Fordham 2018 Report 1: Building Out the House - Music Licensing

The AmeriKat has had her paws pretty full of late with trials, events, conferences and general life.  So this year, she was not able to report on the ever incredible sessions from the Fordham IP Conference in New York.  But knowing this, she roped in some wonderful law students and interns at Fordham University who stepped up to the plate.  So over to J.D candidate (Class of 2019), Jacob Tesch, for the first report from the conference on the Music Licensing session: 

"During Thursday afternoon’s session Music Licensing, Termination & Territoriality: Time for Recalibration?, moderator N. Cameron Russell (Center for Law & Information Policy, Fordham Law School) likened the legal developments in U.S. music licensing to building additions to a house. Instead of bulldozing years-old foundation, Congress has, over the years, passed several pieces of legislation to keep up with changes in the ways people both create and consume music.  

Following Russell’s opening remarks, Kenneth Steinthal (King & Spaulding LLP) spoke on issues concerning Performing Rights Organizations (“PROs”) ability to license public performance rights, as well as the Copyright Royalty Board’s the latest update in mechanical licensing rates under Section 115 of the Copyright Act. Steinthal first summarized the Second Circuit’s recent decision in which the court affirmed the determination that the consent decrees governing PROs, such as ASCAP and BMI, permit “fractional” licensing of works—thereby allowing BMI to license works that it or its affiliated writers or publishers lack full control of. According to Steinthal, BMI’s ability to fractionally license could have severe consequences for licensees because they now cannot be certain that their public performance license was approved by all rights holders. This decision, coupled with the lack of a credible database indicating who holds the public performance right of a given work, could result in increased infringement litigation against streaming services by those non-consenting copyright holders. It will be interesting to see if the Department of Justice takes on the Second Circuit’s decision by arguing that this interpretation of the PROs’ consent decrees violates U.S. antitrust law. Steinthal closed his speech by opining that the royalties structure established by the Copyright Royalty Board in January 2018 raises concerns for streaming services.

The panel then debated the impact of these developments on the marketplace for mechanical and public performing licensing of musical works. Many of the panelists disagreed with the extent of Steinthal’s notion that the Second Circuit’s decision could be the downfall of several streaming services and cited Spotify’s recent multi-billion-dollar valuation as evidence of streaming services’ financial ability to fight infringement lawsuits. Steinthal defended his position by stating that we are particularly attuned to larger streaming services because they are frequently in the news and, absent a compulsory licensing regime for sound recordings, the Second Circuit’s decision could be fatal to many smaller streaming services found to owe exorbitant statutory damages for infringement. Richard Pfohl (CONNECT Music Licensing), in agreement that a blanket compulsory licensing system for sound recordings would be an efficient solution, suggested that leaving this issue to the marketplace partially help solve this problem. Moreover, all of the panelists agreed that the lack of transparency with respect to who owns the public performance right of a given work is a major problem in the music industry that needs to be resolved.

Next, Regan Smith (U.S. Copyright Office) provided an overview of the concerns targeted by three potential copyright reforms: the Music Modernization Act, the Classics Act, and the Allocation for Music Producers (“AMP”) Act. The Music Modernization Act, as its name suggests, attempts to modernize the current licensing regime under 17 U.S.C. §115 by creating a blanket licensing arrangement for digital phonograph deliveries. The Act establishes a music licensing collective (“MLC”), overseen largely by publishers and songwriters to collect and distribute mechanical royalties for musical compositions. The formation of the MLC aims to assuage the challenges digital services face when attempting to match songwriters and publishers with recordings and create a more transparent and efficient system for compensating authors. Furthermore, the Music Modernization Act would repeal Section 114(i) of the Copyright Act and give PROs and songwriters the opportunity to present evidence in rate-setting proceedings to a rotating “wheel” of judges who would consider licensing fees by applying a “willing buyer willing seller” standard.

The CLASSICS Act grants owners of pre-1972 sound recordings the exclusive right to digitally broadcast said recordings, which due to an arbitrary quirk in U.S. copyright law, do not enjoy the same federal protections as post-1972 sound recordings. While these recordings will continue to be freely broadcast over terrestrial radio, the CLASSICS Act attempts to alleviate what has been considered by one recording artist a form of “digital ageism.” The AMP Act will amend federal copyright law by codifying SoundExchange’s “Letter of Direction” practice to directly pay producers, mixers, or sound record engineers from a featured artist’s or label’s statutory scheme, if directed to do so. The bill provides for 2% of the featured artist’s share of royalties to be directly paid to a pre-November 1, 1995, producer, mixer, or sound engineer absent a letter of direction or an objection by the artist.

The entire panel agreed that these three bills, which have been received by both the House of Representatives and Senate, are sensible pieces of legislation. Jacqueline Charlesworth (Covington & Burling LLP) noted that the publicly available ownership database created by the MLC would be extremely beneficial for recording artists, music publishers, and songwriters because it would help solve the music industry’s transparency problem. Still, Steinthal expressed skepticism that these proposed bills would resolve the statutory damages problem that entrenches the current statutory scheme.

Joshua Graubart (The Law Offices of Joshua Graubart, P.C.) reviewed the UK High Court decision from Mr Justice Arnold in Gloucester Place Music v. Le Bon, in which the British rock group Duran Duran sought to terminate the transfer to their music publisher, Gloucester Place, which alleged such action constituted breach of contract. Under Section 203 of the U.S. Copyright Act, the author may terminate a grant at the end of 35 years from the date of execution or publication of the work. Mr Justice Arnold of held that English contract law was controlling and that service of a notice of termination under the U.S. Copyright Act would result in a breach of the band’s music publishing agreement. Lauri Rechardt (IFPI) commented that this decision demonstrates that our global music industry is in need of stronger and more transparent rights to underpin the global marketplace for music.

The overarching theme that drove most of the panel’s conversation was that our global music industry faces a transparency problem. It will be fascinating to see if the three proposed bills, which are scheduled to begin the House Judiciary markup process on April 11, can overcome a problem that has negative consequences for songwriters, music publishers, and digital streaming services."