by Lee Gesmer | Dec 13, 2018 | Copyright
Every few decades Congress enacts a major amendment to the U.S. Copyright Act. We are at one of those inflection points now. On October 11, 2018 the Orrin G. Hatch–Bob Goodlatte Music Modernization Act (the “MMA”) was signed into law. (click here for full text of the law)
This is a massive, game-changing law for digital music distribution, and it may take years for it to be fully integrated with the complex U.S. music copyright system. But, if you’re at a holiday party this season and someone insists on discussing the MMA with you, this blog post will give you a few talking points.
From a 40,000 foot level the MMA does three things.
First, and most importantly, it completely revamps the U.S. mechanical licensing system for interactive digital streaming services and digital downloads by shifting the burden of identifying composers from the services to the composers themselves. This is a huge benefit to the digital music services, who in the pre-MMA era were responsible for locating composers entitled to royalties but often failed to do so, creating an enormous potential liability for copyright infringement.
Second, it requires interactive streaming services to make royalty payments to owners of pre-1972 sound recordings for the first time.
And third, it authorizes and facilitates payments to non-musicians who contribute to sound recordings, such as producers and sound engineers.
Before proceeding bear in mind that this law is very complex – the MMA itself is 66 pages of dense legal text. Millions of words and thousands of lawyer hours will be spent dissecting, analyzing and litigating this law in the coming years. This post is only a high-level introduction to the MMA – just enough that you can comment semi-intelligently if the topic comes up at a party during the holidays. I’ve put more detail into the footnotes, which you can read if you’re interested in going a bit deeper. And, I’ll delve more deeply into some of the issues raised by the MMA in subsequent posts.
With that warning …
Compulsory Licensing and the Mechanical Licensing Collective
The MMA creates a “blanket license” for digital music service providers to sell interactive music streams. It authorizes the creation of a quasi-governmental “Mechanical Licensing Collective” (the “Collective” or “MLC”) to administer this system. The Collective will create and maintain an online, publicly available “musical works database” of all the musical works (notes and lyrics), their owners and the percentage ownership of works co-written by multiple songwriters. The interactive digital streaming services will pay the Collective, and the Collective will pay songwriters.
The licensing system is “compulsory,” in the sense that composers are compelled by operation of law to enter into the licenses, there is no “opt-out,” and the license exists whether or not composers take any action to make sure they are properly registered with the Collective.
Who will create this massive database and how long it will take to populate it is yet to be determined.
The Collective is charged with developing and maintaining the database. However, in the end it will be up to composers to get accurate ownership information to the Collective – that’s the only way composers can be sure they’ll get paid.
Once the database is operational the MMA’s goal is for the database to contain ownership data for every musical work protected by U.S. copyright law. This includes musical works owned by non-U.S. songwriters as well as U.S. composers, if their works are streamed in the U.S. Therefore, songwriters outside the U.S. will have to make sure their works are properly registered with the Collective if they want to be paid.
Spotify Logo
The MMA allows digital streaming companies to pay the proper owners by paying the Collective. This allows interactive streaming companies (for example, Spotify, Apple Music, Amazon Music, Deezer, Tidal) to stop worrying about whether they are paying songwriter royalties to the proper rights holders, a major liability risk pre-MMA. Their obligations to songwriters under copyright law will be satisfied as long as they pay the Collective. It’s up to the Collective to then pay the songwriters. And it’s up to the songwriters to make sure their compositions are correctly registered with the Collective.
How much will songwriters be paid under this compulsory license? As was the case before the MMA, royalty rates will be set by the Copyright Royalty Board.
If it strikes you that this law is a mind-blowingly complex and ambitious undertaking, you are right! How long it will take for the Collective to select a developer and get the database established with correct ownership information is anyone’s guess. However, the target date for the cut-over to this system is January 1, 2021.
So, a few takeaways your holiday party –
- “Wow, can they really do this in two years? I’ll bet Congress will have to extend the effective date.”
- “Who will get the contract for this project – Microsoft or Oracle? Ha ha …”
- “How many songwriters will never hear about this, or won’t bother to register with the MLC? I mean, lots of musicians haven’t heard of SoundExchange even today, 17 years after it was created.”
