IP Law Daily, COPYRIGHT NEWS: From the ‘not a typo’ department: Copyright Royalty Board finalizes mechanical license rates for the years 2018-2022, (Jun 29, 2023)

By Matthew Hersh, J.D.

But the news at this point is largely academic.

A federal ratemaking process that was intended to establish the amount that songwriters and musical publishers would be paid for certain uses of their works during the years 2018-2022 has finally come to a conclusion—nearly a year after the expiration of the time period it was meant to cover. The ratemaking proceeding, which was stalled by an intervening appellate decision, the COVID-19 pandemic, and an internecine industry debate over calculations that only an accountant could love, retroactively establishes industry rates for the form of internet listening known as interactive streaming. The final ruling, which sets out what the Copyright Royalty Board denominated from the start as “historical regulations,” had long been overshadowed in any event by a game-changing raise for songwriters for non-streaming uses (In re: Determination of Rates and Terms for Making and Distributing Phonorecords, June 22, 2023, Copyright Royalty Board).

The rate in place is the so-called “mechanical” reproduction rate, so termed because it arose from the era when the only technology capable of reproducing and performing music was the mechanical player-piano. By way of gross oversimplification, anyone who wants to reproduce and distribute music (by way of records, CDs, or their current counterpart, the digital download from iTunes) must pay the songwriter of the musical composition—or her music publisher—for the right to do so. But this is not a free market arrangement. Back in 1909, when Congress decided that songwriters and music publishers had the exclusive right to these then-mechanical reproductions, Congress also wanted to ensure that the right did not turn into a monopoly. So the proposition Congress gave songwriters was this: If you write a song, you can charge anything you want for someone to record it the first time. But after it’s been recorded once, anyone else can come along and use it whether or not you approve. All they have to pay is a set rate—at the time, two cents per song—for each use.

The “mechanical” rate is of course only one of a myriad of rates—some regulated, some not, some kind of in the middle—that silently govern the internal workings of the music industry. For example, songwriters get paid not only for the distribution of music but also the performance of it—on radio, in bars, at concerts. Traditionally those rates are negotiated on behalf of songwriters by entities like ASCAP and BMI under the supervision of a federal court in Manhattan that guards for antitrust abuses. And then there is the other half of the industry, which is that of record companies. For the most part, anyone who wants to use a sound recording, whether to reproduce it or to perform, has to pay the going market rate for it. But there are a few exceptions. For example, traditional broadcasters—those using radio waves, not over the internet—don’t have to pay record companies to play their sound records, a provision of law that has long been controversial. As for the “online” version of radio-digital streaming—Pandora and its like—the rates those webcasters pay for the performance right is also regulated by the Copyright Royalty Board, but that is an entirely different set of rulemaking than the one for the mechanical license. (If it sounds incredibly complicated, it is).

The main dispute that held up the 2018-2022 ratemaking process—the so-called “Phonorecords III,” to distinguish from predecessors I in the late 2000s and II in the mid-2010s—was something only an accountant could appreciate. The per-song rate for physical product and digital downloads, ever since its two-cent initiation in 1909, has been moving up steadily over the years (largely by industry agreement) to 9.1 cents. Everyone agreed in Phonorecords III that it should remain there. But the sticky issue had to do with interactive streaming—the form of streaming that enables users to choose what songs to listen to and when. (Think Spotify instead of Pandora). This form of streaming has long straddled the line between performance and reproduction—a listener is streaming it just like any other internet radio, but the listener also has some control over it as she would if she had bought the work from iTunes. Thus, by long industry understanding, any streaming service that offers its users the right to interactively listen to music must pay a mechanical license fee, in addition to the performance rights it must acquire as an online streaming service.

And it is the compensation formula for this interactive streaming that has captured the attention of regulators, industry leaders, and appellate judges alike. The CRB first reached a determination in 2018. Recognizing that interactive streaming companies are in the odd place of having to acquire reproduction as well as performance rights for the same activity, the Board adopted a so-called “all-in” rate that essentially calibrated the mechanical royalty rate, in an exceptionally complicated formula, to move up and down with the amount the streamers would have to pay in the market for performance rights. That itself was not controversial—but as always, it came down to the numbers. Two years later, in Johnson v. Copyright Royalty Board, 969 F.3d 363 (D.C. Cir. 2020), the court of appeals tossed the CRB’s calculations. The CRB went back to the drawing board and set out a new 22-0701 initial decision after remand in response (with two of the board members dissenting on different issues) in 2022. But the decision satisfied nobody, and more hearings ensued. Finally, the Board formally issued its ruling last week, along with an accompanying rate schedule. (As a final touch, the rate schedule comes with the following tagline: “These regulations will be published as historical regulations”).

The final decision comes as Phonorecords IV—the rate-setting procedure for the 2023-2027—is already in full swing. The CRB announced the kickoff of Phonorecords IV in January 2021. Trial was to start in the fall of 2022, but was postponed due to a settlement. That settlement, in news that immediately overshadowed anything else involving either Phonorecords III or IV, was that for the first time in decades, the per-song rate for vinyls, CDs, and digital downloads would be going up to 12 cents from their present 9.1 cents. The interactive streaming rates are still to be determined anew, but that part is mostly academic for all but the hardiest of music ratemaking acolytes.

The case is No. 16-CRB-0003-PR.

Attorneys: Scott Angstreich (Kellogg, Hansen, Todd, Figel & Frederick, PLLC) for Amazon.com Services LLC. David P. Mattern (King & Spalding, LLP) for Google LLC. Benjamin K. Semel (Pryor Cashman LLP) for Nashville Songwriters Association International and National Music Publishers' Association [NMPA]. Benjamin E. Marks (Weil, Gotshal & Manges LLP) for Pandora Media, LLC. Richard M. Assmus (Mayer Brown LLP) for Spotify USA Inc.

Companies: Amazon.com Services LLC; Google LLC; Nashville Songwriters Association International; National Music Publishers' Association (NMPA); Pandora Media, LLC; Spotify USA Inc.

News: Copyright TechnologyInternet