Saturday, February 17, 2018

Black Box Invasion! Duties of Collective’s Board Under Music Modernization Act | MUSIC • TECHNOLOGY • POLICY

One of the most unusual aspects of the non-profit collective to be established under the Music Modernization Act is the method of codifying the number of seats on the board of directors (and a couple other boards) and designating the characteristics of the kind of person who gets to hold those seats.  (Of course, it must be said that if there is any language in the bill that actually says who gets to appoint members of the collective’s board of directors in the first place, how long they can serve and how they can be voted off, I can’t find it.)

As the implications of the collective’s Congressionally mandated board composition starts to be understood by songwriters and publishers it is increasingly viewed a highly unusual–and, frankly, extremely patriarchal and expansionist–role for the federal government.  The composition of an organization’s board is something that is always handled in the organization’s by-laws.  By-laws are rules enacted by at least the board of directors of a private company for its own government and are sometimes thought of as a contract between the board and the shareholders, or in this case the governing (the board) and the governed (everyone who has ever written a song and everyone who will ever write a song in the future).  (Some nonprofits may appoint a by-law committee that then reports to the board on recommendations to amend the by-laws, then voted on by the board of directors.)

What is interesting about the MMA board of directors from a process point of view is that because the number of directors and committee structure are fixed by statute, changing the composition of the collective’s governance will probably require an act of Congress.  Which is like saying this may never change and the initial board members are appointed for life and maybe the afterlife.

Of course, the collective is to be a nonprofit corporation.  That means that the nonprofit corporation itself will have to incorporate somewhere in some state, often Delaware, which will have its own rules on by-laws and that pesky voting stuff that the MMA does away with.  It appears that the MMA will immediately cause the collective to come into conflict with state corporate law.

Since the MMA is the greatest expansion of federal power into the lives of songwriters in the history of the United States (a fact not lost on our opponents in the copyleft who might like to get some, too), I would imagine that the response will be the usual don’t worry, be happy.   Federal preemption will fix everything and simply override state law by fiat.  Because they’re from Washington and they’re here to help.  In case you haven’t noticed, not all states are huge fans of this kind of thing.  I live in one such state.

But then I’m just a country lawyer and I’m not as smart as these city fellers.  I’m sure they have it all figured out.

One thing I fully expect to start hearing as the response to the many, many holes in the MMA is not to let the perfect be the enemy of the good enough and that regulations will fix it all.  I have actually heard this said.

That’s right–regulations–as in more regulations.  And if all corporate formation and governance issues are to be handled by regulations, that’s one pile of regulations.  All of which are likely subject to discovery under the Freedom of Information Act, including all board minutes, correspondence, agendas, votes, transcripts, etc.

And then let’s not forget that the MMA has to get signed into law by a President who is making it his business to cut regulations.  Radically.  Whether you like him or not, whether you are a populist or a resister, it is an obvious fact that cutting regulations was definitely a part of the Trump platform and it is definitely something he is doing every day.  So think about how that‘s going to go over.

Back to ignoring reality.  First of all, more regulations require a rulemaking, probably by the Copyright Office.  Ever notice how long it takes for rulemakings to get finalized?  Public comments, etc.?  Is the Copyright Office really up for handling the governance structure of the collective?  Is the collective a government agency which would require rulemakings and regulations to operate or is it a private nonprofit that handles its own rules through the same process that have served organization well in America for a couple hundred years.  You know, that pesky voting thing without the feds looking over your shoulder.

One more thing–remember that the MMA has this clause (aka the “Black Box Invasion”):

INTERIM APPLICATION OF ACCRUED ROYALTIES.—In the event that the administrative assessment, together with any funding from voluntary contributions as provided in subparagraphs (A) and (B), is inadequate to cover current total costs of the mechanical licensing collective, the collective, with approval of its board of directors [unanimous?  simple majority?], may apply unclaimed accrued royalties on an interim basis to defray such costs, subject to future reimbursement of such royalties from future collections of the assessment [to be paid by digital music services after a final, nonapealable judgment].

That’s right–“they” intend for the government to fund the collective’s overbudget out of the black box.  (We can’t know who “they” are because the MMA does not say.)  Well, at least this time they’re honest about it.

And what is the most likely common characteristic of anyone whose money is in the black box?  Songwriters with no direct deal with the services aka the little people in the majority of songwriters.

Remember–the collective has no business plan and no budget.  Yet the board is at least permitted if not required by law to use unmatched money they hold in trust to pay overbudget–for which there is no approved budget so could literally be someone’s cigar bill, legal fees, who knows what.

Note the “subject to future reimbursement of such royalties from future collections of the assessment”.  What if the judges don’t agree to the assessment or that the Digital Media Association appeals every ruling for years which I fully expect them to do because they don’t care about songwriters.  And if you think that’s extreme, name five things quickly that they’ve ever done that would make you think otherwise?

Remember–it’s not their money.  It’s not the government’s money either.  This is why all the black box needs to put in a true escrow account held by an independent third party or escheated to the state like your utility deposit you forgot to collect.  If it’s good enough for your electric bill, shouldn’t it be good enough for your royalties?

The board will be acting as a trustee for that black box money.  Trustees don’t get to make themselves or their companies loans from the money they hold in trust.

Remember–songwriters have been suing to find a fiduciary duty owed to them from their publishers under their publishing contracts for a long time.  It may not be under their publishing contracts, but the MMA hands songwriters that fiduciary duty on a silver platter with the black box invasion.

Board members–serve at your peril.





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