- “The MMA prevents songwriters from recovering statutory damages infringements retroactively to January 1, 2018 – is that constitutional? I’ll bet that issue will be litigated.”
Pre-1972 Sound Recordings
People are often surprised to learn that U.S. copyright law did not cover public performances of pre-1972 sound recordings. When you hear Stairway to Heaven (1971) played on the radio or digitally streamed on an interactive service like Spotify, Jimmy Page and Robert Plant (the composers) receive a songwriter royalty. But no one else is paid royalties (the other band members or, more likely, the record company that owns the recording).
This will change under the MMA, but only for sales by digital streaming services and satellite radio stations, such as Sirius XM. So-called “terrestrial” radio stations (AM/FM radio) can still play pre-1972 sound recordings without paying a royalty to the rights-holders (although they must pay songwriter royalties, as they have in the past, typically through the PROs).
While this seems like a fair start to paying owners of pre-1972 sound recordings, one aspect of the law is particularly controversial – the duration of the new public performance copyright in the sound recordings. I’ll address this issue in a later post. (Hint: the duration is long).
Takeaways for your holiday party:
- “So, this is digital only? Why doesn’t AM/FM radio have to pay royalties also? That doesn’t seem fair.”
- “So, even though pre-1972 sound recordings have been in the public domain with respect to public performances for more than 45 years, they will now suddenly be protected by copyright law? Is it right for the law to suddenly protect sound recordings that have been in the public domain (for public performances) after such a long time?”
Payments to Producers
This part of the MMA creates a system for SoundExchange to pay royalties directly to producers based on a “letter of direction” SoundExchange receives from recording artists. For sound recordings fixed before November 1, 1995, even in the absence of a letter of direction SoundExchange will allocate 2% of royalties for a sound recording to be paid to producers involved in the making of that sound recording.
Takeaway for your holiday party:
- “Music producers contribute a lot to sound recordings. It’s about time the law recognizes this!”
Conclusion
Yes, this is a huge, complicated law, and I’ve barely scraped the surface. It’s going to take a long time for it to percolate fully throughout the music world. And, it’s going to be a challenge for the Copyright Office to implement it under the schedule set by Congress. Whether it turns out to be beneficial for music composers and the copyright system as a whole will not be known for years.
More to come.
Update: On July 5, 2019 the Copyright Office announced that the Mechanical Licensing Collective, Inc. (MLC) has been selected as the entity that would administer the blanket license and distribute collected royalties to songwriters and music publishers. As discussed above, this entity will be responsible for developing and maintaining a comprehensive database of musical works and sound recordings, which will be publicly available. The MLC is led by the National Music Publishers Association (NMPA), the Nashville Songwriters International Association and the Songwriters of North America (AMLC). Ed Christman goes into this decision in detail in his Billboard article, Why The U.S. Copyright Office Chose The Mechanical Licensing Collective.
Footnotes:
by Lee Gesmer | Nov 28, 2018 | General, Trademark
The U.S. Supreme Court decides very few intellectual property cases. And, it accepts review of few cases from the First Circuit Court of Appeals in Boston (my circuit). So, when the Supreme Court accepts an IP case appealing a decision from the First Circuit, as it has now, I pay attention.
The case under appeal involves a narrow but important legal issue that is of interest to both the intellectual property licensing and bankruptcy communities. Here is a brief summary of what’s at issue.
The decision on appeal is Mission Product Holdings Inc. v. Tempnology LLC (1st Cir. January 12, 2018), and the issue is a mashup of trademark and bankruptcy law.
When a company files for protection under Chapter 11 of the Bankruptcy Code, the trustee or the debtor-in-possession (the “debtor”) may secure court approval to “reject” any executory contracts to which the debtor is a party. An example would be a distribution agreement for a specific term (say five years) that has not run its course. If the distributor goes into bankruptcy two years into the five year term it can “reject” the contract – it is no longer obligated to perform during the remaining years.
The debtor doesn’t get off completely free – it is left with a liability for a pre-petition breach of the contract. 11 U.S.C. § 365(g) (“[T]he rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease … immediately before the date of the filing of the petition….”). However, the other party to the contract has nothing more than an unsecured claim, and these are often worth little in bankruptcy proceedings.
