Reporting and Distribution of Royalties to Copyright Owners by the Mechanical Licensing Collective, 58160-58167 [2020-20079]

Download as PDF 58160 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations LIBRARY OF CONGRESS Copyright Office 37 CFR Part 210 [Docket No. 2020–6] Reporting and Distribution of Royalties to Copyright Owners by the Mechanical Licensing Collective U.S. Copyright Office, Library of Congress. ACTION: Interim rule. AGENCY: The U.S. Copyright Office is issuing an interim rule regarding the obligations of the mechanical licensing collective to report and distribute royalties paid by digital music providers under the blanket license to musical work copyright owners under title I of the Orrin G. Hatch-Bob Goodlatte Music Modernization Act. After soliciting public comments through a notice of proposed rulemaking, the Office is now issuing regulations establishing the timing, form, and delivery of statements accompanying royalty distributions to musical work copyright owners. These regulations concern only royalty statements and distributions regarding matched uses of musical works embodied in sound recordings and do not address issues related to the distribution of unclaimed, accrued royalties. SUMMARY: DATES: Effective October 19, 2020. FOR FURTHER INFORMATION CONTACT: Regan A. Smith, General Counsel and Associate Register of Copyrights, by email at regans@copyright.gov or Terry Hart, Assistant General Counsel, by email at tehart@copyright.gov. Each can be contacted by telephone by calling (202) 707–8350. SUPPLEMENTARY INFORMATION: jbell on DSKJLSW7X2PROD with RULES3 I. Background Title I of the Music Modernization Act (‘‘MMA’’), the Musical Works Modernization Act, substantially modifies the compulsory ‘‘mechanical’’ license for making and distributing phonorecords of nondramatic musical works available under 17 U.S.C. 115. Prior to the MMA, a compulsory license was obtained by licensees on a perwork, song-by-song basis, and required a licensee to serve a notice of intention to obtain a compulsory license on the relevant copyright owner (or file the notice of intention with the Copyright Office if the Office’s public records did not identify the copyright owner and include an address at which notice could be served) and then pay VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 applicable royalties accompanied by accounting statements.1 The MMA amends this regime in multiple ways, most significantly by establishing a new blanket compulsory license that digital music providers (‘‘DMPs’’) may obtain to make digital phonorecord deliveries (‘‘DPDs’’) of musical works, including in the form of permanent downloads, limited downloads, or interactive streams.2 Instead of licensing one song at a time by serving notices of intention on individual copyright owners, the blanket license will cover all musical works available for compulsory licensing and will be centrally administered by a mechanical licensing collective (‘‘MLC’’), which has been designated by the Register of Copyrights.3 Under the MMA, compulsory licensing of phonorecords that are not DPDs (e.g., CDs, vinyl, tapes, and other types of physical phonorecords) (the ‘‘non-blanket license’’) continues to operate on a perwork, song-by-song basis, the same as before.4 On September 24, 2019, the Copyright Office issued a notification of inquiry (‘‘NOI’’) to initiate this current proceeding regarding implementing regulations for the blanket license.5 The Office invited public comment on regulations that the MMA specifically directs it to adopt, as well as additional regulations that may be necessary or appropriate to effectuate the new blanket licensing structure. Among the issues the notification sought comment on was ‘‘the MLC’s payment and reporting obligations with respect to royalties that have been matched to copyright owners, both for works that are matched at the time the MLC receives payment from digital music providers and works that are matched later during the statutorily prescribed holding period for unmatched works.’’ 6 On April 22, 2020, the Office issued a 1 See 17 U.S.C. 115(b)(1), (c)(5) (2017); U.S. Copyright Office, Copyright and the Music Marketplace 28–31 (2015), https:// www.copyright.gov/policy/musiclicensingstudy/ copyright-and-the-music-marketplace.pdf (describing operation of prior section 115 license). 2 17 U.S.C. 115(d)(1), (e)(7); see H.R. Rep. No. 115–651, at 4–6 (describing operation of the blanket license and the new mechanical licensing collective); S. Rep. No. 115–339, at 3–6 (same). 3 17 U.S.C. 115(d)(1), (3); 84 FR 32274 (July 8, 2019). 4 17 U.S.C. 115(b)(1); see H.R. Rep. No. 115–651, at 3 (noting ‘‘[t]his is the historical method by which record labels have obtained compulsory licenses’’); S. Rep. No. 115–339, at 3 (same); see also U.S. Copyright Office, Orrin G. Hatch-Bob Goodlatte Music Modernization Act, https:// www.copyright.gov/music-modernization/ (last visited Sept. 1, 2020). 5 84 FR 49966 (Sept. 24, 2019). 6 Id. at 49972. PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 notice of proposed rulemaking (‘‘NPRM’’) soliciting public comments on proposed regulations regarding those obligations.7 The Office received comments from seven parties in response to the NPRM and engaged in follow-up discussions with interested parties pursuant to its ex parte guidelines, as discussed further below. Commenters largely agreed that the NPRM generally struck the appropriate balance. The MLC said it ‘‘appreciates the Office’s consideration of the unprecedented licensing regime that the MLC is responsible to implement from scratch, and finds that the NPRM does an excellent job empowering the MLC to carry out the functions that it was designated to fulfill.’’ 8 The Future of Music Coalition (‘‘FMC’’) said it ‘‘continues to appreciate the Office’s ongoing efforts to implement the Music Modernization Act in ways that accord with legislative intent, that demonstrate ongoing concern for fairness to all parties, that increase transparency, and that harmonize the public interest with the interests of creators, including songwriters and composers.’’ 9 Music Reports said it ‘‘enthusiastically endorses the overall framework and degree of balance generally achieved throughout.’’ 10 Having carefully considered the comments and other record materials in this proceeding, the Office now issues an interim rule that overall closely follows the NPRM, but with a number of modifications based upon public comment. Most significantly, the interim rule clarifies the MLC’s timing and delivery obligations with respect to royalty distributions, adjusts the MLC’s 7 85 FR 22549 (Apr. 22, 2020). On the same day, the Office issued two other notices of proposed rulemaking and a notification of inquiry regarding separate MMA implementation issues. 85 FR 22518 (Apr. 22, 2020); 85 FR 22559 (Apr. 22, 2020); 85 FR 22568 (Apr. 22, 2020). All rulemaking activity, including public comments, as well as educational material regarding the Music Modernization Act, can currently be accessed via navigation from https://www.copyright.gov/music-modernization/. Specifically, comments received in response to the NOI are available at https://www.regulations.gov/ docketBrowser?rpp=25&po=0&dct=PS&D=COLC2019-0002&refD=COLC-2019-0002-0001 and comments received in response to the NPRM are available at https://www.regulations.gov/ docketBrowser?rpp=25&so=DESC&sb= commentDueDate&po=0&dct=PS&D=COLC-20180008. Guidelines for ex parte communications, along with records of such communications, are available at https://www.copyright.gov/rulemaking/ mma-implementation/ex-partecommunications.html. References to these comments are by party name (abbreviated where appropriate), followed by ‘‘Initial NOI Comment,’’ ‘‘Reply NOI Comment,’’ ‘‘NPRM Comment,’’ or ‘‘Ex Parte Letter,’’ as appropriate. 8 MLC NPRM Comment at 1. 9 FMC NPRM Comment at 1. 10 Music Reports NPRM Comment at 2. E:\FR\FM\17SER3.SGM 17SER3 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations certification requirement, and explicitly provides for an annual statement to copyright owners. Additional modifications are made regarding the timing of adjustments, the content of royalty statements, and the minimum payment threshold. In drafting this interim rule, the Office has been mindful of both its longstanding goals of promulgating practical regulations that result in prompt payment to copyright owners 11 and the need to balance the principles identified in the NPRM: Establishing a minimum floor of transparency and accountability that songwriters and publishers can expect of the MLC and avoiding over-regulation by ensuring the MLC retains sufficient flexibility to ably implement a complex and challenging licensing regime.12 The success of the blanket license is dependent both on the ability of the MLC to administer the license fairly, transparently, and efficiently, and on the confidence songwriters and music publishers (and, for separate aspects, DMPs) have in the process. Copyright Office regulations are an important mechanism for ensuring transparency and accountability in the blanket licensing regime,13 but they are not the sole mechanism; other provisions in the statute as well as the governance of the MLC itself provides incentive for it to be responsive to the needs of copyright owners.14 The Office has determined that it is prudent to promulgate this rule on an 11 45 FR 79038, 79039 (Nov. 28, 1980). FR at 22551–52; S. Rep. No. 115–339, at 15 (‘‘[T]he Register is expected to promulgate the necessary regulations required by the legislation in a manner that balances the need to protect the public’s interest with the need to let the new collective operate without over-regulation.’’). 13 17 U.S.C. 115(d)(3)(B)(ii) (instructing the Register of Copyrights to periodically review designation of mechanical licensing collective); S. Rep. No. 115–339 at 5 (‘‘[T]he failure to follow the relevant regulations adopted by the Copyright Office [ ] over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective.’’); H.R. Rep. No. 115– 651, at 6 (same). 14 See, e.g., 85 FR at 22554 (‘‘[S]ignificant nonregulatory incentives are . . . in place to ensure timely distribution of royalties. For one, the MLC represented in its designation proposal that it intends to provide prompt, complete, and accurate payments to all copyright owners. In addition, because the MLC is governed by the very copyright owners that it will be serving, and because it must maintain the support of copyright owners, it shares their interest in prompt reporting and distribution (internal quotation marks omitted).’’); 17 U.S.C. 115(d)(3)(D)(vii) (annual report requirement for MLC); see also MLC NPRM Comment at 2–3 (‘‘The MLC has a clear interest in ensuring accurate, transparent and timely reporting to the songwriters and music publishers who govern it and to whom it is accountable.’’); SoundExchange NPRM Comment at 2–3 (similar). jbell on DSKJLSW7X2PROD with RULES3 12 85 VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 interim basis so that it retains some flexibility for responding to unforeseen complications in royalty reporting once the MLC begins distributing royalties. As noticed in the NPRM, adopting the rule on an interim basis is intended to ‘‘facilitate adjustment on topics noticed in this rulemaking if necessary once the MLC begins issuing royalty statements to copyright owners.’’ 15 Multiple commenters supported that proposal, and none opposed an interim rule.16 II. Interim Rule The NPRM addressed the information that the MLC is required to report in royalty statements, as well as the format and delivery of such statements and related distribution payments. The interim rule is intended to balance the primary concerns of copyright owners in getting prompt and accurate royalty payments with the operational realities of the MLC in administering the blanket license. The Office has looked to the existing song-by-song compulsory license as a baseline for the level of information that copyright owners expect under the blanket license, as well as the standard for accuracy in royalty reporting, while bearing in mind any relevant shortcomings of the song-bysong licensing regime that motivated passage of the MMA. Timing and distribution of royalties and royalty statements. The MLC commented that the proposed requirement to report newly reported royalties, newly matched royalties, and adjustments simultaneously ‘‘would cause needless operational complexity and reporting delays to copyright owners.’’ 17 The Office’s intent in proposing concurrent reporting was to ‘‘minimize and simplify administration for both the MLC and copyright owners.’’ 18 Given the MLC’s response that concurrent reporting would instead make administration more difficult, the Office has adopted the MLC’s proposed language clarifying that while royalties in either case must be reported monthly, 15 85 FR at 22552. e.g., Music Reports NPRM Comment at 3 (‘‘[I]t would be beneficial for the Office to adopt the proposed rule on an interim basis due to the intricacies of the subject matter and the further issues likely to arise during the MLC’s first full year of operation following the blanket license availability date.’’); The International Confederation of Societies of Authors and Composers (‘‘CISAC’’) & The International Organisation representing Mechanical Rights Societies (‘‘BIEM’’) NPRM Comment at 5 (saying it is ‘‘advisable to enable the Copyright Office to conduct an assessment of the Proposed Rulemaking after a one-year period once the MLC has started to operate and to further consult with stakeholders in order to adjust, if necessary, the relevant Regulation.’’). 17 MLC NPRM Comment at 5. 18 85 FR at 22553. 16 See, PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 58161 there is no requirement that the reports are made simultaneously. The Office made further updates related to the timing and delivery of royalty statements in light of the public comments. The interim rule has removed the phrase ‘‘for the month next preceding’’ in the provision for distribution of royalties based on comments by SoundExchange and supported by the MLC, emphasizing the practical difficulties in meeting this requirement.19 The aim of that language, carried over from the statutory requirements for the song-by-song licensing framework,20 was to indicate that the MLC would distribute all royalties that have become payable since the prior monthly distribution, but the MLC and SoundExchange suggested this language was ambiguous.21 In addition, the Office considered several comments that suggested adding an additional timing requirement and offered various periods, triggers, and exceptions upon which to base this requirement.22 For its part, the MLC opposed adding a further requirement that obligated the distribution of royalties within a certain period beyond establishing a monthly cadence for reporting, calling it ‘‘overly prescriptive.’’ 23 It explained that it ‘‘already has a substantial interest in ensuring royalties are timely reported and distributed in the most efficient manner possible.’’ 24 It added that its royalty processing activities will ‘‘depend heavily on the quality and timeliness of DMP usage reporting to the MLC’’ and sought to avoid regulatory language that would connect the MLC’s reporting obligations to external dependencies, such as the receipt of 19 SoundExchange NPRM Comment at 5 (‘‘This particular formulation may go too far given the practicalities of royalty collection and distribution’’). 20 17 U.S.C. 115(c)(2)(I). 21 While the Office agrees with SoundExchange that the monthly distributions should include any interest that has accrued pursuant to section 115(d)(3)(G)(i)(III), it believes the rule is already clear that such interest is to be included with the payment, as indicated in § 210.29(c)(4)(iv) of the interim rule. See SoundExchange NPRM Comment at 8–9. 22 CISAC & BIEM NPRM Comment at 4 (suggesting a maximum deadline of 9–12 months ‘‘from the end of the financial year in which the rights were collected’’); Music Reports NPRM Comment at 3 (proposing requirement to distribute royalties within 90 days following end of applicable month); Songwriters Guild of America, Inc. (‘‘SGA’’) NPRM Comment at 4 (suggesting required payment of royalties for matched works within three months of receipt). See also FMC NPRM Comment at 1 (supporting rule as proposed but expressing appreciation that the Office reserved the right to impose a timing requirement in the future). 23 MLC NPRM Comment at 12. 24 Id. E:\FR\FM\17SER3.SGM 17SER3 58162 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES3 untimely or incomplete information from blanket licensees.25 After considering the comments and the MLC’s reported operational expectations, the interim rule replaces the phrase ‘‘for the month next preceding’’ with alternative language similar to that proposed by the MLC to clarify that the MLC will pay out all royalties ready to be distributed to copyright owners when the MLC makes its regular monthly distributions. This encompasses royalties that have been reported by DMPs and matched to musical works, where the musical work copyright owner is known and located, where the MLC has all the necessary tax and financial information from the copyright owner to make a payment, and where the royalties are not subject to any dispute or other legal hold. This approach is intended to take into account the role of third parties, including DMPs and musical work copyright owners, for many of the inputs needed by the MLC before royalties can be distributed. The Office believes that the interim rule strikes an appropriate balance in solidifying the expectation that the MLC will promptly pay copyright owners all royalties that can be paid on a monthly basis, while avoiding a requirement that may overlook the potential impact of dependencies outside the MLC’s control. The Office acknowledges the MLC’s statements that it has an inherent interest in timely payments to copyright owners, given that it is governed by and accountable to those copyright owners, and it is required to pay interest on accrued royalties for unmatched works.26 To promote transparency in the timeliness of payments, the Office is separately considering whether the MLC should be required to report average royalty processing and distribution times as part of its annual report in a separate rulemaking and can revisit this issue if warranted.27 The MLC also objected that the requirement to immediately report adjustments on a monthly basis ‘‘could be tremendously burdensome.’’ 28 It explained that ‘‘reports of adjustment from DMPs are likely to relate to royalty pool calculations, and to therefore result in a recalculation of the effective per25 Id. SoundExchange asserted in its comments that ‘‘[u]nder the Section 112/114 statutory licenses . . . it routinely receives late payments and reporting.’’ SoundExchange NPRM Comment at 6. 26 MLC Ex Parte Letter Aug. 16, 2020 at 7; see 17 U.S.C. 115(d)(3)(H)(ii). 27 See U.S. Copyright Office, Notice of Proposed Rulemaking, The Public Musical Works Database and Transparency of the Mechanical Licensing Collective, Dkt. No. 2020–8, published elsewhere in this issue of the Federal Register. 28 MLC NPRM Comment at 3. VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 play rate, which would require an adjustment to all distributed (and undistributed) royalties.’’ 