above.\120\
---------------------------------------------------------------------------

    \119\ This would include regulations governing both blanket 
license royalties and matched historical royalties.
    \120\ See NMPA Ex Parte Letter at 4 (Feb. 6, 2023) (requesting 
that the rule ``allow parties to agree by contract to a different 
payment arrangement and provide letters of direction to the MLC 
pursuant to those agreements'').
---------------------------------------------------------------------------

    The proposed notice requirements for this type of payee change are 
similar to the requirements for contractual ownership transfers 
discussed above. The Office proposes that the required notice must 
include: (1) all relevant dates required for the MLC to properly 
implement and give effect to the request; (2) information identifying 
the copyright owner entitled to receive royalties from the MLC under 
the Office's regulations; (3) information identifying the current 
royalty payee if different from such copyright owner (i.e., the 
previously designated royalty payee who is being superseded by a new 
designated payee); (4) information identifying the designated royalty 
payee (i.e., the new payee designated by the relevant copyright owner 
to receive royalty distributions from the MLC that would otherwise be 
paid to such owner under the Office's regulations); and (5) either (i) 
an identification satisfactory to the MLC of any applicable catalog 
exclusions from the request (which may state that there are no such 
exclusions, and that, therefore, the whole catalog is subject to the 
request) or (ii) a list of all musical works subject to the request 
identified by appropriate unique identifiers.
    The Office proposes that the required notice must be submitted and 
signed by the copyright owner entitled to receive royalties from the 
MLC or its representative certifying the accuracy of the information 
provided. Where there are multiple copyright owners or designated 
royalty payees, the notice would also need to identify any applicable 
ownership shares for the relevant works. Where there are multiple 
copyright owners, the notice would be effective only as to those owners 
whose information is provided in the notice and whom have signed and

[[Page 65917]]

certified the notice. Where there are multiple designated royalty 
payees, the notice would be effective only as to those payees whose 
information is provided in the notice.
    In addition to the foregoing, the Office proposes to adopt the 
Songwriters Guild of America et al.'s (``SGA et al.'s'') proposal for 
the scenario where the MLC is asked by the terminating party to 
implement an agreement directing the MLC to pay post-termination 
royalties to the pre-termination copyright owner.\121\ SGA et al. 
states that, without additional safeguards, it ``will inadvertently 
open the door to . . . acts of contractual overreaching by 
publishers,'' and that the ``execution of `anticipatory [letters of 
direction]' as part of publishing agreements has become common 
practice.'' \122\ Based on the current record, the proposal seems to be 
a reasonable safeguard, even if there is no such overreach at present.
---------------------------------------------------------------------------

    \121\ SGA et al. Initial Comments at 2, 6-8.
    \122\ Id. at 2, 7-8 (``[T]he coerced signing by an author of 
such [a letter of direction] concerning the disposition by the MLC 
of post-termination royalties--as a pre-condition set by the 
publisher for execution of the underlying publishing agreement with 
such author--is easily within the future scope of imaginable, 
attempted publisher overreach should the Proposed Rulemaking be 
adopted without amendment.''); see also Howard Reply Comments at 2 
(agreeing with SGA et al.'s proposal and the reasons behind it).
---------------------------------------------------------------------------

    Consequently, the Office proposes that where the relevant copyright 
owner is the terminating party and the designated royalty payee is the 
pre-termination copyright owner, the following additional notice 
requirements should apply: (1) the notice must be signed after the 
effective date of termination; (2) the notice must acknowledge the 
deviation from the standard royalty payee under the Office's 
regulations; and (3) the notice must provide that neither the notice 
nor the distribution of royalties by the MLC in accordance with the 
notice prejudices the legal rights of either party.
v. Multiple Changes
    The Office proposes that where multiple ownership transfers occur 
prior to providing notice of the change to the MLC, a compliant notice 
for each transfer in the chain must be delivered to the MLC. For 
example, where there is a termination followed by an assignment of the 
copyright in the musical work, both a notice for the termination and a 
notice for the subsequent assignment would need to be provided. 
Similarly, the Office proposes that where an ownership transfer and a 
request to designate or change an alternative royalty payee are 
related, a compliant notice for both the transfer and request must be 
delivered to the MLC. For example, where there is an assignment of the 
copyright in the musical work that includes a contractual right for the 
new owner to also be entitled to future royalty distributions for 
periods predating the transfer, both a notice for the assignment and a 
notice for the designation of the alternative royalty payee would need 
to be provided.
    The Office proposes these requirements to assist the MLC in 
verifying claimed changes in payees and to further the MLC's duty to 
maintain an accurate public database of musical works and their owners. 
This includes tracking historical changes in ownership.\123\
---------------------------------------------------------------------------

    \123\ 37 CFR 210.31(f).
---------------------------------------------------------------------------

2. Implementation of a Change by the MLC
    Proposed paragraph (d) sets out how the MLC would need to implement 
and give effect to a change in payee.
i. Timing
    The Office agrees with the MLC that some amount of processing time 
must be given between the time when the MLC receives the notice and the 
time by which the change must be implemented.\124\ As the MLC 
requests,\125\ and based on the Office's current rules governing its 
processing of DMP voluntary licenses,\126\ the Office proposes to give 
the MLC at least 30 days to operationalize a payee change.
---------------------------------------------------------------------------

    \124\ MLC Initial Comments at 10-11.
    \125\ Id.; see also ClearBox Rights Reply Comments at 5 
(agreeing ``that a minimum 30-day notice of a termination be 
required before the MLC has to implement the requested actions'').
    \126\ 37 CFR 210.24(f) (``[T]he mechanical licensing collective 
shall not be required to undertake any obligations otherwise imposed 
on it by this subpart with respect to any voluntary license for 
which the collective has not received the description required by 
paragraph (b)(8) of this section at least 30 calendar days prior to 
the delivery of a report of usage for such period, but such 
obligations attach and are ongoing with respect to such license for 
subsequent periods.'').
---------------------------------------------------------------------------

    The supplemental proposed rule contains two scenarios of general 
applicability. The first covers where the MLC receives a compliant 
notice before the start of the first monthly reporting period to begin 
after the relevant change is effective. In such cases, the MLC would 
need to implement and give effect to the change beginning with the 
first distribution of royalties for that reporting period.\127\
---------------------------------------------------------------------------

    \127\ For example, if the MLC receives a notice of a contractual 
ownership transfer on September 20, 2023, for a transfer that, under 
the terms of the agreement, is effective on September 1, 2023, then 
the MLC would need to implement the change starting with the January 
2024 royalty distribution (because the first monthly reporting 
period to commence after the effective date of the transfer would be 
the October 2023 reporting period, and the first distribution of 
royalties for that period would occur in January 2024).
---------------------------------------------------------------------------

    The second scenario covers where the MLC receives the notice on or 
after the start of that reporting period. In those cases, the MLC would 
need to implement and give effect to the change beginning no later than 
the first distribution of royalties based on the first ``payee 
snapshot'' taken by the MLC at least 30 days after it receives the 
notice.\128\ By ``payee snapshot,'' the Office means the royalty payee 
information contained in the MLC's records as of a particular date that 
it will use for a particular monthly royalty distribution. According to 
the MLC, it currently takes the payee snapshot 10 days after the end of 
the monthly reporting period, and it is this information that it uses 
to make the royalty distribution for that reporting period, which 
occurs about 65 days later.\129\
---------------------------------------------------------------------------

    \128\ For example, if the MLC receives a notice of a contractual 
ownership transfer on October 15, 2023, for a transfer that, under 
the terms of the agreement, is effective on September 1, 2023, then 
the MLC would need to implement the change no later than the 
February 2024 royalty distribution (because the first payee snapshot 
to occur at least 30 days after the MLC's receipt of the notice 
would be the December 2023 snapshot, which would be for the November 
2023 reporting period, and the first distribution of royalties for 
that period would occur in February 2024).
    \129\ The MLC, Blanket Royalty Distributions, https://www.themlc.com/blanket-payments (last visited Sept. 20, 2023).
---------------------------------------------------------------------------

    The supplemental proposal rule also contains a variant of both of 
these scenarios to accommodate the additional 45 days needed for the 
notice and dispute mechanism discussed above regarding a pre-
termination copyright owner's ability to initiate a dispute with the 
MLC.
ii. Additional Provisions for Termination-Related Changes
    The supplemental proposed rule contains two additional MLC 
implementation provisions concerning termination-related changes. 
First, the Office proposes that where the MLC needs additional 
information to implement the change and such information is received 
after the notice, the timing requirements discussed above would apply 
based on the date that the MLC receives the last piece of necessary 
information.
    The second provision relates to where a compliant notice is 
accompanied by proof that the statutory notice of termination was 
submitted to the Office for recordation, but not proof that it was 
timely recorded. The supplemental proposed rule would prohibit the MLC

