The Standard U.S. Mechanical License Ceiling Is No Longer 9.1 Cents

In fact, it never was. That is a truth that surprisingly few people understand, and even fewer practice.

The reality is, as a copyright owner, I can charge as much as I want for someone to make and distribute a recording of my song. Twenty cents? I can charge that. Now granted, the user may have an option to go and get a “compulsory license” to use my song and pay only 9.1 cents, as long as it is not a first use, and as long as they jump through certain legal hoops in order to qualify. But very rarely are compulsory licenses used, with the exception of some of the recent online digital providers. And here’s the kicker. If anyone who wants to use my song has already manufactured the product over 30 days prior, or distributed the recording before they acquired a license (which happens all the time), they are permanently barred from getting a compulsory license for that use. They no longer qualify. So their only option is a negotiated license with me. And I have no legal limits on what I can charge.

Here’s a little history. In the early 1900s, Congress was concerned that the right to make mechanical reproductions of songs might become a monopoly controlled by a single company, so they introduced what is known as the “compulsory license” in the 1909 Copyright Act. This allowed anyone to make a mechanical reproduction, or phonorecord, of a musical composition without the consent of the copyright owner, provided the person adhered to certain provisions of the license as defined in the Copyright Law. This compulsory license was an alternative to a negotiated license, but was only available after the song had already had an initial distribution to the public in the United States under the authority of the copyright owner.

At that time, Congress also set what is called the “statutory mechanical rate”, which is the rate to be paid under the compulsory license, at 2 cents. That rate has been increased over the years to its current rate of 9.1 cents (for a 5 minute or less song). In recent years, various industry groups have negotiated, and the Copyright Royalty Judges have approved, certain digital uses to fall under the definition of Section 115 of the Copyright Law (which defines compulsory licenses), and agreed to additional statutory rates to cover such newly defined uses. However, the practice throughout the years has been that most users of copyrights would negotiate a mechanical license, rather than jump through the numerous legal hoops defined in Section 115 necessary for such a compulsory license.

Here’s the part many people don’t realize. All of these rates we call “statutory” are only applicable to compulsory licenses. Nowhere does the Copyright Law state that these statutory rates are to be applied to negotiated licenses, or any other licenses outside of Section 115. Nowhere. “Statutory Rate” is not even a defined term in the Copyright Law. It is merely a rate established by a legislative body to be applied to a unique compulsory license.

In the 2009 update to the Code of Federal Regulations (CFR), which is where the more recent negotiated rates and terms for compulsory licenses for physical and digital phonorecords are published, it is clear in §385.1 to say the scope of these new rates and terms are for licenses in accordance with Section 115 (compulsory licenses), and further, in relationship to voluntary agreements, “…the rates and terms of any [negotiated] license agreements entered into by Copyright Owners and Licensees shall apply in lieu of the rates and terms of this [compulsory license] sub-part…”.

So why does the industry, as a practical matter, stick to a maximum mechanical rate of 9.1 cents in negotiated licenses? Because (I believe) most people assume it is the maximum defined by law. And that is clearly not true. Unfortunately, I have found various trustworthy sources who mention this rate in context as it is used as a ceiling. In the popular book, “This Business of Music”, under the section “Negotiated License”, a statement is made referring to the statutory rate that it “…is likely to serve as a ceiling on royalties in United States negotiated licenses..”.¹ An article by Jeff & Todd Brabec on 2010 Mechanical Royalty Rates says, “This statutory mechanical rate represents the songwriter/music publishing royalties payable for songs contained on all physical audio recordings which are made and distributed…”.² Even Marybeth Peters, the past Register of Copyrights, in a statement to the House Judiciary Committee, referred to the compulsory license rate set by Congress by saying it “acted as a ceiling for the rate in privately negotiated licenses.”³

But it doesn’t have to.

Just last week, I was challenged on this very issue by a person in business affairs at one of the major record labels. In a license we had offered to the label, I was not asking for more than a 9.1 cent rate, but I was simply adding some reasonable terms of my own. The person’s response was, “This is a Statutory Rate license. The statutory language should be correct in a license or not included.” (the person actually did capitalize the words as if it were a defined term). Sorry, but wrong on all counts. Our license is a negotiated license. There is no such thing as a Statutory Rate License. While there may be a Compulsory License which uses a statutory rate, what I offered was a negotiated license for a product that has already been released. We use my terms…. or don’t use the song.