29 The MLC also maintained it ‘‘could be extremely costly with little benefit to copyright owners.’’ 30 Instead, the MLC proposed that the rule only require it ‘‘to report adjustments to copyright owners after it has received the total adjustments reported in the annual reports of usage delivered to the MLC by DMPs pursuant to proposed regulation § 210.27(f).’’ 31 The MLC noted that this would ‘‘alleviate the immense administrative burden’’ of processing all adjustments immediately, though it also would not prevent the MLC from reporting adjustments more frequently than annually.32 The Office did not receive any comments suggesting there was a need to report adjustments monthly, or opposing the MLC’s proposal. The Office finds the MLC’s proposal reasonable and has adjusted the rule accordingly. The Office observes that changing the requirement to report adjustments at least on an annual basis may increase the value of the MLC providing a defined annual statement to copyright owners, as discussed below. As the MLC notes, an adjustment that affects royalty pool calculations would affect all previously reported royalties; an annual statement could significantly assist copyright owners—particularly independent songwriters and smaller music publishers—in reconciling their bookkeeping following a reported adjustment. Content. The interim rule also includes several adjustments to the content that the MLC is required to report in royalty statements to copyright owners based on unopposed comments it has received.33 Notably, the interim 29 Id. 30 Id. at 3–4. at 4. 31 Id. 32 Id. Under rules the Office is promulgating in a separate proceeding, DMPs may report adjustments in combination with their annual report of usage, but they are not required to do so. See U.S. Copyright Office, Interim Rule, Music Modernization Act Notices of License, Notices of Nonblanket Activity, Data Collection and Delivery Efforts, and Reports of Usage and Payment, Dkt. No. 2020–5, published elsewhere in this issue of the Federal Register. 33 The Office notes the use of the term ‘‘featured artist’’ as one of the required sound recording information fields reported on royalty statements. In comments responding to a separate notification of inquiry, the Alliance for Recorded Music (‘‘ARM’’) raised a concern that the term could cause ‘‘confusion,’’ saying, ‘‘[f]rom a digital supply chain perspective, ‘primary artist’ is the preferred term as ‘featured artist’ is easily confused with the term ‘featured’ on another artist’s recording, as in Artist X feat. Artist Y.’’ ARM NOI Comment at 6, U.S. Copyright Office Dkt. No. 2020–8, available at https://beta.regulations.gov/document/COLC-20200006-0001. The Office appreciates ARM’s concern, but will continue to use the term ‘‘featured artist’’ PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 rule has added, at the suggestion of the MLC and FMC, a requirement to report ‘‘[a] detailed and step-by-step accounting of the calculation of royalties under applicable provisions of part 385 of this title, sufficient to allow the copyright owner to assess the manner in which the royalty owed was determined and the accuracy of the royalty calculations, which shall include details on each of the components used in the calculation of the payable royalty pool.’’ 34 This information is provided to copyright owners under the song-by-song license.35 It will continue to be reported by DMPs to the MLC as part of their monthly reports of usage,36 and the MLC intends to pass along this information to copyright owner.37 The to be consistent with the statute, which uses the term to mean the primary recording artist. See 17 U.S.C. 115(d)(3)(E)(ii)(IV)(bb), (d)(3)(E)(iii)(I)(dd), (d)(4)(A)(ii)(I)(aa), (d)(10)(B)(i)(I)(aa). In its NPRM, the Office sought comment on ‘‘whether it is necessary to require reporting of sound recording copyright owner on royalty statements,’’ given comments raising concerns about potential confusion since ‘‘the legal owner of a sound recording copyright is not always the same as the party identified as the sound recording copyright owner in royalty metadata currently used in the digital music marketplace.’’ 85 FR at 22555. FMC responded that this information would be ‘‘at minimum, potentially useful’’—particularly for selfpublished songwriters. FMC NPRM Comment at 1. Songwriters of North America (‘‘SONA’’) and Music Artists Coalition (‘‘MAC’’) supported inclusion of this field. SONA & MAC NPRM Comment at 4. SoundExchange, by contrast, recommended against requiring this field, citing ‘‘serious doubts about the MLC’s ability to report sound recording copyright owner accurately, because the MLC has no reason to track that data the way SoundExchange does’’ as well as ‘‘concerns about the confusion that could result from the MLC’s widely disseminating that information even if accurate, since it may not correspond to other source information metadata used in the marketplace.’’ SoundExchange NPRM Comment at 4 n.5. To the extent SoundExchange’s concerns are warranted, the Office believes they are better addressed in provisions addressing DMP records of use and/or the MLC’s public database. The presumption for this proceeding is that any information required to be included in the public database would be worthwhile of being reported to copyright owners in the royalty statements. 34 MLC NPRM Comment App. at ii; FMC NPRM Comment at 2. See also Lowery Reply NOI Comment at 6 (‘‘[T]he MLC should be required to publicly post at least an aggregated version of all information it receives from DMPs supporting the calculation of royalties (transactions, TCC, deductions from gross, etc.). It will be impossible for songwriters to conduct a desktop audit of their statements with their accountants if key elements of the calculations are missing.’’). Although the interim rule does not, as Lowery proposed, require the MLC to publicly post this information, its provision on royalty statements will provide individual copyright owners with the ability to confirm the calculation of their royalties. 35 37 CFR 210.16(c)(2). 36 See U.S. Copyright Office, Interim Rule, Music Modernization Act Notices of License, Notices of Nonblanket Activity, Data Collection and Delivery Efforts, and Reports of Usage and Payment, Dkt. No. 2020–5, published elsewhere in this issue of the Federal Register. 37 MLC NPRM Comment at 6. E:\FR\FM\17SER3.SGM 17SER3 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations MLC expressed concern that unless the regulations explicitly require it to report this information to copyright owners, the Office’s separate confidentiality regulations might prevent disclosure.38 The Office has added an explicit requirement in the regulations to clarify that the accounting information would not be considered confidential information and its disclosure to copyright owners by the MLC could not be prevented under confidentiality regulations.39 Several commenters suggested making certain content fields mandatory to report, including IPI, ISWC, and universal product code (UPC), which the Office has done.40 In doing so, the Office reiterates that the interim rule only establishes a floor of what the MLC can report, and the Office understands that the MLC intends to report most, if not all, information it receives regarding royalties to copyright owners.41 The NPRM also solicited comments on whether the phrase ‘‘known to the MLC’’ is ‘‘an appropriate standard for triggering an obligation to report information that the MLC is not expected to have for all musical works, sound recordings, and/or copyright owners?’’ 42 The MLC responded affirmatively,43 while SGA disagreed and said the MLC should be required to undertake best efforts to collect information it does not have.44 After considering the comments, the Office 38 Id. at 7. jbell on DSKJLSW7X2PROD with RULES3 39 Id. 40 CISAC & BIEM NPRM Comment at 4; SONA & MAC NPRM Comment at 4–5. 41 The Office declines to adopt SGA’s suggestion that royalty splits reported on statements be subject to confidentiality requirements. SGA NPRM Comment at 6, 7. The MMA expressly forecloses the possibility for ownership shares of musical works to remain confidential because this information is required to be included in the public musical works database. 17 U.S.C. 115(d)(3)(E)(i). The Office has previously considered and rejected confidentiality requirements that would prevent disclosure and use of information included in Statements of Account under the song-by-song license. 79 FR 56190, 56206 (Sept. 18, 2014) (noting such a proposal would have ‘‘barred copyright owners from disclosing the contents of the statements of account to other parties who were downstream beneficiaries of the statutory royalties (such as songwriters entitled to receive a share of the royalties as part of their publishing contracts.)’’). The Office notes additionally that in a concurrent proceeding on confidentiality requirements, one songwriter group has strongly opposed placing any confidentiality obligations on copyright owners regarding information contained in royalty statements issued to them. SONA NPRM Comment at 3–4, U.S. Copyright Office Dkt. No. 2020–7, available at https://beta.regulations.gov/document/COLC-20200004-0001. The MLC has expressed the same concern in this proceeding. MLC NPRM Comment at 7. See generally 85 FR 22559, 22561 (Apr. 22, 2020). 42 85 FR at 22557–58. 43 MLC NPRM Comment at 14. 44 SGA NPRM Comment at 7. VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 has determined that ‘‘known to the MLC’’ is an appropriate standard for reporting certain types of information to copyright owners that the MLC may not necessarily have. To the extent the MLC has obligations to collect information related to identification of musical works and sound recordings, those obligations are already addressed elsewhere in the statute.45 To report and distribute royalties, the MLC will need sufficient information to have matched the royalties to the works and identified the copyright owner, so any efforts to collect information and identify works and copyright owners—including policies and procedures for verifying information received from third parties and dealing with potentially conflicting information—occurs at an earlier stage than the one addressed by this rule, and the information reported to copyright owners will presumably also connect to information that the MLC makes available through the statutorilyprescribed public database. Additionally, the MLC has commented that it ‘‘intends to provide as much data in the royalty statements as it has and that may be useful to copyright owners.’’ 46 Delivery of royalty statements. The Office has clarified the provision regarding delivery of royalty statements to copyright owners to address issues raised by commenters. The interim rule provides that, by default, royalty statements will be delivered to copyright owners electronically, including through a password-protected online portal.47 The Office understands the MLC intends to provide a number of alternative types of royalty reporting at the request of copyright owners, but the interim rule states that at a minimum the MLC will provide a simplified report containing fewer data fields at the request of copyright owners.48 The interim rule has also updated this provision with respect to the provision of paper statements. As the MLC has requested, the provision clarifies that a 45 17 U.S.C. 115(d)(3)(C)(i)(III), (d)(3)(C)(i)(V). The statute also creates obligations for musical work copyright owners and DMPs to engage in efforts to provide information to the MLC. Id. at 115(d)(3)(E)(iv), (d)(4)(B). 46 MLC NPRM Comment at 13; see also id. (‘‘The Proposed Regulation is clear that it is identifying the minimum level of data that must be provided in monthly royalty statements.’’). 47 SGA endorsed the electronic delivery of royalty statements by default. SGA NPRM Comment at 4– 5. SoundExchange noted the impracticalities of delivering statements by paper and even email given the file sizes involved. SoundExchange NPRM Comment at 14. 48 MLC NPRM Comment at 13 (‘‘[T]he MLC intends to make all information that would be helpful to copyright owners in a number of meaningful ways.’’). PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 58163 copyright owner may request to receive royalty statements by mail, and the MLC will be obliged to send a physical copy in simplified or summary format upon request where the statement reports ‘‘a total royalty payable to the copyright owner for the month covered that is equal or greater than $100.’’ 49 Certification. In a carry-over from a requirement of the song-by-song statutory licensing regime, the NPRM proposed to require the MLC to certify monthly royalty statements under the blanket license where the total royalties distributed during the period covered by the statement exceed $100 using one of two statements.50 This proposal was ‘‘applaud[ed]’’ by SGA,51 and, as noted in the NPRM, had been supported by Music Reports in an earlier stage of comment.52 SoundExchange, however, called the requirement ‘‘unfair and unnecessary’’ because ‘‘the MLC simply cannot know if the service provider’s royalty calculations and usage data were accurate.’’ 53 The MLC voiced similar concerns, noting that the cost of the associated annual audit that would be required under the second proposed certification statement ‘‘is expected to exceed $100,000—an expenditure that was not contemplated in the MLC’s initial budgeting.’’ 54 The MLC proposed that the requirement be removed entirely or, alternatively, be amended with language suggested by the MLC,55 which clarifies that ‘‘[t]he MLC can only certify its allocation and statementing processes.’’ 56 The MLC sought an ex parte meeting to agree with the concerns raised by SoundExchange with respect to the MLC’s inability to certify the accuracy of data on usage and royalty pools that emanates from the DMPs rather than the MLC, and proposed alternate language if the Office elected to retain the certification requirement.57 As background, the Office notes that the MMA includes additional 49 MLC NPRM Comment App. at iv; MLC NPRM Comment at 9–11 (describing potential ‘‘operational and cost difficulties’’ necessitating this threshold); see also SoundExchange NPRM Comment at 13–14 (describing operational concern with language that would entitle receipt of ‘‘monthly payments by an expensive payment method even when the payment is only one cent’’). 50 Under the non-blanket statutory license, licensees are required to certify to the truth of the statements made in monthly statements of account. 37 CFR 210.16(f). Annual statements of account are required to be certified by a Certified Public Accountant. 37 CFR 210.17(f). 51 SGA NPRM Comment at 8. 52 85 FR at 22556 (citing Music Reports Initial NOI Comment at 5). 53 SoundExchange NPRM Comment at 10–12. 54 MLC NPRM Comment at 11. 55 Id. at 11, App. at v. 56 MLC Ex Parte Letter Aug. 16, 2020 at 6; see MLC NPRM Comment at 11. 57 MLC Ex Parte Letter Aug. 16, 2020 at 5–7. E:\FR\FM\17SER3.SGM 17SER3 58164 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations verification mechanisms. Correcting the longstanding lack of an audit right under the old section 115 statutory license in contrast to voluntary licensing practices, it allows the MLC to ‘‘conduct an audit of a digital music provider operating under the blanket license to verify the accuracy of royalty payments by the digital music provider to the mechanical licensing collective.’’ 58 And it added two separate audit provisions for the MLC itself. First, the statute requires the MLC itself to retain a qualified auditor to examine the books, records, and operation of the MLC beginning in the fourth full calendar year after initial designation of the MLC and every five years afterward.59 The auditor is required to prepare a report addressing ‘‘the implementation and efficacy of procedures of the mechanical licensing collective—(AA) for the receipt, handling, and distribution of royalty funds, including any amounts held as unclaimed royalties; (BB) to guard against fraud, abuse, waste, and the unreasonable use of funds; and (CC) to protect the confidentiality of financial, proprietary, and other sensitive information.’’ 60 The report is required to be delivered to the MLC’s board of directors and the Register of Copyrights and be made publicly available.61 The MMA also permits a copyright owner entitled to receive payments of royalties for covered activities from the mechanical licensing collective to conduct an audit of the mechanical licensing collective to verify the accuracy of royalty payments by the mechanical licensing collective to such copyright owner.62 The MMA’s adoption of these audit provisions had been praised by stakeholders, although some have also noted that the adopted language also carries limits.63 Considering these provisions and the additional comments, the Office has retained the certification requirement, but with adjustments in light of the MLC and SoundExchange’s comments. As explained in the NPRM, while the certification of usage reports by the DMPs, as required by the statute, serves an important purpose, that certification does not account for the additional processing of statements performed by the MLC, and the new audit right may not ameliorate the value of certification to copyright owners, including the minority of owners accustomed to receiving monthly certifications under the prior song-by-song statutory licensing system.64 The Office acknowledges that it would be inappropriate for the MLC to certify as to facts and processes outside its control, and is therefore modifying the scope of the certification requirement to limit the statement to those facts that the MLC has knowledge about, as the MLC has proposed. The Office is also deferring (but not eliminating) the CPA review requirement for one year to provide time for the MLC to undertake a CPA examination of its processes and internal controls. Overall, this requirement is intended to assure copyright owners that the various inputs and calculations that result in a final royalty payment are verified, as is presently the case with the non-blanket license, although in this case the certification has been split to reflect the respective duties of the DMPs and the MLC. Payment thresholds. Several commenters noted that the proposed minimum payment thresholds of $2 for direct deposit, $100 for paper checks, and $250 for wire transfer in the NPRM were appropriate; 65 however, both the MLC and SoundExchange found them low.66 The MLC provided a table of payment thresholds from various U.S. and foreign collective management organizations and rights management organizations in one of its ex parte submissions, which helpfully provides data points for industry practices on this issue.67 Based on these submissions, the interim rule raises the minimum payment threshold for direct deposit from $2 to $5, as suggested by the MLC.68 These thresholds are ceilings; the MLC may in its judgment establish lower thresholds.69 64 85 FR at 22556. NPRM Comment at 8; FMC NPRM Comment at 2. 