The United States modernizes its music licensing system

December 2018

By Karyn A. Temple, Acting Register of Copyrights and Director, United States Copyright Office

Twenty eighteen has been an historic year for copyright law in the United States. In addition to enacting the Marrakesh Treaty Implementation Act in October, the United States has passed sweeping legislation to transform its licensing system for musical works and to provide, for the very first time, federal remedies for unauthorized uses of pre-1972 sound recordings. The updates enacted through the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (MMA) represent the most significant changes to US copyright law since the Digital Millennium Copyright Act (DMCA) of 1998.

The recently enacted Music Modernization Act (MMA) simplifies music licensing in the United States. It will also increase transparency and reduce transaction costs between copyright owners and users (Photo: wundervisuals / E+ / Getty Images).

Many would acknowledge that these important improvements to the music landscape in the United States were desperately needed. The need to reform music licensing had been widely acknowledged for years. Music licensing has been notoriously complicated. Songwriters and recording artists, publishers and labels have been frustrated by the various rate-setting processes of a music licensing system that was becoming ever more complicated as additional layers were added in response to progressive technological developments; digital music services, libraries and individual listeners were bothered by the lack of clarity regarding protections of pre-1972 sound recordings. Improving the music licensing system for all stakeholders became more important with each technological development that made the existing system seem more esoteric and anachronistic.

The US Copyright Office: a vocal advocate for change

The US Copyright Office has recognized for some time that our music licensing system was “complex and daunting even for those familiar with the terrain,” and failed to adequately reflect the current way music is distributed online. In its 2015 music report, the Copyright Office stated that the legal system was stuck in the past with outdated legal structures that were “trying to deliver bits and bytes through a Victrola.”

The Copyright Office has been a vocal advocate for crucial updates to the music licensing system in the United States. In 2004, Marybeth Peters, the Register of Copyrights at the time, testified before Congress that “the means to create and provide music to the public has changed radically in the last decade, necessitating changes in the law to protect the rights of copyright owners while at the same time balancing the needs of the users in a digital world.” 

In 2005, Ms. Peters testified about the need for a “21st Century Music Reform Act,” and the Copyright Office continued to urge music law reform in subsequent years. In her call in 2013 for the “next great copyright act,” Maria Pallante, Register of Copyrights at the time, identified music licensing reform as “particularly important.” Two years later, the Copyright Office issued a comprehensive study of music licensing and the ever-evolving needs of music creators and investors, entitled Copyright and the Music Marketplace. In that study, the Copyright Office acknowledged the barriers caused by the outdated system and proposed broad reforms, including regulating licensing of musical works and sound recordings in a consistent manner, adopting uniform market-based rate-setting standards for all government-set rates, and, as previously proposed by an earlier Copyright Office study, bringing sound recordings fixed before February 15, 1972, within the scope of federal copyright law.

The US Congress took up this call in passing the MMA, which was the result of several years of intense efforts to revise the nation’s music licensing system. Beginning in 2013 with a broad review of copyright law, the US House of Representatives held several hearings on music issues. They included “Music Licensing Under Title 17 (Part I and II),” “The Scope of Copyright Protection,” and “Music Policy Issues: A Perspective from Those Who Make It.”

Surrounded by members of Congress and musicians, on October 11, 2018, US President Donald J. Trump signs the landmark Music Modernization Act into law (Photo: Official White House photo by Joyce N. Boghosian).

During the 115th Congress, which began on January 3, 2017, seven distinct bills were introduced in one or both chambers, each addressing a different piece of the music licensing puzzle. In spring 2018, those pieces came together in the form of the MMA.

Historic consensus emerges

After significant discussion and debate, an historic consensus between music providers and platforms began to develop. This consensus showed the value of the new partnerships that can emerge when technology platforms and content providers work together for a joint cause. As Senator Orrin Hatch, sponsor of the Senate bill, said, “All sides of the music industry came together to find a way to make our music laws better.  To make them function properly. To update them for the digital age. No side got everything it wanted. But everyone got something. And at the end of the day, we have a piece of legislation we can all be proud of.”

On October 11, 2018, having been passed unanimously by both chambers of the US Congress, the MMA was signed into law by US President Donald J. Trump. 

The landmark law represents the culmination of years of attention by policymakers, stakeholders and the US Copyright Office – “the most sweeping music copyright reform since the 8-track tape era,” as Recording Academy president and CEO Neil Portnow told The Hollywood Reporter. Indeed, the MMA is not only the most significant piece of music copyright legislation in decades: it is one of the most significant pieces of US copyright legislation ever.

What the MMA does

The MMA changes the law for licensing of musical works and pre-1972 sound recordings, as well as the distribution of sound recording royalties to producers, mixers and sound engineers. It reflects Congress’ determination that copyright law had not kept pace with consumer preferences and technological developments in music. The MMA is organized into three separate titles, which represent some of the earlier bills that were later combined into the enacted MMA.