There is an important exception to this rule, which leads to the issue in this case. When the rejected contract is one “under which the debtor is a licensor of a right to intellectual property,” the licensee may elect to “retain its rights … to such intellectual property,” in effect forcing the continuation of the license. 11 U.S.C. § 365(n)(1).
However, the exception presents a potential problem for licensees in one respect – the definition of “intellectual property” includes patents, trade secrets and copyrights, but does not mention trademarks, a form of intellectual property that is often the subject of license agreements. 11 USC § 101(35)(A)
The First Circuit case involved an ongoing (“executory”) trademark license, and the debtor took the position that because trademarks are not included in the list of exceptions, it was entitled to reject (terminate) a trademark license. The licensee, the other party in the case, took the opposite position, asserting that the trademark license should continue.
The licensee lost before the bankruptcy court and appealed to the First Circuit. After a review of the statutory history of the law and the policy issues involved, the First Circuit held that Congress meant what it said by omitting trademarks from the list of the kinds of intellectual property that cannot be rejected by a Chapter 11 debtor – executory trademark licenses are an exception to the exception, and they can be rejected by a debtor. Therefore, the licensee lost its ongoing trademark license.
However, this ruling set up a “circuit conflict” with the Court of Appeals for the Seventh Circuit. For reasons too detailed to go into here, in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC (7th Cir. 2012), the Seventh Circuit held that Chapter 11 bankruptcy does not entitle the debtor to terminate a trademark license.
This conflict between the First and Seventh Circuits led the Supreme Court to accept an appeal of this case. And, this is clearly a case worthy of Supreme Court review. Prospective licensees should know whether or not they will be able to continue to use a trademark if the licensor files for bankruptcy, not that it depends on where in the country the bankruptcy is filed and therefore which circuit’s law is controlling. A decision by the Court will resolve, nationwide, the status of trademark rights when a debtor rejects a license agreement in bankruptcy.
Briefing on this case has not yet begun, but the case is likely to be heard next year, and a decision issued before the Supreme Court 2018-19 term ends next June. I’ll update this post when a decision is issued. In the meantime, here is a link to the Scotusblog page for the case.
Update, May 2019: The Supreme Court ruled that a debtor may not terminate a trademark license. Link to decision.
FOOTNOTES
by Lee Gesmer | Oct 26, 2018 | DMCA/CDA
Section 230 of the Communications Decency Act has, once again, protected a website from a claim of defamation based on user postings.
Simply put, Section 230 of the CDA provides that a website isn’t liable for defamation (or any other non-intellectual property claim) based on user postings. The poster may be liable (if she can be identified), but the website is not. Typically, Section 230 cases involve defamation or interference with contract by the poster — copyright infringement based on user postings is handled by a separate statute, the DMCA.
Craft Beer Stellar, LLC’s suit against Glasdoor ran into this law head-first in a recent case decided by Massachusetts U.S. District Court Judge Dennis Saylor.
Craft Beer complained to Glassdoor over a critical posting by a Craft Beer franchisee (the fact that the post was by a franchisee rather than an employee is legally irrelevant). Glassdoor removed the posting on the ground that it violated Glassdoor’s community guidelines. The franchisee reposted, this time in compliance with the guidelines, and Glassdoor denied a request by Craft Beer to remove the second posting.
Craft Beer argued that by taking down the first review and allowing the second review to be posted Glassdoor lost its Section 230 immunity. The judge summarized its argument as follows:
Glassdoor essentially contends that Glassdoor’s decision to remove a “review” from its website for violating its community guidelines, combined with its subsequent decision to allow the updated, guidelines-compliant version of the “review” to be re-posted, constituted a material revision and change to the post’s content. Such a material revision, it contends, constituted an act of creating or developing the post’s content, and accordingly transformed Glassdoor from an (immunized) interactive computer service into an information-content provider not subject to the protections of §230.
