Monthly Archives: February 2014

The Next Copyright Act – Get Rid of Compulsory Licenses? (Part 1)

I remember reading a story about habits passed down through a family for generations. The story went something like this. A newly married wife was cooking a roast for the first time. In preparing the roast, she cut off both ends of the meat before she put it into the pot to cook, just as she had seen her mom do. Then she got a little curious about what this actually did in the cooking process. So, she called her mom to ask, only to be told that her mom didn’t really know, but that this was how she had been taught by her mom to prepare it. So the young wife then called her grandmother and asked the same question. Unfortunately, she got the same basic answer of not really knowing the reason, but that’s also how she had been taught by her mom. The young girl’s great grandmother was still alive, so she asked the question again, and was quite surprised by the answer. The great grandmother’s reason for cutting off both ends was simply because the only pot she had to cook with in those days was too small to hold an entire roast.

It would be an eye-opening experience to discover the original reasons behind some of the habits and procedures we routinely exercise in our daily lives and professions. One of those I’d like to address here is the Compulsory License in the U.S. Copyright Act, which I believe is a commonly misunderstood portion of the current copyright law.

The Compulsory License was first introduced in the 1909 U.S. Copyright Act, section 115, at a time when the “mechanical” license was primarily intended to be used for piano rolls, (although phonorecord cylinders and discs existed, but were not yet popular). What was the fundamental objective for the Compulsory License? Congress wanted to prevent a single entity from monopolizing the piano roll market by buying the exclusive rights of certain songs. The law also set a rate of two cents for these licenses, and defined a number of requirements, or hoops as I’ll call them, for the user to jump through in order to qualify for this Compulsory License.

Think about this. A license scheme established over 100 years ago to prevent monopolistic practices for physical piano rolls is the same license scheme being used today for much of the digital cloud streaming of music. Either Congress was extremely smart and visionary, (I’ll let you answer that on your own), or we as an industry have been unable or unwilling to recognize and react to significant changes which slowly occurred over the century, and have allowed ourselves to be lulled into accepting this as the best way to license these kinds of uses…or to cook this roast.

According to a 2004 statement by then Register of Copyrights Marybeth Peters to the IP Subcommittee of the House Judiciary Committee, she says of the Compulsory License that, “the use of the license appears to have again become almost non-existent; up to this day, (in 2004) very few notices of intention are filed with the Copyright Office”. It is clear that the practice throughout the years had been that most users would negotiate a mechanical license, rather than jump through the numerous legal hoops defined in Section 115 for such a compulsory license. In a 1961 report by then Register of Copyrights Abraham Kaminstein, leading up to the changes we now know as the 1976 Copyright Act, Mr. Kaminstein suggested that monopoly didn’t seem to be much of a concern, and perhaps the compulsory license should be repealed. But the copyright owners didn’t pursue that change, and instead opted for an increase in the applied rate, from 2 cents, to 2 and three quarters, with increases over time. (The rate is 9.1 cents today). Yet, in practice, most copyright owners only used this established “statutory mechanical rate” as a maximum rate when offering negotiated licenses. (I wrote about this in detail in an earlier blog titled, “The Standard U.S. Mechanical License Ceiling Is No Longer 9.1 Cents”). I personally think copyright owners missed an opportunity to establish a better license practice and model.

We must also be reminded that other types of uses of music do not have a compulsory license, such as print uses and synchronization uses, and the monopolization of these uses did not seem to become a problem.

The original compulsory license was for mechanical uses, which today means recorded sales, and includes digital downloads. In 2009 and 2013, the Copyright Royalty Judges confirmed the statutory rate under the compulsory license for physical products and permanent digital downloads at $.091, defined a ringtone rate of $.24, and added ten additional rates for mechanical uses known as Interactive Streaming and Limited Downloads.  All of these rates are exclusively for uses that fall under the Compulsory License umbrella of Section 115 of the Copyright Act. They do not, and I repeat, they DO NOT, define rates for any of these uses where the license does not qualify as Compulsory under Section 115. And as a reminder, one of the many hoops a licensee must jump through in order to get a compulsory license is to send a Notice of Intention to obtain a Compulsory License to the owner BEFORE any distribution of the recordings, whether physical or digital. The law is clear that, in the absence of this prior notice, the licensee “forecloses the possibility of a compulsory license and, in the absence of a negotiated license, renders the making and distribution of phonorecords actionable as acts of infringement.” Bottom line, if a user fails to get a compulsory license before distribution, they can NEVER qualify to get a compulsory license for that same song and use. Period. If we took a close look at how many of the songs appearing on various digital interactive and limited download services were properly licensed within the rules, I think we would be astonished at how many fall short.

Today, Compulsory Licenses are being used for two primary functions, neither of which are the original objective of the license, and neither of which, in my humble opinion, are necessary. One is as a blanket type license for digital interactive streaming or limited download services. The second is for small, mostly non-commercial uses, where the user can hire a third party to secure a mechanical license on their behalf for a fee. Neither of these types of uses, in the absence of a Compulsory License, would threaten monopolistic practices. And interestingly enough, a license to use the accompanying sound recording in the digital uses must be negotiated through a “willing seller – willing buyer” arrangement. Are we trying to force digital services into a license scheme that is cumbersome and next to impossible to get right for 100% of the repritoire? Are we trying to force a 105 year old license scheme to work for our current “cloud” based digital listening preferences? Is it time to find a more effective method of cooking the roast?

I think so.

We do need some type of blanket license arrangement. We want legitimate digital music distribution models to work. But on the other hand, as copyright owners, since the law says we have the right, we should also have the ability to keep our songs off certain services if we so desire. Record companies and artists have the right to say “no” to their recordings being available, so why shouldn’t song owners have the same right, since that is an original objective of the copyright law?

It is always easier to identify problems rather than suggesting solutions, and I believe the industry is screaming for solutions. However, in order to set the table, I want to first simply identify some of the more obvious problems which I believe need to be understood before we can explore solutions. I’ll introduce some of those issues in the next blog, and as always, I am interested in your comments.

John Barker

ClearBox Rights, LLC

“We must look for opportunity in every difficulty, instead of being paralyzed at the thought of the difficulty in every opportunity.” – Walter E. Cole

© 2014 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.

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