66 SoundExchange NPRM Comment at 12–13 (‘‘Making frequent small payments to some copyright owners (particularly by an expensive payment method) diverts resources that otherwise could be used to benefit royalty recipients generally, such as by the MLC’s hiring more customer service representatives, investing in improvements to its copyright owner portal, or engaging in outreach to unregistered publishers.’’). 67 MLC Ex Parte Letter Apr. 3, 2020 at 12. 68 MLC NPRM Comment at 8. 69 SGA suggested lowering the payment threshold ‘‘in light of the difficult economic times many music creators are facing or are about to confront 65 SGA jbell on DSKJLSW7X2PROD with RULES3 58 17 U.S.C. 115(d)(4)(D). See U.S. Copyright Office, Copyright and the Music Marketplace 108– 09 (2015), https://www.copyright.gov/policy/ musiclicensingstudy/copyright-and-the-musicmarketplace.pdf (decrying lack of audit right); Tr. at 7036:14–21 (May 19, 2008), Mechanical and Digital Phonorecord Delivery Rate Adjustment Proceeding, Docket No. 2006–3–CRB DPRA, https:// app.crb.gov/case/viewDocument/12669 (describing audit process under voluntary licenses). 59 17 U.S.C. 115(d)(3)(D)(ix)(II). 60 Id. at 115(d)(3)(D)(ix)(II)(bb). 61 Id. at 115(d)(3)(D)(ix)(II). 62 Id. at 115(d)(3)(L). 63 See, e.g., Lowery Reply NOI Comment at 7, 11. VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 The interim rule adds an additional provision, at the MLC’s request, specifying that where the collective elects to defer the royalty payment and statement because the accrued royalties did not exceed the applicable threshold, if a copyright owner submits a written request, the mechanical licensing collective will make available information detailing the accrued unpaid royalties processed as of the date of the request, and removes the proposed provision that would obligate the MLC to pay royalties below the $5 threshold upon such requests.70 This clarification is intended to promote operational efficiencies while still preserving the ability of copyright owners to obtain sufficient information with respect to accrued royalties below the $5 threshold.71 Annual statements. The NPRM did not require the MLC to provide annual statements to musical work copyright owners, but sought comment on this issue. In response, the MLC agreed with the proposed rule’s approach, stating ‘‘a regulation at the outset of its operations requiring reporting in annual statements that would not, as acknowledged, provide any additional information would be overly prescriptive.’’ 72 But CISAC & BIEM,73 FMC,74 and SGA 75 commented in support of requiring an annual statement. SGA wrote, ‘‘Annual Statements serve an important purpose for small businesses (including independent creators acting as their own music publishing entities), which generally lack extensive accounting resources and need as many available resources as possible in conducting their own annualized, internal bookkeeping audits.’’ 76 FMC similarly said annual statements ‘‘would be helpful for small publishers and selfpublished writers’ accounting and tax purposes’’ and added that ‘‘while the MMA did not include making accounting more efficient for smaller copyright holders as an explicit objective, it conforms to the overarching goal of creating a more functional ecosystem.’’ 77 due to the COVID–19 pandemic and its aftermath.’’ SGA NPRM Comment at 8. The interim rule would permit the MLC to do just that. 70 MLC NPRM Comment at 9, App. at v–vi. 71 Id. at 9 (‘‘[A]n unfettered ability to request royalty statements for royalties falling below the threshold would substantially increase the MLC’s processing costs and would require the MLC to engage in additional technological programming to accommodate these requests.’’). 72 MLC NPRM Comment at 13–14. 73 CISAC & BIEM NPRM Comment at 4. 74 FMC NPRM Comment at 2. 75 SGA NPRM Comment at 8–9. 76 Id. at 9. 77 FMC NPRM Comment at 2. E:\FR\FM\17SER3.SGM 17SER3 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations The MLC responded to these comments in a follow-up ex parte meeting.78 There, the MLC represented that ‘‘it intends to provide copyright owners with the ability to access their royalty information in a number of ways through the MLC Portal, including to allow copyright owners to view reports of information on an annual basis.’’ 79 It reiterated that it does not believe regulations should include a formal requirement to provide annual reports, saying the best way to address songwriters’ needs for annual statements ‘‘will be by providing functionality in the MLC Portal that enables songwriters and publishers to view their royalty data across multiple periods that they select,’’ and adding that ‘‘[t]his approach will allow each copyright owner to define the start and end dates of these annual (or other) periods based on their own preferences (e.g., calendar year versus fiscal year).’’ 80 The Office appreciates the MLC’s response. While its proposed approach is not unreasonable, the Office ultimately concludes that, given the requirement for annual statements in the existing song-by-song compulsory license, the support expressed by other commenters for regulatory certainty with respect to an annual statement requirement, and the MLC’s intent to provide the ability to generate annual statements, it is appropriate for the interim rule to include an annual statement requirement. As noted, other comments indicate that certainty of an annual roll-up may be beneficial to smaller businesses, and so the regulatory language requires the MLC to deliver a cumulative statement including the information reported in monthly statements as well as any adjustment. But the language adopted provides the MLC with flexibility in implementing it, and it seems it would not require any more from the MLC than what it is already planning to provide. But at the same time, it communicates a level of certainty for purpose of stakeholder expectations and planning, which is intended to further the overall operation of the blanket license regime. jbell on DSKJLSW7X2PROD with RULES3 List of Subjects in 37 CFR Part 210 Copyright, Phonorecords, Recordings. Interim Regulations For the reasons set forth in the preamble, the Copyright Office amends 37 CFR part 210 as follows: 78 See MLC Ex Parte Letter Aug. 16, 2020 at 8– 9. 79 Id. at 8. Ex Parte Letter Aug. 16, 2020 at 8–9. 80 MLC VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 PART 210—COMPULSORY LICENSE FOR MAKING AND DISTRIBUTING PHYSICAL AND DIGITAL PHONORECORDS OF NONDRAMATIC MUSICAL WORKS 1. The authority citation for part 210 continues to read as follows: ■ Authority: 17 U.S.C. 115, 702. Subpart B—Blanket Compulsory License for Digital Uses, Mechanical Licensing Collective, and Digital Licensee Coordinator ■ 2. Add § 210.29 to read as follows: § 210.29 Reporting and distribution of royalties to copyright owners by the mechanical licensing collective. (a) General. This section prescribes reporting obligations of the mechanical licensing collective to copyright owners for the distribution of royalties for musical works, licensed under the blanket license for digital uses prescribed in 17 U.S.C. 115(d)(1), that have been matched, either through the processing by the mechanical licensing collective upon receipt of a report of usage and royalty payment from a digital music provider, or during the holding period for unmatched works as defined in 17 U.S.C. 115(d)(3)(H)(i). (b) Distribution of royalties and royalty statements. (1) Royalty distributions shall be made on a monthly basis and shall include, separately or together: (i) All royalties payable to a copyright owner for a musical work matched in the ordinary course under 17 U.S.C. 115(d)(3)(G)(i)(II); and (ii) All accrued royalties for any particular musical work that has been matched and a proportionate amount of accrued interest associated with that work. (2) Royalty distributions based on adjustments to reports of usage by digital music providers in prior periods shall be made by the mechanical licensing collective at least once annually, upon submission of the annual reports of usage by digital music providers reporting total adjustments to the mechanical licensing collective pursuant to § 210.27(f) and (g)(3) and (4). (3) Royalty distributions shall be accompanied by corresponding royalty statements containing the information set forth in paragraph (c) of this section for the royalties contained in the distribution. (c) Content—(1) General content of royalty statements. Accompanying the distribution of royalties to a copyright owner, the mechanical licensing PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 58165 collective shall provide to the copyright owner a statement that includes, at a minimum, the following information: (i) The period (month and year) covered by the statement, and the period (month and year) during which the reported activity occurred. For adjustments, the mechanical licensing collective shall report both the period (month and year) during which the original reported activity occurred and the date on which the digital music provider reported the adjustment. (ii) The name and address of the mechanical licensing collective. (iii) The name and mechanical licensing collective identification number of the copyright owner. (iv) ISNI and IPI name and identification number for each songwriter, administrator, and musical work copyright owner, to the extent it has been provided to the mechanical licensing collective by a copyright owner. (v) The name and mechanical licensing collective identification number of the copyright owner’s administrator (if applicable), to the extent one has been provided to the mechanical licensing collective by a copyright owner. (vi) Payment information, such as check number, automated clearing house (ACH) identification, or wire transfer number. (vii) The total royalty payable to the relevant copyright owner for the month covered by the royalty statement. (2) Musical work information. For each matched musical work owned by the copyright owner for which accompanying royalties are being distributed to that copyright owner, the mechanical licensing collective shall report the following information: (i) The musical work name, including primary and any alternative and parenthetical titles for the musical work known to the mechanical licensing collective. (ii) ISWC for the musical work, to the extent it is known to the mechanical licensing collective. (iii) The mechanical licensing collective’s standard identification number of the musical work. (iv) The administrator’s unique identifier for the musical work, to the extent one has been provided to the mechanical licensing collective by a copyright owner or its administrator. (v) The name(s) of the songwriter(s), to the extent they are known to the mechanical licensing collective. (vi) The percentage share of musical work owned or controlled by the copyright owner. E:\FR\FM\17SER3.SGM 17SER3 jbell on DSKJLSW7X2PROD with RULES3 58166 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations (vii) For each sound recording embodying the musical work, the identifying information enumerated in paragraph (c)(3) of this section and the royalty information enumerated in paragraph (c)(4) of this section. (3) Sound recording information. (i) For each sound recording embodying a musical work included in a royalty statement, the mechanical licensing collective shall report the following information: (A) The sound recording name(s), including all known alternative and parenthetical titles for the sound recording. (B) The featured artist(s). (ii) The mechanical licensing collective shall report the following information to the extent it is known to the mechanical licensing collective: (A) The record label name(s). (B) ISRC(s). (C) The sound recording copyright owner(s). (D) Playing time. (E) Album title(s) or product name(s). (F) Album or product featured artist(s), if different from sound recording featured artist(s). (G) Distributor(s). (H) UPC(s). (4) Royalty information. The mechanical licensing collective shall separately report, for each service, offering, or activity reported by a blanket licensee, the following royalty information for each sound recording embodying a musical work included in a royalty statement: (i) The name of the blanket licensee and, if different, the trade or consumer facing brand name(s) of the service(s), including any specific offering(s), through which the blanket licensee engages in covered activities. (ii) The service tier or service description. (iii) The use type (download, limited download, or stream). (iv) The number of payable units, including, as applicable, permanent downloads, plays, and constructive plays. (v) A detailed and step-by-step accounting of the calculation of royalties under applicable provisions of part 385 of this title, sufficient to allow the copyright owner to assess the manner in which the royalty owed was determined and the accuracy of the royalty calculations, which shall include details on each of the components used in the calculation of the payable royalty pool. (vi) The royalty rate and amount. (vii) The interest amount. (viii) The distribution amount. (d) Cumulative statements of account, and adjustments. (1) For royalties VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 reported under paragraph (b)(1)(ii) of this section, the mechanical licensing collective shall provide a cumulative statement of account that includes, in addition to the information in paragraph (c) of this section, a clear identification of the total period covered and the total royalty payable for the period. (2) For adjustments reported under paragraph (b)(2) of this section, the mechanical licensing collective shall clearly indicate the original reporting period of the royalties being adjusted. (e) Delivery of royalty statements. (1) Royalty statements may be delivered electronically, including by providing access to statements through an online password protected portal, accompanied by written notification of the availability of the statement in the portal. (2) The mechanical licensing collective shall provide by request a separate, simplified report containing fewer data fields that may be more understandable for the copyright owner, and may provide royalty information to copyright owners by request in alternative formats. (3) Upon written request of the copyright owner, the mechanical licensing collective may deliver a physical statement by mail where the statement reports a total royalty payable to the copyright owner for the period covered that is equal or greater than $100. Royalty statements delivered by mail are not required to contain all information identified in paragraph (c) of this section, but may instead provide information in a simplified or summary format. (f) Clear statements. The information required by paragraph (c) of this section requires intelligible, legible, and unambiguous statements in the royalty statements without incorporation of facts or information contained in other documents or records. (g) Certification. (1) Each royalty statement in which the total royalty payable to the relevant copyright owner for the month covered is equal to or greater than $100 shall be accompanied by: (i) The name of the person who is signing and certifying the statement. (ii) A signature of a duly authorized officer of the mechanical licensing collective. (iii) The date of signature and certification. (iv) The title or official position held by the person who is signing and certifying the statement. (v) The following statement: This statement was prepared by the Mechanical Licensing Collective and/or its agent using processes and internal controls that were suitably designed to PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 generate monthly statements that accurately allocate royalties using usage and royalty information provided by digital music providers and musical works information as reflected in the Mechanical Licensing Collective’s musical works database. (2) Beginning in the first calendar year following the license availability date, the certification must also include a statement establishing that such processes and internal controls were subject to an examination, during the past year, by a licensed Certified Public Accountant in accordance with the attestation standards established by the American Institute of Certified Public Accountants, the opinion of whom was that the processes and internal controls were so suitably designed. (h) Reporting threshold. (1) Subject to paragraph (h)(2) of this section, a separate royalty statement shall be provided for each month during which there is any activity relevant to the distribution of royalties under the blanket license. (2) Royalties under the blanket license shall not be considered payable, and no royalty statement shall be required, until the cumulative unpaid royalties collected for the copyright owner equal at least one cent. Moreover, in any case in which the cumulative unpaid royalties under the blanket license that would otherwise be distributed by the mechanical licensing collective to the copyright owner are less than $5 if the copyright owner receives payment by direct deposit, $100 if the copyright owner receives payment by physical check, or $250 if the copyright owner receives payment by wire transfer, the mechanical licensing collective may choose to defer the payment date for such royalties and provide no royalty statements until the earlier of the time for rendering the royalty statement for the month in which the unpaid royalties under the blanket license for the copyright owner exceed the threshold, at which time the mechanical licensing collective may provide one statement and payment covering the entire period for which royalty payments were deferred. (3) Where the mechanical licensing collective elects to defer the royalty payment and statement to a copyright owner pursuant to paragraph (h)(2) of this section because the accrued royalties did not exceed the applicable threshold, and if a copyright owner submits a written request, the mechanical licensing collective shall make available to that copyright owner information detailing the accrued unpaid royalties processed as of the date of the request. E:\FR\FM\17SER3.SGM 17SER3 Federal Register / Vol. 85, No. 181 / Thursday, September 17, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES3 (4) If the mechanical licensing collective is required, under applicable tax law and regulations, to make backup withholding from its payments required hereunder, the mechanical licensing collective shall indicate the amount of such withholding on the royalty statement or on or with the distribution. (i) Annual statement. The mechanical license collective shall provide an annual statement by electronic means to VerDate Sep<11>2014 18:10 Sep 16, 2020 Jkt 250001 any copyright owner who has received at least one royalty statement under paragraph (h)(1) of this section in the calendar year preceding. The annual statement shall include a cumulative statement of the information reported in the monthly royalty statements in the year preceding, as well as a statement of any adjustments to royalty distributions reported in the year preceding. PO 00000 Frm 00009 Fmt 4701 Sfmt 9990 58167 Dated: September 3, 2020. Maria Strong, Acting Register of Copyrights and Director of the U.S. Copyright Office. Approved by: Carla D. Hayden, Librarian of Congress. [FR Doc. 2020–20079 Filed 9–16–20; 8:45 am] BILLING CODE 1410–30–P E:\FR\FM\17SER3.SGM 17SER3