Judge Saylor rejected this argument, noting that Glassdoor wrote neither of the two posts; it just made a decision to publish or withdraw the posts. First Circuit precedent holds that these kinds of “traditional editorial functions” — deciding whether to publisher or withdraw content — fall squarely within Section 230’s grant of immunity. See Jane Doe No. 1 v. Backpage.com LLC (1st Cir. March 14, 2016) (“lawsuits seeking to hold a service provider liable for its exercise of a publisher’s traditional editorial functions — such as deciding whether to publish, withdraw, postpone or alter content — are barred”).
Craft Beer also claimed that Glassdoor had violated the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836. However, as noted above, Section 230 provides protection for non-intellectual property claims. Although one would ordinarily think of a trade secret claim as an intellectual property claim (and therefore not covered by Section 230), the DTSA expressly states that the DTSA “shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress.” Accordingly, Section 230 provided Glassdoor with protection from the DTSA claim as well. (For an in-depth discussion of this issue see Professor Eric Goldman’s article, The Defend Trade Secrets Act Isn’t an ‘Intellectual Property’ Law.)
The larger problem for Craft Beer may be that not only did the judge dismiss its complaint, but the case probably has added publicity to the bad reviews Craft Beer sought to quash. Indeed, even if it had won the case and forced Glassdoor to take down the offending posts, potential franchisees researching the company online would find the posts quoted in court decisions in the case. As things now stand, Craft Beer is probably suffering to some extent from the Streisand Effect (for another example of Section 230 and the “Streisland Effect” see here). And, if it is considering an appeal to the First Circuit (a bad move, in my opinion), a decision from the First Circuit will only make matters worse.
Craft Beer Stellar, LLC v. Glassdoor, Inc. (D. Mass Oct. 17, 2018)
by Lee Gesmer | Oct 8, 2018 | Copyright
Update to this post: Copyright Office Backs Led Zeppelin In Ninth Circuit En Banc Appeal (link)
The U.S. copyright community will look back on 2018 as an important year for music copyright law. Appellate decisions in music copyright cases are rare. However, this year we’ve seen two important opinions from the Ninth Circuit. In March the Ninth Circuit upheld a jury verdict that found that Pharrell Williams and Robin Thicke’s 2012 recording of “Blurred Lines” infringes Marvin Gaye’s 1976 composition of “Got To Give It Up” (see my blog post, “Blurred Lines at the Ninth Circuit,” here).
Now, in October, the Ninth Circuit has issued an opinion in Randy Wolfe’s copyright case against Led Zeppelin. The jury in that case found that Led Zeppelin’s 1971 recording of Stairway to Heaven did not infringe Wolfe’s composition copyright in the 1968 song Taurus (recorded by Spirit). However, the appeals court found that the judge made several errors during the trial, requiring that the case be retried.
There is a small measure of irony in the fact that in both cases the Ninth Circuit’s decisions appear to run counter to the opinions of most knowledgeable musicians.
Based on my extensive (but admittedly unscientific) survey of commentary in the music community, most musicians felt that Blurred Lines did not infringe Give It Up – at most, Blurred Lines copied the unprotectable genre of Give It Up. However, the Ninth Circuit found that there was sufficient evidence to support the jury verdict and upheld the finding of infringement on appeal.
Randy Wolfe
The sentiment was the same in the Led Zeppelin case – most musicians I surveyed argued that the introduction to Stairway to Heaven did not infringe the introduction to Taurus. The jury agreed, finding no infringement, but this time the appeals court disagreed, and sent the case back for a retrial, setting the case up for a possible jury verdict in favor of Wolfe’s estate.
Admissibility of Pre-1972 Sound Recordings
The Led Zeppelin appeal involved a number of legal issues, as is true of most appeals. The Ninth Circuit reversed the jury verdict and remanded the case for retrial based on faulty jury instructions on issues of originality and copyright protection of the selection and arrangement of public domain elements of a musical composition.
However, for most legal observers the key legal issue was whether, since pre-1972 copyright law did not recognize a copyright in sound recordings (and then only prospectively), the copyright in Taurus was limited to the simplistic lead sheet deposited with the Copyright Office in 1967. The trial judge in the Led Zeppelin case ruled that the copyright was limited to the Copyright Office deposit, and therefore the jury never heard the sound recording of Taurus.
The Ninth Circuit was presented with this issue in the Blurred Lines case, but was able to resolve that appeal without deciding it.