Bottom line, those who control copyrights should understand that they can license normal uses, mechanical or others, on their terms, and not the terms of the users, whether major companies or non-commercial individuals. There is no such thing as a ceiling rate for a negotiated license. I am not calling for unfair rates or terms, but merely challenging us to better understand our rights as copyright owners, and stick to our guns with what we believe are good and fair business practices.

John Barker
ClearBox Rights, LLC

Be sure to put your feet in the right place, then stand firm”. – Abraham Lincoln

¹ “This Business of Music” – Krasilovsky/Shemel (Billboard Books) Chapter 21, “Negotiated Licenses”
² “Music, Money & Success” Brabec/Brabec (Shirmer Trade Books) as quoted on taxi.com
³ Statement before Subcommittee on Courts, The Internet and Intellectual Property of the House Committee on the Judiciary – March 11, 2004

 
© 2013 John Barker. All rights reserved. Information contained in this Blog is of a general nature and should not be considered or relied on as legal advice. Any reader of this Blog who has legal matters related to information addressed in this Blog should consult with an experienced attorney. This Blog contains no warranties or representations that the information contained in it is true or accurate in all respects or that it is the most current or complete information on the subject matter covered. John Barker is President and CEO of ClearBox Rights, LLC.

5 Comments

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5 responses to “The Standard U.S. Mechanical License Ceiling Is No Longer 9.1 Cents

  1. Pingback: Posts Worth Reading: Copyright Law Made Simple | SouthernGospelBlog.com

  2. Thanks John for the insight into this. As always you are setting the standards for the rest of the industry. In more ways than one, Clearbox Rights has become the leader in administration. Not only is your staff on top of everything that we as a publisher need, but you are providing services that are far better than any other. I have more comments on how wonderful your online licensing site is than you can imagine. And as a publisher, it is a comfort to know that I can send a link to an artist on where to get their license online without wondering how many times will they have to contact me to walk them through it. To this day I have not had one person have to contact me back. I cannot say that about other sites that we have used. And your full staff are on top of every situation that I have come up on. It’s wonderful to know I can send an email and know it is being handled correctly and in a timely manner. Keep setting the standards for the rest to follow!
    Greg Bentley
    Director of Publishing
    Crossroads Marketing & Entertainment

  3. jeffsong@comcast.net

    Wow. Great blog, John! I, for one, did not realize this.

  4. Thanks for this thought-provoking piece. I’ve always assumed the Statutory Rate is a minimum, a floor, not a ceiling. But I guess that’s not exactly correct either.

    Very interesting.

    Casey Kelly

  5. Hello John. You are, of course, correct in your observation that the Statutory Rate is not a ceiling as most record companies would have us believe. Unfortunately, the personnel we have to deal with in the “User” community have been trained by their superiors to assert that erroneous position and have never taken the opportunity to read the compulsory license provisions of the Copyright Act. Like you, and before I retired from CMI, I took a dim view of record companies distributing phonorecords before ever attempting to obtain Mechanical licenses. In several such instances, I agreed to offer a license only if the infringing user paid a higher license fee as a penalty for their failure to comply with the law. In taking such a position, you must be prepared to proceed with legal action if the User will not agee to an amicable resolution. An administrator and/or licensing agent is unable to commence legal action as only the owner of the copyright has legal standing to take such action; that is, unless the client publisher is willing to protect its rights and pursue the matter in the courts,

    While I agree with your position and strongly believe that some penalty is appropriate for failure to abide by the provisions of the Copyright Law, my experience has shown that most small or independant music publishers don’t wish to incur the cost of litigation or raise the risk of the “user” not recording their musical works in the future. The major publishers, of course, use the Harry Fox Agency, which also seems to subscribe to the philosophy that the Statutory rate is a ceiling; consequently, those publishers don’t challenge rates as a customary practice.

    I enjoy your blogs and support your efforts.

    Terry Smith

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