[[Page 65918]]

from implementing any termination unless and until proof of timely 
recordation is received.\130\ It would also make clear that the 
eventual receipt of proof that the statutory notice has been timely 
recorded should be treated as a type of additional information with 
respect to the timing of the MLC's implementation.
---------------------------------------------------------------------------

    \130\ See 17 U.S.C. 203(a)(4)(A), 304(c)(4)(A) (``A copy of the 
notice shall be recorded in the Copyright Office before the 
effective date of termination, as a condition to its taking 
effect.'').
---------------------------------------------------------------------------

    Even though the MLC would not implement the termination, to 
accommodate the fact that recordation is not an automatic process, the 
Office proposes that, after receiving notice that submission to the 
Office for recordation has been made, the MLC hold applicable royalties 
pending receipt of proof of timely recordation. After the MLC receives 
proof of timely recordation, it would need to implement the change in 
accordance with the above-discussed requirements, which would include 
distributing the held funds to the terminating party. If, on the other 
hand, the Office refuses to record the notice or the notice is recorded 
on or after the effective date of termination, and the termination is 
not effective, then the MLC would need to release the held funds to the 
pre-termination copyright owner. Under the supplemental proposed rule, 
if proof of timely recordation is not received within 6 months, the MLC 
would need to contact the Office to confirm the status of the relevant 
recordation submission and then act accordingly.
iii. Effect of Implementation
    Multiple commenters, including the MLC, raise the issue of whether 
the MLC's implementation of a payee change should only be forward-
looking or whether the MLC should be required to implement the change 
going back to the effective date of the change, regardless of when it 
implements it.\131\ For example, Linda Edell Howard explains that in 
the termination context ``there will be a substantial delay in 
notifying the MLC (sometimes years) as to the correct and legal 
owner(s) of the copyright,'' and expresses concern that, as a result, 
there is ``little doubt the MLC will innocently misdirect royalty 
payments'' to the pre-termination copyright owner.\132\ The MLC states 
that implementation ``on a retroactive basis would require The MLC to 
design, implement, and manage a new, manual process to benefit a small 
group of members that would divert the limited resources of The MLC 
from critical services and activities that benefit all copyright 
owners.'' \133\
---------------------------------------------------------------------------

    \131\ See, e.g., MLC Initial Comments at 8; MLC Reply Comments 
at 2; Howard Initial Comments at 3-4; ClearBox Rights Ex Parte 
Letter at 5 (June 28, 2023).
    \132\ Howard Initial Comments at 3-4.
    \133\ MLC Initial Comments at 8; see also MLC Reply Comments at 
2.
---------------------------------------------------------------------------

    The Office welcomes further comments on this issue, including with 
regard to Linda Edell Howard's termination-related concerns and what is 
standard in the industry. At this time, the Office is inclined to agree 
with the MLC that retroactive implementation may be too 
administratively burdensome to require for every payee change. Notably, 
the Office only requires prospective implementation with respect to the 
MLC's processing of DMP voluntary licenses.\134\ The Office does not, 
however, wish to foreclose the possibility that there may be certain 
payee changes that the MLC could implement retroactively with little or 
no difficulty. Therefore, where a relevant change is effective prior to 
the MLC's implementation of it, the Office proposes to permit, but not 
require, the MLC to implement the change going back to its effective 
date, if the notice to the MLC requests it.\135\
---------------------------------------------------------------------------

    \134\ 37 CFR 210.24(f) (``[T]he mechanical licensing collective 
shall not be required to undertake any obligations otherwise imposed 
on it by this subpart with respect to any voluntary license for 
which the collective has not received the description required by 
paragraph (b)(8) of this section at least 30 calendar days prior to 
the delivery of a report of usage for such period, but such 
obligations attach and are ongoing with respect to such license for 
subsequent periods.'').
    \135\ The Office declines to propose Linda Edell Howard's 
suggested solution involving the Office's records. Howard Initial 
Comments at 4. At least based on the current record, it is not clear 
how the mechanics of that proposal would work in practice.
---------------------------------------------------------------------------

    Relatedly, the Office proposes a savings clause to help allay Linda 
Edell Howard's concern that the pre-termination copyright owner ``will 
claim they were the `copyright owner' of record as of the last day of 
the monthly reporting period (because of the terminating party's delay) 
and refuse to turn over the misdirected royalties to the rightful 
copyright owners.'' \136\ The proposed savings clause would make clear 
that even though the MLC may not be required to implement a change 
going back to its effective date, that fact does not affect a party's 
right to royalties previously distributed by the MLC to someone else or 
that party's ability to collect those royalties from that prior 
payee.\137\ For example, if the MLC is not required to implement a 
payee change until six months after it is effective, the MLC would have 
made several royalty distributions to the prior payee instead of the 
new payee. The fact that the supplemental proposed rule would not 
require the MLC to recover the previously distributed royalties from 
the prior payee and redistribute them to the new payee does not mean 
that the new payee is not still legally entitled to those royalties or 
cannot seek to collect them from the prior payee.
---------------------------------------------------------------------------

    \136\ Id. at 3.
    \137\ To be clear, this proposed provision does not address the 
situation where the MLC simply makes a mistake. Where the MLC 
distributes royalties to the wrong payee due to an error on the 
MLC's part (as opposed to where the MLC does not receive 
sufficiently advanced notice of a payee change to implement it 
before it is effective), the MLC must correct its error in a timely 
fashion.
---------------------------------------------------------------------------

G. Disputes

    The MLC requests guidance from the Office on several matters 
relating to termination-related disputes.\138\ The Office proposes to 
provide such guidance and to further elaborate on other dispute-related 
issues where it believes regulations would be helpful.
---------------------------------------------------------------------------

    \138\ MLC Initial Comments at 11-14.
---------------------------------------------------------------------------

1. Royalty Holds
    The MLC requests guidance ``as to the types of disputes concerning 
termination claims for which The MLC should place relevant royalties on 
hold pending resolution.'' \139\ It also states that its ``general 
policy is to place royalties on hold when a legal proceeding is 
commenced that would impact the proper payee for those royalties,'' and 
asks the Office for clarification if it disagrees.\140\
---------------------------------------------------------------------------

    \139\ Id. at 11-12.
    \140\ Id. at 12.
---------------------------------------------------------------------------

    Under section 115(d)(3)(K)(i), the MLC must ``establish policies 
and procedures'' ``for copyright owners to address in a timely and 
equitable manner disputes relating to ownership interests in musical 
works licensed under this section and allocation and distribution of 
royalties by the mechanical licensing collective.'' \141\ Section 
115(d)(3)(K)(ii) then requires the MLC's ``policies and procedures'' to 
``include a mechanism to hold disputed funds . . . pending resolution 
of the dispute.'' \142\ Therefore, if there is a bona fide dispute 
among purported copyright owners over the ownership of a musical work 
(or share), the applicable funds must be held pending resolution of the 
dispute.\143\ Because a dispute as to the

[[Page 65919]]

validity of a statutory termination--regardless of the grounds for the 
dispute--is a dispute as to the identity of the rightful copyright 
owner, it is an ownership dispute for which the MLC must hold 
applicable royalties.
---------------------------------------------------------------------------

    \141\ 17 U.S.C. 115(d)(3)(K)(i).
    \142\ Id. at 115(d)(3)(K)(ii).
    \143\ In the NPRM, the Office proposed that the MLC be permitted 
to distribute royalties as directed ``by the mutual written 
agreement of the parties to an ownership dispute.'' 87 FR 64405, 
64412. The supplemental proposed rule would not allow this. On 
reflection, the Office is concerned about the administrative 
challenges that could ensue if distributed royalties need to be 
recovered. The Office, thus, seeks further comments on this issue, 
including as to whether it is permissible under the statute. See 17 
U.S.C. 115(d)(3)(K)(ii).
---------------------------------------------------------------------------