The court was presented with the issue a second time in the Led Zeppelin appeal, and this time the court did take it on. After examining the statute and the legislative history, and reviewing the limited case precedents on the issue (none of which were squarely on point) the court concluded:
“For the benefit of the parties and the district court on remand, we also address whether the scope of copyright protection for an unpublished work under the 1909 Act is defined by the deposit copy. We hold that it is.”
The reference to an “unpublished” work is confusing, since the sound recording of Spirit’s song Taurus was published in 1968. However, before 1978 courts had held that a musical work was “published” only when sheet music was distributed to the public. Under copyright law, distribution of a sound recording of a musical work was not considered a “publication” of the musical work. The lead sheet for Taurus was unpublished, and the court’s many references to the “unpublished work” refer to the lead sheet deposited with the Copyright Office.
Since the Ninth Circuit’s opinion is the first and only federal appellate decision on this issue it directly impacts song writers in the same position as Randy Wolfe: composers who own pre-1972 works and who may be considering a copyright suit against the owners of compositions or sound recordings they believe to be infringing. As was the case in the Led Zeppelin trial, these composers will not be able to play the sound recordings of their compositions for the jury in order to prove copyright infringement. Their evidence at trial will be limited to the sheet music filed with the Copyright Office, although this may be played for the jury by a witness (as was done at the Led Zeppelin trial).
This presents a potentially significant obstacle to proving copyright infringement of pre-1972 works since lead sheets for popular music filed in that era were often incomplete. As Wolfe argued (and as Marvin Gaye argued in the Blurred Lines case), the sound recording is the best evidence of a composition, and may contain compositional elements that have been copied by the defendant but that were not included in the sheet music.
At Retrial Wolfe May Get The Sound Recording of Taurus into Evidence After All
Despite this ruling, if the case is retried Randy Wolfe may be able to play the sound recording of Taurus for the jury based on a technicality. At trial Jimmy Page denied access to Taurus, and he was cross-examined on this issue by Wolfe’s lawyer. This included requiring Page to listen to Taurus in open court. However, the trial judge viewed the sound recording of Taurus to be outside the scope of Wolfe’s copyright, so he excluded the jury from the courtroom when the sound recording of Taurus was played. The jury was then allowed to reenter the courtroom, and Page was cross-examined on what he had just heard.
This was awkward, to say the least, and the Ninth Circuit ruled that the jury should have been permitted to view Page’s demeanor while he was listening to Taurus. The Ninth Circuit held that on retrial the jurors should be instructed that the sound recording of Taurus is limited to the issue of access, and is not to be used to judge the similarities between Taurus and Stairway to Heaven.
Of course, juries are often unable to understand (or unwilling to follow) “limiting instructions” of this sort, so this is, in effect, a backdoor means by which the jury may be able to hear Taurus if Jimmy Page again denies access (a strategic issue Page and his lawyers will have to deal with on retrial of the case).
What’s at Stake in This Case?
Why is Wolfe’s estate pursuing this case so aggressively? Obviously, the case raises issues of reputation and artistic integrity, particularly for Robert Plant and Jimmy Page, who composed Stairway to Heaven.
Monetarily, if Wolfe’s estate were to win it would be entitled to damages based on a share of profits attributable to Stairway for the three years preceding final judgment, as well as a share of royalties until 2067, 70 years following Wolfe’s death.
In the Blurred Lines case Marvin Gaye’s future damages were decided by the judge, who ruled that Gaye’s estate was entitled to 50% of future songwriter and publication royalties. If Wolfe were to prevail following a retrial it would be up to the judge to decide on the future royalty split for Stairway to Heaven, and this could be less than 50%, given that Wolfe’s claim of infringement is limited to the first two minutes of Stairway (an eight minute song). However, Wolfe is likely to argue that the opening two minutes of the song is the most important and recognizable part of Stairway, and therefore Wolfe is entitled to at least 50% of future royalties. How the court would rule on this issue is anyone’s guess.
Given Stairway to Heaven’s iconic stature and seemingly perpetual popularity even a decision awarding Wolfe significantly less than 50% of royalties for the next 49 years could be enough to justify the effort and expense Wolfe’s estate has invested in the case, and Led Zeppelin’s obstinacy in defending it.
