Saturday, December 14, 2019

Score One for the Serfs: Copyright Royalty Judges Mandate MLC/DLC “Settlement”…With a “But” | MUSIC • TECHNOLOGY • POLICY

Always read the footnotes.

Remember how we all were told that the services were going to pay for the administrative costs of operating the Mechanical Licensing Collective under the Music Modernization Act.  And that songwriters would benefit because there would be no administrative costs for the mechanical royalties collected and paid by the MLC.  (This implies, although importantly does not say, that publishers could not charge an administration fee for mechanicals they receive through the MLC but not surprisingly the MMA is silent on this not so nuanced nuance.  And why might that be?)

The drafters of Title I of the MMA (which is where the MLC-DLC rule reside) put it on the Copyright Royalty Judges to decide if the “administrative assessment” was fair and reasonable.  In case you missed it, the MLC and the DLC have reached a voluntary settlement that is several million dollars short of what the MLC asked for.  The CRJs have now issued an order making the settlement the law of the land.  With a twist.  (Order Granting Participants’Joint Motion To Adopt Proposed Regulations,  In Re Determination And Allocation Of Initial Administrative Assessment To Fund Mechanical Licensing Collective, Docket No. 19-CRB-0009-AA, (Dec. 12, 2019).)

Here’s some relevant language from the CRJs’ order:

Section 115(d)(7)(D)(v) of the Copyright Act authorizes the Judges to approve and adopt a negotiated agreement that has been agreed to by the Mechanical Licensing Collective and the Digital Licensee Coordinator in lieu of a determination of the administrative assessment. An administrative assessment adopted under section 115(d)(7)(D)(v) “shall apply to all digital music providers and significant nonblanket licensees engaged in covered activities during the period the administrative assessment is in effect.”

Sounds good, right?  But the CRJs go on:

However, the Judges, in their discretion, may reject a proposed settlement for good cause shown. Id. Section 355.4(c)(4) of the Judges’ rules establishes a process for non-settling participants to comment on a proposed settlement and for the settling participants to respond. Because there were no non-settling participants in the instant proceeding, the proposed settlement was unopposed.1

Notice two things:  First, the CRJs’ adopt the position of the MLC and the DLC that the only people who could object to the settlement were “participants”.  Who might that be?  Why the DLC and the MLC, of course.  There were other participants, most prominently the Songwriters Guild of America.  SGA was hounded out of the proceeding because the MLC apparently did not want to include SGA in the negotiation of a settlement.

I can understand the complexity of a three-way negotiation with those pesky songwriters about a matter that affects all the songwriters in the world who have ever written a song or that may ever write a song.  Those songwriters might really get in the way.  What I do not understand, however, is why the songwriters would not be afforded the opportunity to at least comment on the settlement that carries the awesome power of the Leviathan behind it.  I do understand how the rules came to be written the way they are, however.

And this leads to the other thing to observe about this ruling.  “Because there were no non-settling participants…the proposed settlement was unopposed.”  Rather tautological, right?  How can the settlement be opposed if those who might oppose it are not allowed to do so?

Let’s be clear what “opposition” means in this context.  You could just as easily say “improve” or “make fair”.  And lest you think that this is yet another example of sloppy legislative drafting in the mistake-prone Title I, this time I don’t think it’s a mistake.  I think it is exactly what the drafters intended.

But notice something else.  After the world “unopposed” the CRJs drop a footnote.  And it is this footnote that is probably the most important point to the unrepresented songwriters and startups who either couldn’t afford to participate or who were afraid of back alley retaliation if they did.

The Judges have been advised by their staff that some members of the public sent emails to the Copyright Royalty Board seeking to comment on the proposed settlement agreement. Neither the Copyright Act, nor the regulations adopted thereunder, provide for submission or consideration of comments on a proposed settlement by non-participants in an administrative assessment proceeding. Consequently, as a matter of law, the Judges could not, and did not, consider these ex parte communications in deciding whether to approve the proposed settlement. Additionally, the Judges’ non-consideration of these ex parte communications does not: (i) imply any opinion by the Judges as to the substantive merits of any statements contained in such communications; or (ii) reflect any inability of the Judges to question, [on their own motion without a filing from a participant] whether good cause exists to adopt a settlement and to then utilize all express or reasonably implied statutory authority granted to them to make a determination as to the existence…of good cause [to reject the settlement now or in the future].

This footnote is very, very important.  I would interpret it to mean that the CRJs may anticipate that they are directly or indirectly appealed or their decision is examined by the Congress that has ultimate oversight.  (Remember, the CRJs are not truly “judges” under the powers of the judiciary in Article III of the Constitution, but are more like administrative law judges under the powers of the Congress in Article I as the CRJs are part of the Library of Congress
The Copyright Royalty and Distribution Reform Act of 2004 (CRDRA) established the Copyright Royalty Judges program in the Library of Congress.”)

The fact is that the entire process is deeply flawed and fraught with moral hazard if not outright conflicts of interest.  And even if the rule makers manage to exclude the rule takers from the rule making, those pesky songwriters and the public will still comment and criticize.  The insiders can’t threaten to sue everyone.  While the CRJs cannot officially acknowledge the criticisms of the Leviathan by the governed for well-founded fear of the back alley tactics, this footnote is about as close to a “message received” as the governed is going to get.

For now.

Score one for the serfs.



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