    In contrast, a dispute as to the application of the Exception is 
not a dispute over ownership, but rather over the legal effect of a 
concededly valid termination. The Office's final analysis and 
conclusions on the law in the current proceeding will govern the MLC's 
treatment of the Exception. As a result, a disagreement over the 
application of the Exception would generally not constitute grounds for 
the MLC to hold related royalties. There are, however, two potential 
exceptions.
    The first is where litigation is commenced over the issue. In such 
cases--as with any type of dispute that is subject to a legal 
proceeding--the MLC should hold all applicable royalties pending the 
outcome of the proceeding unless the adjudicator orders otherwise. 
While the statute may not compel the MLC to implement legal holds in 
disputes unrelated to ownership, the Office believes it is prudent for 
the MLC to hold royalties whenever a litigation or other formal dispute 
procedure (e.g., arbitration) is initiated that implicates the 
disposition of royalties.
    Second, based on the Office's initial analysis, it recognizes that 
the Exception could potentially apply to at least some types of DMP 
voluntary licenses. Consequently, the Office proposes that a pre-
termination copyright owner be able to initiate a dispute with the MLC 
over the application of the Exception to a particular voluntary license 
or its underlying grant of authority, and that the MLC should hold 
applicable royalties pending resolution of such a dispute.
2. Process and Documentation for Termination-Related Disputes
    Under the supplemental proposed rule, only the pre-termination 
copyright owner or its representative would be permitted to initiate a 
termination-related dispute with the MLC. A terminating party would not 
need to initiate such a dispute because it would always have the 
ability to submit the notice of a payee change to the MLC that would 
obligate the MLC to implement the termination in the absence of a 
dispute.
    The Office agrees with the MLC that a pre-termination copyright 
owner should provide certain information to initiate the dispute and 
substantiate that it is bona fide.\144\ The Office proposes 
requirements similar to those suggested by the MLC, but with some 
additions.\145\ It proposes that the minimum information that must be 
delivered to the MLC to substantiate, and trigger a royalty hold for, a 
dispute as to the validity of a termination consists of: (1) a detailed 
explanation of the grounds for the dispute; (2) documentation 
sufficient to support those grounds, consisting of copies of (i) each 
grant in dispute, (ii) any other document necessary to support the 
grounds for the dispute, and (iii) any other reasonable information 
required by the MLC's dispute policy; (3) an identification 
satisfactory to the MLC of each musical work in dispute; and (4) an 
appropriate certification regarding the accuracy of the information 
made by the submitter.
---------------------------------------------------------------------------

    \144\ MLC Initial Comments at 13.
    \145\ Id. (listing proposed requirements).
---------------------------------------------------------------------------

    Where the dispute is over the application of the Exception to a 
voluntary license, the Office proposes to additionally require: (1) a 
copy of each voluntary license at issue; (2) an identification 
satisfactory to the MLC of each relevant sound recording that 
constitutes a derivative work prepared with appropriate authority; and 
(3) the date of preparation for each such sound recording, which must 
be before the effective date of termination.
    The Office proposes that any and all documentation provided to the 
MLC in connection with a termination-related dispute be shared with all 
parties to the dispute. If a party to the dispute is not a party or a 
successor to a party to an otherwise confidential document, then the 
supplemental proposed rule would require the disclosure to be subject 
to that party's acceptance of an appropriate written confidentiality 
agreement. The Office believes that all parties to a dispute have a 
right to know the basis for the dispute and to see the other party's 
supporting evidence. The proposed approach seeks to safeguard that 
right while ensuring that confidential information is not made public.
3. Disclosure and Confidentiality
    The MLC seeks guidance as to whether it ``should be required to 
disclose information about the royalties being held to the parties 
involved,'' stating that it ``typically does not disclose the amount of 
royalties on hold to the parties in a dispute pending agreement or 
resolution of a dispute.'' \146\ The Office is inclined to agree with 
ClearBox Rights that the MLC should disclose information about such 
royalties to the parties to a dispute.\147\ All parties to the dispute 
should know the amount in controversy so that they are on equal footing 
in developing a strategy for resolving the dispute, including the 
negotiation of a settlement. Therefore, the Office proposes an 
exception to its confidentiality regulations to clarify that such 
disclosures are required.
---------------------------------------------------------------------------

    \146\ Id. at 13-14.
    \147\ ClearBox Rights Reply Comments at 6.
---------------------------------------------------------------------------

    The supplemental proposed rule would further recognize that there 
are other circumstances, unrelated to an ownership dispute, where the 
MLC may put amounts on hold. In such cases, including where the MLC 
initiates the hold unilaterally (e.g., in connection with an 
investigation),\148\ the affected parties should have a right to know 
the grounds for the hold.
---------------------------------------------------------------------------

    \148\ See Letter from U.S. Copyright Office to The MLC (Apr. 20, 
2023), https://copyright.gov/ai/USCO-Guidance-Letter-to-The-MLC-Letter-on-AI-Created-Works.pdf.
---------------------------------------------------------------------------

    The supplemental proposed rule, thus, would require that where the 
MLC is holding royalties or other monies, it must disclose the amount 
being held and the reason for the hold to anyone with a bona fide legal 
claim to the funds. More specifically, the Office proposes that the MLC 
provide the equivalent of monthly royalty statements for the amounts 
held along with monthly updates concerning the status of the hold. The 
Office encourages the MLC to disclose required information and provide 
updates through its member portal.
4. Dispute Resolution
    Though not raised by the commenters, the Office proposes 
regulations governing the resolution of disputes among purported 
copyright owners or royalty payees and the associated release of held 
funds. The Office proposes these regulations to provide certainty to 
both the MLC and disputing parties about what constitutes the 
resolution of a dispute, how held funds should be released, and how the 
MLC should implement any related change in payee that results from the 
resolution of the dispute. The Office also believes that it may be 
useful to adopt a rule to prevent the MLC having to hold disputed funds 
indefinitely. Indeed, the statute requires disputes to be ``address[ed] 
in a timely and equitable manner.'' \149\
---------------------------------------------------------------------------

    \149\ 17 U.S.C. 115(d)(3)(K)(i).
---------------------------------------------------------------------------

    Accordingly, the supplemental proposed rule contemplates three 
scenarios. The first is where the dispute is resolved through the 
mutual

[[Page 65920]]

agreement of the relevant parties. In such cases, released funds would 
be paid in accordance with the agreement. If the agreement changes the 
royalty payee, then the release of the held funds would be subject to 
the same notice and implementation requirements discussed above in Part 
II.F, except that payments would need to be made for applicable 
reporting periods predating the MLC's implementation of the change.
    The second scenario is where the dispute is resolved by order of an 
adjudicative body (e.g., a court or arbitrator). In such cases, 
released funds would be paid in accordance with the order. The MLC's 
implementation of any associated payee change would be in accordance 
with the order, rather than the above-discussed notice and 
implementation requirements. Absent a stay issued by the adjudicatory 
body, the appeal or request for reconsideration of such order would not 
delay the distribution of the affected monies.
    The last scenario is focused on preventing disputed funds from 
being held indefinitely. It would enforce a proposed requirement that 
all funds held by the MLC pursuant to a dispute among purported 
copyright owners or royalty payees be subject to active dispute 
resolution by the relevant parties.\150\ It would do so by providing 
that if the disputed funds have been held for at least one year, and no 
legal proceeding has been commenced, then during every subsequent 6-
month period the parties to the dispute would need to submit a jointly 
signed notice to the MLC stating that they are continuing to engage in 
active dispute resolution. If the MLC does not receive such notice, it 
would be required to release the funds to the party who would have 
received them if the funds had not been placed on hold. This would put 
the onus on the party who initiates the dispute to eventually commence 
a legal proceeding to maintain the hold. The Office proposes this 
approach because the initiating party is the one seeking to change the 
status quo. It welcomes comments on this proposal, including whether 
there are any industry analogues to consider.
---------------------------------------------------------------------------

    \150\ To be clear, this proposal would not cover other types of 
potential disputes that may arise in connection with the MLC's 
administration of the blanket license, such as a dispute involving a 
DMP or the MLC itself.
---------------------------------------------------------------------------

H. Corrective Royalty Adjustment

    In the NPRM, the Office proposed to require the MLC to adjust any 
royalties distributed under its (now-suspended) termination dispute 
policy within 90 days.\151\ The Office explained that the purpose of 
this proposal is to make copyright owners whole for any distributions 
the MLC made based on an erroneous understanding and application of the 
Exception.\152\
---------------------------------------------------------------------------

    \151\ 87 FR 64405, 64412.
    \152\ Id.
---------------------------------------------------------------------------

    In response, several commenters, including the MLC, seek further 
guidance from the Office as to how the proposed corrective royalty 
adjustment should work.\153\ For example, Promopub states that the 
adjustment process ``may take an unacceptably long time if the MLC must 
recoup sums from publishers whose other mechanical royalties are 
insufficient for full and prompt recoupment. In such instances, it may 
be appropriate to require such publishers to return the royalties 
received in error from their own funds rather than extending the 
adjustment period.'' \154\ ClearBox Rights says that the MLC ``should 
be responsible to recoup all payments known to have been incorrectly 
made to original publishers for effectively terminated works, and 
should not wait until recoupment of the sums incorrectly paid before 
paying the correct royalties to the terminated owners.'' \155\ ClearBox 
Rights explains that this ``is standard operating procedure for many if 
not most of the publishers in the industry when incorrect payments are 
made.'' \156\ ClearBox Rights further states that ``it is fair that any 
party that was ultimately overpaid in error, including publishers, 
writers, and other third party recipients, should be eligible to have 
their overpaid royalties recouped from future funds in order to correct 
the issue.'' \157\
---------------------------------------------------------------------------