Agencies

[Federal Register Volume 85, Number 181 (Thursday, September 17, 2020)]
[Rules and Regulations]
[Pages 58160-58167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20079]



[[Page 58159]]

Vol. 85

Thursday,

No. 181

September 17, 2020

Part III





Library of Congress





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Copyright Office





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37 CFR Part 210





Reporting and Distribution of Royalties to Copyright Owners by the 
Mechanical Licensing Collective; Interim Rule

Federal Register / Vol. 85 , No. 181 / Thursday, September 17, 2020 / 
Rules and Regulations

[[Page 58160]]


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LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 210

[Docket No. 2020-6]


Reporting and Distribution of Royalties to Copyright Owners by 
the Mechanical Licensing Collective

AGENCY: U.S. Copyright Office, Library of Congress.

ACTION: Interim rule.

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SUMMARY: The U.S. Copyright Office is issuing an interim rule regarding 
the obligations of the mechanical licensing collective to report and 
distribute royalties paid by digital music providers under the blanket 
license to musical work copyright owners under title I of the Orrin G. 
Hatch-Bob Goodlatte Music Modernization Act. After soliciting public 
comments through a notice of proposed rulemaking, the Office is now 
issuing regulations establishing the timing, form, and delivery of 
statements accompanying royalty distributions to musical work copyright 
owners. These regulations concern only royalty statements and 
distributions regarding matched uses of musical works embodied in sound 
recordings and do not address issues related to the distribution of 
unclaimed, accrued royalties.

DATES: Effective October 19, 2020.

FOR FURTHER INFORMATION CONTACT: Regan A. Smith, General Counsel and 
Associate Register of Copyrights, by email at [email protected] or 
Terry Hart, Assistant General Counsel, by email at 
[email protected]. Each can be contacted by telephone by calling 
(202) 707-8350.