Music licensing overhauled

Title I of the MMA is the Musical Works Modernization Act is intended to make it easier for digital music services to license music and for right holders to get paid when their music is streamed and downloaded online. It addresses the inefficiency of the song-by-song licensing system for the mechanical reproduction and distribution of musical works embodied in phonorecords by digital music providers. Previously, if a new digital music service wished to begin operation, there were significant barriers to entry. A service that might be looking to provide access to millions of songs would have needed to license each song individually. If done under the statutory license, this would have entailed serving an effective notice of intention on each copyright owner or, if the owner could not be identified, on the US Copyright Office.

The MMA changes the law for licensing musical works and pre-1972 sound recordings, as well as the distribution of sound recording royalties to producers, mixers and sound engineers.

Karyn A. Temple, Acting Register of Copyrights and Director, United States Copyright Office

The MMA overhauls this inefficient system and establishes a new mechanical licensing collective (MLC) to administer blanket licenses for such uses by digital music providers as permanent downloads, limited downloads, and interactive streaming. Upon full implementation of the MMA, a digital service may simply serve a notice of license on the MLC to obtain a blanket license. The MLC, which will be funded by digital music providers, also will collect and distribute royalties, and identify musical works and their owners for payment. It will also be responsible for creating and maintaining a free, public database of musical work and sound recording ownership information. To ensure oversight and accountability, the MLC is designated by the US Register of Copyrights and Director of the US Copyright Office. It must be a nonprofit organization created by copyright owners and endorsed by copyright owners of musical works, and it must possess the administrative and technological capabilities necessary to carry out the functions outlined above.

The MMA brings pre-1972 US sound recordings within the scope of US federal copyright law, meaning that digital music providers no longer need to navigate a complex patchwork of state laws when using such recordings (Photo: Jennifer Santolla/ Alamy Stock Photo).

Among other features, Title I of the MMA changes the standard applied in rate-settings adjudicated by the US Copyright Royalty Board, a federal tribunal that sets royalty rates for statutory copyright licenses. The new “willing buyer/willing seller” standard is more market-based and replaces a previous policy-based standard that many thought unfairly depressed royalty rates.

Clarity on pre-1972 sound recordings

Title II of the MMA is the Classics Protection and Access Act which addresses an anomaly in US copyright law related to sound recordings. Prior to the MMA, US sound recordings created before February 15, 1972, were not covered by federal copyright law, although foreign sound recordings already were. Instead, US sound recordings were subject to an array of state laws, creating inefficiency, confusion and litigation. The MMA brings pre-1972 US sound recordings under the umbrella of federal protection, preempting any existing state law that may have covered such works. Although it does not fully bring pre-1972 US sound recordings within the scope of federal copyright law, the MMA provides federal remedies for unauthorized uses of those works and also applies the major federal copyright exceptions and limitations (such as fair use, first sale, uses by libraries and archives, and safe harbor protections for online service providers) to the works.

Royalty-payment system codified

Finally, Title III of the MMA, the Allocation for Music Producers Act, addresses payment of royalties to producers, mixers and sound engineers. It codifies an existing practice whereby copyright owners or artists may send to SoundExchange – the performing rights organization that collects royalties from certain digital music platforms – a “letter of direction” to distribute a portion of their royalties to producers, mixers and sound engineers.

The MMA overhauls and simplifies music licensing in the United States and brings it into line with the way music is distributed in the digital era. It also codifies existing practice in relation to the payment of royalties to producers, mixers and sound engineers (Photo: yanyong / iStock / Getty Images Plus).

Advantages of the MMA

The MMA will support participants across the music ecosystem in numerous ways. For example, the “willing buyer/willing seller” standard will implement a more market-oriented approach for setting certain statutory royalty rates, thereby increasing fairness to rights holders and users. Codifying the “letter of direction” practice for payment of royalties will benefit music producers, mixers, and sound engineers. The creation of the blanket license for digital music providers will enable them to engage in covered activities (e.g., making permanent downloads, limited downloads, and interactive streams) without the cumbersome process of per-work licensing. At the same time, digital music providers will no longer need to navigate a complex and diverse patchwork of state laws when they use pre-1972 sound recordings.

The MMA will support participants across the music ecosystem.

Karyn A. Temple, Acting Register of Copyrights and Director, United States Copyright Office

The US Copyright Office is responsible for implementing this sweeping music reform. Among other duties, the Copyright Office must issue new rules that address the updated licensing and royalty payment processes administered by the MLC, which will increase transparency and reduce transaction costs between copyright owners and users. One specific provision directs the Copyright Office to help expand public understanding of how the MMA changes music licensing. The Copyright Office already has a dedicated webpage with a summary of the MMA, detailed explanations of how it changes the law, and answers to frequently asked questions. So far, the Copyright Office has issued an interim rule and notice of inquiry pertaining to the new federal remedies for pre-1972 sound recordings. We look forward to implementing all aspects of this historic law for the benefit of music lovers worldwide!

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