    \153\ See, e.g., MLC Initial Comments at 6-8; ClearBox Rights 
Reply Comments at 3-4; ClearBox Rights Ex Parte Letter at 2-4 (June 
28, 2023); Howard Initial Comments at 6; Promopub Initial Comments 
at 2; Promopub Reply Comments at 3; North Music Grp. Reply Comments 
at 2.
    \154\ Promopub Initial Comments at 2.
    \155\ ClearBox Rights Ex Parte Letter at 4 (June 28, 2023) 
(proposing that the MLC `` `borrow' from the unallocated, 
unidentified funds pool'').
    \156\ Id.
    \157\ Id.
---------------------------------------------------------------------------

    The MLC requests that the Office make clear that the MLC ``is not 
required to pay [previously distributed] royalties to a new payee until 
The MLC is able to fully recover those royalties from the previously-
paid payee.'' \158\ The MLC further asks the Office to confirm that it 
``may recover those royalties at any time from any funds payable to the 
previously-paid payee, since there may not be any additional royalties 
payable to that payee for the works in question given that such payee's 
rights to those works have now been terminated.'' \159\ The MLC, as 
well as other commenters, also raise questions about the recovery of 
royalties from publishers who have already distributed a portion of 
those royalties to songwriters.\160\ Additionally, commenters disagree 
over how complicated and burdensome it might be to administer the 
corrective royalty adjustment, with some opposing the proposed 
adjustment on this basis.\161\
---------------------------------------------------------------------------

    \158\ MLC Initial Comments at 7.
    \159\ Id. at 7-8.
    \160\ See, e.g., MLC Initial Comments at 7-8; ClearBox Rights 
Reply Comments at 3-4; ClearBox Rights Ex Parte Letter at 3-4 (June 
28, 2023); Promopub Reply Comments at 3; NMPA Initial Comments at 5; 
CMPA Initial Comments at 2; McAnally & North Ex Parte Letter at 5-6, 
9 (Mar. 14, 2023).
    \161\ See, e.g., ClearBox Rights Reply Comments at 3-4; ClearBox 
Rights Ex Parte Letter at 2-4 (June 28, 2023) (stating that 
``[c]ompanies like ClearBox Rights . . . do these types of 
calculations all the time'' and that it ``is laughable'' to suggest 
the process would be burdensome for the MLC); SONA et al. Reply 
Comments at 3 (``It is not `undue hardship' to request a government-
mandated body undertake a retroactive accounting--not where such an 
outcome could and should have been avoided by the very body that 
would undertake such an accounting.''); Promopub Reply Comments at 3 
(``We are confident that most, if not all, of the publishers who 
have benefitted from the Policy . . . have the means to promptly 
refund all royalties paid them in error[.]''); McAnally & North Ex 
Parte Letter at 3-4 (Mar. 14, 2023) (``Any suggestion that 
publishers cannot render retroactive payments or that doing so would 
be so difficult the process should require a change in the law is 
inconsistent with our lived experience.''); Howard Reply Comments at 
2; NMPA Initial Comments at 5 (``This would create a significant 
administrative and financial burden on the MLC, as well as on 
publishers or other recipients of these royalty payments who likely 
already distributed some portion of those amounts pursuant to their 
contractual obligations with their songwriters.''); CMPA Initial 
Comments at 2 (``[T]he likelihood of recovering what was previously 
paid out to the songwriter(s) in order to create an accounting to 
the post-termination owner, whether or not that be the songwriter(s) 
themselves, would be both unlikely, and an onerous obligation to 
place on the pre-termination publisher.'').
---------------------------------------------------------------------------

    Based on its review of these comments to date, the Office proposes 
to replace its original proposed rule with a more detailed one that 
would lay out the operational procedures for the corrective royalty 
adjustment. In making this proposal, the Office reiterates that it is 
continuing to evaluate comments regarding its authority to adopt 
regulations concerning a corrective royalty adjustment and welcomes 
further comments on the subject. By seeking comments on the revised 
proposal, the Office does not mean to suggest that it has reached any 
final conclusions about its authority to adopt the proposal.
    While the Office welcomes comments on the relative burdens 
associated with its proposal versus some alternative adjustment 
process, it is inclined to disagree with commenters suggesting that 
there should not be any corrective adjustment because of the potential

[[Page 65921]]

burdens involved. Corrective royalty adjustments are common in the 
music industry \162\ and explicitly contemplated by the statute and the 
Office's existing regulations.\163\ Nothing in the current record 
suggests that this adjustment would be any more or less burdensome than 
others, whether for the MLC, publishers, or songwriters. Indeed, the 
MLC's own guidelines provide that adjustments, including ``a correction 
of an overpayment,'' ``may be made by The MLC retroactively to January 
1, 2021 (i.e., the License Availability Date).'' \164\
---------------------------------------------------------------------------

    \162\ See, e.g., Promopub Reply Comments at 2 (``[T]he concept 
of retroactive royalty adjustments is one with which the NMPA's 
members should be familiar because other collecting organizations 
regularly employ retroactive royalty adjustments when music 
publishing royalties have been paid erroneously.''); McAnally & 
North Ex Parte Letter at 3-5 (Mar. 14, 2023) (explaining that ``it 
is of the essence of the role of publishers large and small, 
including collectives like The MLC, to be able to make allocation 
corrections involving adjusting debits and credits,'' that ``[t]hese 
adjustments necessarily require retroactive payments,'' and that 
``these bread-and-butter adjustments [are] a matter of routine 
practice'').
    \163\ 17 U.S.C. 115(d)(4)(A)(iv)(II); 37 CFR 210.10(k), 
210.27(k).
    \164\ The MLC, Guidelines for Adjustments secs. 2.1, 3.4 (Jan. 
2022), https://f-hubspotuser-content40.net/hubfs/8718396/files/2022-02/MLC%20Guidelines%20for%20Adjustments.pdf.
---------------------------------------------------------------------------

    For similar reasons, the Office declines to propose any specific 
procedures at this time regarding where a publisher has already 
distributed a portion of the applicable royalties to its songwriters. 
That is a possibility with any type of adjustment for an overpayment. 
For example, at least one commenter asserts that ``many of the standard 
songwriter agreements allow the publishers to recoup any overpayment 
made by the publishers to the writers.'' \165\ The Office welcomes 
further comments on this issue, including on the feasibility of 
ClearBox Rights' proposal that the MLC only recoup the publisher's 
share.\166\
---------------------------------------------------------------------------

    \165\ ClearBox Rights Ex Parte Letter at 4 (June 28, 2023).
    \166\ See id. at 3-4; ClearBox Rights Reply Comments at 3-4.
---------------------------------------------------------------------------

    The Office's proposal reflects its preliminary conclusions about 
the Exception discussed above in Part II.B. Under the supplemental 
proposed rule, the corrective adjustment would apply where the MLC's 
prior erroneous application of the Exception, whether or not through 
its termination dispute policy, affected: (1) the distribution of 
blanket license royalties or matched historical royalties; (2) the 
holding of such royalties; \167\ or (3) the deduction from a DMP's 
payable blanket license royalties made by matching usage to voluntary 
licenses or individual download licenses.
---------------------------------------------------------------------------

    \167\ The Office proposes to include held royalties to reflect 
the fact that the MLC states that it is presently holding applicable 
royalties pending the outcome of the current rulemaking proceeding. 
See The MLC, Policies, https://www.themlc.com/dispute-policy (last 
visited Sept. 20, 2023).
---------------------------------------------------------------------------

    With respect to previous distributions, the MLC would be required 
to recover any overpayment from the prior payee and distribute it to 
the proper payee (i.e., the payee legally entitled to the royalties 
under the correct interpretation of the Exception under current law). 
The MLC would have thirty days from publication of the final rule to 
notify the prior payee of the overpayment, and then the prior payee 
would have thirty days to return it. If the prior payee fails to do so, 
then the MLC would be required to debit its future royalties, for all 
works (and shares), until the full amount of the overpayment is 
recovered. The Office proposes that the debit be limited to 50% of 
payable amounts to the prior payee each month.
    While the Office is sympathetic to commenters calling for the 
corrective adjustment to be made quickly, it is also concerned that 
smaller publishers, who may no longer be in possession of the 
applicable funds, may be unable to repay the full overpayment all at 
once or financially withstand the debiting of most of their mechanical 
royalties each month. Additionally, the Office does not propose that 
the MLC should borrow against the pool of unclaimed royalties.\168\ 
Assuming, without deciding, that the statute would even allow it,\169\ 
the Office does not believe it would be prudent for the MLC to do so at 
this time. The total sum of such royalties is not yet known because of 
the adjustments DMPs will be making in connection with the recent final 
determination in the Copyright Royalty Judges' Phonorecords III Remand 
proceeding.
---------------------------------------------------------------------------

    \168\ See, e.g., ClearBox Rights Ex Parte Letter at 4 (June 28, 
2023) (proposing that the MLC ```borrow' from the unallocated, 
unidentified funds pool'').
    \169\ See 17 U.S.C. 115(d)(7)(C).
---------------------------------------------------------------------------