SUPPLEMENTARY INFORMATION:

I. Background

    Title I of the Music Modernization Act (``MMA''), the Musical Works 
Modernization Act, substantially modifies the compulsory ``mechanical'' 
license for making and distributing phonorecords of nondramatic musical 
works available under 17 U.S.C. 115. Prior to the MMA, a compulsory 
license was obtained by licensees on a per-work, song-by-song basis, 
and required a licensee to serve a notice of intention to obtain a 
compulsory license on the relevant copyright owner (or file the notice 
of intention with the Copyright Office if the Office's public records 
did not identify the copyright owner and include an address at which 
notice could be served) and then pay applicable royalties accompanied 
by accounting statements.\1\
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    \1\ See 17 U.S.C. 115(b)(1), (c)(5) (2017); U.S. Copyright 
Office, Copyright and the Music Marketplace 28-31 (2015), https://www.copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf (describing operation of prior section 115 
license).
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    The MMA amends this regime in multiple ways, most significantly by 
establishing a new blanket compulsory license that digital music 
providers (``DMPs'') may obtain to make digital phonorecord deliveries 
(``DPDs'') of musical works, including in the form of permanent 
downloads, limited downloads, or interactive streams.\2\ Instead of 
licensing one song at a time by serving notices of intention on 
individual copyright owners, the blanket license will cover all musical 
works available for compulsory licensing and will be centrally 
administered by a mechanical licensing collective (``MLC''), which has 
been designated by the Register of Copyrights.\3\ Under the MMA, 
compulsory licensing of phonorecords that are not DPDs (e.g., CDs, 
vinyl, tapes, and other types of physical phonorecords) (the ``non-
blanket license'') continues to operate on a per-work, song-by-song 
basis, the same as before.\4\
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    \2\ 17 U.S.C. 115(d)(1), (e)(7); see H.R. Rep. No. 115-651, at 
4-6 (describing operation of the blanket license and the new 
mechanical licensing collective); S. Rep. No. 115-339, at 3-6 
(same).
    \3\ 17 U.S.C. 115(d)(1), (3); 84 FR 32274 (July 8, 2019).
    \4\ 17 U.S.C. 115(b)(1); see H.R. Rep. No. 115-651, at 3 (noting 
``[t]his is the historical method by which record labels have 
obtained compulsory licenses''); S. Rep. No. 115-339, at 3 (same); 
see also U.S. Copyright Office, Orrin G. Hatch-Bob Goodlatte Music 
Modernization Act, https://www.copyright.gov/music-modernization/ 
(last visited Sept. 1, 2020).
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    On September 24, 2019, the Copyright Office issued a notification 
of inquiry (``NOI'') to initiate this current proceeding regarding 
implementing regulations for the blanket license.\5\ The Office invited 
public comment on regulations that the MMA specifically directs it to 
adopt, as well as additional regulations that may be necessary or 
appropriate to effectuate the new blanket licensing structure. Among 
the issues the notification sought comment on was ``the MLC's payment 
and reporting obligations with respect to royalties that have been 
matched to copyright owners, both for works that are matched at the 
time the MLC receives payment from digital music providers and works 
that are matched later during the statutorily prescribed holding period 
for unmatched works.'' \6\ On April 22, 2020, the Office issued a 
notice of proposed rulemaking (``NPRM'') soliciting public comments on 
proposed regulations regarding those obligations.\7\ The Office 
received comments from seven parties in response to the NPRM and 
engaged in follow-up discussions with interested parties pursuant to 
its ex parte guidelines, as discussed further below.
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    \5\ 84 FR 49966 (Sept. 24, 2019).
    \6\ Id. at 49972.
    \7\ 85 FR 22549 (Apr. 22, 2020). On the same day, the Office 
issued two other notices of proposed rulemaking and a notification 
of inquiry regarding separate MMA implementation issues. 85 FR 22518 
(Apr. 22, 2020); 85 FR 22559 (Apr. 22, 2020); 85 FR 22568 (Apr. 22, 
2020). All rulemaking activity, including public comments, as well 
as educational material regarding the Music Modernization Act, can 
currently be accessed via navigation from https://www.copyright.gov/music-modernization/. Specifically, comments received in response to 
the NOI are available at https://www.regulations.gov/docketBrowser?rpp=25&po=0&dct=PS&D=COLC-2019-0002&refD=COLC-2019-0002-0001 and comments received in response to the NPRM are 
available at https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=COLC-2018-0008. Guidelines for ex parte communications, along with 
records of such communications, are available at https://www.copyright.gov/rulemaking/mma-implementation/ex-parte-communications.html. References to these comments are by party name 
(abbreviated where appropriate), followed by ``Initial NOI 
Comment,'' ``Reply NOI Comment,'' ``NPRM Comment,'' or ``Ex Parte 
Letter,'' as appropriate.
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    Commenters largely agreed that the NPRM generally struck the 
appropriate balance. The MLC said it ``appreciates the Office's 
consideration of the unprecedented licensing regime that the MLC is 
responsible to implement from scratch, and finds that the NPRM does an 
excellent job empowering the MLC to carry out the functions that it was 
designated to fulfill.'' \8\ The Future of Music Coalition (``FMC'') 
said it ``continues to appreciate the Office's ongoing efforts to 
implement the Music Modernization Act in ways that accord with 
legislative intent, that demonstrate ongoing concern for fairness to 
all parties, that increase transparency, and that harmonize the public 
interest with the interests of creators, including songwriters and 
composers.'' \9\ Music Reports said it ``enthusiastically endorses the 
overall framework and degree of balance generally achieved 
throughout.'' \10\
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    \8\ MLC NPRM Comment at 1.
    \9\ FMC NPRM Comment at 1.
    \10\ Music Reports NPRM Comment at 2.
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    Having carefully considered the comments and other record materials 
in this proceeding, the Office now issues an interim rule that overall 
closely follows the NPRM, but with a number of modifications based upon 
public comment. Most significantly, the interim rule clarifies the 
MLC's timing and delivery obligations with respect to royalty 
distributions, adjusts the MLC's

[[Page 58161]]

certification requirement, and explicitly provides for an annual 
statement to copyright owners. Additional modifications are made 
regarding the timing of adjustments, the content of royalty statements, 
and the minimum payment threshold.
    In drafting this interim rule, the Office has been mindful of both 
its longstanding goals of promulgating practical regulations that 
result in prompt payment to copyright owners \11\ and the need to 
balance the principles identified in the NPRM: Establishing a minimum 
floor of transparency and accountability that songwriters and 
publishers can expect of the MLC and avoiding over-regulation by 
ensuring the MLC retains sufficient flexibility to ably implement a 
complex and challenging licensing regime.\12\ The success of the 
blanket license is dependent both on the ability of the MLC to 
administer the license fairly, transparently, and efficiently, and on 
the confidence songwriters and music publishers (and, for separate 
aspects, DMPs) have in the process. Copyright Office regulations are an 
important mechanism for ensuring transparency and accountability in the 
blanket licensing regime,\13\ but they are not the sole mechanism; 
other provisions in the statute as well as the governance of the MLC 
itself provides incentive for it to be responsive to the needs of 
copyright owners.\14\
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    \11\ 45 FR 79038, 79039 (Nov. 28, 1980).
    \12\ 85 FR at 22551-52; S. Rep. No. 115-339, at 15 (``[T]he 
Register is expected to promulgate the necessary regulations 
required by the legislation in a manner that balances the need to 
protect the public's interest with the need to let the new 
collective operate without over-regulation.'').
    \13\ 17 U.S.C. 115(d)(3)(B)(ii) (instructing the Register of 
Copyrights to periodically review designation of mechanical 
licensing collective); S. Rep. No. 115-339 at 5 (``[T]he failure to 
follow the relevant regulations adopted by the Copyright Office [ ] 
over the prior five years should raise serious concerns within the 
Copyright Office as to whether that same entity has the 
administrative capabilities necessary to perform the required 
functions of the collective.''); H.R. Rep. No. 115-651, at 6 (same).
    \14\ See, e.g., 85 FR at 22554 (``[S]ignificant nonregulatory 
incentives are . . . in place to ensure timely distribution of 
royalties. For one, the MLC represented in its designation proposal 
that it intends to provide prompt, complete, and accurate payments 
to all copyright owners. In addition, because the MLC is governed by 
the very copyright owners that it will be serving, and because it 
must maintain the support of copyright owners, it shares their 
interest in prompt reporting and distribution (internal quotation 
marks omitted).''); 17 U.S.C. 115(d)(3)(D)(vii) (annual report 
requirement for MLC); see also MLC NPRM Comment at 2-3 (``The MLC 
has a clear interest in ensuring accurate, transparent and timely 
reporting to the songwriters and music publishers who govern it and 
to whom it is accountable.''); SoundExchange NPRM Comment at 2-3 
(similar).
---------------------------------------------------------------------------

    The Office has determined that it is prudent to promulgate this 
rule on an interim basis so that it retains some flexibility for 
responding to unforeseen complications in royalty reporting once the 
MLC begins distributing royalties. As noticed in the NPRM, adopting the 
rule on an interim basis is intended to ``facilitate adjustment on 
topics noticed in this rulemaking if necessary once the MLC begins 
issuing royalty statements to copyright owners.'' \15\ Multiple 
commenters supported that proposal, and none opposed an interim 
rule.\16\
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    \15\ 85 FR at 22552.
    \16\ See, e.g., Music Reports NPRM Comment at 3 (``[I]t would be 
beneficial for the Office to adopt the proposed rule on an interim 
basis due to the intricacies of the subject matter and the further 
issues likely to arise during the MLC's first full year of operation 
following the blanket license availability date.''); The 
International Confederation of Societies of Authors and Composers 
(``CISAC'') & The International Organisation representing Mechanical 
Rights Societies (``BIEM'') NPRM Comment at 5 (saying it is 
``advisable to enable the Copyright Office to conduct an assessment 
of the Proposed Rulemaking after a one-year period once the MLC has 
started to operate and to further consult with stakeholders in order 
to adjust, if necessary, the relevant Regulation.'').
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II. Interim Rule

    The NPRM addressed the information that the MLC is required to 
report in royalty statements, as well as the format and delivery of 
such statements and related distribution payments. The interim rule is 
intended to balance the primary concerns of copyright owners in getting 
prompt and accurate royalty payments with the operational realities of 
the MLC in administering the blanket license. The Office has looked to 
the existing song-by-song compulsory license as a baseline for the 
level of information that copyright owners expect under the blanket 
license, as well as the standard for accuracy in royalty reporting, 
while bearing in mind any relevant shortcomings of the song-by-song 
licensing regime that motivated passage of the MMA.
    Timing and distribution of royalties and royalty statements. The 
MLC commented that the proposed requirement to report newly reported 
royalties, newly matched royalties, and adjustments simultaneously 
``would cause needless operational complexity and reporting delays to 
copyright owners.'' \17\ The Office's intent in proposing concurrent 
reporting was to ``minimize and simplify administration for both the 
MLC and copyright owners.'' \18\ Given the MLC's response that 
concurrent reporting would instead make administration more difficult, 
the Office has adopted the MLC's proposed language clarifying that 
while royalties in either case must be reported monthly, there is no 
requirement that the reports are made simultaneously.
---------------------------------------------------------------------------

    \17\ MLC NPRM Comment at 5.
    \18\ 85 FR at 22553.
---------------------------------------------------------------------------

    The Office made further updates related to the timing and delivery 
of royalty statements in light of the public comments. The interim rule 
has removed the phrase ``for the month next preceding'' in the 
provision for distribution of royalties based on comments by 
SoundExchange and supported by the MLC, emphasizing the practical 
difficulties in meeting this requirement.\19\ The aim of that language, 
carried over from the statutory requirements for the song-by-song 
licensing framework,\20\ was to indicate that the MLC would distribute 
all royalties that have become payable since the prior monthly 
distribution, but the MLC and SoundExchange suggested this language was 
ambiguous.\21\ In addition, the Office considered several comments that 
suggested adding an additional timing requirement and offered various 
periods, triggers, and exceptions upon which to base this 
requirement.\22\ For its part, the MLC opposed adding a further 
requirement that obligated the distribution of royalties within a 
certain period beyond establishing a monthly cadence for reporting, 
calling it ``overly prescriptive.'' \23\ It explained that it ``already 
has a substantial interest in ensuring royalties are timely reported 
and distributed in the most efficient manner possible.'' \24\ It added 
that its royalty processing activities will ``depend heavily on the 
quality and timeliness of DMP usage reporting to the MLC'' and sought 
to avoid regulatory language that would connect the MLC's reporting 
obligations to external dependencies, such as the receipt of

[[Page 58162]]

untimely or incomplete information from blanket licensees.\25\
---------------------------------------------------------------------------