Skidmore v. Led Zeppelin (9th Cir. Sept. 28, 2018)
p.s. Bustle? Google the lyrics of Stairway to Heaven
Update: The case was reheard en banc, and the jury’s verdict in favor of Led Zeppelin was upheld. Link
Second update (Aug. 2020): Skidmore has filed a cert petition with the Supreme Court. Seems like a long shot, but you never know. Link via Evernote.
Third update: Skidmore’s cert petition was denied.
FOOTNOTES
by Lee Gesmer | Sep 28, 2018 | Copyright
Can Disney prevent a commercial business – in this case Redbox – from reselling Disney’s movie download codes?
At first the answer was “no.”
My earlier post on this case* highlighted the California federal district court’s February 2018 opinion concluding that the language on Disney’s box-top packages failed to create a contract that would prevent Redbox from purchasing and reselling Disney movie download codes. However, I predicted that “Likely, in the future Disney will correct its ‘box-top license’ to make it legally enforceable . ..”
*To get the background facts of this case please read the initial post
Disney did just that when it released its Black Panther combo packs. Disney’s new packaging states that “Digital code redemption requires prior acceptance of licence terms and conditions. Codes only for personal use by recipient of this combination package or family member.” A warning elsewhere on the package states that “The digital code contained in this package may not be sold separately and may be redeemed only by the recipient of this combination package or a family member. Visit [various Disney websites listed] for code redemption and other applicable terms and conditions.” A paper insert states that “This digital code is part of a combination package and may not be sold separately,” and “Digital code redemption is subject to prior acceptance of license terms and conditions.”
However, purchasers of Disney combo packs now get a double-barreled contract – when they go to one of the Disney websites to download Black Panther, they are subject to an online agreement as well. Here, they must agree to Disney’s warning that “Digital codes originally packaged in a combination disc + code packages (sic) may not be sold separately and may be redeemed only by an individual who obtains the code in the original combination disc + code package ….”
All of this legal verbiage — both the box-top license and the online license — confronts consumers purchasing the Black Panther combo packs and using the download codes online, but it is aimed squarely at Redbox or anyone else that may have the temerity to purchase and resell Disney download codes.
Based on this onslaught of contractual terms the district court concluded that Disney has successfully entered into a restrictive contract with purchasers of the Black Panther combo packs. That is, when consumers (or Redbox) buy the Black Panther combo pack containing a disk and download code they are buying a restricted license to the code, and one of the terms of that license is that they may not resell it. By reselling the codes and encouraging purchasers to use codes violative of this contract, Redbox engaged in contributory copyright infringement.
Consistent with its February 2008 opinion, the court rejected Redbox’s first sale defense on the grounds that the case does not present a “single, discrete, particular copy to which the first sale doctrine could apply.” And, an enforceable license trumps first sale in any event, although the court did not rely on this.
Although the court had applied the copyright misuse doctrine in its earlier decision, it now rejected copyright misuse based on the changes to Disney’s contract terms. Under Disney’s “old” box-top license there was no Disney-purchaser contract, and Disney’s attempt to use its online contract to restrict resale of the contents of the combo packs constituted copyright misuse. However, Disney’s new box-top agreement cured this defect, since purchasers of the combo packs were now subject to a restricted license at the point of sale.
The outcome of this case is not surprising. The district court’s earlier decision gave Disney a roadmap to what it needed to do to correct the deficiencies that caused it to lose the first time. It was a simple matter for Disney to correct its packaging and online terms to make it clear that purchasers were buying the download codes subject to a restricted license, thus blocking Redbox’s resale strategy.
The court’s ruling applies only to Black Panther, not earlier movies distributed by Disney in the old packages – those products remain subject to the court’s earlier ruling. However, if this decision stands (I doubt Redbox will appeal) Redbox’s future distributing Disney download codes appears limited. Going forward Disney will, no doubt, use the same Black Panther contract language on all of its disk/download code combo packs, and Redbox’s sale of Disney download codes will eventually dry up as new movies replace older ones in Redbox’s kiosks.