    With respect to deducted royalties related to voluntary licenses or 
individual download licenses, the Office proposes that the same 
recovery procedures apply as for previously distributed royalties. For 
such purposes, the prior payee from whom the MLC would need to recover 
the royalties would be the copyright owner to whom the relevant usage 
was originally (and erroneously) matched. As for royalties the MLC is 
already holding, the supplemental proposed rule would give it thirty 
days after the effective date of the final rule to distribute them to 
the proper payee.
    Lastly, the supplemental proposed rule would clarify that the 
Office's adoption of the corrective adjustment mechanism would not 
prejudice the proper payee's right or ability to otherwise recover the 
overpayment from the prior payee outside of the above-described 
process. If the overpayment, however, is recovered directly or a legal 
proceeding is commenced, the MLC would need to be notified by the 
parties. The MLC would then be required to discontinue the above-
described recovery efforts.\170\
---------------------------------------------------------------------------

    \170\ The Office proposes that the same rule also apply if there 
is a bona fide dispute regarding the application of the Exception to 
a relevant voluntary license or its underlying grant of authority.
---------------------------------------------------------------------------

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.  210.22 as follows:
0
a. Redesignate paragraphs (d), (e), (f), (g), (h), (i), and (j) as 
paragraphs (e), (g), (h), (i), (j), (m), and (n), respectively.
0
b. Add paragraphs (d), (f), (k), and (l).
    The additions read as follows:


Sec.  210.22  Definitions.

* * * * *
    (d) The term derivative works exception means the limitations 
contained in 17 U.S.C. 203(b)(1) and 304(c)(6)(A).
* * * * *
    (f) The term historical unmatched royalties means the accrued 
royalties transferred to the mechanical licensing collective by digital 
music providers pursuant to 17 U.S.C. 115(d)(10) and Sec.  210.10.
* * * * *
    (k) The term matched historical royalties means historical 
unmatched royalties attributable to a musical work (or share thereof) 
matched after being transferred to the mechanical licensing collective.
    (l) The term pre-termination copyright owner means the owner of the 
relevant copyright immediately prior to:

[[Page 65922]]

    (1) The effective date of termination for an effective termination 
under 17 U.S.C. 203 or 304; or
    (2) The purported effective date of termination for a claimed, 
disputed, or invalid termination under 17 U.S.C. 203 or 304.
* * * * *
0
3. Amend Sec.  210.27 as follows:
0
a. Redesignate paragraph (g)(2)(ii) as paragraph (g)(2)(ii)(A).
0
b. Add paragraph (g)(2)(ii)(B).
    The addition reads as follows:


Sec.  210.27  Reports of usage and payment for blanket licensees.

* * * * *
    (g) * * *
    (2) * * *
    (ii)(A) * * *
    (B) To the extent applicable to the mechanical licensing 
collective's efforts under paragraph (g)(2)(ii)(A) of this section:
    (1) The derivative works exception does not apply to any individual 
download license and no individual or entity may be construed as the 
copyright owner or royalty payee of a musical work (or share thereof) 
used pursuant to any such license based on the derivative works 
exception.
    (2) The derivative works exception does not apply to any voluntary 
license and no individual or entity may be construed as the copyright 
owner or royalty payee of a musical work (or share thereof) used 
pursuant to any such license based on the derivative works exception, 
unless and only to the extent that the mechanical licensing collective 
is directed otherwise pursuant to:
    (i) The resolution of a dispute under Sec.  210.30(f) regarding the 
application of the derivative works exception to a particular voluntary 
license or its underlying grant of authority; or
    (ii) A notice submitted under Sec.  210.30(c)(4) designating or 
changing an alternative royalty payee.
* * * * *
0
4. Amend Sec.  210.29 as follows:
0
a. In paragraph (a):
0
i. Remove ``reporting obligations'' and add in its place ``reporting 
and payment obligations''.
0
ii. Add two sentences at the end of the paragraph.
0
b. Add paragraphs (b)(4), (j), and (k).
    The additions read as follows:


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

    (a) * * * This section also prescribes reporting and payment 
obligations of the mechanical licensing collective to copyright owners 
for the distribution of matched historical royalties. This section does 
not apply to distributions of unclaimed accrued royalties under 17 
U.S.C. 115(d)(3)(J).
    (b) * * *
    (4)(i)(A) 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.
    (B) The derivative works exception does not apply to any blanket 
license and no individual or entity may be construed as the copyright 
owner or royalty payee of a musical work (or share thereof) used 
pursuant to a blanket license based on the derivative works exception.
    (ii) Subject to the requirements of and except to the extent 
permitted by Sec.  210.30, the mechanical licensing collective shall 
not distribute royalties in a manner inconsistent with paragraph 
(b)(4)(i) of this section.
* * * * *
    (j) Matched historical royalties. The mechanical licensing 
collective shall report and distribute matched historical royalties and 
related accrued interest and adjustments in the same manner and subject 
to the same requirements as apply to the reporting and distribution of 
royalties for musical works licensed under the blanket license, as if 
such matched historical royalties were royalties payable for musical 
works licensed under the blanket license, but subject to the following 
clarifications:
    (1) Matched historical royalties shall be treated as accrued 
royalties distributable under paragraph (b)(1)(ii) of this section and 
shall be separately identified in applicable royalty statements.
    (2) With respect to the requirements of paragraph (b)(2) of this 
section, royalty distributions based on adjustments to matched 
historical royalties reflected in cumulative statements of account 
delivered to the mechanical licensing collective by digital music 
providers pursuant to Sec.  210.10(b)(3)(i) shall be made by the 
mechanical licensing collective at least once annually, upon submission 
of one or more statements of adjustment delivered to the mechanical 
licensing collective by digital music providers pursuant to Sec.  
210.10(k), to the extent any such statement of adjustment is delivered 
to the mechanical licensing collective during such annual period.
    (k) Corrective royalty adjustment. Any distribution under paragraph 
(b) of this section (including any distribution of matched historical 
royalties, including related accrued interest or adjustments) or 
deduction under Sec.  210.27(g)(2)(ii) made by the mechanical licensing 
collective before [EFFECTIVE DATE OF FINAL RULE] and based on an 
application of the derivative works exception that is inconsistent with 
paragraph (b)(4)(i) of this section (including as such paragraph 
applies to matched historical royalties through paragraph (j) of this 
section) or Sec.  210.27(g)(2)(ii), as each of those provisions exist 
on [EFFECTIVE DATE OF FINAL RULE], shall be adjusted by the mechanical 
licensing collective. Such adjustment shall also apply to any amounts 
held by the mechanical licensing collective in connection with such 
application of the derivative works exception as of [EFFECTIVE DATE OF 
FINAL RULE]. The adjustment shall be made as follows:
    (1) To the extent required by this paragraph (k), where a royalty 
payee (the prior payee) received amounts from the mechanical licensing 
collective that such prior payee would not have received had the 
distribution been made in a manner consistent with the application of 
the derivative works exception embodied in paragraph (b)(4)(i) of this 
section, the mechanical licensing collective shall recover such 
overpayment from such prior payee and shall distribute it to the 
royalty payee (the proper payee) who is entitled to such funds under 
the application of the derivative works exception embodied in paragraph 
(b)(4)(i) of this section. The following requirements shall apply to 
the recovery and distribution of any such overpayment:
    (i) The mechanical licensing collective shall notify the prior 
payee of such overpayment no later than [EFFECTIVE DATE OF FINAL RULE], 
and request that the prior payee return such overpayment no later than 
30 calendar days after receipt of the notice. Any returned amounts 
shall be distributed to the proper payee with the next regular monthly 
royalty distribution.
    (ii) If such overpayment is not returned in full in accordance with 
paragraph (k)(1)(i) of this section, then beginning with the first 
distribution of royalties to occur after the deadline specified in that 
paragraph, 50 percent of any and all accrued royalties and other 
distributable amounts (e.g.,