    \19\ SoundExchange NPRM Comment at 5 (``This particular 
formulation may go too far given the practicalities of royalty 
collection and distribution'').
    \20\ 17 U.S.C. 115(c)(2)(I).
    \21\ While the Office agrees with SoundExchange that the monthly 
distributions should include any interest that has accrued pursuant 
to section 115(d)(3)(G)(i)(III), it believes the rule is already 
clear that such interest is to be included with the payment, as 
indicated in Sec.  210.29(c)(4)(iv) of the interim rule. See 
SoundExchange NPRM Comment at 8-9.
    \22\ CISAC & BIEM NPRM Comment at 4 (suggesting a maximum 
deadline of 9-12 months ``from the end of the financial year in 
which the rights were collected''); Music Reports NPRM Comment at 3 
(proposing requirement to distribute royalties within 90 days 
following end of applicable month); Songwriters Guild of America, 
Inc. (``SGA'') NPRM Comment at 4 (suggesting required payment of 
royalties for matched works within three months of receipt). See 
also FMC NPRM Comment at 1 (supporting rule as proposed but 
expressing appreciation that the Office reserved the right to impose 
a timing requirement in the future).
    \23\ MLC NPRM Comment at 12.
    \24\ Id.
    \25\ Id. SoundExchange asserted in its comments that ``[u]nder 
the Section 112/114 statutory licenses . . . it routinely receives 
late payments and reporting.'' SoundExchange NPRM Comment at 6.
---------------------------------------------------------------------------

    After considering the comments and the MLC's reported operational 
expectations, the interim rule replaces the phrase ``for the month next 
preceding'' with alternative language similar to that proposed by the 
MLC to clarify that the MLC will pay out all royalties ready to be 
distributed to copyright owners when the MLC makes its regular monthly 
distributions. This encompasses royalties that have been reported by 
DMPs and matched to musical works, where the musical work copyright 
owner is known and located, where the MLC has all the necessary tax and 
financial information from the copyright owner to make a payment, and 
where the royalties are not subject to any dispute or other legal hold. 
This approach is intended to take into account the role of third 
parties, including DMPs and musical work copyright owners, for many of 
the inputs needed by the MLC before royalties can be distributed.
    The Office believes that the interim rule strikes an appropriate 
balance in solidifying the expectation that the MLC will promptly pay 
copyright owners all royalties that can be paid on a monthly basis, 
while avoiding a requirement that may overlook the potential impact of 
dependencies outside the MLC's control. The Office acknowledges the 
MLC's statements that it has an inherent interest in timely payments to 
copyright owners, given that it is governed by and accountable to those 
copyright owners, and it is required to pay interest on accrued 
royalties for unmatched works.\26\ To promote transparency in the 
timeliness of payments, the Office is separately considering whether 
the MLC should be required to report average royalty processing and 
distribution times as part of its annual report in a separate 
rulemaking and can revisit this issue if warranted.\27\
---------------------------------------------------------------------------

    \26\ MLC Ex Parte Letter Aug. 16, 2020 at 7; see 17 U.S.C. 
115(d)(3)(H)(ii).
    \27\ See U.S. Copyright Office, Notice of Proposed Rulemaking, 
The Public Musical Works Database and Transparency of the Mechanical 
Licensing Collective, Dkt. No. 2020-8, published elsewhere in this 
issue of the Federal Register.
---------------------------------------------------------------------------

    The MLC also objected that the requirement to immediately report 
adjustments on a monthly basis ``could be tremendously burdensome.'' 
\28\ It explained that ``reports of adjustment from DMPs are likely to 
relate to royalty pool calculations, and to therefore result in a 
recalculation of the effective per-play rate, which would require an 
adjustment to all distributed (and undistributed) royalties.'' \29\ The 
MLC also maintained it ``could be extremely costly with little benefit 
to copyright owners.'' \30\ Instead, the MLC proposed that the rule 
only require it ``to report adjustments to copyright owners after it 
has received the total adjustments reported in the annual reports of 
usage delivered to the MLC by DMPs pursuant to proposed regulation 
Sec.  210.27(f).'' \31\ The MLC noted that this would ``alleviate the 
immense administrative burden'' of processing all adjustments 
immediately, though it also would not prevent the MLC from reporting 
adjustments more frequently than annually.\32\ The Office did not 
receive any comments suggesting there was a need to report adjustments 
monthly, or opposing the MLC's proposal.
---------------------------------------------------------------------------

    \28\ MLC NPRM Comment at 3.
    \29\ Id. at 3-4.
    \30\ Id. at 4.
    \31\ Id.
    \32\ Id. Under rules the Office is promulgating in a separate 
proceeding, DMPs may report adjustments in combination with their 
annual report of usage, but they are not required to do so. See U.S. 
Copyright Office, Interim Rule, Music Modernization Act Notices of 
License, Notices of Nonblanket Activity, Data Collection and 
Delivery Efforts, and Reports of Usage and Payment, Dkt. No. 2020-5, 
published elsewhere in this issue of the Federal Register.
---------------------------------------------------------------------------

    The Office finds the MLC's proposal reasonable and has adjusted the 
rule accordingly. The Office observes that changing the requirement to 
report adjustments at least on an annual basis may increase the value 
of the MLC providing a defined annual statement to copyright owners, as 
discussed below. As the MLC notes, an adjustment that affects royalty 
pool calculations would affect all previously reported royalties; an 
annual statement could significantly assist copyright owners--
particularly independent songwriters and smaller music publishers--in 
reconciling their bookkeeping following a reported adjustment.
    Content. The interim rule also includes several adjustments to the 
content that the MLC is required to report in royalty statements to 
copyright owners based on unopposed comments it has received.\33\ 
Notably, the interim rule has added, at the suggestion of the MLC and 
FMC, a requirement to report ``[a] detailed and step-by-step accounting 
of the calculation of royalties under applicable provisions of part 385 
of this title, sufficient to allow the copyright owner to assess the 
manner in which the royalty owed was determined and the accuracy of the 
royalty calculations, which shall include details on each of the 
components used in the calculation of the payable royalty pool.'' \34\ 
This information is provided to copyright owners under the song-by-song 
license.\35\ It will continue to be reported by DMPs to the MLC as part 
of their monthly reports of usage,\36\ and the MLC intends to pass 
along this information to copyright owner.\37\ The

[[Page 58163]]

MLC expressed concern that unless the regulations explicitly require it 
to report this information to copyright owners, the Office's separate 
confidentiality regulations might prevent disclosure.\38\ The Office 
has added an explicit requirement in the regulations to clarify that 
the accounting information would not be considered confidential 
information and its disclosure to copyright owners by the MLC could not 
be prevented under confidentiality regulations.\39\
---------------------------------------------------------------------------

    \33\ The Office notes the use of the term ``featured artist'' as 
one of the required sound recording information fields reported on 
royalty statements. In comments responding to a separate 
notification of inquiry, the Alliance for Recorded Music (``ARM'') 
raised a concern that the term could cause ``confusion,'' saying, 
``[f]rom a digital supply chain perspective, `primary artist' is the 
preferred term as `featured artist' is easily confused with the term 
`featured' on another artist's recording, as in Artist X feat. 
Artist Y.'' ARM NOI Comment at 6, U.S. Copyright Office Dkt. No. 
2020-8, available at https://beta.regulations.gov/document/COLC-2020-0006-0001. The Office appreciates ARM's concern, but will 
continue to use the term ``featured artist'' to be consistent with 
the statute, which uses the term to mean the primary recording 
artist. See 17 U.S.C. 115(d)(3)(E)(ii)(IV)(bb), 
(d)(3)(E)(iii)(I)(dd), (d)(4)(A)(ii)(I)(aa), (d)(10)(B)(i)(I)(aa).
    In its NPRM, the Office sought comment on ``whether it is 
necessary to require reporting of sound recording copyright owner on 
royalty statements,'' given comments raising concerns about 
potential confusion since ``the legal owner of a sound recording 
copyright is not always the same as the party identified as the 
sound recording copyright owner in royalty metadata currently used 
in the digital music marketplace.'' 85 FR at 22555. FMC responded 
that this information would be ``at minimum, potentially useful''--
particularly for self-published songwriters. FMC NPRM Comment at 1. 
Songwriters of North America (``SONA'') and Music Artists Coalition 
(``MAC'') supported inclusion of this field. SONA & MAC NPRM Comment 
at 4. SoundExchange, by contrast, recommended against requiring this 
field, citing ``serious doubts about the MLC's ability to report 
sound recording copyright owner accurately, because the MLC has no 
reason to track that data the way SoundExchange does'' as well as 
``concerns about the confusion that could result from the MLC's 
widely disseminating that information even if accurate, since it may 
not correspond to other source information metadata used in the 
marketplace.'' SoundExchange NPRM Comment at 4 n.5. To the extent 
SoundExchange's concerns are warranted, the Office believes they are 
better addressed in provisions addressing DMP records of use and/or 
the MLC's public database. The presumption for this proceeding is 
that any information required to be included in the public database 
would be worthwhile of being reported to copyright owners in the 
royalty statements.
    \34\ MLC NPRM Comment App. at ii; FMC NPRM Comment at 2. See 
also Lowery Reply NOI Comment at 6 (``[T]he MLC should be required 
to publicly post at least an aggregated version of all information 
it receives from DMPs supporting the calculation of royalties 
(transactions, TCC, deductions from gross, etc.). It will be 
impossible for songwriters to conduct a desktop audit of their 
statements with their accountants if key elements of the 
calculations are missing.''). Although the interim rule does not, as 
Lowery proposed, require the MLC to publicly post this information, 
its provision on royalty statements will provide individual 
copyright owners with the ability to confirm the calculation of 
their royalties.
    \35\ 37 CFR 210.16(c)(2).
    \36\ See U.S. Copyright Office, Interim Rule, Music 
Modernization Act Notices of License, Notices of Nonblanket 
Activity, Data Collection and Delivery Efforts, and Reports of Usage 
and Payment, Dkt. No. 2020-5, published elsewhere in this issue of 
the Federal Register.
    \37\ MLC NPRM Comment at 6.
    \38\ Id. at 7.
    \39\ Id.
---------------------------------------------------------------------------

    Several commenters suggested making certain content fields 
mandatory to report, including IPI, ISWC, and universal product code 
(UPC), which the Office has done.\40\ In doing so, the Office 
reiterates that the interim rule only establishes a floor of what the 
MLC can report, and the Office understands that the MLC intends to 
report most, if not all, information it receives regarding royalties to 
copyright owners.\41\
---------------------------------------------------------------------------

    \40\ CISAC & BIEM NPRM Comment at 4; SONA & MAC NPRM Comment at 
4-5.
    \41\ The Office declines to adopt SGA's suggestion that royalty 
splits reported on statements be subject to confidentiality 
requirements. SGA NPRM Comment at 6, 7. The MMA expressly forecloses 
the possibility for ownership shares of musical works to remain 
confidential because this information is required to be included in 
the public musical works database. 17 U.S.C. 115(d)(3)(E)(i). The 
Office has previously considered and rejected confidentiality 
requirements that would prevent disclosure and use of information 
included in Statements of Account under the song-by-song license. 79 
FR 56190, 56206 (Sept. 18, 2014) (noting such a proposal would have 
``barred copyright owners from disclosing the contents of the 
statements of account to other parties who were downstream 
beneficiaries of the statutory royalties (such as songwriters 
entitled to receive a share of the royalties as part of their 
publishing contracts.)''). The Office notes additionally that in a 
concurrent proceeding on confidentiality requirements, one 
songwriter group has strongly opposed placing any confidentiality 
obligations on copyright owners regarding information contained in 
royalty statements issued to them. SONA NPRM Comment at 3-4, U.S. 
Copyright Office Dkt. No. 2020-7, available at https://beta.regulations.gov/document/COLC-2020-0004-0001. The MLC has 
expressed the same concern in this proceeding. MLC NPRM Comment at 
7. See generally 85 FR 22559, 22561 (Apr. 22, 2020).
---------------------------------------------------------------------------

    The NPRM also solicited comments on whether the phrase ``known to 
the MLC'' is ``an appropriate standard for triggering an obligation to 
report information that the MLC is not expected to have for all musical 
works, sound recordings, and/or copyright owners?'' \42\ The MLC 
responded affirmatively,\43\ while SGA disagreed and said the MLC 
should be required to undertake best efforts to collect information it 
does not have.\44\ After considering the comments, the Office has 
determined that ``known to the MLC'' is an appropriate standard for 
reporting certain types of information to copyright owners that the MLC 
may not necessarily have. To the extent the MLC has obligations to 
collect information related to identification of musical works and 
sound recordings, those obligations are already addressed elsewhere in 
the statute.\45\ To report and distribute royalties, the MLC will need 
sufficient information to have matched the royalties to the works and 
identified the copyright owner, so any efforts to collect information 
and identify works and copyright owners--including policies and 
procedures for verifying information received from third parties and 
dealing with potentially conflicting information--occurs at an earlier 
stage than the one addressed by this rule, and the information reported 
to copyright owners will presumably also connect to information that 
the MLC makes available through the statutorily-prescribed public 
database. Additionally, the MLC has commented that it ``intends to 
provide as much data in the royalty statements as it has and that may 
be useful to copyright owners.'' \46\
---------------------------------------------------------------------------