[[Page 65923]]

accrued interest) that would otherwise be payable to the prior payee 
from the mechanical licensing collective each month, regardless of the 
associated work (or share), shall instead be distributed to the proper 
payee until such time as the full amount of the overpayment is 
recovered. Where more than one proper payee is entitled to a corrective 
royalty adjustment from the same prior payee for different musical 
works, any amounts recovered and distributed under this paragraph 
(k)(1)(ii) shall be apportioned equally among such proper payees.
    (2) Where, as of [EFFECTIVE DATE OF FINAL RULE], the mechanical 
licensing collective is holding amounts that would constitute an 
overpayment under paragraph (k)(1) of this section if such amounts had 
been distributed to the prior payee, such amounts shall be distributed 
to the proper payee no later than [DATE 30 DAYS AFTER EFFECTIVE DATE OF 
FINAL RULE].
    (3) The recovery and distribution processes described in paragraphs 
(k)(1) and (2) of this section shall also apply, as applicable, to 
amounts deducted, or held pending deduction, by the mechanical 
licensing collective under Sec.  210.27(g)(2)(ii) where the proper 
payee is not the copyright owner to whom the relevant usage was 
originally matched. For purposes of this paragraph (k)(3), the 
copyright owner to whom the relevant usage was originally matched shall 
constitute the prior payee as that term is used in paragraphs (k)(1), 
(2), and (4) of this section. Where this paragraph (k)(3) applies, the 
mechanical licensing collective shall flag the change in payee, 
including by specifying the affected reporting periods, in the next 
response file delivered to the relevant digital music provider after 
[EFFECTIVE DATE OF FINAL RULE].
    (4) Nothing in this paragraph (k) shall be construed as prejudicing 
the proper payee's right or ability to otherwise recover such 
overpayment from the prior payee outside of the adjustment process 
detailed in this paragraph (k). Where the overpayment is recovered 
outside of such adjustment process, a legal proceeding is commenced 
seeking recovery of the overpayment, or, with respect to paragraph 
(k)(3) of this section, a dispute is initiated with the mechanical 
licensing collective pursuant to Sec.  210.30(e) regarding the 
application of the derivative works exception to a particular voluntary 
license or its underlying grant of authority, the mechanical licensing 
collective must be notified. Upon receipt of such notice, the 
mechanical licensing collective shall discontinue any recovery efforts 
engaged in under this paragraph (k).
0
5. Revise Sec.  210.30 to read as follows:


Sec.  210.30  Transfers of copyright ownership, designating or changing 
an alternative royalty payee, and related disputes.

    (a) General. This section prescribes rules governing the mechanical 
licensing collective's administration of transfers of copyright 
ownership, the designating or changing of an alternative royalty payee, 
and related disputes.
    (b) Requirements for the mechanical licensing collective to 
implement a change. The mechanical licensing collective shall not take 
any action to implement or give effect to any transfer of copyright 
ownership (including a transfer resulting from an effective termination 
under 17 U.S.C. 203 or 304) or request to distribute royalties to a 
payee other than the copyright owner identified in Sec.  
210.29(b)(4)(i) (or request to change such alternative royalty payee), 
unless the requirements of paragraph (c) of this section are satisfied 
or the mechanical licensing collective is acting in connection with the 
resolution of a dispute pursuant to paragraph (f) of this section. 
Where the requirements of paragraph (c) of this section are satisfied, 
the mechanical licensing collective shall implement and give effect to 
such transfer or request in accordance with paragraph (d) of this 
section.
    (c) Notices of change. The mechanical licensing collective must be 
appropriately notified in writing with respect to any transfer or 
request described in paragraph (b) of this section. Subject to the 
further requirements of this paragraph (c), such notice must comply 
with any reasonable formatting and submission requirements established 
by the mechanical licensing collective and made publicly available on 
its website. No fee may be charged for submitting such a notice. Upon 
submitting such a notice, or any additional information related to such 
notice, the submitter shall be provided with a prompt response from the 
mechanical licensing collective confirming receipt of the notice, or 
additional information, and the date of receipt.
    (1) Specific requirements for notices about transfers of copyright 
ownership, other than transfers by will or operation of law, are as 
follows:
    (i) The required notice shall include all of the following 
information:
    (A) All relevant dates required for the mechanical licensing 
collective to properly implement and give effect to the transfer.
    (B) The transferor (i.e., the prior musical work copyright owner), 
identified by name and any known and appropriate unique identifiers, 
and appropriate contact information for the transferor or their 
administrator or other representative.
    (C) The transferee (i.e., the new musical work copyright owner), 
identified by name and any known and appropriate unique identifiers, 
appropriate contact information for the transferee or their 
administrator or other representative, and, if the transferee is not 
already receiving royalty distributions from the mechanical licensing 
collective, any additional information that is necessary for the 
transferee to receive royalty distributions from the mechanical 
licensing collective.
    (D) A satisfactory identification of any applicable catalog 
exclusions from the transfer or a list of all transferred musical works 
identified by appropriate unique identifiers.
    (ii) The required notice shall be submitted and signed by the 
transferor (or its duly authorized representative). Such signature 
shall be accompanied by the name and title of the person signing the 
notice and the date of the signature. The notice may be signed 
electronically. The person signing the notice shall certify that they 
have appropriate authority to submit the notice to the mechanical 
licensing collective and that all information submitted as part of the 
notice is true, accurate, and complete to the best of the signer's 
knowledge, information, and belief, and is provided in good faith.
    (iii) Where there is more than one transferor or transferee, the 
required notice shall include a satisfactory identification of any 
applicable ownership shares for the transferred musical works. Where 
there is more than one transferor, the notice shall be effective only 
as to those transferors whose information is provided in accordance 
with paragraph (c)(1)(i)(B) of this section and whom have signed and 
certified the notice in accordance with paragraph (c)(1)(ii) of this 
section. Where there is more than one transferee, the notice shall be 
effective only as to those transferees whose information is provided in 
accordance with paragraph (c)(1)(i)(C) of this section.
    (2) Specific requirements for notices about transfers of copyright 
ownership resulting from an effective termination under 17 U.S.C. 203 
or 304 are as follows:
    (i) The required notice shall include all of the following 
information:
    (A) A true, correct, complete, and legible copy of the signed and 
as-served

[[Page 65924]]

notice of termination submitted to the Copyright Office for recordation 
pursuant to Sec.  201.10.
    (B) A true, correct, complete, and legible copy of the statement of 
service submitted to the Copyright Office for recordation pursuant to 
Sec.  201.10, if one was submitted.
    (C) Either:
    (1) Proof that the notice of termination was recorded in the 
Copyright Office before the effective date of termination; or
    (2) If the Copyright Office has not yet recorded the notice of 
termination, proof that the notice of termination was submitted to the 
Copyright Office for recordation, provided that proof that the notice 
of termination was recorded in the Copyright Office before the 
effective date of termination is delivered to the mechanical licensing 
collective at a later date.
    (D) The terminating party (i.e., the new musical work copyright 
owner), identified by name and any known and appropriate unique 
identifiers, appropriate contact information for the terminating party 
or their administrator or other representative, and, if the terminating 
party is not already receiving royalty distributions from the 
mechanical licensing collective, any additional information that is 
necessary for the terminating party to receive royalty distributions 
from the mechanical licensing collective.
    (ii) With respect to the information required by paragraphs 
(c)(2)(i)(A) through (C) of this section, providing an official 
Copyright Office certification for any such information shall not be 
required. If the mechanical licensing collective has good cause to 
doubt the authenticity of any such information, the mechanical 
licensing collective shall seek verification from the Copyright Office.
    (iii) Where the information required by paragraph (c)(2)(i) of this 
section is insufficient to enable the mechanical licensing collective 
to implement and give effect to the termination, the mechanical 
licensing collective shall engage in best efforts to identify the 
relevant musical works or other necessary information. To the extent 
necessary, the mechanical licensing collective shall correspond with 
the terminating party and the pre-termination copyright owner (or their 
respective representatives) to attempt to obtain the minimum necessary 
information.
    (iv) The required notice shall be submitted and signed by either 
the terminating party or the pre-termination copyright owner (or their 
respective duly authorized representatives). Such signature shall be 
accompanied by the name and title of the person signing the notice and 
the date of the signature. The notice may be signed electronically. The 
person signing the notice shall certify that they have appropriate 
authority to submit the notice to the mechanical licensing collective 
and that all information submitted as part of the notice is true, 
accurate, and complete to the best of the signer's knowledge, 
information, and belief, and is provided in good faith. If the notice 
is submitted by the terminating party, the following additional 
requirements shall apply:
    (A) The mechanical licensing collective shall notify the pre-
termination copyright owner about the terminating party's notice within 
15 calendar days of receiving either the notice or the last piece of 
information necessary for the mechanical licensing collective to 
implement the change, whichever is later.
    (B) If the pre-termination copyright owner does not initiate a 
dispute with the mechanical licensing collective regarding the 
termination, in accordance with paragraph (e) of this section, within 
30 calendar days of receiving such notice, the mechanical licensing 
collective shall implement and give effect to the transfer of copyright 
ownership resulting from the termination, in accordance with paragraph 
(d) of this section. Nothing in this paragraph (c)(2)(iv)(B) shall 
prevent the pre-termination copyright owner from disputing the 
termination with the mechanical licensing collective at a later date or 
challenging the termination in a legal proceeding.
    (v) Where there is more than one terminating party or pre-
termination copyright owner, the required notice shall include a 
satisfactory identification of any applicable ownership shares for the 
musical works that are subject to the termination. Where there is more 
than one terminating party, the notice shall be effective only as to 
those terminating parties whose information is provided in accordance 
with paragraph (c)(2)(i)(D) of this section. Where there is more than 
one terminating party, a notice that is signed and certified by any one 
terminating party in accordance with paragraph (c)(2)(iv) of this 
section is sufficient as to all terminating parties.
    (3) Any transfer of copyright ownership that is not covered by 
paragraphs (c)(1) or (2) of this section (e.g., transfers by will or 
intestate succession) shall be subject to any reasonable notice 
requirements established by the mechanical licensing collective and 
made publicly available on its website.
    (4) Specific requirements for notices requesting that the 
mechanical licensing collective distribute royalties to a payee other 
than the copyright owner identified in Sec.  210.29(b)(4)(i) and 
notices requesting to change such alternative royalty payee are as 
follows:
    (i) The required notice shall include all of the following 
information:
    (A) All relevant dates required for the mechanical licensing 
collective to properly implement and give effect to the request.
    (B) The copyright owner identified in Sec.  210.29(b)(4)(i), 
identified by name and any known and appropriate unique identifiers, 
and appropriate contact information for the copyright owner or their 
administrator or other representative.
    (C) If the copyright owner identified in paragraph (c)(4)(i)(B) of 
this section is not also the current royalty payee, the current royalty 
payee (i.e., the previously designated royalty payee who is being 
superseded by the payee identified in paragraph (c)(4)(i)(D) of this 
section), identified by name and any known and appropriate unique 
identifiers, and appropriate contact information for the payee or their 
administrator or other representative.
    (D) The designated royalty payee (i.e., the new payee designated by 
the copyright owner identified in Sec.  210.29(b)(4)(i) to receive 
royalty distributions from the mechanical licensing collective that 
would otherwise be paid to such owner under Sec.  210.29(b)(4)(i)), 
identified by name and any known and appropriate unique identifiers, 
appropriate contact information for the payee or their administrator or 
other representative, and, if the payee is not already receiving 
royalty distributions from the mechanical licensing collective, any 
additional information that is necessary for the payee to receive 
royalty distributions from the mechanical licensing collective.
    (E) A satisfactory identification of any applicable catalog 
exclusions from the request or a list of all musical works subject to 
the request identified by appropriate unique identifiers.
    (ii) The required notice shall be submitted and signed by the 
copyright owner identified in paragraph (c)(4)(i)(B) of this section 
(or its duly authorized representative). Such signature shall be 
accompanied by the name and title of the person signing the notice and 
the date of the signature. The notice may be signed electronically. The 
person signing the notice shall certify that they have appropriate 
authority to submit the notice to the mechanical licensing collective 
and that all