    \42\ 85 FR at 22557-58.
    \43\ MLC NPRM Comment at 14.
    \44\ SGA NPRM Comment at 7.
    \45\ 17 U.S.C. 115(d)(3)(C)(i)(III), (d)(3)(C)(i)(V). The 
statute also creates obligations for musical work copyright owners 
and DMPs to engage in efforts to provide information to the MLC. Id. 
at 115(d)(3)(E)(iv), (d)(4)(B).
    \46\ MLC NPRM Comment at 13; see also id. (``The Proposed 
Regulation is clear that it is identifying the minimum level of data 
that must be provided in monthly royalty statements.'').
---------------------------------------------------------------------------

    Delivery of royalty statements. The Office has clarified the 
provision regarding delivery of royalty statements to copyright owners 
to address issues raised by commenters. The interim rule provides that, 
by default, royalty statements will be delivered to copyright owners 
electronically, including through a password-protected online 
portal.\47\ The Office understands the MLC intends to provide a number 
of alternative types of royalty reporting at the request of copyright 
owners, but the interim rule states that at a minimum the MLC will 
provide a simplified report containing fewer data fields at the request 
of copyright owners.\48\ The interim rule has also updated this 
provision with respect to the provision of paper statements. As the MLC 
has requested, the provision clarifies that a copyright owner may 
request to receive royalty statements by mail, and the MLC will be 
obliged to send a physical copy in simplified or summary format upon 
request where the statement reports ``a total royalty payable to the 
copyright owner for the month covered that is equal or greater than 
$100.'' \49\
---------------------------------------------------------------------------

    \47\ SGA endorsed the electronic delivery of royalty statements 
by default. SGA NPRM Comment at 4-5. SoundExchange noted the 
impracticalities of delivering statements by paper and even email 
given the file sizes involved. SoundExchange NPRM Comment at 14.
    \48\ MLC NPRM Comment at 13 (``[T]he MLC intends to make all 
information that would be helpful to copyright owners in a number of 
meaningful ways.'').
    \49\ MLC NPRM Comment App. at iv; MLC NPRM Comment at 9-11 
(describing potential ``operational and cost difficulties'' 
necessitating this threshold); see also SoundExchange NPRM Comment 
at 13-14 (describing operational concern with language that would 
entitle receipt of ``monthly payments by an expensive payment method 
even when the payment is only one cent'').
---------------------------------------------------------------------------

    Certification. In a carry-over from a requirement of the song-by-
song statutory licensing regime, the NPRM proposed to require the MLC 
to certify monthly royalty statements under the blanket license where 
the total royalties distributed during the period covered by the 
statement exceed $100 using one of two statements.\50\ This proposal 
was ``applaud[ed]'' by SGA,\51\ and, as noted in the NPRM, had been 
supported by Music Reports in an earlier stage of comment.\52\ 
SoundExchange, however, called the requirement ``unfair and 
unnecessary'' because ``the MLC simply cannot know if the service 
provider's royalty calculations and usage data were accurate.'' \53\ 
The MLC voiced similar concerns, noting that the cost of the associated 
annual audit that would be required under the second proposed 
certification statement ``is expected to exceed $100,000--an 
expenditure that was not contemplated in the MLC's initial budgeting.'' 
\54\ The MLC proposed that the requirement be removed entirely or, 
alternatively, be amended with language suggested by the MLC,\55\ which 
clarifies that ``[t]he MLC can only certify its allocation and 
statementing processes.'' \56\ The MLC sought an ex parte meeting to 
agree with the concerns raised by SoundExchange with respect to the 
MLC's inability to certify the accuracy of data on usage and royalty 
pools that emanates from the DMPs rather than the MLC, and proposed 
alternate language if the Office elected to retain the certification 
requirement.\57\
---------------------------------------------------------------------------

    \50\ Under the non-blanket statutory license, licensees are 
required to certify to the truth of the statements made in monthly 
statements of account. 37 CFR 210.16(f). Annual statements of 
account are required to be certified by a Certified Public 
Accountant. 37 CFR 210.17(f).
    \51\ SGA NPRM Comment at 8.
    \52\ 85 FR at 22556 (citing Music Reports Initial NOI Comment at 
5).
    \53\ SoundExchange NPRM Comment at 10-12.
    \54\ MLC NPRM Comment at 11.
    \55\ Id. at 11, App. at v.
    \56\ MLC Ex Parte Letter Aug. 16, 2020 at 6; see MLC NPRM 
Comment at 11.
    \57\ MLC Ex Parte Letter Aug. 16, 2020 at 5-7.
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    As background, the Office notes that the MMA includes additional

[[Page 58164]]

verification mechanisms. Correcting the longstanding lack of an audit 
right under the old section 115 statutory license in contrast to 
voluntary licensing practices, it allows the MLC to ``conduct an audit 
of a digital music provider operating under the blanket license to 
verify the accuracy of royalty payments by the digital music provider 
to the mechanical licensing collective.'' \58\ And it added two 
separate audit provisions for the MLC itself. First, the statute 
requires the MLC itself to retain a qualified auditor to examine the 
books, records, and operation of the MLC beginning in the fourth full 
calendar year after initial designation of the MLC and every five years 
afterward.\59\ The auditor is required to prepare a report addressing 
``the implementation and efficacy of procedures of the mechanical 
licensing collective--(AA) for the receipt, handling, and distribution 
of royalty funds, including any amounts held as unclaimed royalties; 
(BB) to guard against fraud, abuse, waste, and the unreasonable use of 
funds; and (CC) to protect the confidentiality of financial, 
proprietary, and other sensitive information.'' \60\ The report is 
required to be delivered to the MLC's board of directors and the 
Register of Copyrights and be made publicly available.\61\ The MMA also 
permits a copyright owner entitled to receive payments of royalties for 
covered activities from the mechanical licensing collective to conduct 
an audit of the mechanical licensing collective to verify the accuracy 
of royalty payments by the mechanical licensing collective to such 
copyright owner.\62\ The MMA's adoption of these audit provisions had 
been praised by stakeholders, although some have also noted that the 
adopted language also carries limits.\63\
---------------------------------------------------------------------------

    \58\ 17 U.S.C. 115(d)(4)(D). See U.S. Copyright Office, 
Copyright and the Music Marketplace 108-09 (2015), https://www.copyright.gov/policy/musiclicensingstudy/copyright-and-the-music-marketplace.pdf (decrying lack of audit right); Tr. at 
7036:14-21 (May 19, 2008), Mechanical and Digital Phonorecord 
Delivery Rate Adjustment Proceeding, Docket No. 2006-3-CRB DPRA, 
https://app.crb.gov/case/viewDocument/12669 (describing audit 
process under voluntary licenses).
    \59\ 17 U.S.C. 115(d)(3)(D)(ix)(II).
    \60\ Id. at 115(d)(3)(D)(ix)(II)(bb).
    \61\ Id. at 115(d)(3)(D)(ix)(II).
    \62\ Id. at 115(d)(3)(L).
    \63\ See, e.g., Lowery Reply NOI Comment at 7, 11.
---------------------------------------------------------------------------

    Considering these provisions and the additional comments, the 
Office has retained the certification requirement, but with adjustments 
in light of the MLC and SoundExchange's comments. As explained in the 
NPRM, while the certification of usage reports by the DMPs, as required 
by the statute, serves an important purpose, that certification does 
not account for the additional processing of statements performed by 
the MLC, and the new audit right may not ameliorate the value of 
certification to copyright owners, including the minority of owners 
accustomed to receiving monthly certifications under the prior song-by-
song statutory licensing system.\64\ The Office acknowledges that it 
would be inappropriate for the MLC to certify as to facts and processes 
outside its control, and is therefore modifying the scope of the 
certification requirement to limit the statement to those facts that 
the MLC has knowledge about, as the MLC has proposed. The Office is 
also deferring (but not eliminating) the CPA review requirement for one 
year to provide time for the MLC to undertake a CPA examination of its 
processes and internal controls. Overall, this requirement is intended 
to assure copyright owners that the various inputs and calculations 
that result in a final royalty payment are verified, as is presently 
the case with the non-blanket license, although in this case the 
certification has been split to reflect the respective duties of the 
DMPs and the MLC.
---------------------------------------------------------------------------

    \64\ 85 FR at 22556.
---------------------------------------------------------------------------

    Payment thresholds. Several commenters noted that the proposed 
minimum payment thresholds of $2 for direct deposit, $100 for paper 
checks, and $250 for wire transfer in the NPRM were appropriate; \65\ 
however, both the MLC and SoundExchange found them low.\66\ The MLC 
provided a table of payment thresholds from various U.S. and foreign 
collective management organizations and rights management organizations 
in one of its ex parte submissions, which helpfully provides data 
points for industry practices on this issue.\67\ Based on these 
submissions, the interim rule raises the minimum payment threshold for 
direct deposit from $2 to $5, as suggested by the MLC.\68\ These 
thresholds are ceilings; the MLC may in its judgment establish lower 
thresholds.\69\
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    \65\ SGA NPRM Comment at 8; FMC NPRM Comment at 2.
    \66\ SoundExchange NPRM Comment at 12-13 (``Making frequent 
small payments to some copyright owners (particularly by an 
expensive payment method) diverts resources that otherwise could be 
used to benefit royalty recipients generally, such as by the MLC's 
hiring more customer service representatives, investing in 
improvements to its copyright owner portal, or engaging in outreach 
to unregistered publishers.'').
    \67\ MLC Ex Parte Letter Apr. 3, 2020 at 12.
    \68\ MLC NPRM Comment at 8.
    \69\ SGA suggested lowering the payment threshold ``in light of 
the difficult economic times many music creators are facing or are 
about to confront due to the COVID-19 pandemic and its aftermath.'' 
SGA NPRM Comment at 8. The interim rule would permit the MLC to do 
just that.
---------------------------------------------------------------------------

    The interim rule adds an additional provision, at the MLC's 
request, specifying that where the collective elects to defer the 
royalty payment and statement because the accrued royalties did not 
exceed the applicable threshold, if a copyright owner submits a written 
request, the mechanical licensing collective will make available 
information detailing the accrued unpaid royalties processed as of the 
date of the request, and removes the proposed provision that would 
obligate the MLC to pay royalties below the $5 threshold upon such 
requests.\70\ This clarification is intended to promote operational 
efficiencies while still preserving the ability of copyright owners to 
obtain sufficient information with respect to accrued royalties below 
the $5 threshold.\71\
---------------------------------------------------------------------------

    \70\ MLC NPRM Comment at 9, App. at v-vi.
    \71\ Id. at 9 (``[A]n unfettered ability to request royalty 
statements for royalties falling below the threshold would 
substantially increase the MLC's processing costs and would require 
the MLC to engage in additional technological programming to 
accommodate these requests.'').
---------------------------------------------------------------------------

    Annual statements. The NPRM did not require the MLC to provide 
annual statements to musical work copyright owners, but sought comment 
on this issue. In response, the MLC agreed with the proposed rule's 
approach, stating ``a regulation at the outset of its operations 
requiring reporting in annual statements that would not, as 
acknowledged, provide any additional information would be overly 
prescriptive.'' \72\ But CISAC & BIEM,\73\ FMC,\74\ and SGA \75\ 
commented in support of requiring an annual statement. SGA wrote, 
``Annual Statements serve an important purpose for small businesses 
(including independent creators acting as their own music publishing 
entities), which generally lack extensive accounting resources and need 
as many available resources as possible in conducting their own 
annualized, internal bookkeeping audits.'' \76\ FMC similarly said 
annual statements ``would be helpful for small publishers and self-
published writers' accounting and tax purposes'' and added that ``while 
the MMA did not include making accounting more efficient for smaller 
copyright holders as an explicit objective, it conforms to the 
overarching goal of creating a more functional ecosystem.'' \77\
---------------------------------------------------------------------------

    \72\ MLC NPRM Comment at 13-14.
    \73\ CISAC & BIEM NPRM Comment at 4.
    \74\ FMC NPRM Comment at 2.
    \75\ SGA NPRM Comment at 8-9.
    \76\ Id. at 9.
    \77\ FMC NPRM Comment at 2.