[[Page 65925]]

information submitted as part of the notice is true, accurate, and 
complete to the best of the signer's knowledge, information, and 
belief, and is provided in good faith.
    (iii) Where the required notice is made in connection with a notice 
about a transfer of copyright ownership resulting from an effective 
termination under 17 U.S.C. 203 or 304 submitted under paragraph (c)(2) 
of this section, and the copyright owner identified in paragraph 
(c)(4)(i)(B) of this section is the terminating party and the 
designated royalty payee identified in paragraph (c)(4)(i)(D) of this 
section is the pre-termination copyright owner, the following 
additional requirements shall apply:
    (A) The notice must be signed after the effective date of 
termination.
    (B) The notice must set forth in plain language an acknowledgement 
that the requested action alters the royalty payee from the standard 
royalty payee established by Sec.  210.29(b)(4)(i).
    (C) The notice must include a clear statement stipulating that 
neither the notice nor the distribution of royalties by the mechanical 
licensing collective in accordance with the notice prejudices the 
rights of either party.
    (iv) Where there is more than one copyright owner or designated 
royalty payee, the required notice shall include a satisfactory 
identification of any applicable ownership shares for the musical works 
subject to the request. Where there is more than one copyright owner, 
the notice shall be effective only as to those copyright owners whose 
information is provided in accordance with paragraph (c)(4)(i)(B) of 
this section and, subject to paragraph (c)(4)(iii) of this section to 
the extent it applies, whom have signed and certified the notice in 
accordance with paragraph (c)(4)(ii) of this section. Where there is 
more than one designated royalty payee, the notice shall be effective 
only as to those payees whose information is provided in accordance 
with paragraph (c)(4)(i)(D) of this section.
    (v) The references to Sec.  210.29(b)(4)(i) in paragraphs (b) and 
(c)(4) of this section shall, as applicable, be read to incorporate 
Sec.  210.29(j).
    (5) Where multiple transfers of copyright ownership occur prior to 
providing notice of the change to the mechanical licensing collective, 
a compliant notice for each transfer must be provided to the mechanical 
licensing collective. For example, where there is a termination 
followed by an assignment of the copyright in the musical work, notice 
of the termination under paragraph (c)(2) of this section and notice of 
the subsequent assignment under paragraph (c)(1) of this section must 
both be provided to the mechanical licensing collective.
    (6) Where a transfer of copyright ownership and a request to 
designate or change an alternative royalty payee are related, a 
compliant notice for both the transfer and request must be provided to 
the mechanical licensing collective. For example, where there is an 
assignment of the copyright in the musical work that includes a 
contractual right for the assignee to also be entitled to future 
royalty distributions for periods predating the transfer, notice of the 
assignment under paragraph (c)(1) of this section and notice of the 
designation of an alternative royalty payee under paragraph (c)(4) of 
this section must both be provided to the mechanical licensing 
collective.
    (d) Implementation of a change. Upon receiving a notice that 
complies with the requirements of paragraph (c) of this section, the 
mechanical licensing collective shall implement and give effect to the 
identified transfer or request as follows:
    (1)(i) Except as provided by paragraph (d)(1)(ii) of this section, 
where the mechanical licensing collective receives the notice before 
the first day of the first monthly reporting period to commence after 
the change is effective, the mechanical licensing collective shall 
implement and give effect to the change, on a prospective basis, 
beginning with the first distribution of royalties for such reporting 
period.
    (ii) Where the notice concerns a transfer of copyright ownership 
resulting from an effective termination under 17 U.S.C. 203 or 304 
submitted by the terminating party under paragraph (c)(2) of this 
section, and the pre-termination copyright owner does not initiate a 
dispute as described in paragraph (c)(2)(iv)(B) of this section, then 
the mechanical licensing collective shall implement and give effect to 
the change as follows: Where the mechanical licensing collective 
receives the notice at least 45 calendar days before the first day of 
the first monthly reporting period to commence after the change is 
effective, the mechanical licensing collective shall implement and give 
effect to the change, on a prospective basis, beginning with the first 
distribution of royalties for such reporting period.
    (2)(i) Except as provided by paragraph (d)(2)(ii) of this section, 
where the mechanical licensing collective receives the notice on or 
after the first day of the first monthly reporting period to commence 
after the change is effective, the mechanical licensing collective 
shall implement and give effect to the change, on a prospective basis, 
beginning no later than the first distribution of royalties based on 
the first payee snapshot taken by the mechanical licensing collective 
at least 30 calendar days after the mechanical licensing collective 
receives the notice. As used in the previous sentence and in paragraph 
(d)(2)(ii) of this section, the term payee snapshot means the royalty 
payee information in the mechanical licensing collective's records as 
of a particular date that will be used for a particular monthly royalty 
distribution.
    (ii) Where the notice concerns a transfer of copyright ownership 
resulting from an effective termination under 17 U.S.C. 203 or 304 
submitted by the terminating party under paragraph (c)(2) of this 
section, and the pre-termination copyright owner does not initiate a 
dispute as described in paragraph (c)(2)(iv)(B) of this section, then 
the mechanical licensing collective shall implement and give effect to 
the change as follows: Where the mechanical licensing collective 
receives the notice less than 45 calendar days before the first day of 
the first monthly reporting period to commence after the change is 
effective, the mechanical licensing collective shall implement and give 
effect to the change, on a prospective basis, beginning no later than 
the first distribution of royalties based on the first payee snapshot 
taken by the mechanical licensing collective at least 30 calendar days 
after the pre-termination copyright owner's deadline to dispute under 
paragraph (c)(2)(iv)(B) of this section.
    (3) Where additional information related to the notice is required 
to enable the mechanical licensing collective to implement and give 
effect to the change, and such information is received after receipt of 
the notice, the timing requirements described in paragraphs (d)(1) and 
(2) of this section shall be based on the date that the last piece of 
necessary information is received by the mechanical licensing 
collective.
    (4) Where the change is effective as to one or more monthly 
reporting periods for which the mechanical licensing collective 
distributed royalties before implementing and giving effect to the 
change, the mechanical licensing collective may, but is not required 
to, make a corrective royalty adjustment if the notice requests one.
    (5) Where the notice concerns a transfer of copyright ownership 
resulting from an effective termination under 17 U.S.C. 203 or 304 
submitted under paragraph (c)(2) of this section, and the notice is 
accompanied by proof that the notice of termination was