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[[Page 58165]]

    The MLC responded to these comments in a follow-up ex parte 
meeting.\78\ There, the MLC represented that ``it intends to provide 
copyright owners with the ability to access their royalty information 
in a number of ways through the MLC Portal, including to allow 
copyright owners to view reports of information on an annual basis.'' 
\79\ It reiterated that it does not believe regulations should include 
a formal requirement to provide annual reports, saying the best way to 
address songwriters' needs for annual statements ``will be by providing 
functionality in the MLC Portal that enables songwriters and publishers 
to view their royalty data across multiple periods that they select,'' 
and adding that ``[t]his approach will allow each copyright owner to 
define the start and end dates of these annual (or other) periods based 
on their own preferences (e.g., calendar year versus fiscal year).'' 
\80\
---------------------------------------------------------------------------

    \78\ See MLC Ex Parte Letter Aug. 16, 2020 at 8-9.
    \79\ Id. at 8.
    \80\ MLC Ex Parte Letter Aug. 16, 2020 at 8-9.
---------------------------------------------------------------------------

    The Office appreciates the MLC's response. While its proposed 
approach is not unreasonable, the Office ultimately concludes that, 
given the requirement for annual statements in the existing song-by-
song compulsory license, the support expressed by other commenters for 
regulatory certainty with respect to an annual statement requirement, 
and the MLC's intent to provide the ability to generate annual 
statements, it is appropriate for the interim rule to include an annual 
statement requirement. As noted, other comments indicate that certainty 
of an annual roll-up may be beneficial to smaller businesses, and so 
the regulatory language requires the MLC to deliver a cumulative 
statement including the information reported in monthly statements as 
well as any adjustment. But the language adopted provides the MLC with 
flexibility in implementing it, and it seems it would not require any 
more from the MLC than what it is already planning to provide. But at 
the same time, it communicates a level of certainty for purpose of 
stakeholder expectations and planning, which is intended to further the 
overall operation of the blanket license regime.

List of Subjects in 37 CFR Part 210

    Copyright, Phonorecords, Recordings.

Interim Regulations

    For the reasons set forth in the preamble, the Copyright Office 
amends 37 CFR part 210 as follows:

PART 210--COMPULSORY LICENSE FOR MAKING AND DISTRIBUTING PHYSICAL 
AND DIGITAL PHONORECORDS OF NONDRAMATIC MUSICAL WORKS

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 17 U.S.C. 115, 702.

Subpart B--Blanket Compulsory License for Digital Uses, Mechanical 
Licensing Collective, and Digital Licensee Coordinator

0
2. Add Sec.  210.29 to read as follows:


Sec.  210.29  Reporting and distribution of royalties to copyright 
owners by the mechanical licensing collective.

    (a) General. This section prescribes reporting obligations of the 
mechanical licensing collective to copyright owners for the 
distribution of royalties for musical works, licensed under the blanket 
license for digital uses prescribed in 17 U.S.C. 115(d)(1), that have 
been matched, either through the processing by the mechanical licensing 
collective upon receipt of a report of usage and royalty payment from a 
digital music provider, or during the holding period for unmatched 
works as defined in 17 U.S.C. 115(d)(3)(H)(i).
    (b) Distribution of royalties and royalty statements. (1) Royalty 
distributions shall be made on a monthly basis and shall include, 
separately or together:
    (i) All royalties payable to a copyright owner for a musical work 
matched in the ordinary course under 17 U.S.C. 115(d)(3)(G)(i)(II); and
    (ii) All accrued royalties for any particular musical work that has 
been matched and a proportionate amount of accrued interest associated 
with that work.
    (2) Royalty distributions based on adjustments to reports of usage 
by digital music providers in prior periods shall be made by the 
mechanical licensing collective at least once annually, upon submission 
of the annual reports of usage by digital music providers reporting 
total adjustments to the mechanical licensing collective pursuant to 
Sec.  210.27(f) and (g)(3) and (4).
    (3) Royalty distributions shall be accompanied by corresponding 
royalty statements containing the information set forth in paragraph 
(c) of this section for the royalties contained in the distribution.
    (c) Content--(1) General content of royalty statements. 
Accompanying the distribution of royalties to a copyright owner, the 
mechanical licensing collective shall provide to the copyright owner a 
statement that includes, at a minimum, the following information:
    (i) The period (month and year) covered by the statement, and the 
period (month and year) during which the reported activity occurred. 
For adjustments, the mechanical licensing collective shall report both 
the period (month and year) during which the original reported activity 
occurred and the date on which the digital music provider reported the 
adjustment.
    (ii) The name and address of the mechanical licensing collective.
    (iii) The name and mechanical licensing collective identification 
number of the copyright owner.
    (iv) ISNI and IPI name and identification number for each 
songwriter, administrator, and musical work copyright owner, to the 
extent it has been provided to the mechanical licensing collective by a 
copyright owner.
    (v) The name and mechanical licensing collective identification 
number of the copyright owner's administrator (if applicable), to the 
extent one has been provided to the mechanical licensing collective by 
a copyright owner.
    (vi) Payment information, such as check number, automated clearing 
house (ACH) identification, or wire transfer number.
    (vii) The total royalty payable to the relevant copyright owner for 
the month covered by the royalty statement.
    (2) Musical work information. For each matched musical work owned 
by the copyright owner for which accompanying royalties are being 
distributed to that copyright owner, the mechanical licensing 
collective shall report the following information:
    (i) The musical work name, including primary and any alternative 
and parenthetical titles for the musical work known to the mechanical 
licensing collective.
    (ii) ISWC for the musical work, to the extent it is known to the 
mechanical licensing collective.
    (iii) The mechanical licensing collective's standard identification 
number of the musical work.
    (iv) The administrator's unique identifier for the musical work, to 
the extent one has been provided to the mechanical licensing collective 
by a copyright owner or its administrator.
    (v) The name(s) of the songwriter(s), to the extent they are known 
to the mechanical licensing collective.
    (vi) The percentage share of musical work owned or controlled by 
the copyright owner.

[[Page 58166]]

    (vii) For each sound recording embodying the musical work, the 
identifying information enumerated in paragraph (c)(3) of this section 
and the royalty information enumerated in paragraph (c)(4) of this 
section.
    (3) Sound recording information. (i) For each sound recording 
embodying a musical work included in a royalty statement, the 
mechanical licensing collective shall report the following information:
    (A) The sound recording name(s), including all known alternative 
and parenthetical titles for the sound recording.
    (B) The featured artist(s).
    (ii) The mechanical licensing collective shall report the following 
information to the extent it is known to the mechanical licensing 
collective:
    (A) The record label name(s).
    (B) ISRC(s).
    (C) The sound recording copyright owner(s).
    (D) Playing time.
    (E) Album title(s) or product name(s).
    (F) Album or product featured artist(s), if different from sound 
recording featured artist(s).
    (G) Distributor(s).
    (H) UPC(s).
    (4) Royalty information. The mechanical licensing collective shall 
separately report, for each service, offering, or activity reported by 
a blanket licensee, the following royalty information for each sound 
recording embodying a musical work included in a royalty statement:
    (i) The name of the blanket licensee and, if different, the trade 
or consumer facing brand name(s) of the service(s), including any 
specific offering(s), through which the blanket licensee engages in 
covered activities.
    (ii) The service tier or service description.
    (iii) The use type (download, limited download, or stream).
    (iv) The number of payable units, including, as applicable, 
permanent downloads, plays, and constructive plays.
    (v) A detailed and step-by-step accounting of the calculation of 
royalties under applicable provisions of part 385 of this title, 
sufficient to allow the copyright owner to assess the manner in which 
the royalty owed was determined and the accuracy of the royalty 
calculations, which shall include details on each of the components 
used in the calculation of the payable royalty pool.
    (vi) The royalty rate and amount.
    (vii) The interest amount.
    (viii) The distribution amount.
    (d) Cumulative statements of account, and adjustments. (1) For 
royalties reported under paragraph (b)(1)(ii) of this section, the 
mechanical licensing collective shall provide a cumulative statement of 
account that includes, in addition to the information in paragraph (c) 
of this section, a clear identification of the total period covered and 
the total royalty payable for the period.
    (2) For adjustments reported under paragraph (b)(2) of this 
section, the mechanical licensing collective shall clearly indicate the 
original reporting period of the royalties being adjusted.
    (e) Delivery of royalty statements. (1) Royalty statements may be 
delivered electronically, including by providing access to statements 
through an online password protected portal, accompanied by written 
notification of the availability of the statement in the portal.
    (2) The mechanical licensing collective shall provide by request a 
separate, simplified report containing fewer data fields that may be 
more understandable for the copyright owner, and may provide royalty 
information to copyright owners by request in alternative formats.
    (3) Upon written request of the copyright owner, the mechanical 
licensing collective may deliver a physical statement by mail where the 
statement reports a total royalty payable to the copyright owner for 
the period covered that is equal or greater than $100. Royalty 
statements delivered by mail are not required to contain all 
information identified in paragraph (c) of this section, but may 
instead provide information in a simplified or summary format.
    (f) Clear statements. The information required by paragraph (c) of 
this section requires intelligible, legible, and unambiguous statements 
in the royalty statements without incorporation of facts or information 
contained in other documents or records.
    (g) Certification. (1) Each royalty statement in which the total 
royalty payable to the relevant copyright owner for the month covered 
is equal to or greater than $100 shall be accompanied by:
    (i) The name of the person who is signing and certifying the 
statement.
    (ii) A signature of a duly authorized officer of the mechanical 
licensing collective.
    (iii) The date of signature and certification.
    (iv) The title or official position held by the person who is 
signing and certifying the statement.
    (v) The following statement: This statement was prepared by the 
Mechanical Licensing Collective and/or its agent using processes and 
internal controls that were suitably designed to generate monthly 
statements that accurately allocate royalties using usage and royalty 
information provided by digital music providers and musical works 
information as reflected in the Mechanical Licensing Collective's 
musical works database.
    (2) Beginning in the first calendar year following the license 
availability date, the certification must also include a statement 
establishing that such processes and internal controls were subject to 
an examination, during the past year, by a licensed Certified Public 
Accountant in accordance with the attestation standards established by 
the American Institute of Certified Public Accountants, the opinion of 
whom was that the processes and internal controls were so suitably 
designed.
    (h) Reporting threshold. (1) Subject to paragraph (h)(2) of this 
section, a separate royalty statement shall be provided for each month 
during which there is any activity relevant to the distribution of 
royalties under the blanket license.
    (2) Royalties under the blanket license shall not be considered 
payable, and no royalty statement shall be required, until the 
cumulative unpaid royalties collected for the copyright owner equal at 
least one cent. Moreover, in any case in which the cumulative unpaid 
royalties under the blanket license that would otherwise be distributed 
by the mechanical licensing collective to the copyright owner are less 
than $5 if the copyright owner receives payment by direct deposit, $100 
if the copyright owner receives payment by physical check, or $250 if 
the copyright owner receives payment by wire transfer, the mechanical 
licensing collective may choose to defer the payment date for such 
royalties and provide no royalty statements until the earlier of the 
time for rendering the royalty statement for the month in which the 
unpaid royalties under the blanket license for the copyright owner 
exceed the threshold, at which time the mechanical licensing collective 
may provide one statement and payment covering the entire period for 
which royalty payments were deferred.
    (3) Where the mechanical licensing collective elects to defer the 
royalty payment and statement to a copyright owner pursuant to 
paragraph (h)(2) of this section because the accrued royalties did not 
exceed the applicable threshold, and if a copyright owner submits a 
written request, the mechanical licensing collective shall make 
available to that copyright owner information detailing the accrued 
unpaid royalties processed as of the date of the request.

[[Page 58167]]

    (4) If the mechanical licensing collective is required, under 
applicable tax law and regulations, to make backup withholding from its 
payments required hereunder, the mechanical licensing collective shall 
indicate the amount of such withholding on the royalty statement or on 
or with the distribution.
    (i) Annual statement. The mechanical license collective shall 
provide an annual statement by electronic means to any copyright owner 
who has received at least one royalty statement under paragraph (h)(1) 
of this section in the calendar year preceding. The annual statement 
shall include a cumulative statement of the information reported in the 
monthly royalty statements in the year preceding, as well as a 
statement of any adjustments to royalty distributions reported in the 
year preceding.

    Dated: September 3, 2020.
Maria Strong,
Acting Register of Copyrights and Director of the U.S. Copyright 
Office.

    Approved by:

Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2020-20079 Filed 9-16-20; 8:45 am]
BILLING CODE 1410-30-P