[[Page 65926]]

submitted to the Copyright Office for recordation, but not that it was 
recorded in the Copyright Office before the effective date of 
termination, the mechanical licensing collective shall act as follows:
    (i) The receipt of proof that the notice of termination was 
recorded in the Copyright Office before the effective date of 
termination shall be treated as a type of additional information under 
paragraph (d)(3) of this section. The mechanical licensing collective 
shall not implement or give effect to any such termination unless and 
until such proof is received.
    (ii) Notwithstanding paragraph (d)(5)(i) of this section, the 
mechanical licensing collective shall hold applicable accrued royalties 
and accrued interest pending receipt of proof that the notice of 
termination was recorded in the Copyright Office before the effective 
date of termination as follows:
    (A) The mechanical licensing collective shall commence holding such 
amount no later than the implementation deadline that would apply under 
paragraphs (d)(1) through (3) of this section, as applicable, if proof 
of recordation had been provided with the notice.
    (B) After proof that the notice of termination was recorded in the 
Copyright Office before the effective date of termination is received, 
the mechanical licensing collective shall implement and give effect to 
the termination as provided by paragraphs (d)(1) through (4) and (5)(i) 
of this section, as applicable.
    (C) Where the Copyright Office refuses to record the notice of 
termination or the notice of termination is recorded on or after the 
effective date of termination, such that the termination is not 
effective, the mechanical licensing collective shall release the held 
funds to the pre-termination copyright owner.
    (D) If proof that the notice of termination was recorded in the 
Copyright Office before the effective date of termination is not 
received by the mechanical licensing collective within 6 months after 
the mechanical licensing collective commences holding applicable 
accrued royalties and accrued interest, the mechanical licensing 
collective shall contact the Copyright Office to confirm the status of 
the relevant recordation submission. If the submission remains pending 
at that time, the mechanical licensing collective shall continue to 
check its status monthly. Upon confirmation from the Copyright Office 
regarding whether the applicable notice of termination has been timely 
recorded or not, the mechanical licensing collective shall act in 
accordance with paragraph (d)(5)(ii)(B) or (C) of this section, as the 
case may be, except that no further proof shall be required to be 
submitted to the mechanical licensing collective for it to act.
    (6) No action or inaction by the mechanical licensing collective 
with respect to implementing and giving effect to a payee change shall 
affect any party's right to royalties pursuant to such change or such 
party's ability to collect such royalties from someone other than the 
mechanical licensing collective if such royalties were not distributed 
to such party by the mechanical licensing collective.
    (e) Termination disputes. The following requirements shall apply to 
any dispute initiated with the mechanical licensing collective 
regarding a termination under 17 U.S.C. 203 or 304:
    (1) Such a dispute must be with regard to the validity of the 
termination or the application of the derivative works exception to a 
particular voluntary license or its underlying grant of authority.
    (2) Only the pre-termination copyright owner (or its 
representative) may initiate such a dispute.
    (3) If the pre-termination copyright owner (or its representative) 
initiates such a dispute and delivers the information required to 
substantiate the dispute to the mechanical licensing collective under 
paragraph (e)(4) of this section, the mechanical licensing collective 
shall hold applicable accrued royalties and accrued interest pending 
resolution of the dispute.
    (4) The minimum information that must be delivered to the 
mechanical licensing collective to substantiate a termination-related 
dispute shall consist of the following:
    (i) A cognizable explanation of the grounds for the dispute, 
articulated with specificity.
    (ii) Documentation sufficient to support the grounds for the 
dispute, which shall consist of the following:
    (A) A true, correct, complete, and legible copy of each grant in 
dispute.
    (B) A true, correct, complete, and legible copy of any other 
agreement or document necessary to support the grounds for the dispute.
    (C) Such other documentation or substantiating information as the 
mechanical licensing collective may reasonably require pursuant to a 
dispute policy adopted under 17 U.S.C. 115(d)(3)(K).
    (iii) A satisfactory identification of each musical work in 
dispute.
    (iv) A certification that the submitter has appropriate authority 
to initiate the dispute with the mechanical licensing collective and 
that all information submitted in connection with the dispute is true, 
accurate, and complete to the best of the submitter's knowledge, 
information, and belief, and is provided in good faith.
    (v) If the dispute concerns the application of the derivative works 
exception to a particular voluntary license or its underlying grant of 
authority:
    (A) A true, correct, complete, and legible copy of each voluntary 
license at issue.
    (B) A satisfactory identification of each relevant sound recording 
that constitutes a derivative work within the meaning of 17 U.S.C. 101 
that was prepared pursuant to appropriate authority.
    (C) The date of preparation for each such sound recording, which 
must be before the effective date of termination.
    (5) Notwithstanding anything to the contrary that may be contained 
in Sec.  210.34, any and all documentation provided to the mechanical 
licensing collective pursuant to paragraph (e)(4) of this section shall 
be disclosed to all parties to the dispute. If a party to the dispute 
is not a party or successor to a party to an otherwise confidential 
document, such disclosure shall be subject to an appropriate written 
confidentiality agreement.
    (f) Resolution of a dispute and release of disputed funds. All 
disputed funds held by the mechanical licensing collective pursuant to 
a dispute among purported copyright owners or royalty payees must be 
subject to active dispute resolution by the relevant parties. Such 
funds shall no longer be considered to be in dispute and the mechanical 
licensing collective shall release such funds under the following 
circumstances, which shall constitute the resolution of the dispute as 
to such funds:
    (1) Where the mechanical licensing collective is directed to do so 
by mutual agreement of the relevant parties. Funds released under this 
paragraph (f)(1) shall be paid in accordance with such agreement, 
subject to the relevant requirements of paragraphs (c) and (d) of this 
section if the agreement changes the royalty payee, except that, 
notwithstanding paragraph (d)(4) of this section, payments of released 
funds shall be made for applicable monthly reporting periods predating 
the mechanical licensing collective's implementation of the change.
    (2) Where the mechanical licensing collective is directed to do so 
by order

[[Page 65927]]

of an adjudicative body with appropriate authority. Funds released 
under this paragraph (f)(2) shall be paid in accordance with such 
order.
    (3) Except where a legal proceeding is commenced, where, during any 
6-month period starting one year after the disputed funds are placed on 
hold, the mechanical licensing collective does not receive a joint 
notice signed by all relevant parties that they are continuing to 
engage in active dispute resolution. Such notice must comply with any 
reasonable formatting and submission requirements established by the 
mechanical licensing collective and made publicly available on its 
website. Funds released under this paragraph (f)(3) shall be paid to 
the party who would have received such funds if the funds were not 
placed on hold pursuant to a dispute.
0
6. Amend Sec.  210.34 as follows:
0
a. Add paragraph (c)(6).
0
b. In paragraph (c)(5), remove ``to paragraph (c)(4) of'' and add in 
its place ``to paragraph (c)(4) or (c)(6) of''.
    The addition reads as follows:


Sec.  210.34  Treatment of confidential and other sensitive 
information.

* * * * *
    (c) * * *
    (6)(i) Notwithstanding paragraph (c)(1) of this section, where the 
mechanical licensing collective has placed any accrued royalties, 
accrued interest, or other monies on hold with respect to particular 
reported usage or a particular work (or share thereof) (e.g., where 
there is an ownership dispute or a legal proceeding has been 
commenced), the mechanical licensing collective shall disclose the 
amount being held and reason for the hold to any individual or entity 
with a bona fide legal claim to such funds or a portion thereof.
    (ii) Such disclosure shall be made to each such claimant no later 
than 10 business days after placing the amount on hold, where the 
mechanical licensing collective is aware of the claimant's claim at 
that time. Where the mechanical licensing collective is not aware of a 
claimant's claim when the amount is placed on hold, such disclosure 
shall be made to that claimant no later than 10 business days after 
becoming aware. For any amounts placed on hold before [EFFECTIVE DATE 
OF FINAL RULE], where the mechanical licensing collective is aware of a 
claimant's claim at that time, such disclosure shall be made to such 
claimant no later than [DATE 10 BUSINESS DAYS AFTER EFFECTIVE DATE OF 
FINAL RULE]. Where the mechanical licensing collective is not aware of 
a claimant's claim as of [EFFECTIVE DATE OF FINAL RULE], such 
disclosure shall be made to that claimant no later than 10 business 
days after becoming aware.
    (iii) Disclosure of the amount being held with respect to 
particular reported usage or a particular work (or share thereof) shall 
be accompanied by a statement that complies with the requirements of 
Sec.  210.29 as if such held amount were to instead be distributed 
pursuant to Sec.  210.29. Disclosure of the reason for the hold shall 
be made with specificity. The mechanical licensing collective shall 
provide all claimants with monthly updates concerning the status of the 
hold and the amount being held. The mechanical licensing collective 
shall respond to any inquiry from a claimant about the hold within 10 
business days and shall provide any reasonably requested additional 
information about the hold within a reasonable period of time 
commensurate with the request.
* * * * *

    Dated: September 21, 2023.
Suzanne V. Wilson,
General Counsel and Associate Register of Copyrights.
[FR Doc. 2023-20922 Filed 9-25-23; 8:45 am]
BILLING CODE 1410-30-P